CLA-2 R:C:S 559027 MLR

Robert E. Burke, Esq.
Jesse M. Gerson, Esq.
Barnes, Richardson & Colburn
200 East Randolph Drive
Suite 7920
Chicago, IL 60601

RE: Carbon Monoxide Alarm Units; Transformers; Functional Unit; GRI 1; Country of origin marking; NAFTA; Article 509; General Note 12(b)(i) and (ii)(A), and 12(t)/85.107(A)

Dear Mr. Burke and Mr. Gerson:

This is in reference to your letter of February 6, 1995, requesting a ruling on behalf of your client, on whether carbon monoxide alarm units qualify for preferential duty treatment under the North American Free Trade Agreement (NAFTA), and the applicable country of origin marking requirements. A sample of a unit was submitted with your request.

FACTS:

The good at issue is a carbon monoxide alarm unit ("C.O. unit") which consists of a carbon monoxide alarm ("alarm") and a transformer. The purpose of the C.O. unit is to sense a certain level of carbon monoxide and sound the alarm to alert persons in the immediate area. You state that the alarm and transformer are packaged together for importation and sale in the U.S. You also state that in their condition as imported they are considered a functional unit pursuant to Note 4, Section XVI, Harmonized Tariff Schedule of the United States (HTSUS), and, therefore, classifiable under subheading 8531.80.80, HTSUS.

You have submitted an exhibit listing the components of the alarms which are assembled in Mexico. The assembly involves the automated and manual insertion of numerous components such as sensors (classifiable under subheading 9027.10.20, HTSUS), connectors (classifiable under subheading 8536.90.00, HTSUS), capacitors (classifiable under subheading 8532.22.00, HTSUS), diodes (classifiable under subheadings 8541.10.00, HTSUS), resistors (classifiable under subheadings 8533.10.00 and 8533.20.00, HTSUS), transistors (classifiable under subheading 8541.10.00, HTSUS), LED (classifiable under subheading 8541.40.20, HTSUS), and various other parts (classifiable under subheadings 8542.80.00, 8542.11.80, 8541.90.00, 8541.60.00, and 8536.50.80, HTSUS) onto a PCB board (itself classifiable under subheading 8534.00.00, HTSUS). Next, the horn top and bottom (classifiable under subheading 8531.90.80, HTSUS, and stated to be originating goods under NAFTA because they are of U.S.-origin), and horn (classifiable under subheading 8541.60.00, HTSUS), are inserted onto the PCB board, and the cover and base of the unit (classifiable under subheading 8531.90.80, HTSUS, and stated to be originating goods under NAFTA because they are of U.S.-origin) are assembled together to complete the alarm. The finished alarm is classifiable under subheading 8531.80.80, HTSUS, and you contend that it is an originating good.

After the assembly of the alarm, it is placed in retail packaging with a Chinese-origin transformer (classifiable under subheading 8504.31.40, HTSUS), and a screw and anchor kit (classifiable under heading 3923, 3925, and 7318, HTSUS). Both the alarm and the transformer have protruding, unfinished wiring. The directions accompanying the C.O. unit indicate that the transformer may be placed at any remote location away from the alarm. Furthermore, it is stated that only the transformer supplied may be used with the alarm, and the alarm may not be connected to any other device or directly to an electrical circuit, and one transformer may not be used with more than one alarm. Accordingly, you contend that the alarms cannot operate without the accompanying transformers, and the transformers are specially dedicated to meet the specification of the alarms.

The sample of the box in which the C.O. unit is packaged is labeled "Transformer made in China, Carbon monoxide alarm assembled in Mexico." The box also contains the marking "Assembled in Mexico. Printed in U.S.A." The transformer is also individually marked "Made in China," the screw and anchor kit is not marked, and the inside of the alarm contains the marking "Mfg'd & Svc'd by ... IL, USA ... Assembled in Mexico."

ISSUES:

I. Whether the imported carbon monoxide alarm unit qualifies for preferential duty treatment under NAFTA.

II. How must the carbon monoxide alarm unit be marked?

LAW AND ANALYSIS:

I. NAFTA Originating Goods

To be eligible for tariff preferences under NAFTA, goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUS. In this case, the method by which the C.O. unit imported into the U.S. may be "goods originating in the territory of a NAFTA party" is General Note 12(b)(ii), HTSUS. General Note 12(b)(ii), HTSUS, states that to be "goods originating in the territory of a NAFTA party":

(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 in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules 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; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....

Since the C.O. unit is classified pursuant to Note 4, Section XVI, HTSUS, as a functional unit under subheading 8531.80, HTSUS, a transformation is authorized by General note 12(t)/85.107, HTSUS, which states:

(A) A change to subheading 8531.80 from any other heading; or

(B) A change to subheading 8531.80 from subheading 8531.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:

(1) 60 percent where the transaction value method is used, or

(2) 50 percent where the net cost method is used.

First, in regard to the alarms assembled in Mexico and classifiable under subheading 8531.80, HTSUS, you contend that they are originating goods. Therefore, the non-originating components of the alarm must come from a heading other than heading 8531, or satisfy the regional value content. You state that plastic horn top and bottom, and cover and base, classifiable under heading 8531, which do not satisfy the tariff shift (i.e., from any other heading) are all themselves NAFTA originating goods because they are made in the U.S. As to the other non-originating materials comprising the alarm, it appears that the requisite tariff shift from any other heading is satisfied because all of the components are classifiable under HTSUS tariff provisions other than heading 8531. Therefore, provided the alarm components are classified in a heading other than heading 8531, HTSUS, and the plastic horn top and bottom, and cover and base are produced exclusively from originating materials, the alarms will be considered originating goods under NAFTA.

Second, in regard to the C.O. unit, if the alarm is an originating good, the only non-originating goods are the transformer and the screw and anchor kit packaged with the alarm. Since both the transformer and screw and anchor kit are classifiable under HTSUS tariff provisions other than heading 8531, we find that the C.O. unit is also considered an originating good pursuant to General Note 12(b)(ii)(A), HTSUS, and, therefore, is eligible for preferential duty treatment under NAFTA. II. 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), interim regulations, defines "country of origin" as:

The country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 the meaning of 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), interim 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), interim regulations, 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 set out at 19 CFR Part 102, interim regulations.

Section 102.11, interim regulations, sets forth the required hierarchy for determining whether a good is a good of NAFTA country for marking purposes. Section 102.11(a), interim regulations, states that the 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.

In this case, the applicable rule is section 102.11(a)(3), interim regulations. "Foreign material" is defined in section 102.1(e), interim regulations, 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." Therefore, in order to determine whether Mexico is the country of origin, we must look at those materials whose country of origin is other than Mexico.

As the C.O. unit is classifiable pursuant to Note 4, Section XVI, HTSUS, as a functional unit under subheading 8531.80.80, HTSUS, the applicable change in tariff classification set out in section 102.20(p), Section XVI, Chapters 84 through 85, 8531.10-8531.80 of the interim regulations provides:

8531.10-8531.80 ... A change to subheading 8531.10 through 8531.80 from any other subheading, including another subheading within that group, except when resulting from a simple assembly.

Section 102.1(o), interim regulations, states that a "[s]imple assembly" means the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing." In this case, there is no simple assembly operations because the alarm, transformer, and screw and anchor kit are only packaged together in Mexico. The alarm, classifiable under subheading 8531.80, HTSUS, does not meet the tariff shift. Furthermore, although the transformer and screw and anchor kit appear to meet the requisite tariff shift since they are classifiable in a subheading other than subheading 8531.80, HTSUS, section 102.17, interim regulations, states that "[a] foreign material shall not be considered to have undergone the applicable change in tariff classification set out in 102.20, or satisfy the other applicable requirements of that section by reason of ...

(c) Simple packing, repacking or retail packaging without more than minor processing....

Accordingly, section 102.11(b) of the hierarchial rules must be applied to determine the country of origin. Section 102.11(b), interim regulations, provides that:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good ...

When determining the essential character of a good under section 102.11, interim regulations, section 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration and that in deciding among these materials consideration is given to various factors, including the nature of the material or component, bulk, quantity, weight, value, and the role of a constituent material in relation to the use of the goods.

In this case, a change is not allowed for the alarm because it is classifiable under subheading 8531.80, HTSUS, and does not change from any other subheading, including another subheading within subheadings 8531.10 through 8531.80, HTSUS. Furthermore, a change is not allowed for the transformer and kit pursuant to section 102.17 because they only undergo packaging operations. Accordingly, among these three materials, we are of the opinion that the single material which imparts the essential character of the C.O. unit is the alarm. Accordingly, the country of origin of the C.O. unit is the country of origin of the alarm.

Returning to section 102.20(p), Section XVI, Chapters 84 through 85, 8531.10-8531.80 of the interim regulations, in order to determine whether Mexico is the country of origin of the alarm, we must look at those materials whose country of origin is other than Mexico. In this case, all of the materials used to assemble the alarm are classifiable under a subheading other than 8531.80, HTSUS. Accordingly, the requisite tariff shift has been met, and the country of origin of the alarm is Mexico. As the alarm constitutes the essential character of the C.O. unit, the country of origin of the C.O. unit also is Mexico.

In regard to the marking of the retail box, "Transformer made in China, Carbon monoxide alarm assembled in Mexico," or "Assembled in Mexico. Printed in U.S.A." will not be appropriate. Rather, since the country of origin of the C.O. unit is Mexico, it is acceptable to mark only the container "Made in Mexico," "Product of Mexico," or words of similar meaning if the ultimate purchaser will receive the C.O. unit in its retail container. The components of the C.O. unit do not require any marking, but they also may be marked "Made in Mexico," "Product of Mexico," or words of similar meaning. If the individual components of the C.O. unit are marked with a country other than Mexico, the retail package container must clearly indicate the country of origin of the C.O. unit and must make reference to the countries indicated on the components so that the ultimate purchaser is not misled as to the actual origin of the imported C.O. unit. Accordingly, since the transformer is marked "Made in China," either this marking must be removed, or the container should be marked "C.O. unit Made in Mexico with components from China."

HOLDING:

Provided the alarm components are classified in a heading other than heading 8531, HTSUS, and the plastic horn top and bottom, and cover and base are produced exclusively from originating materials, the alarm will be considered an originating good under NAFTA. Therefore, if the alarm is an originating good, we find that the carbon monoxide alarm unit is an originating good pursuant to General Note 12(b)(ii)(a). Therefore, the carbon monoxide alarm unit will be eligible for preferential duty treatment under NAFTA. In addition, pursuant to 102.11(a)(3), interim regulations, the country of origin of the alarm of the carbon monoxide alarm unit is Mexico. Furthermore, pursuant to 102.11(b), interim regulations, the country of origin of the carbon monoxide unit is Mexico for purposes of country of origin marking. Marking the container in which the ultimate purchaser receives the carbon monoxide alarm unit "Made in Mexico," "Product of Mexico," or words of similar meaning will be appropriate.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director
Commercial Rulings Division