CLA-2 CO:R:C:S 555892 SER
Ms. N.E. Petersen
Chinook Wire Rope Inc.
19355 Enterprise Way
Surrey, B.C. Canada V3S 6J8
RE: Wire rope slings and swifters; substantial transformation;
Texas Instruments, Superior Wire, Gibson Thompson; VRA;
723135, 731953; Canadian Free Trade Agreement; General Note
3(c)(vii), HTSUSA
Dear Ms. Petersen:
This is in reference to your letter of January 30, 1991,
requesting a ruling concerning the country of origin and dutiable
status of certain wire rope slings and swifters from Canada. We
regret the delay in responding.
FACTS:
Wire rope of various sizes are exported from South Korea to
Canada. In Canada, the Korean wire rope undergoes several
operations whereby the wire is fitted with Canadian-origin
hardware, such as eyelets and dies, to produce wire rope slings
or swifters. The operations creating the wire rope slings
generally entail separating the strands of the Korean wire rope
and threading the wire rope into the Canadian hardware to create
an intertwined loop. For the operations involving the swifters,
generally the ends of the wire rope are formed into a small loop
and Canadian hardware is crimped onto the neck of the loop. The
wire rope slings and swifters are then exported from Canada into
the U.S.
ISSUE:
Whether the wire rope slings and swifters are considered
"products of" Canada for Voluntary Restraint Arrangement (VRA)
purposes, and "originating goods" for purposes of the U.S.-Canada
Free Trade Agreement (CFTA).
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LAW AND ANALYSIS:
The country of origin of articles subject to VRAs, which
undergo further operations in a country prior to importation, is
determined on the basis of where the last "substantial
transformation" occurred. Superior Wire, a Div. of Superior
Products Co. v. United States, 669 F.Supp. 472 (CIT 1987), aff'd,
867 F.2d 1409 (Fed. Cir. 1989). The test for determining whether
a substantial transformation occurs is whether an article emerges
from a process with a new name, character, or use different from
that possessed by the article prior to processing. Texas
Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778, 782
(1982).
Based on the information provided, it is our opinion that
the wire rope from Korea does not undergo a substantial
transformation in Canada prior to importation into the U.S.
Customs has previously held that the processing of wire rope
into wire rope slings and swifters, by the attachment of
fittings, does not constitute a substantial transformation.
See, Headquarters Ruling Letter (HRL) 723135 dated September 23,
1983, holding that producing wire rope slings from wire rope does
not constitute a substantial transformation; and HRL 731953 dated
April 27, 1990, holding that a substantial transformation does
not occur when fittings are attached to the ends of wire rope
cable.
In HRL 723135, citing U.S. v. Gibson Thompson Co. Inc., 27
CCPA 267), Customs stated that a substantial transformation
results when "a manufacturing process is performed on an item so
that the item loses its identity and becomes an integral part of
a new article with a new name, character and use." Here, as in
HRL 723135, the wire rope maintains its essential character
throughout the process and does not lose it identity and become
an integral part of a new article when attached with the
fittings. Thus, for VRA purposes, the country of origin of the
wire rope slings and swifters would be Korea.
It is important to note that the above determination
regarding the country of origin for VRA purposes is not
necessarily determinative of whether the wire rope slings and
swifters are entitled to a duty preference under the U.S.-Canada
Free Trade Agreement (CFTA). Each program has its own purposes
and origin requirements.
For duty purposes, there are two primary means, as stated in
General Note 3(c)(vii)(B), Harmonized Tariff Schedule of the
United States Annotated (HTSUSA), by which articles may be
considered "goods originating in the territory of Canada," and,
therefore, entitled to CFTA preferential duty treatment. The
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first method is if the goods are "wholly obtained or produced in
the territory of Canada and/or the United States." General Note
3(c)(vii)(B)(1). The second method is if the goods are
"transformed in the territory of Canada and/or the United
States." General Note 3(c)(vii)(B)(2), HTSUSA.
A product which is "wholly obtained or produced in the
territory of Canada and/or United States" is defined, in part, in
General Note 3(c)(vii)(L), HTSUSA, as one which is grown, mined,
harvested, born and raised in Canada and/or the United States.
Since the wire rope slings are manufactured in Canada from
Korean wire, they are not products "wholly obtained or produced
in the territory of Canada and/or the United States."
The second primary method of becoming an originating good
for CFTA purposes is for an article to be transformed in Canada
and/or the U.S. in accordance with General Note 3(c)(vii)(B)(2),
HTSUSA. A transformation is evident when a change in tariff
classification occurs that is prescribed by General Note
3(c)(vii)(R), HTSUSA. In this instance, the wire rope imported
from South Korea into Canada is classified in subheading
7312.10.90, HTSUSA. Upon importation into the U.S. the wire rope
slings and swifters are classified in subheading 7312.10.70,
HTSUSA. General Note 3(c)(vii)(R)(15)(jj), HTSUSA, provides that
a transformation into "originating goods" occurs if there is a
change in tariff classification to headings 7309 through 7326
from any other heading outside that group. Since there is not
the requisite classification change in this case, the wire rope
slings and swifters are not considered to be "goods originating
in the territory of Canada."
It should be noted that another method of establishing a
transformation under the CFTA is by the 50% value content test.
The CFTA grants "originating goods" status to certain merchandise
if the value of Canadian and/or U.S. materials plus the direct
costs of processing performed in Canada and/or the U.S. equals at
least 50% of the appraised value of the completed goods. General
Note 3(c)(vii)(H), HTSUSA. However, there are only two types of
goods covered by this provision. The first consists of articles
which are imported into Canada in an unassembled or disassembled
form in accordance with GRI 2(a), HTSUSA. General Note
3(c)(vii)(G)(1). The second type of goods consist of those
covered by tariff provisions which provide for both the goods
themselves and their parts. General Note 3(c)(vii)(G)(2).
Since the wire ropes do not enter Canada in an unassembled
or disassembled condition in accordance with GRI 2(a), HTSUSA,
they are not of the first type of goods to which the 50% test may
apply. In addition, because heading 7312, HTSUSA, does not
provide for parts, the merchandise at issue is not of the second
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type of goods covered by General Note 3(c)(vii)(G), HTSUSA.
Therefore, the wire rope slings and swifters cannot be
considered "originating goods" by application of the 50% value
content criteria.
HOLDING:
For VRA purposes, the processing of the wire rope into wire
rope slings and swifters does not constitute a substantial
transformation, and, therefore, the wire rope products are
considered to be products of South Korea.
The Office of Agreements Compliance, International Trade
Administration Department of Commerce, has the responsibility
for interpreting the coverage of VRAs. Therefore, we suggest
that you seek the advice of that Office on the application of the
VRAs to the wire rope slings prior to entry into the U.S.
For duty purposes, the wire rope slings are not "originating
goods" under the CFTA and, therefore, are not eligible for
preferential duty treatment under the CFTA. The proper
classification for the wire rope slings is subheading 7312.10.70,
HTSUSA, which provides for a rate of duty of 5.7% ad valorem.
Sincerely,
John Durant, Director
Commercial Rulings Division