HQ 0954316 - Doll House Kit; Article 509, NAFTA - United States International Trade Commision Rulings

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HQ 954316

August 8, 1994

CLA-2 CO:R:C:F 954316 ALS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9503.70.8000

Mr. William J. LeClair
Trans-Border Customs Services, Inc.
One Trans-Border Drive
P.O. Box 800
Champlain, New York 12919

RE: Doll House Kit; Article 509, NAFTA

Dear Mr. LeClair:

This is reference to your request of May 24, 1993, as amended, seeking clarification of the eligibility of an unassembled doll house kit for preferential treatment under the North American Free Trade Agreement (NAFTA).

FACTS:

The item under consideration consists of 460 pieces that create and decorate a doll house. Besides the wall, roof and floors of the doll house, there are various decorative items such as pictures to hang on the walls, plants, tableware, many pieces of furniture and an electrified chandelier. These items and 4 dolls are packaged in a box for retail sale. These items, except for the dolls, are of U.S. or Canadian origin. The doll figurines, minus their heads, will be manufactured in China. A head, wig and silk screening will be added to the doll figurines in Canada where they will be combined with the remaining pieces of the items and packaged in a box for retail sale. According to the producer, the value of the head and the processing in Canada to which it is subjected would exceed the value of the doll as imported into Canada and would constitute more than 51 percent of the value of the finished figurine. Information provided by the producer reveals that the cost to it for the 4 dolls which become part of the kit represents a very small portion of the transaction value of such kit, adjusted to a F.O.B. basis, as sold to U.S. consignees.

ISSUE:

Is the doll house kit eligible for preferential treatment under NAFTA?

LAW AND ANALYSIS:

Classification of merchandise under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is governed by the General Rules of Interpretation (GRI's) taken in order. GRI 1 provides that the classification is determined first in accordance with the terms of the headings and any relative section and chapter notes. If GRI 1 fails to classify the goods and if the heading and legal notes do not otherwise require, the remaining GRI's are applied, taken in order.

We initially considered whether the headless dolls which are finished in Canada are considered parts of dolls or if they are, as described in GRI 2(a), an unfinished or incomplete article. In this regard we note that the headless dolls have the essential character of a doll when imported into Canada. We, therefore, have concluded that dolls, as described in subheading 9502.10, HTSUSA, would cover the instant unfinished dolls.

We next considered the classification of the doll house kit as imported into the United States. Such kit, which includes 460 pieces manufactured in the United States and/or Canada as well as the dolls manufactured in China, is formed by the combination of such pieces and dolls into a single package for retail sale purposes. This kit permits the purchaser thereof to create and decorate a doll house when it is assembled. The kit is imported in a set put up for retail sale and would come under the provision for "Other toys, put up in sets..." in subheading 9503.70, HTSUSA.

In considering whether the unfinished dolls have undergone a tariff change which would permit them to be considered "goods originating in the territory of a NAFTA party" as specified in General Note 12(b), HTSUSA, we referred to General Note 12(t)/95. This provision specifies that a change to headings 9503 through 9505 must be a change from another chapter in order for the article to be eligible for preferential treatment under NAFTA. Since the change relative to the instant article is a change between headings of chapter 95 the article does not meet the requirements for preferential treatment under NAFTA based on a tariff change.

We, however, note that the cost of the dolls' non-originating material to the producer represents not more than 7 percent of the transaction value of the goods as shipped direct to the U.S. We considered the applicability of Part II, section 5 of the NAFTA Rules of Origin Regulations contained in the appendix to Part 181, Customs Regulations (19 CFR 181, Appendix, Part II, section 5), as published in the Federal Register on December 30, 1993 (58 FR 69497). That section provides that when non-originating materials, which do not undergo an applicable change in tariff classification, are used in the production of the good, that fact shall not prevent the good from being considered to originate in the territory of one or more NAFTA countries if the value of such non-originating materials is not more than 7 percent of the transaction value of the good.

HOLDING:

Headless dolls manufactured in a non-NAFTA country are considered unfinished dolls classifiable in subheading 9502.10.4000, HTSUSA. These dolls when finished in a NAFTA country and combined with other articles into a doll house toy set are classifiable in subheading 9503.70.8000, HTSUSA. Since the necessary tariff change required by General Note 12(t)/95.4, HTSUSA, has not taken place the finished doll would still be considered a Chinese doll and would make the doll house otherwise composed of all U.S. and Canadian components, ineligible for preferential treatment under NAFTA pursuant to section 102.11(a)(3), Customs Regulations (19 CFR 102.11(a)(3)), as published in the Federal Register of January 3, 1994 (50 FR 110).

However, pursuant to Part II, section 5 of the NAFTA Rules of Origin Regulations, as previously noted, such good is considered a NAFTA originating good since the value of non-originating materials used in the production thereof is not more than 7 percent of the transaction value of the good adjusted to an F.O.B. basis.

Accordingly, the doll house kit is eligible for preferential treatment under NAFTA.

Sincerely,

John Durant, Director

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