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HQ 089468


June 13, 1991

CLA-2 CO:R:C:M 089468 JMH

CATEGORY: CLASSIFICATION

TARIFF NO.: 9503.70.80

Mr. A Sochaczevski
AMAV Industries Ltd.
2345 Lapierre St.
Lasalle, Quebec HBN 1B7
CANADA

RE: Modification of Headquarters Ruling 084895 ("HQ 084895"), dated October 12, 1989; plaster molding and painting kit; United States-Canada Free Trade Agreement ("CFTA"); General Note 3(c)(vii); GRI 3(a); GRI 3(b); sets; essential character

Dear Mr. Sochaczevski:

It has been brought to the attention of this office that Headquarters Ruling 084895 ("HQ 084895), dated October 13, 1989, is in error concerning the application of the United States- Canada Free Trade Agreement ("CFTA"). Below is the correct position.

FACTS:

The articles in question are kits which are imported from Canada for use by children to produce plaster novelties. The kits include a clear plastic mold with 12 distinctively shaped cavities; plaster to be mixed with water, kneaded, and then poured into the mold cavities; a set of mixed paints and an artist brush for coloring the novelties after the plaster dries, and various small items for decorating some of the painted novelties.

The boxes in which the kits are packaged display a picture of the finished products, and recommends ages "8 years and up." HQ 084895 assumed that this indicated that the articles are designed to be principally used by children. The boxes also state that the paintbrush, magnetic strip, paints and the plastic tube are from the United States, the metal pieces are from Hong Kong, and the plastic mold, plaster, thermometer and remaining components are from Canada.

HQ 084895 determined that the kits were classified under subheading 9503.70.80, Harmonized Tariff Schedule of the United States ("HTSUSA"), as "Other toys...Other toys, put up in sets or outfits, and parts and accessories thereof...Other..." We affirm this classification.

ISSUE:

Whether the novelty kits imported from Canada are "originating goods in Canada" for purposes of the CFTA, and therefore, eligible for the CFTA tariff preferences.

LAW AND ANALYSIS:

To be eligible for tariff preferences under the CFTA, goods must be "originating goods" within the rule of origin in General Note 3(c)(vii)(B), HTSUSA. There are two primary means in General Note 3(c)(vii)(B) by which articles imported into the United States may be "goods originating in the territory of Canada." The first method is if the goods are "wholly obtained or produced in the territory of Canada and/or the United States." General Note 3(c)(vii)(B)(1). The second method is if the goods are "transformed in the territory of Canada and/or the United States." General Note 3(c)(vii)(B)(2).

A product which is "wholly obtained or produced in the territory of Canada and/or United States" is one which is grown, mined, harvested, born and raised in Canada and/or the United States, or otherwise intimately connected to the two countries and their land, air and sea territories as defined in General Note 3(c)(vii)(L), HTSUSA. The novelty kits include articles from third countries. The kits are not "wholly obtained or produced" in Canada under General Note 3(c)(vii)(B)(1).

The second method to become an originating good for CFTA purposes is for an article made of foreign materials to be transformed in Canada and/or the United States in accordance with General Note 3(c)(vii)(B)(2). A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R), HTSUSA.

The articles in the novelty kits do change classifications. This change occurs in accordance with GRI 3, HTSUSA. GRI 3(a) requires that when an article is described by two or more headings then the most specific heading is preferred. The novelty kits are described by the relevant headings for each of the articles within the kit. However, GRI 3(a) also states that if the applicable headings refer to only a part of the items in a set put up for retail sale, then the headings are considered to be equally specific. To determine what is a "set put up for retail sale" the Explanatory Notes must again be utilized. The

Explanatory Note for Rule 3(b) provides a three part test for "goods put up in sets for retail sale." Explanatory Note 3(b)(X), Vol. 1, HCDCS, p. 4. This note states the following:

"For the purposes of this Rule, the term 'goods put up in sets for retail sale' shall be taken to mean goods which:

(a) consist of at least two different articles which are prima facie, classifiable in different headings.
(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and
(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards)." (emphasis added)

In the present situation, the novelty kits consists of five different articles, each having different classifications. The articles are put up together for the particular activity of creating plaster novelty items and they are packaged for sale to the end user. Thus, the kit is a set. The mold and its use as an article for the amusement for children imparts the essential character of the set. Therefore, all of the articles are classified under the provision which describes the children's mold. The articles which by themselves are classified in other subheadings are now classified in subheading 9503.70.80. A classification change does occur for these articles. However, this is not the type of classification change to which the CFTA refers.

General Note 3(c)(vii)(C)(1), HTSUSA, states:

(C) Goods shall not be considered to originate in the territory of Canada pursuant to subdivision (c)(vii)(B)(2) merely by virtue of having undergone--

(1) simple packaging or, except as expressly provided by the rules of subdivision
(c)(vii)(R) of this note, combining operations...

The House Committee on Ways and Means report on the CFTA stated:

Goods containing materials from third countries will qualify for preferential treatment only if the materials undergo a sufficient degree of processing or assembly in one or both Parties to result in physically
and commercially significant changes in the product that change its tariff classification under the Harmonized System. H. Rep. 816, Part 1, 100th cong., 2d Sess. 15 (1988) (emphasis added).

The House Ways and Means Committee focused on the change in classification which occurs to third country materials after the third county materials undergo some processing or assembly. The articles in a set do not change their classification because of processing or assembly. The change in classification which articles in a set undergo occurs merely because of the packaging or combining of the articles. The articles themselves have not been transformed in any way. The only transformation which has occurred is the packaging of the articles and how the articles are marketed to the consumer.

In the instant case, the third country metal pieces do not undergo any manufacturing or assembly. The foreign articles are not changed in any way. They are merely repackaged into a kit. It is the opinion of this office that the change in classification these articles undergo is a change brought about by simple packaging. Thus, this classification change is not allowed under the CFTA. The novelty kits for children are not entitled to the tariff preferences under the CFTA.

HOLDING:

HQ 084895 is hereby modified. The novelty kits are appropriately classified as sets in accordance with GRI 3(b). The kits' essential character is imparted by the mold designed to amuse children. Therefore, the proper classification for the novelty kits is subheading 9503.70.80, HTSUSA, as "Other toys...Other toys, put up in sets or outfits, and parts and accessories thereof...Other..."

The children's novelty kits are not originating goods for purposes of the CFTA, and thus, the novelty kits are not entitled to tariff preferences under the CFTA. The articles in the sets change their classifications to the classification of the article which imparts the sets' essential character. However, this change in classification occurs through the packaging of the set. This type of classification change does not transform the third country goods as required by General Note 3(c)(vii)(B)(2). General Note 3(c)(vii)(C) states that a change
in classification which results from simple packaging does not create goods which originate in Canada for CFTA purposes. The novelty kits are not entitled to the tariff preferences under CFTA.

Sincerely,

John Durant, Director
Commercial Rulings Division

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