HQ 955442: Protest No. 0901-92-101303; IBM; Automatic Data Processing (ADP) Floppy Disks; Cookies; Prepared Unrecorded Media; Common and Commercial Identity; Ameliotex, Inc. v. United States; Esco Mfg. Co. v. United States; Anheiser-Busch Brewing Assn. v. United States; HQs 953134, 951644, 000159, 000119, and 000283,

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 955442

                        February 28, 1994
                                                        
CLA-2 CO:R:C:M  955442 MBR

CATEGORY:  Classification

TARIFF NO.:  8523.20.00 

District Director
U.S. Customs Service
111 West Huron St.
Buffalo, New York, 14202

RE:  Protest No. 0901-92-101303; IBM; Automatic Data Processing
     (ADP) Floppy Disks; Cookies; Prepared Unrecorded Media; Common
     and Commercial Identity; Ameliotex, Inc. v. United States;
     Esco Mfg. Co. v. United States; Anheiser-Busch Brewing Assn.
     v. United States; HQs 953134, 951644, 000159, 000119, and
     000283,

Dear District Director:

     This is our response to Protest No. 0901-92-101303, regarding
the classification of "Cookies" and finished ADP Floppy Disks,
under the Harmonized Tariff Schedule of the United States (HTSUS). 
The subject merchandise was entered in multiple entries between
August 17, 1990, and March 2, 1992.  The merchandise was liquidated
on May 15, 1992.  The protest was timely filed on August 7, 1992.

FACTS:

      The merchandise consists of 3.5" floppy disks, formatted and
unformatted, imported in single units and packs of ten.  Also
subject are 5.25" floppy disks imported in single units and packs
of ten, some of which have a write enable notch.  They are encased
in either a paperboard slip cover or plastic "library" enclosures.

     The manufacturing processes are as follows:

1.  A "cookie" is manufactured outside the U.S. and Canada.  The
cookie is manufactured by spray coating a plastic substrate film
with a metal oxide emulsion.  The inside and outside diameters are
cut to form the appropriate size of the diskette.

2.   In the U.S. or Canada the cookie is burnished, which consists
of a polishing operation to remove dirt and imperfections.



                               -2-

3.   In the U.S. or Canada an operation called "media integration"
is performed in which the center hub is attached and the disk is
mounted in an enclosure.  The 3.5" diskettes are mounted in a hard
plastic clam shell enclosure with a metal shutter to provide
access.  The 5.25" floppy diskettes are mounted in a Tyvek plastic
jacket.

4.   In the U.S. or Canada the diskettes are tested and some are
formatted.  A disk "format" is the layout of the storage units of
a disk.  Before data can be recorded (written) on a disk, a format
program must be used to break up the disk into recording segments,
called sectors.  The format program records the sector numbers on
the disk which are used to identify the sectors from then on.  See
The Computer Glossary, by Alan Freedman (1989).

5.   In the U.S. or Canada the diskettes are packaged for retail
sale.

ISSUE:

     What is the classification of the subject cookies and finished
ADP floppy diskettes, under the Harmonized Tariff Schedule of the
United States (HTSUS)?  

     Are they eligible for U.S. - Canada Free Trade Agreement
(CFTA) preferential tariff treatment?

LAW AND ANALYSIS:

     The General Rules of Interpretation (GRI's) to the HTSUS
govern the classification of goods in the tariff schedule.  GRI 1
states, in pertinent part:

     ...classification shall be determined according to the terms 
    of the headings and any relative section or chapter notes...

     The protestant argues that the foreign origin diskette cookies
change classification when they are burnished, media integrated,
and/or formatted.  We disagree.

     GRI 2(a) provides direction as to the classification of
unfinished goods, in pertinent part, as follows:

     Any reference in a heading to an article shall be taken to
     include a reference to that article incomplete or unfinished,
     provided that, as entered, the incomplete or unfinished
     article has the essential character of the complete or
     finished article....

     The Harmonized Commodity Description and Coding System
Explanatory Notes ("ENs") provide further elaboration of what is
to 

                               -3-

be considered an unfinished good possessing the essential character
of the finished good, on page 2, as follows:

     (II) The provisions of this Rule also apply to blanks unless
          these are specified in a particular heading.  The term
          "blank" means an article, not ready for direct use,
          having the approximate shape or outline of the finished
          article or part, and which can only be used, other than
          in exceptional cases, for completion into the finished
          article or part.

     Certainly, the foreign cookie should be considered a blank for
ADP diskettes because it possesses the shape of the finished
article and can only be used for completion into an ADP diskette.

     It has been argued that the formatting, which prepares the
disk to receive user data, merits a change in classification from
"prepared unrecorded media" (subheading 8523.20.00, HTSUS) to
"recorded media" (subheading 8524.90.40, HTSUS).

     However, all of the recorded format data has one purpose, and
that is to prepare the unrecorded media to store user data. 
Furthermore, the formatting, error mapping, etc., do not change the
commercial identity of the disk cartridges as prepared unrecorded
media.  "The tariff schedules are written in the language of
commerce, and the terms used are to be given their commercial or
common meaning."  See Ameliotex, Inc. v. United States, 65 CCPA 22,
25, C.A.D. 1200, 565 F.2d 674, 677 (1977); Esco Mfg. Co. v. United
States, 63 CCPA 71, 73 C.A.D. 1167, 530 F.2d 949, 951 (1976).

     Many "unrecorded" diskettes sold today have been prepared with
formatting.  However, formatting does not change their commercial
identity or classification to that of "recorded" media.  Similarly,
no other operations which are designed to "prepare" the media to
receive user data will change the classification from "prepared
unrecorded media...."

     Therefore, neither the burnishing, media integration,
formatting, nor packaging, change the tariff classification of the
instant foreign origin diskette cookies, which are classifiable in
subheading 8523.20.00, HTSUS.  Similarly, a substantial
transformation does not take place when the diskette cookie is
finished into a formatted/unformatted diskette.  The cookie is
merely an unfinished diskette with the same name, character and
use. See Anheiser-Busch Brewing Assn. v. United States, 207 U.S.
556 (1908).  For rulings regarding similar merchandise see HQs
953134, 951644, and 000283, all of which are dated April 23, 1993. 

     Furthermore, the protestant argues that the instant
merchandise should be considered U.S. goods returned under
subheading 9801.00.10, HTSUS.  We disagree.  This subheading


                               -4-

provides for: "[p]roducts of the United States when returned after
having been exported, without having been advanced in value or
improved in condition by any process of manufacture or other means
while abroad."  The instant diskettes are not products of the
United States.  Therefore, they cannot be considered U.S. goods
returned.

     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 protestant argues that the instant merchandise is an
originating good of the U.S. because the cookie undergoes a tariff
shift when finished in the U.S.  However, since the required tariff
shift has not taken place, pursuant to General Note
3(c)(vii)(B)(2)(I), of the U.S. - Canada Free Trade Agreement, the
finished diskettes are not goods originating in the U.S. or Canada.

     The protestant also argues that the value-content test is
applicable because the work performed in producing the diskettes
in the U.S. or 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:

     Notwithstanding 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.

     The protestant's premise is that any good would be considered
to qualify if it met the "50 percent value test" and were not
further processed or assembled in a third country.  Customs

                               -5-

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 protestant 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
foreign "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 to make the floppy diskettes. 
In HQ 951644, we held that even though the Japanese "cookies" are
not "magnetized", they are "capable of being magnetized" and are
therefore, classifiable as magnetic disks under subheading
8523.20.00, HTSUS.  Because the foreign "cookies" are not imported
with the other components necessary 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 foreign "cookies" cannot meet the
second criteria of subdivision (c)(vii)(G).  



                               -6-

     Because the foreign "cookies" do not meet either criterion,
the value content test in subdivision (c)(vii)(H) is not
applicable.  Thus, we find that the subject merchandise made with
foreign "cookies" is ineligible for duty-free treatment under the
CFTA.  

     The 3.5 inch and 5.25 foreign cookies and the finished
formatted diskettes are all 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, or subheading 9801.00.10, HTSUS, 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.

     For the reasons stated above, the protest should be denied in
full.  In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision, together with the Customs Form 19, 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 this decision must be accomplished prior to the
mailing of this decision.  Sixty days from the date of this
decision the Office of Regulations and Rulings will take steps to
make this decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette Subscription
Service, Lexis, Freedom of Information Act and other public access
channels. 

                              Sincerely,





                              John Durant, Director