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

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            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
3(c)(vii)(B)(1), HTSUS.  

     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