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HQ 560782

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January
23, 1998

MAR-05 RR:TC:SM 560782 BLS

CATEGORY: MARKING

Port Director
477 Michigan Avenue
Detroit, Michigan 48226

RE: Country of origin marking of desk-top computers assembled in Canada of foreign components; Article 509

Dear Sir:

This is in reference to letters dated June 24 and November 15, 1997, from Aegis Manufacturing Corp. ("Aegis"), requesting a ruling concerning country of origin marking of certain computer systems imported from Canada.

FACTS:

Aegis imports into Canada the major components of desk-top, multi-media computers, and assembles them into finished computers. They are then sold directly to consumers in the U.S., and shipped in a common box to these customers. The components and their countries of origin are as follows:

Motherboard (w/o CPU & BIOS chips) - Hong Kong, Taiwan, or U.S.
Microphones -
Taiwan
Keyboard -
Hong Kong
Adapters -
Taiwan
Cases -
Taiwan
Mouse -
China
Manual & Diskette - U.S.
CD Rom Drive -
Japan, Taiwan, or China
Disk Drives -
Taiwan, China

The output unit for the computers, the monitors, are not included with the computer systems. With the exception of the monitors, the desk-top computers are ready to operate when the components are assembled.

When shipped to Canada, the foreign components are marked with their respective countries of origin. These individual component country of origin markings remain
when the completed systems are shipped to the U.S.

Aegis states that their orders are to the specifications of their U.S. customers, and include unique requests, such as add-on speakers, microphones, and additional memory. As a result, Aegis has requested that it be permitted to mark the outer box "Assembled in Canada" only, as the company claims it would be a financial hardship to list on the box the countries of origin of all the foreign components due to the unique individual shipments to their customers. We understand that Customs officials at Port Huron have instructed Aegis that labels on the box must indicate the country of origin of each foreign component included.

ISSUE:

What are the country of origin marking requirements for the desk-top computer systems?

LAW AND ANALYSIS:

Country of Origin

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit in such manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR 134).

The country of origin marking requirements for goods of a NAFTA country are determined in accordance with Annex 311 of the North American Free Trade Agreement, as implemented under the North American Free Trade Agreement Implementation Act ("NAFTA") (Pub. L. 103-182, 107 Stat. 437 (December 8, 1993)). The marking rules used for determining whether a good is a good of a NAFTA country are contained in regulations set forth in 19 CFR Part 102. The marking requirements for these goods are set forth as amendments to various provisions of Part 134, Customs Regulations.

Section 134.1(b) of the Customs Regulations (19 CFR. 134.1(b)), 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" within this part; however, for a good of a NAFTA country, the
NAFTA Marking Rules will determine the country of origin.

Section 134.1(j) of the regulations 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) of the regulations 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.

In this case, components of various countries of origin are exported to Canada for assembly into desk-top computers, which are then imported into the U.S. Thus, in order to determine the appropriate marking requirements for the imported merchandise, we must determine under the NAFTA Marking Rules the country of origin of the completed computer systems.

Part 102 of the Customs 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 for marking purposes. Section 102.11(a) of the regulations 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."

The imported computer systems are neither "wholly obtained or produced," nor "produced exclusively from domestic (Canadian) materials." Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good.

The completed computer systems imported from Canada are classifiable under subheading 8471.50, Harmonized Tariff Schedule of the United States (HTSUS), which provides for digital processing units other than those of subheading 8471.41 and 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units. The applicable change in tariff classification set out in section 102.20(o), Section XVI, Chapters 84 through 85, 8471.10-8471.50 of the regulations provides:

8470.10-8471.50 .... A change to subheading 8470.10 through 8471.50 from any other subheading outside that group, except from heading 8473; or a change to subheading 8470.10 through
8471.50 from any other subheading within that group or from heading 8473, provided that the change is not the result of a simple assembly.

The foreign components are classified as follows:

CPU -
Heading 8542
Motherboard w/o CPU and BIOS chips - Subheading 8473.30
Microphones -
Heading 8518
Keyboard -
Subheading 8471.60
Adapters -
Heading 8536
Cases -
Subheading 8472.30
Mouse -
Subheading 8471.60
Power Cables -
Heading 8544
CD Rom Drive -
Subheading 8471.70
Disc Drives -
Subheading 8471.70
Manual and Diskette -
Heading 8524

With the exception of the Motherboard w/o CPU and BIOS, none of the components
are classified under subheading 8471.50, or heading 8473. The Motherboard w/o CPU and BIOS is classified under heading 8473, however, there will also be a tariff shift of this component provided that the change is not due to a simple assembly. A "simple assembly" is defined as "...the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing." See 19 CFR 102.1(o).

Since the assembly operations in Canada do not meet the definition of a "simple assembly," there will be a tariff shift in Canada of all the foreign components and accordingly, the country of origin of the imported computer products will be Canada.

Container Marking

Pursuant to section 304(a)(3)(D), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)(3)(D)) and section 134.32(d), Customs Regulations (19 CFR 134.32(d)), an exception from individual marking is applicable where the marking of the container of an imported article will reasonably indicate the origin of the article. This exception is normally applied in cases where the article is imported in a properly marked container, and the ultimate purchaser in the U.S. will receive it in this same marked container. Accordingly, provided the purchaser at retail receives the completed computer system in the container properly marked with the country of origin (Canada), as indicated in the facts, 19 CFR 134.32(d) will be applicable and the article itself will not have to be marked.

However, where (as in this case) the individual components are marked with a country other than the country of origin (Canada in this situation), the retail package container must clearly indicate the country of origin of the assembled product and, must, in addition, make reference to the fact that the individual components are not of Canadian origin, so that the ultimate purchaser is not misled as to the actual origin of the imported article. See, e.g., Headquarters Ruling Letter (HRL) 559027 dated August 29, 1995. Since the country of origin of the imported product is the country of final assembly, the container in which the article reaches the ultimate purchaser may be marked in a manner such as "Assembled in (country of final assembly) from imported components." See 19 CFR 134.43(e).

HOLDING:

The components imported into Canada will undergo a tariff shift pursuant to the specific rule for the imported good set out in 19 CFR 102.20. Therefore, the country of origin of the imported computer products will be Canada. The article will be excepted from individual country of origin marking provided it is imported in a properly marked container, and the ultimate purchaser in the U.S. will receive it in this same marked container. See 19 CFR 134.32(d). As the individual components are marked with a country other than the country of origin, the retail package container must clearly indicate the country of origin of the assembled product and must, in addition, make reference to the fact that the individual components are not of Canadian origin so that the ultimate purchaser is not misled as to the actual origin of the imported article. An acceptable marking would state "Assembled in Canada from imported components."
See 19 CFR 134.43(e).

Please provide a copy of this decision to Mr. Brian Barrett, Aegis Manufacturing Corp., 280 Rayette Road, Ontario L4K 2G5.

Sincerely,

John
Durant, Director
Commercial

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