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HQ 084856

August 31, 1989

CLA-2 CO:R:CV:G: 084856 JLV



Mr. William J. LeClair
Trans-Border Customs Services
One Trans-Border Drive, P.O. Box 800
Champlain, New York 12919

RE: U.S.-Canada FTA origin status of motherboard assembled in Canada with power supply and cabinet

Dear Mr. LeClair:

In a letter of May 8, 1989, on behalf of your client Philips Electronics Ltd. of Montreal, Quebec, Canada, you request a ruling on the origin status of certain motherboards exported to Canada from the United States and assembled with a power supply and cabinet of Canadian origin. Your client intends to export the assembly to the United States.


The facts submitted and forwarded for consideration require that certain statements be accepted as presented. First, the article assembled in the United States and exported to Canada is described as a "motherboard" that consists of third country components and U.S. components. At the time of entry into Canada, the importer states that it would be classified in Canadian tariff item 8471.91.00, pursuant to Canadian Customs Notice of October 28, 1988.

The motherboard will be assembled with a power supply and a cabinet in Canada. Both of these components are said to be of Canadian origin. No facts were submitted to document or support this statement. The completed assembly would then be exported to the United States.

Although the completed assembly consists of components that are stated to be originating materials for purposes of the U.S.-Canada Free-Trade Agreement (FTA), it is not "wholly obtained or produced" as defined in the FTA.


Does the completed assembly qualify for the benefits of the FTA as an originating good, and what rule under the FTA applies to such goods that consist solely of originating materials but are not wholly obtained or produced in the territory of Canada and/or the United States?


The FTA rules for determining whether goods, when imported into the United States, are originating in the territory of Canada are set forth in General Note 3(c)(vii), Harmonized Tariff Schedule of the United States Annotated (HTSUSA). Because the completed assembly includes a motherboard that contains both U.S. and third country components, it is not a good that is wholly obtained or produced in the territory of Canada and/or the United States within General Notes 3(c)(vii)(B)(1) and 3(c)(vii)(L).

General Note 3(c)(vii)(B)(2) provides for the only other means by which goods may be considered "originating" under the FTA: the goods must be transformed so as to be subject to a change in tariff classification described in 3(c)(vii)(R) or, if no change in classification, the goods must meet certain conditions set out in various other specific rules. None of the specific rules (for situations in which no change in tariff classification occurs) apply in this case.

The sole question, therefore, is whether the good assembled in Canada has undergone a change in tariff classification. For the reasons that follow, we conclude that the assembled good does not satisfy the rule that requires an originating good to be transformed in the territory of Canada within the meaning of General Note 3(c)(vii)(B)(2)(I).

Although the proposed operation, which only involves components that are "originating materials," appears to satisfy the intent of the FTA, we interpret the requirement of a change in tariff classification as a requirement that applies only to third country materials and is satisfied only with reference to such materials. This interpretation is necessary for two reasons. First, it gives the intended tariff preference to the broadest range of goods which might otherwise be denied the benefits of the FTA simply by virtue of the fact that an originating material did not change classification during the manufacturing process. Second, it is consistent in its treatment of originating materials.

To be selective at this point and say that a change in tariff classification of one or two originating materials will satisfy the requirement, and at the same time to ignore the fact that one of the originating materials does not undergo a change in tariff classification would be arbitrary and capricious. To be consistent with our interpretation that a change in tariff classification of originating materials is not relevant to the requirement of General Note 3(c)(vii)(B)(I), we must conclude that certain originating materials, such as the power supply and cabinet in this case, cannot be arbitrarily selected to justify the requirement of change in tariff classification when, at the same time, a third originating material, the motherboard, does not change tariff classification and is arbitrarily precluded from consideration.


The assembled article, consisting solely of originating materials as described in the FACTS, is not an originating good for purposes of the FTA.


John Durant, Director

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