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HQ 555892


October 10, 1991

CLA-2 CO:R:C:S 555892 SER

CATEGORY: CLASSIFICATION

TARIFF NO.: 7312.10.70

Ms. N.E. Petersen
Chinook Wire Rope Inc.
19355 Enterprise Way
Surrey, B.C. Canada V3S 6J8

RE: Wire rope slings and swifters; substantial transformation; Texas Instruments, Superior Wire, Gibson Thompson; VRA; 723135, 731953; Canadian Free Trade Agreement; General Note 3(c)(vii), HTSUSA

Dear Ms. Petersen:

This is in reference to your letter of January 30, 1991, requesting a ruling concerning the country of origin and dutiable status of certain wire rope slings and swifters from Canada. We regret the delay in responding.

FACTS:

Wire rope of various sizes are exported from South Korea to Canada. In Canada, the Korean wire rope undergoes several operations whereby the wire is fitted with Canadian-origin hardware, such as eyelets and dies, to produce wire rope slings or swifters. The operations creating the wire rope slings generally entail separating the strands of the Korean wire rope and threading the wire rope into the Canadian hardware to create an intertwined loop. For the operations involving the swifters, generally the ends of the wire rope are formed into a small loop and Canadian hardware is crimped onto the neck of the loop. The wire rope slings and swifters are then exported from Canada into the U.S.

ISSUE:

Whether the wire rope slings and swifters are considered "products of" Canada for Voluntary Restraint Arrangement (VRA) purposes, and "originating goods" for purposes of the U.S.-Canada Free Trade Agreement (CFTA).

LAW AND ANALYSIS:

The country of origin of articles subject to VRAs, which undergo further operations in a country prior to importation, is determined on the basis of where the last "substantial transformation" occurred. Superior Wire, a Div. of Superior Products Co. v. United States, 669 F.Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989). The test for determining whether a substantial transformation occurs is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. Texas Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778, 782 (1982).

Based on the information provided, it is our opinion that the wire rope from Korea does not undergo a substantial transformation in Canada prior to importation into the U.S. Customs has previously held that the processing of wire rope into wire rope slings and swifters, by the attachment of fittings, does not constitute a substantial transformation. See, Headquarters Ruling Letter (HRL) 723135 dated September 23, 1983, holding that producing wire rope slings from wire rope does not constitute a substantial transformation; and HRL 731953 dated April 27, 1990, holding that a substantial transformation does not occur when fittings are attached to the ends of wire rope cable.

In HRL 723135, citing U.S. v. Gibson Thompson Co. Inc., 27 CCPA 267), Customs stated that a substantial transformation results when "a manufacturing process is performed on an item so that the item loses its identity and becomes an integral part of a new article with a new name, character and use." Here, as in HRL 723135, the wire rope maintains its essential character throughout the process and does not lose it identity and become an integral part of a new article when attached with the fittings. Thus, for VRA purposes, the country of origin of the wire rope slings and swifters would be Korea.

It is important to note that the above determination regarding the country of origin for VRA purposes is not necessarily determinative of whether the wire rope slings and swifters are entitled to a duty preference under the U.S.-Canada Free Trade Agreement (CFTA). Each program has its own purposes and origin requirements.

For duty purposes, there are two primary means, as stated in General Note 3(c)(vii)(B), Harmonized Tariff Schedule of the United States Annotated (HTSUSA), by which articles may be considered "goods originating in the territory of Canada," and, therefore, entitled to CFTA preferential duty treatment. 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), HTSUSA.

A product which is "wholly obtained or produced in the territory of Canada and/or United States" is defined, in part, in General Note 3(c)(vii)(L), HTSUSA, as one which is grown, mined, harvested, born and raised in Canada and/or the United States. Since the wire rope slings are manufactured in Canada from Korean wire, they are not products "wholly obtained or produced in the territory of Canada and/or the United States."

The second primary method of becoming an originating good for CFTA purposes is for an article to be transformed in Canada and/or the U.S. in accordance with General Note 3(c)(vii)(B)(2), HTSUSA. A transformation is evident when a change in tariff classification occurs that is prescribed by General Note 3(c)(vii)(R), HTSUSA. In this instance, the wire rope imported from South Korea into Canada is classified in subheading 7312.10.90, HTSUSA. Upon importation into the U.S. the wire rope slings and swifters are classified in subheading 7312.10.70, HTSUSA. General Note 3(c)(vii)(R)(15)(jj), HTSUSA, provides that a transformation into "originating goods" occurs if there is a change in tariff classification to headings 7309 through 7326 from any other heading outside that group. Since there is not the requisite classification change in this case, the wire rope slings and swifters are not considered to be "goods originating in the territory of Canada."

It should be noted that another method of establishing a transformation under the CFTA is by the 50% value content test. The CFTA grants "originating goods" status to certain merchandise if the value of Canadian and/or U.S. materials plus the direct costs of processing performed in Canada and/or the U.S. equals at least 50% of the appraised value of the completed goods. General Note 3(c)(vii)(H), HTSUSA. However, there are only two types of goods covered by this provision. The first consists of articles which are imported into Canada in an unassembled or disassembled form in accordance with GRI 2(a), HTSUSA. General Note 3(c)(vii)(G)(1). The second type of goods consist of those covered by tariff provisions which provide for both the goods themselves and their parts. General Note 3(c)(vii)(G)(2).

Since the wire ropes do not enter Canada in an unassembled or disassembled condition in accordance with GRI 2(a), HTSUSA, they are not of the first type of goods to which the 50% test may apply. In addition, because heading 7312, HTSUSA, does not provide for parts, the merchandise at issue is not of the second
type of goods covered by General Note 3(c)(vii)(G), HTSUSA. Therefore, the wire rope slings and swifters cannot be considered "originating goods" by application of the 50% value content criteria.

HOLDING:

For VRA purposes, the processing of the wire rope into wire rope slings and swifters does not constitute a substantial transformation, and, therefore, the wire rope products are considered to be products of South Korea.

The Office of Agreements Compliance, International Trade Administration Department of Commerce, has the responsibility for interpreting the coverage of VRAs. Therefore, we suggest that you seek the advice of that Office on the application of the VRAs to the wire rope slings prior to entry into the U.S.

For duty purposes, the wire rope slings are not "originating goods" under the CFTA and, therefore, are not eligible for preferential duty treatment under the CFTA. The proper classification for the wire rope slings is subheading 7312.10.70, HTSUSA, which provides for a rate of duty of 5.7% ad valorem.

Sincerely,

John Durant, Director
Commercial Rulings Division

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