HQ 0000116 - United States-Canada Free-Trade Agreement; CFTA; parts heading; rule of origin; Harmonized System as document for determining change in classification; APTA - United States International Trade Commision Rulings

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HQ 000116

November 14, 1991

CLA-2 CO:R:C:M 000116 JLV

CATEGORY: CLASSIFICATION

Regional Director
Regulatory Audit Division
U.S. Customs Service
Northeast Region
10 Causeway Street
Boston, Massachusetts 02222-1059

RE: United States-Canada Free-Trade Agreement; CFTA; parts heading; rule of origin; Harmonized System as document for determining change in classification; APTA

Dear Sir:

In a memorandum of October 25, 1991, you requested advice under section 177.11 of the Customs Regulations (19 CFR 177.11) on the meaning of the term "parts heading" as used in the rules which specify the changes in tariff classification that may confer status as "originating goods" under the United States- Canada Free-Trade Agreement (CFTA). You set forth the facts concerning the production of a blower assembly which has been claimed as an originating material, the value of which has been used by a manufacturer in its claim that motor vehicles qualify as Canadian articles under the Automotive Products Trade Act of 1965 (APTA), as amended. This ruling is our decision.

FACTS:

You state that a manufacturer of motor vehicles in Canada is claiming that its vehicles qualify as Canadian articles under the APTA requirements in General Note 3(c)(iii)(A)(1), Harmonized Tariff Schedule (HTS), because they satisfy the origin rules of the CFTA in General Note 3(c)(vii), HTS. The specific rule for the motor vehicles is (R)(17)(dd) and it requires a value-content test in addition to the change in classification test. The manufacturer has included, in its value-content calculation for the motor vehicles, the price paid for certain blower assemblies as a territorial value. The blower assemblies, purchased from a supplier in the United States, were exported to Canada by the U.S. supplier as "originating goods."

The supplier, when exporting the blower assemblies, issued an Exporter's Certificate of Origin and stated that the blower assemblies qualified as originating goods under the CFTA because the assembly of foreign and territorial components satisfied the change in classification as required by the CFTA origin rule at General Note 3(c)(vii)(R)(17)(bb). The blower assembly was exported from the United States to Canada under subheading 8708.99. The blower assembly consists of third-country (foreign) and territorial components. Six of the foreign components were classifiable in subheadings of headings 8415 and 8533. For purposes of this ruling, we assume that the classifications for the blower assembly and the third-country components are correct.

You disagree with the exporter (supplier of the blower assemblies) on the applicable rule of origin. Because headings 8415 and 8533, in the HTS, provide for certain articles and parts thereof, you conclude that these headings are "parts headings" for purpose of the CFTA rules of origin. Therefore, you conclude that the applicable rule is found at General Note 3(c)(vii)(R)(17)(cc). Under this rule, the blower assembly must satisfy the change in classification and a value-content test. Inasmuch as the exporter has not or cannot verify that the territorial content of each blower assembly constitutes not less that 50 percent of its value when exported to Canada, you would disallow this value claimed by the motor vehicle manufacturer as a territorial value.

Counsel for the supplier of the blower assemblies claims that these headings are not parts headings within the Harmonized Commodity Description and Coding System (Harmonized System), approved by the Customs Co-operation Council. Counsel claims that the rules of origin in the CFTA are based on the Harmonized System rather than the Harmonized Tariff Schedule (HTS), which was enacted into the law of the United States, Sec. 1204, Pub. L. 100-418, 102 Stat. 1148, August 23, 1988.

ISSUE:

Under the facts as presented, what is the meaning of the term "parts heading" as used in Rule (R)(17)(bb) of General Note 3(c)(vii) within the rules of origin for the CFTA?

LAW AND ANALYSIS:

Chapter 3 of the CFTA sets forth the rules of origin for determining whether goods qualify for the tariff preferences under the CFTA which was approved and implemented in the Implementation Act of 1988, Pub. L. 190-449, 101 Stat. 1851, September 28, 1988 (the Act). Sec. 202 of the Act contains the
rules of Chapter 3 of the CFTA (and includes the specific rules set out in Annex 301.2 of the CFTA). These rules, as implemented by the President in Proclamation 5923, December 14, 1988, were added as General Note 3(c)(vii), HTS. Rule (R)(17)(bb), claimed by the supplier as the applicable rule in General Note 3(c)(vii) for the blower assemblies which were produced in part from components of headings 8415 and 8533, states as follows:

(R) Change in Tariff Classification Rules.

(17) Section XVII: Chapters 86 through 89.

(bb) A change to any heading of this section (other than a heading within the groups 8701 through 8705 or 8901 through 8905) from another heading other than a parts heading.

The CFTA rules of origin are based on specific changes in tariff classification. The nomenclature used as the basis for determining the specific changes in tariff classification is the international system known as the "Harmonized System." In Chapter 2 of the CFTA, "Harmonized System" is defined, for purposes of the Agreement, as follows: "Harmonized System means the Harmonized Commodity Description and Coding System, as amended from time to time, published by the Customs Cooperation Council."

In the Harmonized System, the legal texts of Headings 8415 and 8533 are as follows:

8415 Air conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated.

8533 Electrical resistors (including rheostats and potentiometers), other than heating resistors.

The legal texts of these headings in the Harmonized System do not refer to "parts." Therefore, because the rule of origin in the CFTA is based on the text of the Harmonized System and not the text of the HTS, we conclude that these headings cannot be considered as "parts headings" for purposes of the CFTA rule of origin.

HOLDING:

The changes in tariff classification required by the CFTA rule of origin are based on the Harmonized System. The legal texts in headings 8415 and 8533 in the Harmonized System do not refer to "parts." Therefore, these headings are not "parts headings" for purposes of the CFTA rule of origin.

Sincerely,

Harvey Fox,

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