CLA-2 CO:R:C:M 953134 RFA
District Director of Customs
127 N. Water Street
Ogdensburg, New York 13669
RE: Protest No. 0712-92-101339; Unburnished Cookies; Floppy
Disks; Microdisks; Canadian Free-Trade Agreement
(CFTA); "50 Percent Value Test"; HQ 000159; HQ 951644
Dear District Director:
The following is our decision regarding the Protest and
Request for Further Review No. 0712-92-101339, dated November 12,
1992. The protest was filed against your liquidation of the
entry of certain merchandise which was classified in subheading
8523.20.00, Harmonized Tariff Schedule of the United States
(HTSUS).
FACTS:
The merchandise, 3.5 inch microdisks and 5.25 inch floppy
disks, which are produced in Canada, consist of non-originating
and originating components. Both types of the merchandise use
flat, circular disks called "cookies", imported from Japan, to
magnetically record data. The "cookies" are produced from a
plastic substrate (PET film), magnetic particles, carbon, binder,
lubricants, dispersants and solvents. Upon importation by the
Canadian producer, the "cookies" are unburnished. In HQ 951644
of this date, we held that unburnished "cookies" are classifiable
under subheading 8523.20.00, HTSUS, which provides for
"[p]repared unrecorded media for sound recording or similar
recording of other phenomena. . .[m]agnetic discs."
The other non-originating components used to produce the 3.5
inch microdisks are: a liner; center hub; write protect; and a
spring. The claimed originating components used to produce the
microdisk are: resin; lifter; center plate; A-ring; and shutter.
The other components needed to produce the 5.25 inch floppy disks
are: PVC film; liner; and hub ring (low density disk only). The
producer states that prior to the assembly of the components, the
"cookies" are burnished in a complex and technologically
demanding process that yields programmable media. Burnishing is
the process of polishing the "cookies" to remove "asperities"
(dents and bumps), dust, and scratches from the surface.
Entry of the merchandise was made under subheading
8523.20.00, HTSUS, which provides for magnetic discs, eligible
for duty-free treatment under the Canadian Free-Trade Agreement
(CFTA). However, the entry was liquidated as magnetic discs,
ineligible for duty-free treatment under the CFTA.
ISSUE:
Whether the unburnished magnetic media, from a third-
country, qualify for duty-free treatment under the CFTA if more
than 50 percent of the value of the product is added in Canada?
LAW AND ANALYSIS:
The CFTA was approved and implemented by the Implementation
Act of 1988, Pub. L. 190-449, 101 Stat. 1851, September 28, 1988
(the Act). Chapter 3 of the CFTA sets forth the rules of origin
for determining whether goods qualify for the tariff preferences
under the CFTA. Section 202 of the Act refers to Chapter 3 of
the CFTA, and paragraph (d) of Section 202 refers specifically to
the Annex Rules (Annex 301.2 of the CFTA) and authorizes the
President to proclaim the rules. The rules of origin, including
the specific rules of the Annex, were implemented by Presidential
Proclamation 5923, December 14, 1988, as General Note 3(c)(vii),
HTSUS.
The importer argues that the value-content test is
applicable because the work performed in producing the two types
of disks in Canada results in more than 50 percent of the value
of the merchandise. General Note 3(c)(vii)(H) states the value-
content test as follows:
[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.
According to the importer's argument, any good would be
considered to qualify if they meet the "50 percent value test"
and were not further processed or assembled in a third country.
Customs rejected this interpretation in HQ 000159 (April 9,
1992). See also Information Memorandum of November 14, 1991
(file 000119).
We find that this argument by the importer arises by
misreading the language and scope of the statutory provision.
Subdivision (c)(vii)(H) is not a blanket exception to the
operation of the change in classification rules. Instead, the
subdivision is expressly limited to the goods described in
subdivision (c)(vii)(G) which provides as follows:
[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.
The proper interpretation of the 50 percent value test is
that it applies only in the two specific contexts described in
subdivision (c)(vii)(G). The issue here turns on whether the
Japanese "cookies" meet one of the two criteria set out in
subdivision (c)(vii)(G).
The first criterion is where the importation is of goods
which are unassembled or disassembled but nonetheless are
classified as if they were assembled pursuant to GRI 2(a).
According to the information provided, the "cookies" are imported
by themselves and are assembled with other components from Canada
to make the floppy disks and the microdisks. In HQ 951644, we
held that even though the Japanese "cookies" are not
"magnetised", they are "capable of being magnetised" and are
therefore, classifiable as magnetic disks under subheading
8523.20.00, HTSUS. Because the Japanese "cookies" are not
imported with the other components to turn them into usable
computer disks, they are not classifiable as unassembled or
disassembled goods pursuant to GRI 2(a). Therefore, they do not
meet the first criteria of subdivision (c)(vii)(G).
The second criterion of subdivision (c)(vii)(G) is when the
imported goods meet the tariff provision which describes both the
goods and their parts from which they were assembled. Subheading
8523.20.00, HTSUS, provides only for magnetic disks and does not
mention parts. Therefore, the Japanese "cookies" cannot meet the
second criteria of subdivision (c)(vii)(G).
Because the Japanese "cookies" do not meet either criterion,
the value content test in subdivision (c)(vii)(H) is not
applicable. We find that the subject merchandise with the
Japanese "cookies" is ineligible for duty-free treatment under
the CFTA. The 3.5 inch and 5.25 blank disks are classifiable
under subheading 8523.20.00, HTSUS, which provides for
"[p]repared unrecorded media for sound recording or similar
recording of other phenomena. . .[m]agnetic discs."
HOLDING:
The subject merchandise is not eligible for duty-free
treatment under the CFTA and is classifiable under subheading
8523.20.00, HTSUS, which provides for "[p]repared unrecorded
media for sound recording or similar recording of other
phenomena. . .[m]agnetic discs." The column 1, general rate of
duty is 4.2 percent ad valorem.
The protest should be denied in full. A copy of this
decision should be attached to Customs Form 19 and provided to
the protestant as part of the notice of action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division