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HQ 560456

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September 26,
1997

MAR-05: RR:TC:SM 560456 BLS

CATEGORY: MARKING

Ms. Elva Arzate
Rudolph Miles & Sons
4950 Gateway East
El Paso, Texas 79983

RE: Reconsideration of NY Ruling Letter A89110; surgical sets; NAFTA Preference; country of origin marking; Article 509

Dear Ms. Arzate:

This is in reference to your letter dated April 28, 1997, requesting clarification of NY Ruling Letters A89110 (November 25, 1996) and B83438 (April 15, 1997).

FACTS:

In your ruling request dated October 15, 1996, you asked that Customs rule on the tariff classification and country of origin marking of four surgical kits imported from Mexico, and whether such kits are eligible for preferential duty treatment under the North American Free Trade Implementation Act (NAFTA). Customs addressed these issues in NY A89110 with respect to Kit #1 and Kit #2, and in NY B83438 with respect to Kit #3 and Kit #4. You believe that the rulings may not be consistent and therefore seek a clarification of Customs position. This ruling will deal only with NY A89110. A second ruling addressing your concerns in connection with NY B83438 will be issued under separate cover.

Dry Skin Scrub Tray (Kit #1)

This kit consists of plastic trays, plastic forcep, plastic sponge stick and plastic wing sponge; absorbent paper towel, blotting paper towel, and blue paper towel; cotton swabs and latex gloves. The items are all of U.S.-origin with the exception of the latex gloves, which are a product of Malaysia.

Wet Skin Scrub Tray (Kit #2)

The items in this kit consist of plastic trays, plastic sponge stick and plastic wing sponge; absorbent paper towel, blotting paper towel and blue paper towel; povidone
iodine scrub solution and povidone iodine paint solution; latex glove and cotton swabs. All of the items are of U.S.-origin, with the exception of the latex gloves, which are a product of Malaysia.

The articles in both kits are packaged in Mexico with U.S.-origin packing materials, and then imported into the U.S.

In NY A89110, Customs found that Kit #1 and Kit #2 were "goods put up in sets for retail sale", and were governed by General Rule of Interpretation (GRI) 3(c), Harmonized Tariff Schedule of the United States (HTSUS), which provides that when goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. The sets were classified under subheading 4818.20.0020, HTSUS, which provides for: "Towels of paper pulp, paper, cellulose wading or webs of cellulose fibers." Customs also held that each kit was eligible for preferential duty treatment under the NAFTA, that the country of origin of the scrub tray kits was Mexico, and that accordingly the kits were eligible for the "Special" "MX" duty rate. Customs also found that an appropriate marking for each kit would be "Assembled in Mexico from U.S. components; glove made in Malaysia." Our review will address the issues related to NAFTA preferential treatment and country of origin marking requirements.

ISSUES:

1) Whether the Dry Skin Scrub Tray and the Wet Skin Scrub Tray are eligible for preferential duty treatment under the NAFTA.

2) What are the country of origin marking requirements for the two surgical kits?

LAW AND ANALYSIS:

A. NAFTA Preference

General Note 12 of the HTSUS, incorporates Article 401 of the NAFTA into the
HTSUS. General Note 12(b) provides in pertinent part the following:

For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating
in the territory of a NAFTA party" only if:

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United
States; or

(ii) they have been transformed in the territory of
Canada, Mexico, and/or the United States so

(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r),
(s) and (t) of this note or the rules set forth therein, or,

(B) the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of
Canada, Mexico and/or the United States exclusively from originating materials.

Since, as described, each of the sets is comprised in part of materials which come from countries other than Mexico, Canada and/or the United States, neither General Note 12(b)(I) or 12(b)(iii) is applicable. Therefore, we must ascertain whether the non-originating materials in each case (latex gloves from Malaysia) are transformed in the territory of Canada, Mexico and/or the U.S. pursuant to General Note 12(b)(ii)(A), HTSUS. To qualify under this provision, the non-originating material(s) must undergo the requisite change in tariff classification required in General Note 12(t).

As noted, both surgical kits are classified in subheading 4818.20.0020, HTSUS, as "Towels of paper pulp, paper, cellulose wading or webs of cellulose fibers." The non-originating latex gloves are properly classified in 4015.11, HTSUS, as "Articles of apparel and clothing accessories (including gloves) for all purposes, of vulcanized rubber, surgical and medical."

General Note 12(t)(90)(48), HTSUS, requires "A change to headings 4817 through 4823 from any heading outside that group."

Thus, the requisite change in tariff classification does occur with respect to Kit #1
and Kit #2, and the Dry Skin Scrub Tray and Wet Skin Scrub Tray are considered to be "goods originating in the territory of a NAFTA party."

General Note 12(a) provides in pertinent part that:

(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules....and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate....

Since Kit #1 and Kit #2 are classified under subheading 4818.20, HTSUS, a subheading for which the "Special" rate of duty of "MX" is applicable, and are "originating" goods under General Note 12(b), HTSUS, they will be eligible for the MX duty rate provided they are determined to be a product of Mexico under the NAFTA Marking Rules.

B. Country of Origin Marking

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

The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the NAFTA, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993) and the regulations set forth in 19 CFR Parts 102, 134.

Section 134.1(b) (19 CFR 134.1(b)) of the regulations defines "country of origin" as:

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"; however, for a good of a NAFTA country, the
NAFTA Marking Rules will determine the country of origin.

Section 134.1(j) provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.

Part 102 of the regulations (19 CFR Part 102), sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country. Section 102.11 of the regulations (19 CFR 102.11) sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that "[t]he country of origin of a good is the country in which:

(1) The good is wholly obtained or produced;

(2) The good is produced exclusively from domestic materials; or

(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section
102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.

"Foreign Material" is defined in section 102.1(e) of the regulations as "a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced."

Since neither Kit #1 or Kit #2 is wholly obtained or produced, or produced exclusively from domestic (Mexican) materials, section 102.11(a)(3) is the applicable rule which must first be applied. In order to determine whether Mexico is the country of origin under this rule, we must look at those materials whose country of origin is other than Mexico. In this case, none of the components (materials) of the kits are products
of Mexico, but are either of U.S. ("Foreign Material" under 19 CFR 102.11(e)) or Malaysian origin.

As both sets are classified under subheading 4818.20, HTSUS, the change in tariff classification must be made in accordance with section 102.20(r), Section X: Chapters 47 through 49, which provides as follows:

A change to headings 48.17 through 48.22 from any other heading, including another heading within that group.

Since Kit #1 and Kit #2 are comprised in part of components (paper towels of U.S.-origin) that are classified under heading 4818, HTSUS, and which therefore do not undergo a tariff shift, the country of origin cannot be determined under 19 CFR 102.11(a)(3). Furthermore, since the foreign materials in each of the sets are merely packaged together for importation without more than minor processing, they will not be considered to have met the applicable change in tariff classification set out in 19 CFR 102.20. See 19 CFR 102.17.

Therefore, we must consider the next applicable rule in the hierarchal scheme. Section 102.11(b) of the regulations (19 CFR 102.11(b)) cannot be used under the facts presented since it is not applicable if the good is specifically described in the Harmonized System as a set, or is classified as a set pursuant to GRI 3.

Since each set is deemed to be originating, and a single NAFTA country of origin for each of the sets cannot be determined pursuant to 19 CFR 102.11(a) or 19 CFR 102.11(b), the NAFTA Preference Override (19 CFR 102.19) is triggered. This regulation provides as follows:

(a) Except in the case of goods covered by paragraph (b) of this section, if a good which is originating ..... is not determined under section 102.11(a) or (b) or 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which the good underwent production other than minor processing provided that a Certificate of Origin (see section 181.11 of this chapter) has been completed and signed for the good.

(b) If, under any provision of this part, the country of origin of a good which is originating
..... is determined to be the United States and that good has been exported
from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition.

The components of Kit #1 and Kit #2 are of U.S. or Malaysian origin, and are merely packaged together in Mexico. Since packaging operations are considered minor processing (see 19 CFR 102.1(m)(6)), pursuant to 19 CFR 102.19(a) Mexico cannot be considered the country of origin. Therefore, the country of origin will be the U.S., the last NAFTA country in which the good undergoes production other than minor processing. (In this regard, we note that the word "single" in 19 CFR 102.19(a) expressly makes clear that originating goods that meet the criteria of this provision cannot have multiple countries of origin.) Section 102.19(b) is not applicable because the U.S. components were not advanced in value or improved in condition in another NAFTA country, i.e., by the packing operations performed in Mexico. (See 19 CFR 102.1(a) and 102.1(i) (definitions of "advanced in value" and "improved in condition").) C. "MX" Duty Rate

Since under the provisions of the NAFTA Marking Rules the scrub tray kits are considered to be of U.S.-origin, they are not eligible for the Special "MX" rate of duty pursuant to General Note 12(a)(ii), HTSUS.

Furthermore, as articles of U.S.-origin, the surgical kits are not subject to the marking requirements.

D. Subheading 9801.00.10

Subheading 9801.00.10, HTSUS, generally provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process or manufacture or other means while abroad. Accordingly, the U.S.-origin components which are merely packaged with the set without further processing and the U.S.-origin packaging materials will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1) are met.

HOLDING:

1) The non-originating materials which are packaged as part of the Scrub Tray Kits undergo a tariff shift pursuant to General Note 12(b)(ii)(A). Therefore, the Dry Skin Scrub Tray Kit and the Wet Skin Scrub Tray Kit are considered "goods originating in the territory of a NAFTA party."

2) Under the NAFTA Marking Rules, 19 CFR 102.11(a) is not applicable since the kits are neither wholly obtained or produced, or produced exclusively from domestic sources and the non-originating materials do not undergo a tariff shift under the applicable rule. Further, since the goods are merely packaged without more than minor processing, they will not be considered to have met the change in classification set out in 19 CFR 102.20. See 19 CFR 102.17. 19 CFR 102.11(b) is not applicable since the kits are classified as sets pursuant to GRI 3(c), HTSUS.

As each set is deemed to be originating, 19 CFR 102.19 is triggered. Under this rule, the country of origin of each set will be the U.S., the last NAFTA country in which the good undergoes production other than minor processing.

3) Since under the provisions of the NAFTA Marking Rules the scrub tray kits are considered to be products of the U.S., they are not eligible for the Special "MX" rate of duty pursuant to General Note 12(a)(ii), HTSUS.

4) The U.S.-origin set components which are merely packaged without further processing and the U.S.-origin packaging materials will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1) are met.

NY Ruling A 89110 is modified to the extent it held that the country of origin of the two Scrub Tray Kits to be Mexico, and not the U.S., and that the Special "MX" rate of duty was applicable. Further, the marking "Assembled in Mexico from U.S. components; glove made in Malaysia" is not a correct marking, as it indicates that the kits are of Mexican origin. As the kits are considered to be of U.S.-origin, they are not subject to the marking requirements.

Sincerely,

John
Durant, Director
Tariff

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See also:

• Tariff No.: 4818.20.00 - Handkerchiefs, cleansing or facial tissues and towels of paper pulp, paper, cellulose wadding or webs of cellulose fiber
• Tariff No.: 9801.00.10 - U.S. goods returned without having been advanced in value or improved in condition while abroad