CLA-2 CO:R:C:M 950005 KCC
Mr. William J. Ramia, Jr.
Alexander International
Memphis International Airport
P.O. Box 30209
Memphis, Tennessee 38130
RE: Sledge Hammer; GRI 1; DD 860604 and DD 860604 Amendment 1;
CFTA; General Note 3(c)(vii)(C)(1); combining operation;
H.R. Doc. No. 100-216; 19 CFR 10.195(a)(2)(ii); originating
goods; General Note 3(c)(vii)(B)(2); General Note
3(c)(vii)(R); change in tariff classification; General Note
3(c)(vii)(G); parts; General Note 3(c)(vii)(H); direct cost
of processing test; country of origin; 19 CFR 134.32(m);
substantial transformation; Anheuser-Busch Brewing Ass'n;
hammer heads; individual marking; C.I.E. 347/60; 722465;
marking
Dear Mr. Ramia:
This is in response to your letter dated May 23, 1991, to
Customs in New York, on behalf of IXL Manufacturing Co., Inc.,
regarding the tariff classification under the Harmonized Tariff
Schedule of the United States (HTSUS), and country of origin of
sledge hammers imported from Canada. Your letter was forwarded
to this office for a response. Your letter dated October 14,
1991, regarding the direct cost of processing incurred in Canada
was also taken under consideration.
FACTS:
IXL Manufacturing Co., Inc. ("IXL") intends to import sledge
hammers from Canada. In Canada, Elgin Handles Limited ("Elgin")
manufactures the sledge hammers comprised of two parts: (1)
heads manufactured in China and imported in a condition ready for
assembly, and (2) handles manufactured from blocks of green
hickory wood imported into Canada from the United States. Elgin
processes the blocks of green hickory wood into sledge hammer
handles by kiln-drying, turning on a lathe, sanding, and gauging
the handle to fit each sized head. The heads, presumably made of
steel, weigh between 4 to 10 pounds. The handles and heads are
then assembled by inserting the handle into the head, inserting a
wedge, sanding of the excess wedge, and repainting the head.
Each handle is either lacquer coated or wax finished before
shipping. The appropriate safety and country of origin labels
are affixed to the handle and the sledge hammer is packaged for
delivery.
In your letter dated October 14, 1991, you state that 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 .82 Canadian
Dollars. Additionally, you state that the labor and factory
overhead in Canada amounts to 1.1329 Canadian Dollars and that
the administrative overhead amounts to 1.6338 Canadian Dollars.
The total cost for the completed sledge hammer imported into the
U.S. is 5.5967 Canadian Dollars.
You previously received a ruling, DD 860604 dated March 16,
1991, and DD 860604 Amendment 1 dated May 21, 1991, from the
District Director of Customs in Los Angeles, California, which
classified a sledge hammer under subheading 8205.20.60, HTSUS.
The country of origin of the sledge hammer was determined to be
Canada. The sledge hammer was manufactured from sledge hammer
heads manufactured in Japan and handles produced in Canada in the
same manner as described in this case.
ISSUE:
I. What is the proper tariff classification of the sledge
hammer under the HTSUS?
II. Is the sledge hammer eligible for preferential tariff
treatment under the United States-Canada Free Trade Agreement
("CFTA")?
III. What are the country of origin and the proper marking
requirements applicable to the sledge hammer?
LAW AND ANALYSIS:
I. Tariff Classification
The classification of merchandise under the HTSUS is
governed by the General Rules of Interpretation (GRI's). GRI 1,
HTSUS, states in part that for legal purposes, classification
shall be determined according to the terms of the headings and
any relative section or chapter notes..."
As to the classification, we concur in the ruling issued by
the District Director on March 18, 1991 (DD 860604) and May 21,
1991 (DD 860604 Amendment 1). The sledge hammer is classified
under subheading 8205.20.60, HTSUS, which provides for "Handtools
(including glass cutters) not elsewhere specified or included;
blow torches and similar self-contained torches; vises, clamps
and the like, other than accessories for and parts of machine
tools; anvils; portable forges; hand- or pedal-operated grinding
wheels with frameworks; base metal; parts thereof...Hammers and
sledge hammers, and parts thereof...With heads over 1.5 kg each."
This tariff provision is eligible for preferential tariff
treatment under the CFTA.
II. The United States-Canada Free Trade Agreement
To be eligible for tariff preferences under the CFTA, goods
must be "originating goods" within the rule of origin in General
Note 3(c)(vii)(B), HTSUS. There are two primary means in
General Note 3(c)(vii)(B), HTSUS, by which articles imported
into the U.S. may be "goods originating in the territory of
Canada." The 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), HTSUS. 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), HTSUS.
However, even if articles are considered to be "goods
originating in the territory of Canada" pursuant to General Note
3(c)(vii)(B), HTSUS, they will not be eligible for preferential
tariff treatment under the CFTA "merely by virtue of having
undergone simple packaging or...combining operations." See,
General Note 3(c)(vii)(C)(1), HTSUS. The disallowances for
packaging and combining operations are to be applied in the same
manner as under the Caribbean Basin Initiative and the
Generalized System of Preferences. See, United States-Canada
Free-Trade Agreement, Communication from the President of the
United States, H.R. Doc. No. 100-216, 100th Cong., 2d Sess. 175
(1988), and Bello and Holmes, Guide to the U.S.-Canada Free-Trade
Agreement, p. 374-375 (1988). Under the Caribbean Basin
Initiative, simple combining or packaging operations include
"...fitting together a small number of components by bolting
gluing, soldering etc...." See, section 10.195(a)(2)(i), Customs
Regulations (19 CFR 10.195(a)(2)(i)).
However, section 10.195(a)(2)(ii), Customs Regulations (19
CFR 10.195(a)(2)(ii)), states that "[f]or purposes of this
section simple combining or packaging operations and mere
dilution shall not be taken to include processes such as the
following:
...
(D) A simple combining or packaging operation or mere
dilution coupled with any other type of processing such
as testing or fabrication (e.g., a simple assembly of a
small number of components, one of which was fabricated
in the beneficiary country where the assembly took
place).
In this case, the operations performed in Canada are not
considered a simple combining operation. The fabrication of the
handle in Canada coupled with the assembly of the handle with
the head excludes the Canadian operations from being considered
a combining operation pursuant to General Note 3(c)(vii)(C)(1),
HTSUS. Next, we must determine if the sledge hammers are
"originating goods" within the rule of origin in General Note
3(c)(vii)(B), HTSUS.
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), HTSUS. The sledge hammer includes a head
which is an article from a third country, China. The sledge
hammer does not meet the definitions found within General Note
3(c)(vii)(L), HTSUS, and is not "wholly obtained or produced in
the territory of Canada and/or the United States" under General
Note 3(c)(vii)(B)(1), HTSUS.
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), HTSUS. A transformation is
evident when a change in tariff classification occurs that is
authorized by General Note 3(c)(vii)(R), HTSUS. Pursuant to
General Note 3(c)(vii)(R)(15)(aa), HTSUS, a transformation is
evident for Chapter 82, HTSUS, when a change from one chapter to
another occurs. The sledge hammer head is classified under
heading 8205, HTSUS, as "...Hammers and sledge hammers, and
parts thereof...", and the green hickory wood is classified under
heading 4404, HTSUS, as "...wooden sticks, roughly trimmed but
not turned, bent or otherwise worked, suitable for the
manufacture of walking-sticks, umbrellas, tool handles or the
like...." Upon exportation to the U.S. from Canada, the
completed sledge hammer is classified under heading 8205, HTSUS.
A classification change does not occur as the sledge hammer head
does not change classification to another chapter.
Whenever the assembly of goods in the territory of Canada
fails to result in a change of tariff classification because the
tariff provision for the goods provides for both the goods
themselves and their parts, those goods shall not be treated as
goods originating in the territory of Canada. General Note 3
(c)(vii)(G)(2), HTSUS. However, goods described in General Note
3(c)(vii)(G)(2), HTSUS, shall be considered to have been
transformed in the territory of Canada and be treated as goods
originating in the territory of Canada if they meet the
requirements found in General Note 3(c)(vii)(H), HTSUS.
General Note 3(c)(vii)(H), HTSUS, 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."
General Note 3(c)(vii)(O), HTSUS, defines the items that can be
allocated to the direct cost of processing, and General Note
3(c)(vii)(N), HTSUS, defines the term "value of the goods when
exported." Based on the cost information that you submitted
pursuant to General Note 3(c)(vii)(O), HTSUS, in your letter
dated October 14, 1991, the sledge hammers do not meet the 50%
direct cost of processing test. The value of the U.S. and
Canadian materials (.82 Canadian Dollars) plus the direct cost of
processing which you identified as labor and factory overhead
(1.1329 Canadian Dollars) are 49.279% of the value of the sledge
hammer when exported to the U.S. (3.9629 Canadian Dollars).
Therefore, as the sledge hammers do not meet the 50% direct cost
of processing test, they are not eligible for preferential tariff
treatment under the CFTA.
The above calculations do not include the cost of the
administrative overhead described in your October 14, 1991,
letter. If a part of these costs is properly associated with the
direct cost of processing as defined in General Note
3(c)(vii)(O), HTSUS, the sledge hammers may meet the 50% direct
cost of processing test and, therefore, may be eligible for CFTA
treatment.
III. Country of Origin and Marking Requirements
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or 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.
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR
134.1(b)), provides that "country of origin" means the country of
manufacture, production, or growth of any article of foreign
origin entering the U.S. 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." The term "foreign origin" is defined in section
134.1(c), Customs Regulations (19 CFR 134.1(c)), as a country of
origin other than the U.S., as defined in 19 CFR 134.1(e), or its
possessions and territories.
As provided in section 134.32(m), Customs Regulations (19
CFR 134.32(m)), products of the U.S. exported and returned are
specifically excepted from country of origin marking
requirements. If a U.S. product is sent abroad for processing,
the article remains a product of the U.S. excepted from the
country of origin marking requirements unless, prior to its
return, it is substantially transformed into an article of
foreign origin.
If the U.S. product is substantially transformed abroad, it
becomes an article of foreign origin and must be marked with its
country of origin. In order for a substantial transformation to
be found, a new and different article having a distinctive name,
character, or use must emerge from the processing. See,
Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 28
S.Ct. 204 (1908).
We are of the opinion that the manufacture of the sledge
hammer handle results in a substantial transformation of the
blocks of green hickory wood. There clearly is a name change
from green hickory wood to sledge hammer handle. Prior to the
Canadian operations, the blocks of green hickory wood could be
used to make any type of product produced from green hickory
wood. Moreover, the kiln-drying, turning, sanding and gauging
operations change the character and use of the blocks of green
hickory wood by rendering the handle useful for use as a striking
tool. The sledge hammer handle emerges as a new article with new
characteristics, a different name and a defined specific use
different from that possessed by the blocks of green hickory
wood.
However, we have previously held that finished sledge hammer
heads imported into the U.S. where they are assembled to U.S.
handles must be individually marked with the sledge hammer head's
country of origin. See, C.I.E. 347/60 dated March 25, 1960, and
HRL 722465 dated 11-8-83. The sledge hammer head imported into
Canada is a completed article which does not need any further
manufacturing. The only processes performed to the head are the
actual assembly to the handle and some minor touch up work which
may be necessary after the assembly operation. Therefore, the
sledge hammer head must be individually marked, "Head made in
China" and the handle must be marked "Handle made in Canada."
HOLDING:
The sledge hammer is classified under subheading 8205.20.60,
HTSUS, which provides for "Handtools (including glass cutters)
not elsewhere specified or included...Hammers and sledge hammers,
and parts thereof...With heads over 1.5 kg each," which is
dutiable at the rate of 2.1 percent ad valorem. The sledge
hammer is not entitled to a tariff preference under the CFTA
pursuant to General Note 3(c)(vii)(C)(1), HTSUS.
The blocks of green hickory wood have undergone a
substantial transformation in Canada. However, the sledge hammer
head is a completed article which has not been substantially
transformed in Canada. Therefore, the completed sledge hammer
must be marked "Head made in China" and "Handle made in Canada."
In order to insure uniformity and to eliminate uncertainty,
we are modifying DD 860604 and DD 860604 Amendment 1 to reflect
the above marking requirements effective with the date of this
letter. This letter is notice to you of the modification of DD
860604 under section 177.9(d)(1), Customs Regulations (19 CFR
177.9(d)(1)).
Sincerely,
John Durant, Director
Commercial Rulings Division