CLA-2 CO:R:C:M 951024 KCC
Mr. William J. Ramia, Jr.
Alexander International
Memphis International Airport
P.O. Box 30209
Memphis, Tennessee 38130
RE: Sledge Hammer; CFTA; General Note 3(c)(vii)(H); value
content requirement; country of origin; marking
Dear Mr. Ramia:
This is in response to your letter dated January 20, 1992,
on behalf of IXL Manufacturing Co., Inc., requesting
reconsideration of Headquarters Ruling Letter (HRL) 950005 dated
January 9, 1992, concerning the eligibility of sledge hammers
under the United States-Canada Free Trade Agreement (CFTA) and
the country of origin of sledge hammers imported from Canada.
FACTS:
IXL Manufacturing Co., Inc. ("IXL") has re-calculated the
costs which will be incurred in manufacturing the sledge hammers.
In a letter dated January 17, 1992, IXL re-submitted cost
information to you. IXL updated their time studies to reflect
changes in their production process, calculating changes in labor
cost, material, factory overhead, and administrative costs. The
values or costs claimed by IXL as the value of the material
originating in the territory of Canada and/or the United States
which is consumed in the production of a four pound sledge hammer
with a 32 inch handle is .83 Canadian Dollars. Additionally, the
claimed direct costs of assembly in Canada stated as total labor
and factory overhead amounts to 1.3143 Canadian Dollars and that
the claimed administrative overhead amounts to 1.3071 Canadian
Dollars. The total cost claimed for the completed sledge hammer
imported into the U.S. is 5.5514 Canadian Dollars.
ISSUE:
I. Is the sledge hammer eligible for preferential tariff
treatment under the CFTA pursuant to General Note 3(c)(vii)(H),
Harmonized Tariff Schedule of the United States (HTSUS)?
II. Do the country of origin and the marking requirements
change if the sledge hammer is eligible for preferential tariff
treatment under the CFTA?
LAW AND ANALYSIS:
I. The United States-Canada Free Trade Agreement
The sole issue to be determined is whether the sledge
hammers are "originating goods" pursuant to General Note
3(c)(vii)(H), HTSUS, which states that goods described in
subdivision (c)(vii)(G) "shall be considered to have been
transformed in the territory of Canada and be treated as goods
originating in the territory of Canada if--
(1) the value of materials originating in the territory of
Canada and/or the United States that are used or
consumed in the production of the goods plus the direct
cost of assembling the goods in the territory of Canada
and/or the United States constitute not less than 50
percent of the value of the goods when exported to the
territory of the United States, and
(2) the goods have not subsequent to assembly undergone
processing of further assembly in a third country and
they meet the requirement of subdivision (c)(vii)(E) of
this note (emphasis added)."
General Note 3(c)(vii)(M), HTSUS, defines the term "value of
materials originating in the territory of Canada and/or the
United States", General Note 3(c)(vii)(N), HTSUS, defines the
term "value of the goods when exported", and General Note
3(c)(vii)(O), HTSUS, defines the items that can be allocated to
"the direct cost of assembling the goods." Upon further
examination of General Note 3(c)(vii)(H) which applies to
assembly operations falling within the exception of General Note
(c)(vii)(G)(1) and (2), a producer is limited to those direct
costs which are direct costs of assembly. The value content test
for these assemblies is clear and should be distinguished from
the CFTA value content test that applies to a broader range of
direct costs which are direct costs of "processing". The CFTA
allows for both direct costs of "processing" and direct costs of
"assembly". We consider these to be separate terms.
Based on the re-submitted costs claimed by IXL as the value
of originating materials and the direct cost of assembly, the
sledge hammers do not meet the 50% value content requirement.
The claimed value of the originating materials (handle blank,
wedges, etc.) (.83 Canadian Dollars) plus the direct cost of
assembling the goods which were identified in the labor and
factory overhead (0.4221 Canadian Dollars) are 29.50% of the
value of the sledge hammer when exported to the U.S. (4.2443
Canadian Dollars). Therefore, according to the cost factors
submitted the sledge hammers do not meet the 50% value content
requirement and are not eligible for preferential tariff
treatment under the CFTA.
Additionally, for future reference it should be noted that
cost figures submitted for CFTA eligibility may be subject to
verification by the district director at the port of entry
pursuant to section 10.309, Customs Regulations (19 CFR 10.309).
II. Country of Origin and Marking Requirements
Moreover, there is no authority for a change in law
governing the country of origin and marking of merchandise for
merchandise which is eligible for a tariff preference under the
CFTA. Therefore, the existing United States standard for
determining the country of origin for purposes of marking as
stated in HRL 950005 is to be followed. The sledge hammer head
must be individually marked, "Head made in China" and the handle
must be marked "Handle made in Canada."
HOLDING:
Based on the cost figures submitted, the sledge hammers are
not entitled to a tariff preference under the CFTA pursuant to
General Note 3(c)(vii)(H), HTSUS.
The existing United States standard for determining the
country of origin for purposes of marking as stated in HRL 950005
is to be followed. The sledge hammer head must be individually
marked, "Head made in China" and the handle must be marked
"Handle made in Canada."
HRL 950005 is hereby modified as described above.
Sincerely,
John Durant, Director
Commercial Rulings Division