CLA-2 CO:R:C:M 089879 NLP
District Director
United States Custom Service
127 North Water Street
Ogdensburg, NY 13669
RE: Protest No. 0712-91-000271; Copper Cathodes; subheading
7403.11.00; subheading 7404.00.00; subheading 7402.00.00;
United States-Canada Free Trade Agreement; General Note
3(c)(vii)(R)(15)(kk)
Dear District Director:
The following is our response to the Protest and Request for
Further Review No. 0712-91-000271, dated March 3, 1991,
concerning the eligibility of copper cathodes for duty
preferences under the United States-Canada Free Trade Agreement
(CFTA).
FACTS:
The manufacturer of the copper cathodes imports scrap copper
from various offshore countries. This scrap copper and Canadian
scrap are used to manufacture an anode through smelting. The
anode is then used to produce a cathode through an electrolytic
process. The cathode is then exported to the United States.
Upon importation the copper cathodes were classified in
subheading 7403.11.00, HTSUSA, which provides for refined copper
and copper alloys, unwrought (other than master alloys of heading
7405), cathodes. This merchandise was not eligible for duty
reduction benefits under the CFTA.
Protestants do not disagree with the HTSUSA classification
of the cathodes. However, they argue that the merchandise is
entitled to the duty reduction benefits of the CFTA.
ISSUE:
Are the copper cathodes entitled to duty preferences under
the CFTA.
LAW AND ANALYSIS:
Articles which are imported from Canada may be entitled to
certain tariff preferences under the CFTA if the articles are
"originating goods" as defined by General Note 3(c)(vii)(B),
HTSUSA. There are two primary means in General Note
3(c)(vii)(B), HTSUSA, by which articles imported into the United
States may be "goods originating in the territory of Canada."
The first method is if goods are "wholly obtained or produced in
the territory of Canada and/or the United States." General Note
3(c)(vii)(B)(1), HTSUSA. 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 one which is grown,
mined, harvested, born and raised in Canada and/or the United
States, or otherwise intimately connected to the two countries
and their land, air and sea territories as defined in General
Note 3(c)(vii)(L), HTSUSA. Since the copper cathodes are
manufactured in part from scrap copper that is not from Canada or
the United States, the cathode is not "wholly obtained or
produced in the territory of Canada and/or United States."
The second method to become an originating good for CFTA
purposes is for an article made of foreign materials to be
transformed in Canada and/or the United States in accordance with
General Note 3(c)(vii)(B)(2), HTSUSA. A transformation is
evident when a change in tariff classification occurs that is
authorized by General Note 3(c)(vii)(R), HTSUSA.
In this instance, foreign scrap, which is classified in
subheading 7404.00.00, HTSUSA, is mixed with Canadian scrap. The
scrap is used to form the anodes, which are classified in
subheading 7402.00.00, HTSUSA. For the anodes to be considered
originating goods, a transformation must be effected in
accordance with General Note 3(c)(vii)(R)(15)(kk), HTSUSA, which
states that for articles classified in Chapter 72 through 83 a
change to headings 7403 through 7408 from any other heading of
chapter 74 outside that group effects the required
transformation; provided, that the value of materials originating
in the territory of Canada and/or the United States plus the
direct cost of processing performed in the territory of Canada
and/or the United States constitute not less than 50% of the
value of the goods when exported to the territory of the United
States. As the transformation of the scrap to the anode is from
heading 7404, HTSUSA, to heading 7402, HTSUSA, it is not covered
by General Note 3(c)(vii)(R)(15)(kk), HTSUSA, and, therefore, the
anodes are not considered originating goods for CFTA purposes.
In determining whether the cathode can be considered an
originating good for CFTA purposes, we must apply General Note
3(c)(vii)(R)(15)(kk), HTSUSA, to the transformation of the anode
to the cathode. The anode, which is classified in subheading
7402.00.00, HTSUSA, is used to produce the cathode, which is
classified in subheading 7403.11.00, HTSUSA. As stated, the
first requirement of General Note 3(c)(vii)(R)(15)(kk) is that,
for articles classified in Chapter 72 through 83, a change to
headings 7403 through 7408 from any other heading of chapter 74
outside that group effects the required transformation. Here,
the transformation of the anode to the cathode is from heading
7402, HTSUSA, to heading 7403, HTSUSA, and is a recognized
transformation. However, the second requirement of General Note
3(c)(vii)(R)(15)(kk), the 50% test, cannot be met. The value of
the anode may not be included in the 50% test because it is not
considered an originating good by virtue of its foreign content.
As a result, the direct cost of processing must, on its own,
constitute not less than 50% of the value of the goods when
exported into the United States. The conversion costs from the
anode to the cathode are relatively small and would not
constitute 50% of the value of the goods when exported to the
United States. Therefore, the required transformation has not
been effected and the cathode is not eligible for duty
preferences under the CFTA.
HOLDING:
The protest should be denied in full. A copy of this
decision should be attached to the Customs Form 19 and mailed to
the protestant as part of the notice of action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division