CLA-2 CO:R:C:S 556764 WAW
Kenneth R. Paley, Esq.
Sharretts, Paley, Carter & Blauvelt, P.C.
1701 L Street, N.W.
Washington, D.C. 20036
RE: Applicability of the partial duty exemption under HTSUSA
9802.00.80 to imported hydraulic units; assembly; C.S.D. 85-
25; substantial transformation; "product of"; bolting
Dear Mr. Paley:
This is in response to your letter of April 30, 1992, on
behalf of Robert Bosch Corporation, Automotive Group, requesting
a ruling on the applicability of subheading 9802.00.80, Harmonized
Tariff Schedule of the United States Annotated (HTSUSA), to certain
hydraulic units to be imported as part of automobiles. A sample
of the merchandise was submitted for our review.
FACTS:
Robert Bosch Corporation manufactures hydraulic units in the
U.S. which are included as parts of automobiles. You state that
the articles are produced by a lengthy, complex, labor-intensive
process from hundreds of components that your client either
fabricates from raw materials or sources from domestic or foreign
suppliers. These components then undergo an assembly process which
is subdivided into various stages of assembly, to create the final
product.
You state that two types of hydraulic units are produced in
the U.S. by your client: a three-channel unit and a four-channel
unit. The four-channel unit differs from the three-channel unit
in that it encompasses a number of additional components which are
combined into another kind of subassembly that is incorporated into
the article in the final stage of production.
The U.S. manufacturing processes for the five major
subassemblies that go directly into the production of the final
products are as follows:
1. Cover - A bar of aluminum is subjected to an extrusion
process for shaping, then is passed several times through a
Turmat Machine for the drilling and finishing of holes. It
is then subjected to the electrical process of deburring and
brushing. Next, the subcomponent undergoes an electrochemical
chromating process. Finally, the parts are washed and
stationed for final assembly.
2. Housing - The basic manufacturing process for this
subassembly is similar to the subassembly described above,
except that this procedure is more complex and entails more
drilling, machining, and finishing.
3. Magnet valve - A special imported steel is hardened,
turned, ground, and honed. Holes are then drilled to micron-
close tolerance to create the valve body. Other subcomponents
are machined and press-fitted. Certain subcomponents known
as Electro Coils are subjected to a winding, molding process
and an electric check. Finally, all the subcomponents are
assembled, washed, and staged for the final assembly.
4. Pump element - An unfinished, domestically produced
subcomponent known as a plunger and barrel is machined,
coined, pickled, ground, hardened through heat treatment, and
washed. It is then combined with other components, including
an American-made pump body, a filter screen, 0-rings, and
springs to produce a complete pump element, which is staged
for final assembly.
5. Plunger assembly - (only used in four-channel hydraulic
units) - Various subcomponents, including bushings, plungers,
a valve seat, and a closing cover, are coined, pickled,
ground, hardened through heat treatment, and washed. Those
articles are then combined with additional subcomponents such
as o-rings, springs, tappets, pins, and retaining rings in a
particularly intricate process to create the plunger assembly,
which is then staged for final assembly. The manufacture of
this subassembly is especially labor-intensive and requires
exceptionally high and close tolerance.
Three magnet valves and one of each of the other four
subassemblies (three in the case of the three-channel hydraulic
units) are then assembled together and further combined with other
components, including inlet pipes, relays, an accumulator, a DC
motor, and protective covers, to produce the final hydraulic units.
Every hydraulic unit is tested by the manufacturer before shipment.
In certain cases, the finished hydraulic units are sold and
exported to foreign auto manufacturers, which bolt the units into
their automobiles. Certain automobiles containing the hydraulic
units are then exported back into the U.S. for sale. This ruling
concerns those hydraulic units which have been assembled in the
U.S. and subsequently exported to be assembled into foreign
automobiles and returned to the U.S.
ISSUE:
Whether the hydraulic units will qualify for a duty allowance
under HTSUS subheading 9802.00.80 when returned to the U.S. as part
of automobiles.
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 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).
For a component to be eligible for subheading 9802.00.80,
HTSUS, treatment it must first be a "product of" the U.S.
According to section 10.12(e), Customs Regulations (19 CFR
10.12(e)), a "product of the United States" is an article
manufactured within the customs territory of the U.S. and may
consist wholly of U.S. components or materials, of U.S. and foreign
components or materials, or wholly of foreign components or
materials. If the article consists wholly or partially of foreign
components or materials, the manufacturing process must be such
that the foreign components or materials have been substantially
transformed into a new and different article, or have been merged
into a new and different article.
A substantial transformation occurs when, as a result of
manufacturing processes, a new and different article emerges,
having a distinctive name, character or use, which is different
from that originally possessed by the article or material before
being subjected to the manufacturing process. See Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
We have previously held in C.S.D. 85-25 dated September 25,
1984 (Headquarters Ruling Letter (HRL) 071827), that the process
of incorporating numerous component parts onto a printed circuit
board subassembly constituted a processing sufficiently complex to
result in the subassembly being considered a substantially
transformed constituent material of the final article (matrix
printer) for purposes of the Generalized System of Preferences
(GSP). The focus of C.S.D. 85-25 was a PCBA which was produced by
assembling in excess of 50 discrete fabricated components (e.g.,
resistors, capacitors, diodes, transistors, integrated circuits,
sockets, and connectors) onto a printed circuit board. Customs
determined that the assembly of the PCBA involved a large number
of components and a significant number of different operations,
required a relatively significant period of time as well as skill,
attention to detail, and quality control, and resulted in
significant economic benefit to the country of assembly from the
standpoint of both the value added to the PCBA and the overall
employment generated thereby. In addition, Customs found in C.S.D.
85-25 that the PCBA represented a distinct article which was
different from both the components from which it was made and the
matrix printer into which it was incorporated and, therefore, the
assembled PCBA constituted an intermediate article within the
meaning of 19 CFR 10.177(a).
In the present case, we are of the opinion that the foreign
materials used in the production of the hydraulic unit are
substantially transformed into a "product of" the U.S.
You state that hundreds of different components are used to produce
the final article. These separate components imported into the
U.S. acquire new attributes, and we find that the final article
differs in character and use from the component parts of which it
is composed. Moreover, the production of the hydraulic unit
involves substantial operations (cutting, mounting, soldering,
quality control testing, extruding, drilling, punching, machining,
hardening, coining, etc.), which increase the value of the
individual components, endow them with new qualities and result in
an article with a new and distinct commercial identity.
On the basis of the information submitted, we are of the
opinion that the assembly of the hydraulic units in the U.S.
results in a substantial transformation of the foreign materials
into a "product of" the U.S. Next, we must address the issue of
whether the hydraulic unit is eligible for the duty exemption
available under subheading 9802.00.80, HTSUS, when it is exported,
incorporated into an automobile by means of bolting, and
subsequently returned to the U.S.
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.
The operation which results in securely joining the hydraulic
unit to the automobile by means of bolting is considered an
acceptable assembly operation. See 19 CFR 10.16(a). Therefore,
as the U.S. components used in the assembly process will be
exported in condition ready for assembly without further
fabrication, will not lose their physical identity in the assembled
article, and will not be advanced in value or improved in condition
except by assembly operations, the returned hydraulic unit will be
eligible for an allowance in duty under subheading 9802.00.80,
HTSUSA.
HOLDING:
Based on the information and sample submitted, we are of the
opinion that the materials imported into the U.S. and assembled
into the hydraulic unit are substantially transformed into a
"product of" the U.S. Additionally, the foreign operations which
consist of bolting the hydraulic unit into an automobile is an
acceptable assembly operation. Therefore, the imported automobile
may be entered under subheading 9802.00.80, HTSUS, with an
allowance in duty for the cost or value of the hydraulic unit, upon
compliance with the documentary requirements of 19 CFR 10.24.
Sincerely,
John Durant, Director
Commercial Rulings Division