CLA-2 CO:R:C:V 555505 KAC
Mr. John W. Cain
Cain Customs Brokers, Inc.
421 Texano
P.O. Box 150
Hidalgo, Texas 78557
RE: Applicability of partial duty exemption in subheading
9802.00.80, HTSUS, to automobile condensers imported
from Mexico.
Dear Mr. Cain,
This is in response to your letters of October 6, and
November 16, 1989, on behalf of Wells Manufacturing Company,
requesting a ruling on the applicability of subheading
9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS), to automobile condensers imported from Mexico.
Photographs showing the components and stages of the operation
were submitted for examination.
FACTS:
Wells Manufacturing Company plans to build condensers for
automobiles in Mexico. The condenser is designed to accumulate
and hold an electric charge for the automobile. The origin of
the majority of condenser components will be the U.S. However,
your November 16, 1989, letter mentioned that some components,
such as the eyelet (grommet), may be made in Mexico. The
described assembly process consists of:
(1) winding foil and mylar into a cylinder;
(2) compressing the cylinder in a press to ensure a
uniform length;
(3) drying the cylinder;
(4) testing the cylinder for its capacity to hold a 600
volt charge;
(5) cutting to length and stripping the insulated wire,
spinning the eyelet onto the wire and sliding the head
seal onto the stripped end of the wire;
(6) soldering a contact washer to the wire lead;
(7) connecting the wire lead, a pressure
washer, a tube, a terminal, and the cylinder to each
other on a Bodine machine (now known as the condenser
sub-assembly);
(8) testing the condenser sub-assembly for resistance and
18-pound pull;
(9) welding a bracket to the condenser shell; and
(10) testing the condenser for shorts.
The attachment operation of the terminal in step 7 can be
performed in a number of ways. A majority of the terminals will
be attached on the Bodine machine (as described in step 7) or by
means of a machine which stamps out a terminal from brass metal
and attaches the terminal to the condenser sub-assembly in one
pass. Another method used to attach the terminal involves the
use of pre-formed terminals on a reel which are fed into a
machine. In one motion, the machine separates the terminal from
the reel and affixes it to the condenser lead wire. This type of
terminal attachment is not used in the majority of cases.
Upon completion of the above operations, the automobile
condensers will be imported to the U.S.
ISSUE:
Whether the foreign operation constitutes an "assembly,"
thereby entitling the automobile condenser to the partial duty
exemption under HTSUS subheading 9802.00.80 when returned to the
U.S.
LAW & 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 value of the imported assembled article, less the
cost or value of such U.S. components, upon compliance with the
documentary requirements of 10.24, Customs Regulations (19 CFR
10.24).
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 operation. 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 (19 CFR 10.16(c)).
The winding of the foil and mylar to form the cylinder have
been found to constitute assembly steps rather than a "further
fabrication" within the meaning of the tariff provision. See,
General Instrument Corporation v. United States, 61 CCPA 86,
C.A.D. 1128, 499 F.2d 1318 (1974), rev'g, 70 Cust.Ct. 151, C.D.
4421, 359 F.Supp. 1390 (1973), and General Instrument Corporation
v. United States, 72 Cust.Ct. 86, C.D. 4507 (1974), appeal
dismissed, 62 CCPA 109 (1974).
Regarding the compressing of the cylinders, we understand
that this operation is performed to ensure that each is the same
length to enable it to fit into the housing unit. The degree to
which each cylinder is compressed depends upon the slight
variations in size of the cylinders. We believe that this
operation is incidental to the assembly process in view of
section 10.16(b)(5), Customs Regulations (19 CFR 10.16(b)(5)),
which provides that incidental assembly operations include
"[a]djustments in the shape or form of a component to the extent
required by the assembly being performed abroad...." Moreover,
we note that in General Instrument, 61 CCPA 86, the court found
that precision shaping of coil to fit the contours of a plastic
liner on which it was to be mounted was considered incidental to
the assembly process. The compressing operation also appears to
be a minor one in comparison to the total assembly process as the
information you have provided indicates that it represents only
5% of the time and 7.4% of the cost to assemble the finished
condenser.
The drying of the cylinder is also considered incidental to
the assembly process. General Instrument, 72 Cust.Ct. 86. All
of the testing operations performed are operations incidental to
assembly pursuant to section 10.16(b)(7), Customs Regulations (19
CFR 10.16(b)(7)). The operations of cutting to length and
stripping the insulated wire are considered operations incidental
to the assembly process pursuant to section 10.16(b)(6), Customs
Regulations (19 CFR 10.16(b)(6)). See also, General Instrument,
72 Cust.Ct. 86. Acceptable assembly operations occur when the
eyelet (grommet) is spun onto the wire and the head seal is slid
onto the stripped end of the wire, when the contact washer and
wire lead are soldered together, when the bracket and condenser
shell are welded, and when the lead wire, pressure washer, tube,
terminal and cylinder are connected to each other on the Bodine
machine. See, 19 CFR 10.16(a). An acceptable assembly operation
also occurs when another machine cuts the pre-formed U.S.
terminal from a reel and attaches it to the condenser sub-
assembly. See, 19 CFR 10.16(a). However, where the terminal is
stamped out of brass metal immediately before its assembly to the
condenser sub-assembly, it will not be entitled to the duty
exemption under subheading 9802.00.80, HTSUS, as it clearly has
been subjected to a further fabrication prior to its assembly.
With respect to those components, such as the eyelets and
terminals, which may be manufactured both in Mexico and the U.S.,
("dual-sourced" parts), only the components of U.S. origin may
receive the benefits of this tariff provision. Moreover, we have
consistently taken the position that under section 10.24, Customs
Regulations (19 CFR 10.24), a subheading 9802.00.80, HTSUS,
allowance may be granted only if the importer can demonstrate,
for each and every entry for which the allowance is claimed,
that those components claimed to be products of the U.S. are, in
fact, products of the U.S. In addition to the documentary
materials required to be presented with each entry, the importer
and assembler are required to establish reliable controls,
including the strict physical segregation of U.S. and foreign
components and the maintenance of any other records pertaining to
the U.S. components, so that the district director can identify
by audit, if necessary, the specific components of U.S. origin in
particular shipments for which a subheading 9802.00.80, HTSUS,
allowance is claimed. See, for example, Headquarters Ruling
Letter 071136 dated December 27, 1983.
Thus, in regard to the "dual-sourced" parts used in the
assembly of the condensers here, the importer must establish to
the satisfaction of the district director the precise quantity
and identity of the U.S. components on an entry-by-entry basis.
For example, if, in regard to a particular shipment, the importer
is unable to establish the precise quantity and identity of the
U.S. terminals incorporated in the condensers (as opposed to the
terminals of Mexican manufacture), then no allowance in duty may
be made under subheading 9802.00.80, HTSUS, for any of the
terminals incorporated in the imported condensers.
As the U.S. components to be used in the assembly process
(except for the terminals that are stamped out of brass metal
abroad) will be exported in condition ready for assembly without
further fabrication, will not lose their physical identities in
the assembled article, and will not be advanced in value or
improved in condition except by assembly operations and
operations incidental thereto, the returned automobile condensers
will be eligible for the partial duty exemption under HTSUS
subheading 9802.00.80.
HOLDING:
On the basis of the photographs and information provided, it
is our opinion that, with the exception of the stamping out of
terminals abroad, the operations performed to the condenser
components are considered proper assembly steps or operations
incidental to the assembly process. Therefore, the imported
condensers may be entered under subheading 9802.00.80, HTSUS,
with allowances in duty for the cost or value of the U.S.
components incorporated therein (except for terminals that are
stamped out of brass metal abroad). In regard to components
sourced both in the U.S. and abroad, reliable controls must be
established to ensure that the precise quantity and identity of
the U.S. components can be determined on an entry-by-entry basis.
Sincerely,
John Durant, Director
Commercial Rulings Division