CLA-2 CO:R:C:V 555474 KAC
District Director of Customs
880 Front Street, Suite 5S9
San Diego, California 92188
RE: Internal Advice Request #IA 44/89 concerning the
applicability of subheading 9802.00.80, HTSUS, to water
mattress inserts.Fabrication;incidental operations;
drilling;Mast;Miles;Surgikos;061429;555394
Dear Sir:
This is in response to your memorandum of July 14, 1989,
forwarding a request for internal advice, initiated by Stein
Shostak Shostak & O'Hara on behalf of Advanced Sleep Products, on
the applicability of subheading 9802.00.80, Harmonized Tariff
Schedule of the United States (HTSUS), to water mattress inserts.
We regret the delay in responding to your request.
FACTS:
Advanced Sleep Products ships U.S.-origin polyethylene foam
sheets, polyester fiber sheets, polyethylene bags, and
polyethylene primex black film to Mexico for certain operations.
From these components, Advanced Sleep manufactures thirty-three
different insert units for water mattresses. The 1/2 inch or 1/8
inch sheet of polyethylene foam is the principal component to
which the polyethylene bag is heat sealed and the polyester fiber
sheets and urethane foam sheets are riveted. This whole
structure floats inside the water mattress to achieve the
necessary wave reduction properties. The operations performed in
Mexico are:
(1) cutting and trimming the sheets;
(2) drilling holes into the sheets;
(3) heat sealing the polyethylene bags to the "float
sheet";
(4) riveting the polyester fiber sheets to the "float
sheet";
(5) riveting the urethane foam sheet to the "float sheet";
and
(6) packing the insert.
In the drilling operation, sixty to seventy of the sheets
are placed in a special wooden box which contains a lid with
guide holes. A drill operator follows the pattern on the lid,
drilling from twelve to forty-two holes in the sheets, which
allow air and water to flow through the insert. After removing
the lid, the operator runs a hand-held air drill with a door-knob
drill bit through the sheets to make a three inch drain hole.
After the sheets are assembled with other components to
create the mattress inserts, some of the inserts are assembled
into mattresses in Mexico while others are returned to the U.S.
The time required for the drilling operation is .04 seconds per
sheet which is .0075 percent of the time required to complete the
entire insert. When the inserts are assembled into the
mattresses abroad the cost for the drilling of the inserts
represents .00049 percent of the total labor cost of the
mattress.
ISSUE:
Whether the sheets incorporated into the water mattress
inserts are eligible for the duty exemption available under
subheading 9802.00.80, HTSUS, when imported into the U.S.
LAW AND ANALYSIS:
HTSUS subheading 9802.00.80 provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape,
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process,
such as cleaning, lubrication, and painting.
All three requirements of HTSUS subheading 9802.00.80 must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full cost or value of the imported assembled article,
less the cost or value of the U.S. components assembled therein,
upon compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation
from the United States to qualify for the exemption.
Components will not loose their entitlement to the exemption
by being subjected to operations incidental to the assembly
either before, during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing,
laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the
assembly operations. However, any significant process, operation
or treatment whose primary purpose is the fabrication,
completion, physical or chemical improvement of a component
precludes the application of the exemption under HTSUS subheading
9802.00.80 to that component. See, 19 CFR 10.16(c).
In United States v. Mast Industries, Inc., 515 F.Supp. 43,
1 CIT 188, aff'd, 69 CCPA 47, 668 F.2d 501 (1988), the court, in
examining the legislative history of the meaning of "incidental
to the assembly process," stated that:
[t]he apparent legislative intent was to not preclude
operations that provide an "independent utility" or that are
not essential to the assembly process; rather, Congress
intended a balancing of all relevant factors to ascertain
whether an operation of a "minor nature" is incidental to
the assembly process.
The court then indicated that relevant factors included:
(1) whether the relative cost and time of the operation
are such that the operation may be considered minor;
(2) whether the operation is necessary to the assembly
process;
(3) whether the operation is so related to the assembly
that it is logically performed during assembly; and
(4) whether economic or other practical considerations
dictate that the operation be performed concurrently
with assembly.
The question presented is whether the drilling operation
performed in Mexico is part of or incidental to the assembly of
the water mattress inserts. Rudolph Miles v. United States,
C.A.D. 1202, 65 CCPA 32, 567 F.2d 979 (1978), rev'g, C.D. 4689,
78 Cust.Ct. 35, 427 F.Supp. 417 (1977), concerned whether the
burning of slots and holes into Z-beams in Mexico, so that wear
and support plates and other components could be attached prior
to the beams' joinder to boxcars, constituted a further
fabrication of the beams. The court held that the burning of the
holes and slots was concomitant with the assembly process and was
not substantial enough to preclude the application of the
precursor provision to HTSUS subheading 9802.00.80. We have
previously ruled on several occasions that drilling or punching
holes in various components is an operation incidental to
assembly where the operation is not substantial. See,
Headquarters Ruling Letter (HRL) 061429 dated March 28, 1980
(holes drilled and punched through plastic cabinet, wood decal,
and oscillator shield to accommodate locks and coil were deemed
to be incidental to assembly, as they were not substantial); and
HRL 555394 dated August 15, 1989 (punching a hole into a vertical
blind strip, which allows for the subsequent attachment of a
plastic hook, is considered an incidental operation).
However, it is our opinion that the drilling operation in
this case does not qualify as an assembly operation or operation
incidental to assembly under subheading 9802.00.80, HTSUS. The
drilling operation in question is distinguishable from Miles and
the above-described cases, for in the latter situations the
holes made by burning, drilling or punching were subsequently
used in the assembly process. However, the holes drilled by
Advanced Sleep are not used in the subsequent assembly of the
water mattress inserts, but, rather, are created to allow air and
water to flow or drain through the insert. The unique pattern
design of the holes is an essential feature of the insert and
distinguishes Advanced Sleep's water mattresses from those of its
competitors. In our opinion, the drilling operation is a
significant process whose primary purpose is the fabrication of
the sheet component which later will be assembled into the water
mattress insert. See HRL 554920 dated January 3, 1989 (punching
a hole in one end of a fabric vane for receipt of a removable
plastic hanger insert was not incidental to assembly as the
attachment of the hanger did not constitute an assembly
operation).
Moreover, an analysis of the Mast criteria supports the
conclusion that the drilling operation is not an incidental
operation. In applying the Mast criteria, the court in Surgikos,
Inc. v. United States, 12 CIT , Slip Op. 88-35 (1988), found
that fenestration and finishing folding operations performed
after assembly operations were not incidental to the assembly
process, as the operations comprised over one-fourth of the cost
and one-third of the time involved to assemble the article, they
were not necessary prerequisites to the assembly of the article,
they were not related directly to the assembly process, and
practical considerations did not "dictate" that the article be
produced in the exact manner performed.
Although we recognize that the time and cost of the drilling
operation in the instant case is minor compared to the time and
cost of the total foreign operations, the drilling operation,
nevertheless, is a significant step in the manufacture of the
water mattress inserts for the reasons discussed above. Drilling
the holes clearly is not a necessary prerequisite to the
subsequent assembly of the insert, and the operation is not
related directly to the assembly process. Additionally, we are
not persuaded from the information presented that economic or
other practical considerations mandate that the drilling
operation be performed in Mexico immediately before the assembly.
Weighing the above factors, we conclude that the drilling
operation is not an incidental operation within the meaning of
subheading 9802.00.80, HTSUS, but rather evidences that the sheet
components are not exported in condition ready for assembly
without further fabrication.
HOLDING:
On the basis of the information presented, it is our opinion
that the drilling operation is not an operation incidental to the
assembly process, but rather is a further fabrication of the
sheet components. Therefore, these components are not entitled
to allowances in duty under subheading 9802.00.80, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division