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HQ 089879


November 8, 1991

CLA-2 CO:R:C:M 089879 NLP

CATEGORY: CLASSIFICATION

TARIFF NO.: 7403.11.00

District Director
United States Custom Service
127 North Water Street
Ogdensburg, NY 13669

RE: Protest No. 0712-91-000271; Copper Cathodes; subheading 7403.11.00; subheading 7404.00.00; subheading 7402.00.00; United States-Canada Free Trade Agreement; General Note

Dear District Director:

The following is our response to the Protest and Request for Further Review No. 0712-91-000271, dated March 3, 1991, concerning the eligibility of copper cathodes for duty preferences under the United States-Canada Free Trade Agreement (CFTA).

FACTS:

The manufacturer of the copper cathodes imports scrap copper from various offshore countries. This scrap copper and Canadian scrap are used to manufacture an anode through smelting. The anode is then used to produce a cathode through an electrolytic process. The cathode is then exported to the United States.

Upon importation the copper cathodes were classified in subheading 7403.11.00, HTSUSA, which provides for refined copper and copper alloys, unwrought (other than master alloys of heading 7405), cathodes. This merchandise was not eligible for duty reduction benefits under the CFTA.

Protestants do not disagree with the HTSUSA classification of the cathodes. However, they argue that the merchandise is entitled to the duty reduction benefits of the CFTA.

ISSUE:

Are the copper cathodes entitled to duty preferences under the CFTA.

LAW AND ANALYSIS:

Articles which are imported from Canada may be entitled to certain tariff preferences under the CFTA if the articles are "originating goods" as defined by General Note 3(c)(vii)(B), HTSUSA. There are two primary means in General Note 3(c)(vii)(B), HTSUSA, by which articles imported into the United States may be "goods originating in the territory of Canada." The first method is if goods are "wholly obtained or produced in the territory of Canada and/or the United States." General Note 3(c)(vii)(B)(1), HTSUSA. 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 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. Since the copper cathodes are manufactured in part from scrap copper that is not from Canada or the United States, the cathode is not "wholly obtained or produced in the territory of Canada and/or United States."

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), HTSUSA. A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R), HTSUSA.

In this instance, foreign scrap, which is classified in subheading 7404.00.00, HTSUSA, is mixed with Canadian scrap. The scrap is used to form the anodes, which are classified in subheading 7402.00.00, HTSUSA. For the anodes to be considered originating goods, a transformation must be effected in accordance with General Note 3(c)(vii)(R)(15)(kk), HTSUSA, which states that for articles classified in Chapter 72 through 83 a change to headings 7403 through 7408 from any other heading of chapter 74 outside that group effects the required transformation; provided, that the value of materials originating in the territory of Canada and/or the United States plus the direct cost of processing performed in the territory of Canada and/or the United States constitute not less than 50% of the value of the goods when exported to the territory of the United States. As the transformation of the scrap to the anode is from heading 7404, HTSUSA, to heading 7402, HTSUSA, it is not covered by General Note 3(c)(vii)(R)(15)(kk), HTSUSA, and, therefore, the anodes are not considered originating goods for CFTA purposes.

In determining whether the cathode can be considered an originating good for CFTA purposes, we must apply General Note 3(c)(vii)(R)(15)(kk), HTSUSA, to the transformation of the anode to the cathode. The anode, which is classified in subheading 7402.00.00, HTSUSA, is used to produce the cathode, which is classified in subheading 7403.11.00, HTSUSA. As stated, the first requirement of General Note 3(c)(vii)(R)(15)(kk) is that, for articles classified in Chapter 72 through 83, a change to headings 7403 through 7408 from any other heading of chapter 74 outside that group effects the required transformation. Here, the transformation of the anode to the cathode is from heading 7402, HTSUSA, to heading 7403, HTSUSA, and is a recognized transformation. However, the second requirement of General Note 3(c)(vii)(R)(15)(kk), the 50% test, cannot be met. The value of the anode may not be included in the 50% test because it is not considered an originating good by virtue of its foreign content. As a result, the direct cost of processing must, on its own, constitute not less than 50% of the value of the goods when exported into the United States. The conversion costs from the anode to the cathode are relatively small and would not constitute 50% of the value of the goods when exported to the United States. Therefore, the required transformation has not been effected and the cathode is not eligible for duty preferences under the CFTA.

HOLDING:

The protest should be denied in full. A copy of this decision should be attached to the Customs Form 19 and mailed to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director
Commercial Rulings Division

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