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HQ 965472




MAY 20, 2002

CLA-2 RR:CR:GC 965472 JAS

CATEGORY: CLASSIFICATION

TARIFF NO.: 8504.90.95

Mr. Chris Brown
Cogent Power, Inc.
279 Sumach Drive, RR#2
Burlington, ON, Canada L7R 3X5

RE: Alloy Steel Shapes for Use in Electrical Transformer Cores; HQ 958077 Revoked.

Dear Mr. Brown:

In our ruling to CorMag Inc., the predecessor to Cogent Power Inc., HQ 958077, dated January 31, 1996, the processing in Canada of alloy steel in coils from the United Kingdom into cut-to-size steel shapes was held to be insufficient to confer originating-goods status under the North American Free Trade Agreement (NAFTA), on the steel shapes entering the customs territory.

Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed revocation of HQ 958077 was published on April 17, 2002, in the Customs Bulletin, Volume 36 Number 16. No comments were received in response to that notice.

FACTS:

As described in HQ 958077, the merchandise entering the customs territory of the United States from Canada is individual pieces of alloyed steel, each measuring 4 inches wide, from 10 to 20 inches long, and from .009 to .014 inch in thickness. These steel pieces, which will be incorporated into cores for electrical transformers, are made in Canada from alloyed, grain-oriented, electrical steel from the United Kingdom imported
into Canada in coils. In Canada, the steel is uncoiled and the individual pieces cut to specific sizes and shapes as required by the transformer manufacturer. These pieces, referred to in the trade as legs and yokes, are ready for assembly, without further fabrication. After importation, several thousand of these steel pieces are stacked and clamped into an E-shape, and the legs of the E are then encased in copper windings to complete the transformer. Electricity is passed through the copper to magnetize the core.

We rejected your proposed classification of the merchandise as unfinished transformer cores classifiable in subheading 8504.90.95, Harmonized Tariff Schedule of the United States (HTSUS), as other parts of electrical transformers. It was Customs belief that though cut-to-size, the shapes nevertheless conformed to the definition for Flat-rolled products, in Chapter 72, Note 1(k), HTSUS. Classification of the merchandise as a flat-rolled product is not sufficient to confer originating-goods status on the merchandise under the NAFTA. However, we have now had occasion to reconsider both the classification of this merchandise, and its status as originating goods.

ISSUE:

Whether the processing in Canada of alloyed, grain-oriented, electrical steel in coils from a non-NAFTA country, is sufficient to confer originating-goods status for purposes of the NAFTA.

LAW AND ANALYSIS:

Under General Rule of Interpretation (GRI) 1, Harmonized Tariff Schedule of the United States (HTSUS), goods are to be classified according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6.

Additional U.S. Rule of Interpretation 1(c), HTSUS, states, in part, that in the absence of special language or context which otherwise requires a provision for parts of an article covers products solely or principally used as a part of such articles but a provision for “parts” shall not prevail over a specific provision for such part. It was on this basis that HQ 958077 concluded that the merchandise at issue was specifically provided for as a flat-rolled product.

Subject to certain exceptions that are not relevant here, goods that are identifiable as parts of machines or apparatus of Chapter 84 or Chapter 85 are classifiable in accordance with Section XVI, Note 2, HTSUS. Parts which are goods included in any of the headings of Chapters 84 and 85 are in all cases to be classified in their respective headings. See Note 2(a). Other parts, if suitable for use solely or
principally with a particular machine, or with a number of machines of the same heading, are to be classified with the machines of that kind. See Note 2(b). Upon further consideration of the law in these circumstances, we believe that Section XVI, Note 2, HTSUS, provides “special language or context” that requires a determination of whether the cut-to-size steel shapes are goods included in a heading of chapter 84 or 85, or are parts suitable for use solely or principally with a machine or apparatus of either of those chapters. See Mitsubishi International Corporation v. U.S., 5 F. Supp. 2d 991 (CIT 1998), HQ 954768, dated January 4, 1994, and cases cited.

The facts indicate that the individual pieces at issue are cut to specific sizes and shapes as required by the transformer manufacturer. These pieces are ready for assembly, without further fabrication, into cores for electrical transformers. For tariff purposes, a “part” is an integral, constituent component of another article, necessary to the completion of the article with which it is used, and which enables that article to function in the manner for which it was designed. Upon the stated facts, it is apparent from their intended use in cores for electrical transformers, that the cut-to-size steel pieces or shapes qualify as parts for tariff purposes. They are not goods included in any heading of chapters 84 or 85. Under Section XVI, Note 2(b), HTSUS, therefore, the merchandise appears to be principally, if not solely, used with electrical transformers of heading 8504. Classification as parts, in subheading 8504.90.95, HTSUS, is therefore appropriate.

To be eligible for tariff preferences under the NAFTA, goods must be “originating goods” within the rules of origin in General Note 12(b), HTSUS. General Notes 12(b)(I) and (ii)(A), HTSUS, state:

[f]or the 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 that --

(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...

One such authorized change in tariff classification is a change to subheading 8504.90 from any other heading. General Note 12(t)/85.8, HTSUS. As stated in HQ 958077, the alloyed, grain-oriented, electrical steel in coils entering Canada constitutes Flat-rolled products, as defined in Chapter 72, Note 1(k), HTSUS. The merchandise is provided for either in heading 7225 or in heading 7226, HTSUS, depending on width. As the processing in Canada results in individual steel pieces that qualify as parts under subheading 8504.90, HTSUS, the requisite originating-goods status is conferred on the merchandise entering the customs territory, as required by General Note 12(t)/85.8, HTSUS.

HOLDING:

Under the authority of GRI 1, and Section XVI, Note 2(b), HTSUS, the individual pieces of alloyed, grain-oriented electrical steel, imported into the customs territory in the manner herein described, are provided for in heading 8504. They are classifiable in subheading 8504.90.95, HTSUS. The merchandise qualifies as “goods originating in the territory of a NAFTA party,” and is therefore eligible for preferential tariff treatment under the NAFTA.

EFFECT ON OTHER RULINGS:

HQ 958077, dated January 31, 1996, is revoked. In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.

Sincerely,

John Durant, Director
Commercial Rulings Division


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