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HQ 563134




January 18, 2005

MAR-2-05 RR:CR:SM 563134 EAC

CATEGORY: MARKING

Mr. John Scura
J.T. Scura, Incorporated
761 West Broadway
Woodmere, New York 11598

RE: NAFTA; merchandise processing fees; originating goods; transshipment; telephone integrated communication systems

Dear Mr. Scura:

This is in response to your letter, dated October 7, 2004, requesting a ruling on behalf of your client Cleanphone Commercial Telecommunication Products (hereinafter “Cleanphone”), pertaining to the merchandise processing fee (“MPF”) applicable to certain telephone integrated communication systems upon entry into the United States.

FACTS:

You state that Cleanphone may establish a sales and service center in the New York area. If established, the center will sell and service imported “business telephone integrated communications systems.” Various models will be imported, each designed for supporting different business needs. For example, you state that smaller units may support 4 incoming telephone lines whereas larger units may support 75,000 incoming telephone lines. A brochure containing information pertaining to the brand of integrated communication system to be imported has been submitted for our review. We are advised that the integrated communications systems will be manufactured in Canada and will be marked as products of Canada prior to distribution. It is your belief that the imported units are classified under either subheading 8517.30.25 or subheading 8517.30.20, Harmonized Tariff Schedule of the United States (“HTSUS”).

Two scenarios of importation into the United States are presented for our consideration. In the first, the integrated communication systems will be imported into the United States directly from Canada. In the second scenario, Canadian-manufactured units that have been sold to consumers in Europe will be imported into the United States for repair. When such repairs are necessitated, a replacement unit may be exchanged for the overseas purchaser’s outright, the overseas purchaser’s unit may be repaired and returned, or a “loaner” unit may be exported and then re-imported upon completion of repairs. You assert that a MPF should not be assessed on systems imported into the U.S. directly from Canada or on those imported from Europe for repair.

ISSUE:

What merchandise processing fees, if any, shall be assessed on the systems when imported into the United States?

LAW AND ANALYSIS:

General Note 12 to the HTSUS establishes the criteria by which goods imported into the United States qualify as originating goods for purposes of determining eligibility for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). See, General Note 12 (a) & (b), HTSUS. There are certain prohibitions in the law against the transshipment of originating goods outside the territories of the NAFTA parties. The violation of these prohibitions can result in the loss of originating status for a good that has otherwise satisfied the criteria for originating status as set forth in General Note 12, HTSUS.

The aforementioned prohibitions against transshipment are set forth at Article 411 of the NAFTA, which provides that:

A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of Article 401 if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the Parties, other than unloading, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of a Party.

See, Article 411, North American Free Trade Agreement, December 17, 1992, Can-Mex-U.S., 32 I.L.M. 289 (1993).

The NAFTA transshipment prohibitions have also been implemented and codified into U.S. statutory law at 19 U.S.C. §3332(k), which provides that:

A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of subsection (a) of this section if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading, or any other operation necessary to preserve it in good condition or to transport the good to the territory of a NAFTA country.

See also, General 12(l), HTSUS (restating the prohibitions against the transshipment of NAFTA originating goods under U.S. law).

The prohibitions against the transshipment of NAFTA originating goods are regulated under 19 CFR 181, Appendix, Part VI, Section 16(1). This regulation provides that:

(1) A good is not an originating good by reason of having undergone production that occurs entirely in the territory of one or more of the NAFTA countries that would enable the good to qualify as an originating good if subsequent to that production
the good is withdrawn from customs control outside the territories of the NAFTA countries; or
the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading or any other operation necessary to preserve the good in good condition, such as inspection, removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing salt, sulphur dioxide or other aqueous solutions, replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units of the good, or to transport the good to the territory of a NAFTA country.

Under 19 U.S.C. §58c(a)(9), a merchandise processing fee equal to 0.21 percent ad valorem may be assessed upon merchandise that is formally entered or released. A certain exception to assessment of this fee is set forth under 19 U.S.C. § 58c(b)(10). Specifically, 19 U.S.C. § 58c(b)(10)(B)(1) provides that the MPF may not be assessed upon goods that qualify to be marked as goods of Canada as long as such goods also qualify for preferential treatment under 19 U.S.C. §3332. See also, 19 CFR 24.23(c)(3).

As applied, it is our belief that the integrated communication systems imported into the United States from Europe are not NAFTA originating pursuant to 19 U.S.C. §3332. In making this determination, we note that the systems are withdrawn from customs control outside the territories of the NAFTA parties when sold to consumers in Europe and that they may also potentially undergo certain operations (upgrades, for example) in Europe other than unloading, reloading or other procedures necessary to preserve the systems in good condition. See, 19 CFR 181, Appendix, Part VI, Section 16(1). See also, Headquarters Ruling Letter (“HRL”) 562037 dated May 9, 2002 (discussing whether transshipped wire was an originating good and eligible for preferential treatment under the NAFTA upon entry into the United States); HRL 563059 dated November 4, 2004 (Mexican clock movements imported into the United States and exported to China for incorporation into finished wall clocks while in China were not eligible for preferential treatment under the NAFTA upon importation into the United States); and, HRL 958053 dated September 20, 1995 (“dumpers” imported into the customs territory of the United States after having been withdrawn from customs control in Australia are not originating goods under General Note 12). Therefore, as the integrated communication systems imported from Europe are not considered NAFTA originating, we find that the items will be subject to the MPF upon entry into the United States. See, for example, HRL 966966 dated April 22, 2004. On the other hand, the units imported into the United States directly from Canada will not be subject to the MPF as long as such units are considered to be NAFTA originating and qualify to be marked as products of Canada. However, please be advised we are unable to make this determination based upon the information presently before us.

HOLDING:

Based upon the information presently before us, it is our belief that the telephone integrated communication systems imported into the United States from Europe are not NAFTA originating goods pursuant to the above-referenced provisions. Therefore, we find that the telephone integrated communication systems imported from Europe are subject to merchandise processing fees upon entry into the United States. The telephone integrated communication systems imported into the United States directly from Canada will not be subject to merchandise processing fees assuming such units are considered to be NAFTA originating and qualify to be marked as products of Canada.

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 CBP officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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