CLA-2 RR:CR:SM 960519 CW
Mr. Tom Penska
Consulting Services Department
PBB Group
434 Delaware Ave.
Buffalo, NY 14202
RE: Reconsideration of NY B84370; Country of Origin Marking of Strung Pearl Necklaces
and Bracelets from Canada
Dear Mr. Penska:
This is in reference to your request for reconsideration of New York Ruling Letter (NY) B84370 dated April 30, 1997, on behalf of 3077675 Canada Inc. (Delmar), regarding the eligibility of strung pearl necklaces and bracelets imported from Canada for a duty preference under the North American Free Trade Agreement (NAFTA) and the country of origin of the articles under the NAFTA Marking Rules. We have reviewed NY B84370 in connection with your letter of May 16, 1997, and have determined that the ruling’s holding regarding the origin of the articles for country of origin marking purposes is incorrect. Our decision follows:
FACTS:
The cultured pearls originate in China and are shipped into Canada from Hong Kong. They are temporarily strung for the purpose of transport to Canada. The pearls are permanently strung in Canada and made into wearable necklaces and/or bracelets in Canada with the addition of clasps or other ornaments.
In NY B84370, it was determined that the pearl necklaces and bracelets imported into the U.S. from Canada: (1) are classifiable in subheading 7116.10.2500, Harmonized Tariff Schedule of the United States (HTSUS); (2) do not qualify as “originating” goods under General Note 12(b), HTSUS, and, therefore, are not entitled to duty preference under NAFTA; and (3) by application of the NAFTA Marking Rules set forth in 19 CFR Part 102, are considered goods of China for country of origin marking purposes. You request reconsideration of the determinations concerning NAFTA eligibility and country of origin marking.
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ISSUES:
Whether the pearl necklaces and bracelets are entitled to a duty preference under NAFTA.
What is the country of origin of the articles for marking purposes?
LAW AND ANALYSIS:
There appears to be no dispute as to the correct classification of the imported necklaces and bracelets under the HTSUS. The articles are classified in subheading 7116.10.2500, HTSUS, the provision for “Articles of natural or cultured pearls, precious or semiprecious stones (natural, synthetic or reconstructed): Of natural or cultured pearls: Cultured.”
NAFTA Preference
General Note 12(a)(ii), HTSUS, provides, in pertinent part:
(I) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in the regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "CA" in parentheses, are eligible for such duty rate....
Accordingly, the necklaces and bracelets at issue will be eligible for the preferential "CA" rate of duty if they are NAFTA "originating" goods under General Note 12(b), HTSUS, and they qualify to be marked as products of Canada under the NAFTA Marking Rules. General Note 12(b) states, in pertinent part:
For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if:
(I) they are goods wholly obtained or produced entirely in
the territory of Canada, Mexico and/or the United
States; or
(ii) they have been transformed in the territory of Canada,
Mexico and/or the United States so that--
(A) except as provided in subdivision (f) of this
note, each of the non-originating materials used
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in the production of such goods undergoes a change
in tariff classification described in subdivision
(r), (s) and (t) of this note or the rules set
set forth therein, or
(B) the goods otherwise satisfy the applicable
requirements of subdivision (r), (s) and (t) where
no change in tariff classification is required, and
the goods satisfy all other requirements of this
note....
Because the pearl necklaces and bracelets are made, in part, of materials from China, General Note 12(b)(I), HTSUS, does not apply. Therefore, we must ascertain whether the products qualify for NAFTA preferential treatment under General Note 12(b)(ii), HTSUS; that is, whether the article undergoes the prescribed tariff shift or other applicable requirements to become an originating good of Canada. Since the articles imported into the U.S. are classifiable in subheading 7116.10.2500, HTSUS, you correctly note that the pertinent rule is found in General Note 12(t)/71.2, HTSUS, which states:
Chapter 71.
* * *
Heading rule: Pearls, permanently strung but without the addition of clasps or other ornamental features of precious metals or stones, shall be treated as an originating good only if the pearls were obtained in the territory of one or more of the Parties.
2. A change to heading 7113 through 7118 from any heading outside that group, except from tariff items 7101.10.30 or 7101.22.30.
Applying this rule to the matter at hand, upon entry of the goods into the territory of the NAFTA party (Canada), they would have been classified in subheading 7101.22.30, HTSUS, which is the provision for “Pearls, natural or cultured, whether or not worked or graded but not strung, mounted or set; pearls, natural or cultured, temporarily strung for convenience of transport: Cultured pearls: Worked: Graded and temporarily strung for convenience of transport.” The importer notes in his Exhibit II that this provision bears subheading number 7101.22.1000 in the Canadian tariff. However, by design, tariffs do not necessarily correspond from one country to the next beyond the first six digits. Therefore, in this case, the Canadian subheading number at the eight digit level is immaterial to applying the U.S. rules.
Here, the applicable General Note 12(t) rule provides that even if a good changes to headings 7113 through 7118 from any heading outside that group, a tariff shift will not be recognized if the starting point is subheading 7101.22.30. Therefore, as the articles under
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consideration do not undergo the requisite tariff shift, they are not entitled to preferential treatment under the NAFTA, but will be dutiable under the column 1 general rate of 6.6 percent ad valorem. Note that this rate has been reduced since you received NY B84370.
With respect to the Heading rule in General Note 12(t)/71, you claim that, if pearls, permanently strung but without the addition of clasps or other ornamental features qualify as originating goods only if the pearls were obtained in a NAFTA party, then “[d]eductive reasoning implies that if clasps or other ornamental features are added in Canada,” the articles should qualify as originating goods. We disagree. The Heading rule specifically clarifies the circumstances under which pearls which are permanently strung but without the addition of clasps or other ornamental features may obtain originating status. The rule is silent on the circumstances under which pearls which are permanently strung with the addition of clasps or other ornamental features may obtain originating status. It is not appropriate to infer by “deductive reasoning” what the Heading rule would say had it addressed the situation presented in the instant case. In the absence of any specific guidance in the Heading rule on the circumstances presented here, we rely on the specific General Note 12(t) tariff shift rule applicable to imported merchandise. As noted above, the articles at issue do not undergo the requisite tariff shift specified therein.
The portion of NY B84370 relating to the eligibility of the imported articles for NAFTA duty preference is affirmed.
Country of Origin Marking
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its 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)), defines “country of origin” as:
...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’ within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (Emphasis added).
Section 134.1(j) of the regulations provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the U.S. as determined under the NAFTA Marking Rules. A “good
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of a NAFTA country” may be marked with the name of the country of origin in English, French or Spanish. See 19 CFR 134.45(a)(2).
Part 102, Customs Regulations (19 CFR Part 102), sets forth the “NAFTA Marking Rules.” Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining the country of origin for marking purposes. Section 102.11(a) states that “[t]he country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in
tariff classification set out in section 102.20 and satisfies any other applicable
requirements of that section, and all other applicable requirements of these rules are
satisfied.”
“Foreign Material” is defined in section 102.1(e), Customs Regulations (19 CFR 102.1(e)), as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.”
In this case, the pearl necklaces and bracelets are processed in Canada with Chinese origin pearls. Therefore, neither paragraph (a)(1) nor (a)(2) of section 102.11 can be used to determine the origin of the articles. As a result, 19 CFR 102.11(a)(3) is the next applicable rule that must be applied.
As indicated above, the imported pearl necklaces and bracelets are classifiable in subheading 7116.10.2500, HTSUS. Thus, the applicable change in tariff classification is set out in section 102.20(m), Customs Regulations, Section XIV: Chapter 71 as follows:
7116: a change to heading 7116 from any other heading, except that pearls strung but without the addition of clasps or other ornamental features of precious metals or stones, shall have the origin of the pearls.
The articles (pearls, temporarily strung) when imported into Canada from China are classifiable in subheading 7101.22.30, HTSUS, which is outside of heading 7116, and thus a tariff shift does occur in Canada. Since the pearl necklaces and bracelets imported into the U.S. are strung with the addition of clasps or other ornamental features of precious metals or stones, the exception to the tariff shift rule does not apply and all requirements of the tariff shift rule are met in Canada. Therefore, the country of origin of the imported pearl necklaces and bracelets is Canada and they must be so marked. NY B84370, which held that the country of origin of the goods is China, is modified accordingly.
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HOLDING:
On the basis of the information provided, the pearl necklaces and bracelets are not originating goods under General Note 12(b), HTSUS, and, therefore, are not entitled to a duty preference under NAFTA.
Under the NAFTA Marking Rules, the goods are considered products of Canada and must be marked accordingly.
NY B84370 is hereby modified. In accordance with 19 U.S.C. 1625(c)(1), this ruling will become effective 60 days after its publication in the Customs Bulletin. Publication of rulings or decisions pursuant to 19 U.S.C. 1625(c)(1) does not constitute a change of practice or position in accordance with section 177.10(c)(1), Customs Regulations (19 CFR 177.10(c)(1)).
Sincerely,
John Durant, Director
Commercial Rulings Division