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HQ 950005

January 9, 1992

CLA-2 CO:R:C:M 950005 KCC

CATEGORY: CLASSIFICATION MARKING

TARIFF NO.: 8205.20.60

Mr. William J. Ramia, Jr.
Alexander International
Memphis International Airport
P.O. Box 30209
Memphis, Tennessee 38130

RE: Sledge Hammer; GRI 1; DD 860604 and DD 860604 Amendment 1; CFTA; General Note 3(c)(vii)(C)(1); combining operation; H.R. Doc. No. 100-216; 19 CFR 10.195(a)(2)(ii); originating goods; General Note 3(c)(vii)(B)(2); General Note 3(c)(vii)(R); change in tariff classification; General Note 3(c)(vii)(G); parts; General Note 3(c)(vii)(H); direct cost of processing test; country of origin; 19 CFR 134.32(m); substantial transformation; Anheuser-Busch Brewing Ass'n; hammer heads; individual marking; C.I.E. 347/60; 722465; marking

Dear Mr. Ramia:

This is in response to your letter dated May 23, 1991, to Customs in New York, on behalf of IXL Manufacturing Co., Inc., regarding the tariff classification under the Harmonized Tariff Schedule of the United States (HTSUS), and country of origin of sledge hammers imported from Canada. Your letter was forwarded to this office for a response. Your letter dated October 14, 1991, regarding the direct cost of processing incurred in Canada was also taken under consideration.

FACTS:

IXL Manufacturing Co., Inc. ("IXL") intends to import sledge hammers from Canada. In Canada, Elgin Handles Limited ("Elgin") manufactures the sledge hammers comprised of two parts: (1) heads manufactured in China and imported in a condition ready for assembly, and (2) handles manufactured from blocks of green hickory wood imported into Canada from the United States. Elgin processes the blocks of green hickory wood into sledge hammer handles by kiln-drying, turning on a lathe, sanding, and gauging the handle to fit each sized head. The heads, presumably made of steel, weigh between 4 to 10 pounds. The handles and heads are then assembled by inserting the handle into the head, inserting a wedge, sanding of the excess wedge, and repainting the head. Each handle is either lacquer coated or wax finished before shipping. The appropriate safety and country of origin labels are affixed to the handle and the sledge hammer is packaged for delivery.

In your letter dated October 14, 1991, you state that the value of the material originating in the territory of Canada and/or the United States which is consumed in the production of a four pound sledge hammer with a 32 inch handle is .82 Canadian Dollars. Additionally, you state that the labor and factory overhead in Canada amounts to 1.1329 Canadian Dollars and that the administrative overhead amounts to 1.6338 Canadian Dollars. The total cost for the completed sledge hammer imported into the U.S. is 5.5967 Canadian Dollars.

You previously received a ruling, DD 860604 dated March 16, 1991, and DD 860604 Amendment 1 dated May 21, 1991, from the District Director of Customs in Los Angeles, California, which classified a sledge hammer under subheading 8205.20.60, HTSUS. The country of origin of the sledge hammer was determined to be Canada. The sledge hammer was manufactured from sledge hammer heads manufactured in Japan and handles produced in Canada in the same manner as described in this case.

ISSUE:

I. What is the proper tariff classification of the sledge hammer under the HTSUS?

II. Is the sledge hammer eligible for preferential tariff treatment under the United States-Canada Free Trade Agreement

III. What are the country of origin and the proper marking requirements applicable to the sledge hammer?

LAW AND ANALYSIS:

I. Tariff Classification

The classification of merchandise under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1, HTSUS, states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes..."

As to the classification, we concur in the ruling issued by the District Director on March 18, 1991 (DD 860604) and May 21, 1991 (DD 860604 Amendment 1). The sledge hammer is classified under subheading 8205.20.60, HTSUS, which provides for "Handtools (including glass cutters) not elsewhere specified or included; blow torches and similar self-contained torches; vises, clamps and the like, other than accessories for and parts of machine tools; anvils; portable forges; hand- or pedal-operated grinding wheels with frameworks; base metal; parts thereof...Hammers and sledge hammers, and parts thereof...With heads over 1.5 kg each." This tariff provision is eligible for preferential tariff treatment under the CFTA.

II. The United States-Canada Free Trade Agreement

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), HTSUS. There are two primary means in General Note 3(c)(vii)(B), HTSUS, by which articles imported into the U.S. 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), HTSUS. 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), HTSUS.

However, even if articles are considered to be "goods originating in the territory of Canada" pursuant to General Note 3(c)(vii)(B), HTSUS, they will not be eligible for preferential tariff treatment under the CFTA "merely by virtue of having undergone simple packaging or...combining operations." See, General Note 3(c)(vii)(C)(1), HTSUS. The disallowances for packaging and combining operations are to be applied in the same manner as under the Caribbean Basin Initiative and the Generalized System of Preferences. See, United States-Canada Free-Trade Agreement, Communication from the President of the United States, H.R. Doc. No. 100-216, 100th Cong., 2d Sess. 175 (1988), and Bello and Holmes, Guide to the U.S.-Canada Free-Trade Agreement, p. 374-375 (1988). Under the Caribbean Basin Initiative, simple combining or packaging operations include "...fitting together a small number of components by bolting gluing, soldering etc...." See, section 10.195(a)(2)(i), Customs Regulations (19 CFR 10.195(a)(2)(i)).

However, section 10.195(a)(2)(ii), Customs Regulations (19 CFR 10.195(a)(2)(ii)), states that "[f]or purposes of this section simple combining or packaging operations and mere dilution shall not be taken to include processes such as the following:
...

(D) A simple combining or packaging operation or mere dilution coupled with any other type of processing such as testing or fabrication (e.g., a simple assembly of a small number of components, one of which was fabricated in the beneficiary country where the assembly took place).

In this case, the operations performed in Canada are not considered a simple combining operation. The fabrication of the handle in Canada coupled with the assembly of the handle with the head excludes the Canadian operations from being considered a combining operation pursuant to General Note 3(c)(vii)(C)(1), HTSUS. Next, we must determine if the sledge hammers are "originating goods" within the rule of origin in General Note

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), HTSUS. The sledge hammer includes a head which is an article from a third country, China. The sledge hammer does not meet the definitions found within General Note 3(c)(vii)(L), HTSUS, and is not "wholly obtained or produced in the territory of Canada and/or the United States" under General

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), HTSUS. A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R), HTSUS. Pursuant to General Note 3(c)(vii)(R)(15)(aa), HTSUS, a transformation is evident for Chapter 82, HTSUS, when a change from one chapter to another occurs. The sledge hammer head is classified under heading 8205, HTSUS, as "...Hammers and sledge hammers, and parts thereof...", and the green hickory wood is classified under heading 4404, HTSUS, as "...wooden sticks, roughly trimmed but not turned, bent or otherwise worked, suitable for the manufacture of walking-sticks, umbrellas, tool handles or the like...." Upon exportation to the U.S. from Canada, the completed sledge hammer is classified under heading 8205, HTSUS. A classification change does not occur as the sledge hammer head does not change classification to another chapter.

Whenever the assembly of goods in the territory of Canada fails to result in a change of tariff classification because the tariff provision for the goods provides for both the goods themselves and their parts, those goods shall not be treated as goods originating in the territory of Canada. General Note 3 (c)(vii)(G)(2), HTSUS. However, goods described in General Note 3(c)(vii)(G)(2), HTSUS, shall be considered to have been transformed in the territory of Canada and be treated as goods originating in the territory of Canada if they meet the requirements found in General Note 3(c)(vii)(H), HTSUS.

General Note 3(c)(vii)(H), HTSUS, states that goods described in subdivision (c)(vii)(G) "shall be considered to have been transformed in the territory of Canada and be treated as goods originating in the territory of Canada if--

(1) the value of materials originating in the territory of Canada and/or the United States that are used or consumed in the production of the goods plus the direct cost of assembling the goods in the territory of Canada and/or the United States constitute not less than 50 percent of the value of the goods when exported to the territory of the United States, and

(2) the goods have not subsequent to assembly undergone processing of further assembly in a third country and they meet the requirement of subdivision (c)(vii)(E) of this note."

General Note 3(c)(vii)(O), HTSUS, defines the items that can be allocated to the direct cost of processing, and General Note 3(c)(vii)(N), HTSUS, defines the term "value of the goods when exported." Based on the cost information that you submitted pursuant to General Note 3(c)(vii)(O), HTSUS, in your letter dated October 14, 1991, the sledge hammers do not meet the 50% direct cost of processing test. The value of the U.S. and Canadian materials (.82 Canadian Dollars) plus the direct cost of processing which you identified as labor and factory overhead (1.1329 Canadian Dollars) are 49.279% of the value of the sledge hammer when exported to the U.S. (3.9629 Canadian Dollars). Therefore, as the sledge hammers do not meet the 50% direct cost of processing test, they are not eligible for preferential tariff treatment under the CFTA.

The above calculations do not include the cost of the administrative overhead described in your October 14, 1991, letter. If a part of these costs is properly associated with the direct cost of processing as defined in General Note 3(c)(vii)(O), HTSUS, the sledge hammers may meet the 50% direct cost of processing test and, therefore, may be eligible for CFTA treatment.

III. Country of Origin and Marking Requirements

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), provides that "country of origin" means the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin." The term "foreign origin" is defined in section 134.1(c), Customs Regulations (19 CFR 134.1(c)), as a country of origin other than the U.S., as defined in 19 CFR 134.1(e), or its possessions and territories.

As provided in section 134.32(m), Customs Regulations (19 CFR 134.32(m)), products of the U.S. exported and returned are specifically excepted from country of origin marking requirements. If a U.S. product is sent abroad for processing, the article remains a product of the U.S. excepted from the country of origin marking requirements unless, prior to its return, it is substantially transformed into an article of foreign origin.

If the U.S. product is substantially transformed abroad, it becomes an article of foreign origin and must be marked with its country of origin. In order for a substantial transformation to be found, a new and different article having a distinctive name, character, or use must emerge from the processing. See, Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 28 S.Ct. 204 (1908).

We are of the opinion that the manufacture of the sledge hammer handle results in a substantial transformation of the blocks of green hickory wood. There clearly is a name change from green hickory wood to sledge hammer handle. Prior to the Canadian operations, the blocks of green hickory wood could be used to make any type of product produced from green hickory wood. Moreover, the kiln-drying, turning, sanding and gauging operations change the character and use of the blocks of green hickory wood by rendering the handle useful for use as a striking tool. The sledge hammer handle emerges as a new article with new characteristics, a different name and a defined specific use different from that possessed by the blocks of green hickory wood.

However, we have previously held that finished sledge hammer heads imported into the U.S. where they are assembled to U.S. handles must be individually marked with the sledge hammer head's country of origin. See, C.I.E. 347/60 dated March 25, 1960, and HRL 722465 dated 11-8-83. The sledge hammer head imported into Canada is a completed article which does not need any further manufacturing. The only processes performed to the head are the actual assembly to the handle and some minor touch up work which may be necessary after the assembly operation. Therefore, the sledge hammer head must be individually marked, "Head made in China" and the handle must be marked "Handle made in Canada."

HOLDING:

The sledge hammer is classified under subheading 8205.20.60, HTSUS, which provides for "Handtools (including glass cutters) not elsewhere specified or included...Hammers and sledge hammers, and parts thereof...With heads over 1.5 kg each," which is dutiable at the rate of 2.1 percent ad valorem. The sledge hammer is not entitled to a tariff preference under the CFTA pursuant to General Note 3(c)(vii)(C)(1), HTSUS.

The blocks of green hickory wood have undergone a substantial transformation in Canada. However, the sledge hammer head is a completed article which has not been substantially transformed in Canada. Therefore, the completed sledge hammer must be marked "Head made in China" and "Handle made in Canada."

In order to insure uniformity and to eliminate uncertainty, we are modifying DD 860604 and DD 860604 Amendment 1 to reflect the above marking requirements effective with the date of this letter. This letter is notice to you of the modification of DD 860604 under section 177.9(d)(1), Customs Regulations (19 CFR

Sincerely,

John Durant, Director
Commercial Rulings Division

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