HQ 0556241 - Eligibility for duty preference under the U.S.-Canada Free Trade Agreement of parts of microwave ovens; General Notes C.S.D. 85-25 - United States International Trade Commision Rulings

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HQ 556241

January 6, 1992
CLA-2 CO:R:C:S 556241 SER

CATEGORY: CLASSIFICATION

Lynn Baker, Esq.
Katten, Muchin & Zavis
525 West Monroe St.
Suite 1600
Chicago, IL 60606-3693

RE: Eligibility for duty preference under the U.S.-Canada Free Trade Agreement of parts of microwave ovens; General Notes C.S.D. 85-25

Dear Ms. Baker:

This is in reference to your letter of September 3, 1991, on behalf of Sakata Inx U.S.A. Corporation, concerning the eligibility for duty preference under the U.S.-Canadian Free Trade Agreement, of parts of microwave ovens.

FACTS:

The merchandise to be imported into the U.S. consists of microwave oven panels. After importation into the U.S., they are incorporated into consumer microwave ovens. These panels are comprised of a number of components, including transistors, diodes, capacitors, integrated circuits, connectors and a transformer, which are imported into Canada from Hong Kong, Singapore, and Japan. In Canada, the components are mounted onto a printed circuit board (PCB), which is then encased in a plastic frame and a template is added which will form part of the external structure of the fully assembled microwave oven.

The first step in the production process involves an initial quality control inspection, consisting of both visual and physical tests to ensure that the various components meet quality standards. Blank PCBs and various components are then placed in an auto-insertion machine, whereby the components are automatically punched into their designated places on the PCB. The next stage of processing involves the insertion of other components onto the partially assembled PCBs by hand crimping and automatic wave soldering. A visual inspection, followed by touch-up soldering, when needed, completes this stage of production.

Once assembly has been completed, the completed PCBAs are subjected to testing and inspection, involving sample function testing. Once these tests are completed, the PCBAs are installed in metal base plates which are then snapped into the plastic housing containing the microwave template. The fully assembled panels are then passed through another function inspection to ensure that they are in working order. If all tests are satisfied, the panels are then date coded, documented and packaged for export to U.S., where they will be distributed to a U.S. assembler of consumer microwave ovens.

ISSUE:

Whether the microwave panels are considered "originating goods" for purposes of the U.S.-Canadian Free Trade Agreement

LAW AND ANALYSIS:

To be eligible for tariff preferences under the FTA, goods must be "originating goods" under the rules of origin in General Note 3(c)(vii)(B), Harmonized Tariff Schedule of the United States Annotated (HTSUSA). Since, in this case, the microwave components are not considered goods "wholly obtained or produced in the territory of Canada and/or the United States" as provided for in General Note 3(c)(vii)(B)(1), HTSUSA, they must be "transformed in the territory of Canada and/or the United States" as provided in 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. General Note 3(c)(vii)(R)(16)(bb), HTSUSA, provides that a transformation into "originating goods" occurs if the operations performed in Canada result in a change in tariff classification of the components to a heading in Chapter 85 from any other heading of the tariff schedule. In the instant case the microwave oven panels are classified in subheading 8516.90.60, HTSUSA, at the time of importation into the U.S. When the component parts are entered into Canada, all are classified in a tariff heading other than heading 8516, HTSUSA. Therefore, all components when transformed into the microwave oven panels, meet this change in classification requirement.

Because the operations in Canada involve an assembly operation, the issue arises whether the microwave oven panels meet the additional requirements of the FTA. General Note 3(c)(vii)(C)(1), HTSUSA provides that even if articles are considered to be "goods originating in the territory of Canada" pursuant to General Note 3(c)(vii)(B), HTSUSA, they will not be eligible for preferential tariff treatment under the FTA "merelyn
by virtue of having undergone simple packaging or...combining operations." The disallowances for packaging and combining operations are to be applied in the same manner as under the Caribbean Basin Economic Recovery Act (CBERA) and the Generalized System of Preferences (GSP). 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).

In C.S.D. 85-25 dated September 24, 1984, Customs considered the eligibility of PCBAs under the GSP. Customs held that the operations involved in production of the PCBAs, whereby in excess of 50 discrete components were inserted, wave-soldered, inspected and tested constituted a substantial transformation as opposed to a simple combining operation. The operations in C.S.D. 85-25 are virtually the same as in this case and, therefore, the assembly operations performed in Canada on the microwave oven panels would constitute more than a simple assembly.

HOLDING:

The components imported into Canada undergo the requisite change in tariff classification in the production of the microwave oven panels, thereby transforming the goods into "originating goods" for FTA purposes. In addition, the assembly operations involved in producing the microwave oven panels do not constitute a simple combining operation. Upon importation, the microwave oven panels are properly classified in subheading 8516.90.60, HTSUSA, with a rate of duty of 2.7% ad valorem for items eligible under the FTA.

Sincerely,

John Durant, Director
Commercial Rulings Division

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