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HQ 562853




December 8, 2003

CLA-02 RR:CR:SM 562853 EAC

CATEGORY: CLASSIFICATION

Ms. Helen I. Sugar
After Entry Department
BCB International, Incorporated
Corporate Office
1245 Niagara Street
Buffalo, NY 14213-1501

RE: Country of origin requirements for transmission rebuild kits from Canada; NAFTA Marking Rules; NAFTA eligibility requirements

Dear Ms. Sugar:

This is in response to your letter, dated September 4, 2003, requesting a ruling on behalf of King-O-Matic Industries Limited (“King-O-Matic”), pertaining to the country of origin marking requirements and NAFTA eligibility for transmission rebuild kits imported from Canada.

FACTS:

King-O-Matic will package “transmission rebuild kits” in Canada from parts that are obtained from Mexico and the United States. It is our understanding that the parts of U.S. and Mexican origin will be packaged within Canada but are not subjected to any other further processing within Canada. The kits will be imported into the United States subsequent to packaging, primarily through the port of Buffalo, NY.

For purposes of this ruling, you have provided our office with a list of the parts included with each kit as well as the quantity and country of origin for each part. A summary of this information follows.

Part Quantity Country of Origin
1. Packaging 0.17 Canada
2. Packaging 1 Canada
3. Skin Board 1 Canada
4. Seal 1 Mexico
5. Ring 1 United States
6. Friction Mod 1 United States
7. Steel Mod 1 United States
8. Paper Gasket 1 United States
9. Paper Gasket 1 United States
10. Paper Gasket 1 United States
11. Paper Gasket 1 United States
12. Paper Gasket 1 United States
13. Paper Gasket 1 United States
14. O-Ring 1 United States
15. Lathe Cut Seal 1 United States
16. Lathe Cut Seal 1 United States
17. Lathe Cut Seal 1 United States
18. Lathe Cut Seal 1 United States
19. Lathe Cut Seal 1 United States
20. Lathe Cut Seal 1 United States
21. Lip Seal 1 United States
22. Lip Seal 1 United States
23. Lip Seal 1 United States
24. Lip Seal 1 United States
25. Lip Seal 1 United States
26. Lip Seal 1 United States
27. O-Ring 1 United States
28. Lip Seal 1 United States
29. MC Seal 1 United States
30. Seal 1 United States
31. Check Ball 1 United States
32. Washer 1 United States
33. Bags/ boxes 1 United States
34. Filter 1 United States
35. Bushing 1 United States
36. Bushing 1 United States
37. Bushing 1 United States
38. Modulator 1 United States

ISSUES:

What is the country of origin of the transmission rebuild kits for marking purposes?

Are the transmission rebuild kits eligible for preferential tariff treatment under the NAFTA? LAW AND ANALYSIS:

Country of Origin Marking Requirements

Section 304 of the Tariff Act of 1930 (19 U.S.C. §1304), as amended, provides that unless excepted, every article of foreign origin imported into the United States 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 a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. The purpose of the marking statute is outlined in United States v. Friedlander & Co., 27 CCPA 297 at 302 C.A.D. 104 (1940), where the court stated that: “Congress intended that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” 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 North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat 2057) (December 8, 1993) and the appropriate Customs Regulations. The marking rules utilized for determining whether a good is a good of a NAFTA country are contained in Part 102, Customs Regulations. The applicable marking requirements of these goods are set forth in Part 134, Customs Regulations.

Section 134.1(b), Customs Regulations, defines "country of origin" as the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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), Customs 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) 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. According to section 134.45(a)(2), a "good of a NAFTA country" may be marked with the name of the country in English, French or Spanish.

You state that the U.S. and Mexican transmission rebuild kit components are packaged within Canada. Therefore, we must apply the NAFTA Marking Rules in order to determine the country of origin of the rebuild kits when imported into the U.S.

Part 102 of the Customs Regulations sets forth the "NAFTA Marking Rules" which are applied to determine whether a good is a good of a NAFTA country for marking purposes. In this respect, 19 CFR 102.11 provides a required hierarchy for determining the country of origin for marking purposes. Applied in sequential order, the required hierarchy establishes that the country of origin of a good will be the country where:

(a)(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 §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Sections 102.11(a)(1) and 102.11(a)(2) are not applicable to the facts presented in the instant case because none of the components that comprise the rebuild kits are either wholly obtained or produced or produced exclusively from domestic (Canadian, in this case) materials. Therefore, since an analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we must consider section 102.11(a)(3). However, section 102.11(a)(3) also does not produce a country of origin determination in this case because of the limitations set forth in section 102.17(c). Specifically, section 102.17(c) provides that a foreign material shall not be considered to have undergone an applicable change in tariff classification merely by reason of simple packing, repacking or retail packaging without more than minor processing. As applied, this provision precludes the application of section 102.11(a)(3) in the instant case because, as indicated above, the parts of Mexican and U.S. origin are merely packaged within Canada. Consequently, as section 102.11(a)(3) may not be applied to this case, our analysis must proceed to consideration of 19 CFR 102.11(b).

Section 102.11(b) provides that:

(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:

The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good, or

If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country of origin may be determined on the basis of an inventory management method provided under the appendix to part 181 of this chapter.

In New York Ruling Letter (“NY”) I86097, dated September 13, 2002, it was determined that the kits presently under consideration are properly classified under subheading 8708.99.6790, Harmonized Tariff Schedule of the United States (“HTSUS”). We note that the kits were not classified as sets pursuant to GRI 3 in that ruling letter and that the kits are not specifically described as sets under subheading 8708.99.6790, HTSUS. Therefore, pursuant to section 102.11(b)(1), in order to determine the country of origin of the items for marking purposes, we must identify the country of origin of the component that imparts the essential character to the kits. In this respect, based upon the list of parts provided, we note that the most critical components, primarily in terms of cost, are the U.S.-origin friction modulators and steel modulators. Accordingly, as both of these components are of U.S. origin, it is our opinion that the country of origin of the kits for marking purposes is the United States.

NAFTA Preferential Treatment Analysis

The second issue in this case is whether the transmission rebuild kits are eligible for preferential tariff treatment under the NAFTA. In making this determination we note that General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(b) provides, in pertinent part:

For 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 –
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States so that –
they have been transformed in the territory of Canada, Mexico and/or the United States so that –
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
the goods otherwise satisfy the applicable requirements of subdivisions (r), (s), and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials;

Therefore, assuming for purposes of this ruling that the items included with the kit qualify as NAFTA originating, the transmission rebuild kits will qualify as originating under General Note 12(b)(iii), HTSUS, when imported into the United States.

However, for a good to be eligible to receive the special “CA” or “MX” rate of duty, it must be determined to be a good of Canada or Mexico, respectively, under the NAFTA marking rules. See, General Note 12(a)(i) and (ii). As stated above, however, the transmission rebuild kits in this case are considered to be products of the United States for country of origin marking purposes.

Notwithstanding our country of origin determination for marking purposes, however, pursuant to 19 CFR 102.19(b), the imported transmission rebuild kits will be treated as a product of Mexico for duty purposes. (Emphasis added). Section 102.19(b) of the Customs Regulations (19 CFR 102.19(b)), states:

If, under any other provision of this part, the country of origin of a good which is originating within the meaning of §181.1(q) of this chapter 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 before its return to the United States.

As applied, even though the transmission rebuild kits are being imported into the United States from Canada, they will be subject to the Mexican preferential duty rate upon importation because none of the U.S. or Mexican-origin components are advanced in value or improved in condition within Canada. Rather, based upon the information before us, it appears as if the last NAFTA country outside of the United States where a component is advanced in value or improved in condition is Mexico-- where a transmission seal is manufactured. Accordingly, upon importation into the United States, the transmission rebuild kits will be subject to the “MX” (Mexico) rate (free) under subheading 8708.99.6790, HTSUS.

HOLDING:

Based upon the facts of this case, the transmission rebuild kits described above are considered to be products of the United States for country of origin marking purposes. Pursuant to 19 CFR 102.19(b), however, the transmission rebuild kits will be treated as a product of Mexico for duty purposes. Accordingly, upon importation into the United States, the transmission rebuild kits will be subject to the “MX” (Mexico) rate (free) under subheading 8708.99.6790, HTSUS.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs and Border Protection officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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