HQ 956549 - Protest 3401-93-100050; Disk Storage Units; non-originating material; Japanese origin disk drives; CFTA; 8473.30.40; parts of ADP machines; General Note 3(c)(vii)(B) and (L); originating goods; wholly obtained or produced; General Note 3(c)(vii)(R)(16)(aa); change in tariff classification; HRL 951008; General Note 3(c)(vii)(G) and (H); value content requirement; HRL 953134 and 000159 - United States International Trade Commision Rulings

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HQ 956549

August 22, 1994

CLA-2 CO:R:C:M 956549 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 8471.93.40

District Director
U.S. Customs Service
P.O. Box 610
Pembina, ND 58271-0610

RE: Protest 3401-93-100050; Disk Storage Units; non-originating material; Japanese origin disk drives; CFTA; 8473.30.40; parts of ADP machines; General Note 3(c)(vii)(B) and (L); originating goods; wholly obtained or produced; General Note 3(c)(vii)(R)(16)(aa); change in tariff classification; HRL 951008; General Note 3(c)(vii)(G) and (H); value content requirement; HRL 953134 and 000159

Dear District Director:

This pertains to Protest 3401-93-100050, concerning the applicability of the United States-Canada Free Trade Agreement (CFTA), to disk storage units.

FACTS:

The articles at issue are Unisys Corporation's disk subsystem, model M 9720, which is a rack mounted disk storage unit consisting of a rack, various numbers of disk drives and a controller. The disk storage units are manufactured in Canada from U.S. and Japanese origin disk drives.

Upon importation into the U.S. from Canada, the entries of the disk storage units were liquidated on October 29 and November 5, 1993, under subheading 8471.93.40, Harmonized Tariff Schedule of the United States (HTSUS), as other magnetic disk drive storage units, whether or not entered with the rest of a system. The disk storage units were not granted CFTA preferential tariff treatment.

In a protest timely filed on December 20, 1993, the protestant states that the disk storage units are eligible for CFTA preferential tariff treatment. The protestant states that, when imported into Canada, the U.S. and Japanese origin disk drives are classified under subheading 8473.30.40, HTSUS, as parts of automatic data processing machines (ADP machines). As the disk storage units are classified under a parts tariff provision, the protestant contends that the disk storage units imported into the U.S. satisfy the value content requirement of General Note 3(c)(vii)(H)(1), HTSUS. Therefore, the disk storage units are eligible for CFTA preferential tariff treatment.

ISSUE:

Are the disk storage units eligible for preferential tariff treatment under the CFTA?

LAW AND ANALYSIS:

To be eligible for tariff preference under the CFTA, goods must be "originating goods" within the rule of origin in General Note 3(c)(vii)(B), Harmonized Tariff Schedule of the United States (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

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 disk storage units which are manufactured in Canada from U.S. origin disk drives are considered to be "wholly obtained or produced in the territory of Canada and the United States" pursuant to General Note 3(c)(vii)(L), HTSUS. Therefore, the disk storage units with U.S. origin disk drives are "originating goods" pursuant to General Note 3(c)(vii)(B)(1), HTSUS, and are eligible for CFTA preferential treatment.

However, the disk storage units manufactured with Japanese origin disk drives are not "wholly obtained or produced in the territory of Canada and the United States." 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. A transformation is evident when a change in tariff classification occurs that is authorized by General Note 3(c)(vii)(R), HTSUS. There is no dispute that, upon importation into the U.S., the disk storage units under consideration are classified under subheading 8471.93.40, HTSUS, which provides for:

Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included...Other... Storage units, whether or not entered with the rest of a system...Magnetic disk drive units...Other...Other....

General Note 3(c)(vii)(R)(16)(aa), HTSUS, states that for chapters 84 through 85 "[a] change from one chapter or another, other than a change to heading 8544" is acceptable. Therefore, to be entitled to preferential tariff treatment under the CFTA, the non-originating (Japanese) disk drives imported into Canada must be classified in a chapter other than chapter 84, HTSUS.

We must examine the tariff classification of the Japanese origin disk drives when imported into Canada. The protestant states that the Japanese origin disk drives are classified under heading 8473.30, Harmonized Tariff Schedule (HTS), as parts of automatic data processing machines. The only evidence presented is the protestant's statement on Customs Form 353 (U.S.-CFTA Exporter's Certificate of Origin) that the disk drives were imported into Canada under subheading 8473.30, HTS.

We are of the opinion that the proper classification of the Japanese disk drives when imported into Canada is under subheading 8471.93, HTS, as magnetic disk drive storage units, whether or not entered with the rest of a system. The classification of disk drives similar to the articles at issue was addressed in Headquarters Ruling Letter (HRL) 951008 dated May 14, 1992. HRL 951008 classified disk drive modules under subheading 8471.93.40, HTSUS, as other magnetic disk drive storage units, whether or not entered with the rest of a system.

Therefore, as the Japanese origin disk drives and disk storage units are both classified under heading 8471, HTS, the disk storage units manufactured with Japanese origin disk drives imported into the U.S. do not meet the tariff shift requirement of General Note 3(c)(vii)(R)(16)(aa), HTSUS, and, therefore, are not eligible for preferential tariff treatment under the CFTA.

We note that the protestant contends that the disk storage units are eligible for CFTA preferential tariff treatment because they meet the 50% value content requirement. We assume that the protestant is referring to General Note 3(c)(vii)(H), HTSUS, which states:

[N]otwithstanding subdivision (c)(vii)(G), goods described in that paragraph 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 or further assembly in a third country and they meet the requirements of subdivision (c)(vii)(E) of this note.

General Note 3(c)(vii)(H), HTSUS, is not a blanket exception to the operation of the change in classification rules. See, HRL 953134 dated April 23, 1993, and HRL 000159 dated April 9, 1992. Instead, General Note 3(c)(vii)(H), HTSUS, is expressly limited to the contexts described in General Note 3(c)(vii)(G), HTSUS, which states that:

[w]henever the assembly of goods in the territory of Canada fails to result in a change of tariff classification because--

(1) the goods were imported into the territory of Canada in an unassembled or a disassembled form and were classified as unassembled or disassembled goods pursuant to General Rule of Interpretation 2(a), or

(2) the tariff provision for the goods provides for both the goods themselves and their parts,
such goods shall not be treated as goods originating in the territory of Canada.

Therefore, the 50% value test applies only in the two specific contexts described in General Note 3(c)(vii)(G), HTSUS. In this case, the disk storage units do not meet either of the descriptions in General Note 3(c)(vii)(G), HTSUS. They are not imported into the U.S. unassembled/disassembled, nor are they classified pursuant to GRI 2(a), HTSUS, as unassembled or disassembled goods. Moreover, subheading 8471.93, HTS, i.e., the tariff classification of the disk storage units and the Japanese origin disk drives, only provides for magnetic disk drive storage units, whether or not entered with the rest of a system, and does not mention parts. The disk storage units manufactured with Japanese origin disk drives do not meet either criteria of General Note 3(c)(vii)(G), HTSUS, and, therefore, the value content requirement of General Note 3(c)(vii)(H), HTSUS, is inapplicable.

HOLDING:

The disk storage units which are manufactured from U.S. origin disk drives are considered to be "originating goods" pursuant to General Note 3(c)(vii)(B)(1), HTSUS, and, therefore, are eligible for CFTA preferential treatment.

The disk storage units which are manufactured from Japanese origin disk drives are not subject to the change in tariff classification pursuant to General Note 3(c)(vii)(R)(16)(aa), HTSUS, and, therefore, are not eligible for preferential tariff treatment under the CFTA.

The protest should be GRANTED IN PART and DENIED IN PART. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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