CLA-2 RR:CTF:TCM H217623 HvB
TARIFF NO: 8505.11.11
Mr. Peter Kirby
Fasken Martineau DuMoulin LLP
Stock Exchange Tower
Suite 3700, P.O. Box 242
800 Place Victoria
Montreal, Quebec, Canada H4Z 1E9
RE: Classification and NAFTA Eligibility of name badge kits; country of origin marking
Dear Mr. Kirby:
This is in response to your request for an advance ruling, dated April 3, 2012, on behalf of Imprint Plus, which you submitted to U.S. Customs and Border Protection (“CBP”). In your letter, you ask whether certain imported name badge kits are eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”), pursuant to General Note 12 of the Harmonized Tariff Schedule of the United States (“HTSUS”). In addition, you also ask for a determination as to the proper country of origin marking for the name badge kits. Your submission includes a sample of the YouWho Professional Name Badge System (“YouWho”) and the Mighty Badge kits.
FACTS:
The instant merchandise consists of different materials which are put together for creating professional name badges. The name-badge kits are sold and packaged in a sealed retail cardboard box, which states that the kits allow a person to design and print a professional name badge, with graphics and logo, quickly and easily. Each kit contains a test sheet, non-adhesive peel-off transparent and paper label sheets, name plates of aluminum or steel, plastic protective lens covers, and rectangular rare earth magnets made of metal. The kits also contain paper instructions and a CD-ROM containing software for designing templates and printing the name badges on a laser jet or ink jet printer.
Once the individual name tags are printed on the inserts, the user places the individual label on the enclosed metal plate and slides the clear plastic lens cover onto the metal plate. The rare earth magnets secure the name tags to one’s clothing. We note that the magnets have a relatively high magnetic strength.
The name badge and labels for the YouWho kit are 3” x 1” in dimensions. The Mighty Badge Kits badges are 3” x 1.5” in dimensions. The kits are sold in various configuration colors (e.g. gold or silver), sizes, and shapes (e.g. oval or square). You indicate that the metal plates in the YouWho kits are composed of steel, while the metal plates in the Mighty Badge Kit are composed of aluminum.
The kits contain materials to make a limited number of badges, but the retail packaging box notes that the name tags may be reused. For example, the instant YouWho Professional Name Badge System (“YouWho”) kit contains two metal badges, two lens covers and two magnets, but there are sixteen labels on the insert sheets.
The cardboard box for the YouWho kit is marked as follows:
Packaged in Canada
Steel Plates, Lenscovers©, Insert Sheets© and CD Made in Canada. Fasteners Made in China
This marking is visible, both in terms of font size and placement. The box for the Mighty Badge Kit contains a similar marking, but is in smaller font and is less conspicuous. It reads as follows:
Packaged in Canada
Aluminum Plates, Lenscovers, Insert Sheets and CD Made in Canada
Fasteners Made in China
In both instances, the marking is located above Imprint Plus’s Canadian address, which is more prominent, in that it is in a larger font.
You state that all items, except the magnets, are of Canada origin. You indicate that the rare earth magnets are manufactured in China.
Your submission includes a list of Imprint Plus’s product line, Bill of Materials, and print-outs from Imprint Plus’ website which describe the kits.
ISSUES:
What is the tariff classification of the name badge kits under the HTSUS?
Whether the name badge kits are eligible for preferential tariff treatment under the NAFTA?
Are the name badge kits products of Canada for country of origin marking purposes?
LAW AND ANALYSIS:
I. Classification
Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that most goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The 2012 HTSUS provisions under consideration are as follows:
3926 Other articles of plastic
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7616 Other articles of aluminum
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7326 Other articles of iron or steel
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8505 Electromagnets; permanent magnets and articles intended to become magnets after magnetization; electromagnetic or permanent magnet chucks, clamps and similar holding devices; electromagnetic couplings,
clutches and brakes; electromagnetic lifting heads; parts thereof
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) though not dispositive or legally binding, may provide commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
The rare earth magnets are products of China. The remaining components of the kits are manufactured in Canada, and the kits are assembled and packaged for retail sale in Canada before importation into the U.S. In order to determine if the instant kits are products of Canada, we must determine the tariff classification of the kits under the HTSUS. Then, we will use this tariff classification to determine if the packaged kits satisfy the tariff shift rules required to be a product of Canada and thus be eligible for NAFTA preferential treatment.
Since no heading of the HTSUS completely describes the name badge kits, and the goods are prima facie classifiable in two or more headings, classification must fall to GRI 3.
GRI 3 provides, in pertinent part, as follows:
3. When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
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(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
GRI 3(b) provides for the classification of goods put up in retail sets. EN(X) to GRI 3(b) states that for purposes of Rule 3(b) the term "goods put up in sets for retail sale” means goods which: (a) consist of at least two different articles which are, prima facie, classifiable in different headings; (b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and, (c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).
Applying the definition of the phrase “goods put up as sets for retail sale” provided in EN (X) to GRI 3(b), the subject merchandise meets the first requirement because the product consists of two or more goods, which are prima facie classifiable in two or more headings of the HTSUS. In addition, the subject merchandise meets the second requirement because the metal badges, magnets, inserts and other components of the set are put up together to carry out a specific activity. In this case, the goods are put up together to create name badges. Finally, the goods are put up in a manner suitable for sale without repackaging because the kits are packaged in sealed cardboard boxes that are suitable for retail sale. Therefore, the YouWho and Mighty Badge kits can qualify as a set for purposes of GRI 3(b).
GRI 3(b) requires that classification be based on the product that provides the set with its essential character. EN (VIII) to GRI 3(b) provides that when performing an essential character analysis the factors that should be considered are the bulk, quantity, weight or value, or the role of a constituent material in relation to the use of the goods. There have been several court decisions on "essential character" for purposes of classification under GRI 3(b). See Conair Corp. v. United States, 29 C.I.T. 888 (2005); Structural Industries v. United States, 360 F. Supp. 2d 1330, 1337-1338 (Ct. Int’l Trade 2005); and Home Depot USA, Inc. v. United States, 427 F. Supp. 2d 1278, 1295-1356 (Ct. Int’l Trade 2006), aff’d 491 F.3d 1334 (Fed. Cir. 2007). “[E]ssential character is that which is indispensable to the structure, core or condition of the article, i.e., what it is.” Home Depot USA, Inc. v. United States, 427 F. Supp. 2d at 1293 quoting A.N. Deringer, Inc. v. United States, 66 Cust. Ct. 378, 383 (1971). In particular in Home Depot USA, Inc. v. United States, the court stated “[a]n essential character inquiry requires a fact intensive analysis.” 427 F. Supp. 2d 1278, 1284 (Ct. Int’l Trade 2006). Therefore, a case-by-case determination on essential character is warranted in this situation.
You contend that the articles are classifiable in heading 7326, HTSUS, on the basis that the metal plates are the most visible aspect of the name badge and that they provide the name badge with its the functional utility. You further contend that the magnet is an “optional component that could be replaced by a clip (e.g. safety pins) or some other fastener without affecting the badge’s character.” However, given that the samples provided to us did not contain an alternate fastener and that the badge lacks any obvious design features to accommodate alternate fasteners, we do not find this argument persuasive.
Applying the essential character analysis to the present case, we find that the individual magnets are significantly heavier than other items. We note that the magnets are significantly more expensive than the other items. The plastic lens cover and metal plates are the least expensive items, with the plastic lens cover being slightly more costly.
The final factor to consider is the role of the constituent materials in relation to the use of the kits. In this case, we note that plastic lens cover, the metal plates and magnets play equally important roles. In order for the wearer to display his nametag on his article of clothing, all three items must be utilized. The insert labels will not stay on the metal plates without the plastic covers; yet, the lens covers are useless without the other components. Although the magnets are more expensive than the metal plates and plastic lens covers, the difference in cost is not sufficiently large enough to overcome the fact that when used alone, the magnet does not facilitate display of one’s name tag. Similarly, the plastic cover merely protects and holds the label on the badge. Thus, neither the plastic lens cover, metal plate, nor the magnet imparts the essential character to the merchandise and we are unable to classify the merchandise pursuant to GRI 3(b).
Accordingly, the instant sets are classified pursuant to GRI 3(c), supra. In this instance, the metal plates, plastic lens covers and metal magnets equally merit consideration, since they provide complementary roles in allowing the name-tag wearer to display his or her name. As stated above, the HTSUS headings at issue are: 3926 (plastic lens covers), 7616 or 7326, HTSUS (metal plates) and 8505, HTSUS (magnets). Thus, since heading 8505 occurs last in numerical order of the two headings, the YouWho and Mighty Badge kits are classifiable as magnets in heading 8505, HTSUS.
We note that this decision is consistent with previous CBP decisions concerning similar items. In Headquarters Ruling Letter (“HQ”) 966569, dated April 20, 2004, we classified plastic identification badges, consisting of a neck hanging plastic badge holder with cardstock inserts, in heading 3926, HTSUS, because the plastic badge holder was the material which enabled the wearer (e.g. a convention attendee) to display his or her name. The magnet provides this function in the instant kits. In New York Ruling Letter (“NY) N016390, dated September 5, 2007, CBP applied GRI 3(c) to classify a kit for making photo ID badges, which contained badge sheets, metal clips for wearing the badges on clothing, paper card stock and peel off plastic sheet which is folded to form a protected cover over the paper badge in heading 7326, HTSUS.
NAFTA Eligibility
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS, and provides, in pertinent part, the following:
Goods originating in the territory of a party to the [NAFTA] are subject to duty as provided herein. For the purposes of this note –
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 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, in accordance with section 201 of the NAFTA Implementation Act.
Accordingly, the imported product will be eligible for the “Special” “CA” rate of duty provided it is a NAFTA “originating” good under General Note 12(b), HTSUS, and qualifies to be marked as a product of Canada under the NAFTA Marking Rules. General Note 12(b), HTSUS, provides, in pertinent part:
(b) For the 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—
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(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[.]
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As discussed above, the kits are classified in 8505, HTSUS, specifically in subheading 8505.11. The tariff shift rule for subheading 8505.11 is set forth in General Note 12(t) 85/9, and provides for “A change to subheadings 8505.11 through 8505.20 from any other heading”. In this case, the tariff-shift rule set forth above is not satisfied because the magnets, classifiable in heading 8505, are manufactured in China. Therefore, the kits are not eligible for preferential treatment under NAFTA.
III. Country of Origin Marking
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), requires 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. § 1304 are set forth in Part 134, CBP Regulations (19 C.F.R. Part 134).
Section 134.1(b), CBP Regulations (19 C.F.R. §134.1(b)), 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) 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 United States as determined under the NAFTA Marking Rules.
Part 102 of the CBP Regulations sets forth the NAFTA Marking Rules. Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes, which is provided in pertinent part:
The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel products covered by §102.21.
(a) 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 § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
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(c) Where the country of origin cannot be determined under paragraph (a) or (b) of this section and the good is specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture or composite good pursuant to General Rule of Interpretation 3, the country of origin of the good is the country or countries of origin of all materials that merit equal consideration for determining the essential character of the good.
Since the magnets included with the subject kits are foreign components, the origin of the merchandise cannot be determined by application of 19 CFR § 102.11(a)(1) or (2). Therefore, under 19 CFR § 102.11(a)(3 ), the tariff shift rule set forth in 19 C.F.R. § 102.20 is considered. Both the kits are classified under subheading 8505.11, HTSUS. The tariff shift rule for subheading 8505.11, HTSUS, set forth at 19 CFR § 102.20(o) states:
A change to subheading 8505.11 through 8505.20 from any other subheading, including another subheading within that group.
In this case, since the magnets are classified in the same subheading as the kits, the tariff shift rule is not met. Furthermore, since the items are merely packaged together, they will not be considered to meet the applicable change in tariff classification pursuant to 19 C.F.R. § 102.17.
We therefore turn to 19 CFR § 102.11(c), since the kits are classified pursuant to GRI 3(c), as 19 C.F.R §102.11(b) is not applicable to “sets.” In this case, the materials that merit equal consideration for determining essential character are the magnets, the plastic cover, and the metal plates. As noted above, the magnets are goods of China; the plastic cover and metal plates are products of Canada. Therefore, the kits are products of China and Canada for marking purposes.
Finally, although you did not request guidance on the actual marking of the articles in question, we note that Imprint’s Plus Canadian address is in larger font than the adjacent country of origin marking on the Mighty Badge kit. Please bear in mind that 19 C.F.R. § 134.11 requires that the article be marked in a manner as to allow the ultimate purchaser to easily locate the country or origin marking and that under 19 C.F.R. § 134.46, where a locality other than product’s country origin appears appear on the article or its container, the marking must be in comparable size to any reference to a locality or foreign country other than the article’s country of origin.
HOLDING:
By application of GRI 3(c), the YouWho Kit and Mighty Badge kits are classified under subheading 8505.11.11, HTSUS, which provides for “Electromagnets; permanent magnets and articles intended to become magnets after magnetization; electromagnetic or permanent magnet chucks, clamps and similar holding devices; electromagnetic couplings, clutches and brakes; electromagnetic lifting heads; parts thereof: Permanent magnets and articles intended to become permanent magnets after magnetization: of metal . ” The column one, general rate of duty is 2.1% ad valorem.
Based on your submission, the YouWho Kit and Mighty Badge kits are not originating goods under GN 12(t) 85/9, HTSUS, and therefore they do not qualify for preferential treatment under NAFTA.
Pursuant to 19 C.F.R. § 102.11, the countries
of origin of the Mighty Badge Kit and the YouWho Badge Kit for marking purposes is China and Canada.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch