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HQ 089011


May 24, 1991

CLA-2 CO:R:C:M 089011 JMH

CATEGORY: CLASSIFICATION

TARIFF NO.: 7323.99.90

District Director
U.S. Customs Service
Main and Stebbins Sts., PO Bldg.
P.O. Box 1490
St. Albans, VT 05478

RE: Protest and Request for Further Review 0201-90-000167, dated June 15, 1990; Parakeet starter kits; United States-Canada Free Trade Agreement ("CFTA"); birdcage; seed cups; wooden perches; seed mix; parakeet treat; cuttlebone and holder; gravel paper; plastic bag; sets; GRI 3

Dear Sir:

This is in response to Protest and Request for Further Review 0201-90-000167, dated June 15, 1990, regarding certain "Parakeet Starter Kits" imported from Canada by Roll C. Hagen USA Corp. Our decision follows.

FACTS:

The articles in question are "Parakeet Starter Kits" which are imported from Canada. The kits include an iron or steel birdcage with a plastic roof and bottom that is 12 1/2 inches in diameter and 18 inches in height; seed mix; a Parakeet treat; a cuttlebone with a holder; round gravel paper that is 11 inches in diameter; and a plastic bag. The cage, seed mix, treat and the plastic bag are from Canada. The cuttlebone and the holder are from Japan, and the gravel paper is from Denmark. In Canada, the goods are packaged together into the "Parakeet Starter Kit."

The importer has classified the kits as sets with the birdcage providing the essential character of the set. The birdcage's classification, which becomes the classification for the entire set, is subheading 7323.99.90, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA"), as "Table, kitchen or other household articles and parts thereof, of iron or steel...Other...Not coated or plated with precious metal... Other..." Your office agreed with this classification. This office also agrees that the Parakeet Starter Kits are properly classified under subheading 7323.99.90.

The protest arises from the importer's belief that his products are eligible for the tariff preferences under the United States-Canada Free Trade Agreement ("CFTA"). Your office would not apply this preferential duty rate to the Parakeet Starter Kits.

ISSUE:

Whether the Parakeet Starter Kits, which are properly classified as sets under subheading 7323.99.90, are originating goods for purposes of the CFTA.

LAW AND ANALYSIS:

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), HTSUSA. There are two primary means in General Note 3(c)(vii)(B) by which articles imported into the United States 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). 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).

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. The Parakeet Starter Kits include articles from third countries. The kits are not "wholly obtained or produced" in Canada under General Note

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

The articles in the "Parakeet Starter Kit" do change classifications. This change occurs in accordance with GRI 3, HTSUSA. GRI 3(a) requires that when an article is described by two or more headings then the most specific heading is preferred. The "Parakeet Starter Kit" is described by the relevant headings for each of the articles within the kit. However, GRI 3(a) also states that if the applicable headings refer to only a part of the items in a set put up for retail sale, then the headings are considered to be equally specific. To determine what is a "set put up for retail sale" the Explanatory Notes must again be
utilized. The Explanatory Note for Rule 3(b) provides a three part test for "goods put up in sets for retail sale." Explanatory Note 3(b)(X), Vol. 1, HCDCS, p. 4. This note states the following:

"For the purposes of this Rule, the term 'goods put up in sets for retail sale' shall be taken to mean goods which:

(a) consist of at least two different articles which are prima facie, classifiable in different headings.

(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards)." (emphasis added)

In the present situation, the "Parakeet Starter Kit" consists of approximately seven different articles, each having different classifications. The articles are put up together to meet the need of caring for a Parakeet and they are packaged for sale to the end user. Thus, the kit is a set. The bird cage imparts the essential character of the set. Therefore, all of the articles are classified under the provision which describes the bird cage. The articles which by themselves are classified in other subheadings are now classified in subheading 7323.99.90. A classification change does occur for these articles. However, this is not the type of classification change to which the CFTA refers.

General Note 3 (c) (vii) (C) (1), HTSUSA, states:

(C) Goods shall not be considered to originate in the territory of Canada pursuant to subdivision (c)(vii)(B)(2) merely by virtue of having undergone--

(1) simple packaging or, except as expressly provided by the rules of subdivision (c)(vii)(R) of this note, combining operations...

The House Committee on Ways and Means report on the CFTA stated:

Goods containing materials from third countries will qualify for preferential treatment only if the materials undergo a sufficient degree of processing or assembly in one or both Parties to result in physically
and commercially significant changes in the product that change its tariff classification under the Harmonized System. H. Rep. 816, Part 1, 100th cong., 2d Sess. 15 (1988) (emphasis added).

The House Ways and Means Committee focused on the change in classification which occurs to third country materials after the third county materials undergo some processing or assembly. The articles in a set do not change their classification because of processing or assembly. The change in classification which articles in a set undergo occurs merely because of the packaging or combining of the articles. The articles themselves have not been transformed in any way. The only transformation which has occurred is the packaging of the articles and how the articles are marketed to the consumer.

In the instant case, none of the third country articles undergo any manufacturing or assembly. The foreign articles are not changed in any way. They are merely repackaged into a kit. It is the opinion of this office that the change in classification these articles undergo is a change brought about by simple packaging. Thus, this classification change is not allowed under the CFTA. The Parakeet Starter Kits are not entitled to the tariff preferences under the CFTA.

HOLDING:

The Parakeet Starter Kits are appropriately classified as sets in accordance with GRI 3(b). The kits' essential character is imparted by the birdcage. Therefore, the proper classification for the Parakeet Starter Kits is in subheading 7323.99.90 as" "Table, kitchen or other household articles and parts thereof, of iron or steel...Other...Not coated or plated with precious metal...Other..."

The Parakeet Starter Kits are not originating goods for purposes of the CFTA, and thus, the Parakeet Starter Kits are not entitled to tariff preferences under the CFTA. The articles in the sets change their classifications to the classification of the article which imparts the sets' essential character. However, this change in classification occurs through the packaging of the set. This type of classification change does not transform the third country goods as required by General Note 3(c)(vii)(B)(2). General Note 3(c)(vii)(C) states that a change in classification which results from simple packaging does not create goods which originate in Canada for CFTA purposes. The Parakeet Starter Kits are not entitled to the tariff preferences under CFTA.

This protest should be denied in full. A copy of this decision should be attached to the Form 19 Notice of Action.

Sincerely,

John Durant, Director
Commercial Rulings Division

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