CLA-2 CO:R:C:S 556715 WAW
Mr. Paul F. Wegener
M.G. Maher & Co., Inc.
One Canal Place Suite 2100
New Orleans, LA 70130
RE: Applicability of partial duty exemption to pencils; pencil
slats; erasers; 555565; 555525; 067389; 556099; 555020
Dear Mr. Wegener:
This is in response to your letter of April 28, 1992, on
behalf of Staedtler, Inc., requesting a ruling on the tariff
classification and applicability of subheading 9802.00.80,
Harmonized Tariff Schedule of the United States (HTSUS), to pencils
and erasers to be imported from Germany. Samples of the above
items were submitted for our review.
FACTS:
You state that the pencil slats are manufactured from cedar
lumber of U.S.-origin. The wood is selectively cut into squares
16 feet long for maximum quality yield. The cut wood is then
scientifically stacked and kiln-dried for two weeks in a co-
generation plant. The long squares are then cut into square blocks
which measure 7 1/4" long, which are then individually inspected.
Each block is carefully positioned in the multiple saw for best
grain structure. Next, the slats are scientifically stacked for
maximum exposure, and submitted to a high vacuum to remove all air
and moisture, opening the wood cells to receive wax and stain. The
slats then undergo emulsion under high pressure for complete
impregnation. Finally, the slats which have been waxed and stained
are transported to giant kilns for 10 to 13 days of temperature
and humidity in a scientifically controlled automatic cycle to
ensure complete penetration and slow moisture reduction.
You have asked us to consider two possible scenarios. In the
first scenario, the finished pencil slats are exported to Germany
where they are grooved, leads are inserted, the slats are glued
together, cut again, and then painted and marked. The wood is cut
into a hexagonal shape with one pass through the pencil mill. Upon
completion, the pencils are shipped to the U.S.
In the second contemplated scenario, the finished pencil slats
are grooved in the U.S. and exported to Germany where the leads are
inserted, the slats are glued together, milled to a hexagonal
shape, painted and marked. Upon completion, the pencils are
shipped to the U.S.
ISSUE:
(1) What is the proper tariff classification of the erasers
and pencils under the HTSUS.
(2) Whether the pencils will qualify for the partial duty
exemption available under HTSUS subheading 9802.00.80 when returned
to the U.S.
LAW AND ANALYSIS:
I. Tariff Classification of erasers and pencils
Classification of merchandise under the HTSUS is in accordance
with the General Rules of Interpretation (GRI's), taken in order.
GRI 1 provides that classification is determined according to the
terms of the headings and any relative section or chapter notes.
Based on the sample, the erasers which are made of rubber are
specifically provided for under subheading 4016.92.0000, HTSUS,
which provides for "[o]ther articles of vulcanized rubber other
than hard rubber: Other: Erasers. Articles classified under this
provision are subject to duty at a rate of 4.2 percent ad valorem.
The pencils are specifically provided for under subheading
9609.10.00, HTSUS, which provides for "[p]encils (other than those
pencils of heading 9608), crayons, pencil leads, pastels, drawing
charcoals, writing or drawing chalks and tailors' chalks: Pencils
and crayons, with leads encased in a rigid sheath. Articles
classified under this provision are subject to duty at a rate of
14 cents per gross plus 4.3 percent ad valorem.
II. Application of duty exemption under subheading 9802.00.80,
HTSUS
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 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 lose 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, operations 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).
The question presented in the instant case is whether the
grooving and/or milling of the pencils slats in Germany constitutes
a "fabrication" or operation incidental to the assembly process.
We have previously held that subheading 9802.00.80, HTSUS,
applies to materials exported in continuous lengths that are merely
cut to individual lengths abroad prior to assembly. See HRL's
555565 dated May 14, 1990, and 555525 dated June 5, 1990.
Moreover, section 10.16(b), Customs Regulations (19 CFR 10.16(b)),
provides that operations incidental to the assembly process include
trimming, filing or cutting off of small amounts of excess
materials, and adjustments in the shape or form of a component to
the extent required by the assembly being performed abroad.
However, under section 10.14(a) of the Customs Regulations
(19 CFR 10.14(a)) interpreting subheading 9802.00.80, HTSUS,
materials undefined in final dimensions and shapes which are cut
into specific shapes or patterns are not considered fabricated
components. For example, uncut textile fabrics exported in bolts,
or other materials such as lumber, leather, sheet metal or plastic
sheeting exported in basic shapes and forms to be fabricated into
components for assembly are not considered fully fabricated when
exported. See HRL 067389 dated January 28, 1982 (trimming and
shaping steel plates into different shapes is not an acceptable
incidental operation), HRL 556099 dated July 31, 1991 (U.S.-origin
non-woven materials and fabric cut to shape in Canada is not
eligible for the duty allowance available under subheading
9802.00.80, HTSUS), and HRL 555020 dated July 11, 1988 (lenses
exported from the U.S. are not fabricated components in condition
ready for assembly since they must be cut into various shapes to
fit into frames while abroad).
Based on the above-cited cases, it is our position that under
either scenario, cutting the pencil slats to hexagonal shapes
suitable for use as pencils is not an acceptable assembly operation
or an operation incidental to assembly, but rather is a further
fabrication of the pencil slats. The cutting operation in this
case does not simply involve cutting a component to length, but is
more analogous to cutting fabric to a specific pattern piece in
order to enter it into a proper assembly (i.e., sewing) operation.
See 19 CFR 10.16(c)(2). Moreover, the cutting of the pencils into
hexagonal shapes does not qualify as an operation incidental to the
assembly process, since it constitutes more than merely trimming,
filing, or removing excess materials. Nor, does the cutting serve
to adjust the shape or form of the pencil to the extent required
by the assembly, since this operation occurs only after the
assembly has occurred. Accordingly, as the U.S.-cut pencil slats
do not meet all of the requirements of subheading 9802.00.80,
HTSUS, no allowances in duty may be made for the cost or value of
the U.S.-cut wood slats which are imported into Germany and used
in the production of the pencils.
HOLDING:
The proper tariff classification of the erasers is subheading
4016.92.0000, HTSUS, which provides for "[o]ther articles of
vulcanized rubber other than hard rubber: Other: Erasers. Articles
classified under this provision are subject to a duty at a rate of
4.2 percent ad valorem.
On the basis of the information and sample submitted, it is
our opinion that the operations performed on the U.S.-cut wood
pencils slats are not considered proper assembly operations or
operations incidental to the assembly process. Therefore, no
allowances in duty may be made under subheading 9802.00.80, HTSUS,
for the cost or value of the U.S.-origin wood. The pencils are
fully dutiable under subheading 9609.10.00, HTSUS, at a rate of 14
cents per gross plus 4.3 percent ad valorem.
Sincerely,
John Durant, Director
Commercial Rulings Division