CLA-2 CO:R:C:S 557365 WAW
Steven H. Becker, Esq.
Coudert Brothers
1114 Avenue of the Americas
New York, N.Y. 10036-7794
RE: Applicability of certain steel components for the partial
duty exemption available under subheading 9802.00.80, HTSUS;
drawer slide
Dear Mr. Becker:
This is in response to your letter dated May 19, 1993, on
behalf of Accuride International Inc., regarding the
applicability of the partial duty exemption available under
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (HTSUS), to certain steel components imported from Mexico.
Sample merchandise was enclosed for our review.
FACTS:
Accuride produces bell bearing drawer slides which are
utilized in furniture to facilitate the movement of drawers. The
production of a finished drawer slide requires several steps. You
state that Accuride will import steel sheet from Japan. The steel
sheet will then be processed in the U.S. into drawer slide
members or bell retainer members. These components will then be
sent to Mexico where they will be assembled into finished ball
bearing drawer slides. The finished drawer slides will be
reimported into the U.S. The details of the U.S. and Mexican
production steps are as follows:
A. Processing of steel sheet in the U.S. to produce drawer slide
members
1. Cold-rolled steel sheet in coil form ("steel sheet") is
first imported from Japan. This steel sheet will first be slit
into three equal-width "mults". Each mult will then be cold-rolled in Accuride's mill to achieve a specified hardness,
tolerance, and better material quality and workmanship. Next,
the equal-width mults will be further slit to achieve a certain
width (depending upon their ultimate use). These finished mults
will then be stored until they are needed to fabricate the
members.
2. There are three different types of drawer slide members -
outer - members, intermediate members, and inner members - each
of which undergoes a slightly different fabrication process. The
different slide members will be assembled in Mexico into a
finished drawer slide. The outer drawer slide member is produced
when a finished-width mult is put through a rolling machine to
form the members. Holes are pierced and then the member is cut to
length and ball retainer stops are then cut. The intermediate
drawer slide member is produced when steel sheet is run through a
rolling machine and cut to length. Holes are then pierced and
coined, and stops are notched and formed. The inner drawer slide
member is produced when steel sheet is put through a pre-pierce
machine to pierce holes, notch and cut the members to length.
The resulting component is then pierced and formed, and holes are
pierced for latch and form stops.
3. After the members are produced, they will be plated with
zinc chromate or an electrostatic powder coating in order to
protect the slides from corrosion. The zinc plating is as
follows: (a) unplated slide members are hung on metallic racks;
(b) the members are subjected to a series of alkaline soap
washes, controlled rinses, hydrochloric acid soaks and
neutralization of acids; (c) the members are plated with zinc by
passing a positively charged current through the metal slide
members. The negatively charged ions of the zinc ball anodes
surrounding the members bend the zinc from the dissolved anodes
to the slide members; (d) the members are dipped in either a
clear or black chromate; (e) the members are rinsed in an ambient
temperature water; (f) the members are dried with forced hot air.
The electrostatic powder coating process is as follows: (a)
the unplated slide members are cleaned and phosphate coated to
provide a smooth base; (b) a thermo-set power is applied to the
member via a spray gun from a feeder unit where the powder is
diffused by compressed air into a fluid-like state; (c) the
fluidized powder is then siphoned out by the movement of high
velocity air flowing through a venturi. It is propelled through a
powder feeder tubing to a spray gun; (d) a high voltage, lower
amperage power unit supplies a charging electrode at the front of
the spray gun. The charging electrode emits a field charge which
is imparted to the powder particles. This causes the powder to
seek out and attach itself to the member; (e) the member is then
heated in an oven. Through this heating process, the thermo-set
powder cures and the slide member will have a white color
corrosion protective finish.
B. Processing of steel sheet to produce ball retainer members
In order to produce the ball retainer members, electro-galvanized steel sheet in coil form is imported from Japan and
shipped~directly to an outside vendor (also in the U.S.) where
they are cold-rolled and slit to Accuride's specifications. The
finished-width mults are then shipped from this outside vendor to
Accuride where they are stored until they are needed for the
production of the ball retainer assemblies. In order to produce
the ball retainer assembly, the finished-width mult is put
through a machine to pierce holes, notch, cut to length and form
the member. Ball retainer assemblies are used to improve drawer
movement.
C. Assembly in Mexico
After the slide drawer members and ball retainer members have
been completely fabricated, they will be exported to Mexico,
along with other U.S.-origin components, where they will be
assembled into finished drawer slides. The assembly of the slide
drawer is as follows: (1) insert grease, ball retainer and bell
bearings into intermediate member; (2) assemble and rivet guide
block to intermediate member; (3) assemble bumper to outer member
and insert grease; (4) insert ball retainer spacer assemblies and
assemble intermediate member to outer member; (5) form outer
member stop and assemble bumper to stop; (6) place felt pad on
inner member stop; (7) rivet latch to inner member; (8) assemble
inner member to slide assembly; and (9) place slide in box with
STD chip, end filler, foam pad, and rib-end insert.
ISSUE:
Whether the drawer slide components will qualify for a
partial duty allowance under subheading 9802.00.80, HTSUS, when
returned to the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, 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, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance. An
article entered under subheading 9802.00.80, HTSUS, is subject to
duty upon the full value of the imported assembled article less
the cost or value of the U.S. components, upon compliance with
the documentary requirements of section 10.24, Customs
Regulations (19 CFR 10.24).
Section 10.16(a), Customs Regulations (19 CFR 10.16(a))
provides, in part, that:
The assembly operations 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, and may be
preceded, accompanied, or followed by operations incidental
to the assembly as illustrated in paragraph (b) of this
section.
Section 10.12(e), Customs Regulations (19 CFR 10.12(e)),
provides generally that an article wholly or partially of foreign
components or materials, may become a "product of the United
States" if such components or materials are "substantially
transformed" in the U.S. by a process of manufacture into a new
and different article, or are merged into a new or different
article. Section 10.14(b), Customs Regulations (19 CFR 10.14(b)),
provides that 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 subject to the manufacturing process. If
the manufacturing or combining process is merely a minor one
which leaves the identity of the article intact, a substantial
transformation has not occurred. See Belcrest Linens v. United
States, 573 F. Supp. 1149 (CIT 1983), 741 F.2d 1368 (1984).
In general, cutting or bending materials to defined shapes or
patterns suitable for use in making finished articles, as opposed
to mere cutting to length or width which does not render the
article suitable for a particular use, constitutes a substantial
transformation. In Headquarters Ruling Letter (HRL) 055684 dated
August 14, 1979, Customs held that those components of a water
cooler gas absorption refrigeration unit which were formed by
cutting to length, and bending imported steel tubes into the
component shapes and configurations, or by cutting to length,
flattening, and drilling holes into imported tubing, were
substantially transformed constituent materials for GSP purposes,
while those imported tubes which were simply cut to length and
assembled into the final articles were not. In HRL 555532 dated
September 18, 1990, we held that the production of a skirt and
jacket assembled into a water heater by shearing cold rolled
steel to rectangular shape, piercing to form the various
openings, and roll forming the steel into tubular shape results
in a substantial transformation. Moreover, in HRL 555532, we also
held that the creation of the top and bottom heads and pans of
the water heater by blanking hot rolled or cold rolled steel, die
for~ing (or drawing), and die piercing also constituted a
substantial transformation.
We are of the opinion that the processing of the imported
steel sheet in the U.S. is similar to the processes performed in
HRL's 055684 and 555532, and therefore, results in a substantial
transformation of the sheet into a "product of" the U.S. After
slitting and cold-rolling the steel sheet, the mults will be
rolled, cut, pierced, notched and plated. The result of these
processing operations in the U.S. is the creation of new and
different articles, such as the drawer slide members or ball
retainer members, each of which has a distinct character and use
that is different from the steel sheet in coil form. Thus, the
processing that occurs in the U.S. substantially transforms the
steel sheets imported from Japan into new and different articles,
i.e., steel drawer members and ball retainer assemblies, having
distinctive names, characters and uses.
The assembly of the drawer slides in Mexico involves joining,
fitting, riveting and forming. All of these processes, aside from
the forming operation, are considered acceptable assembly
operations within the meaning of 19 CFR 10.16(a). In addition,
completely and securely enclosing certain components within other
components is also an acceptable assembly operation. See HRL
554920 dated January 3, 1989 (completely enclosing a metal weight
in the bottom hem of vertical blinds is an acceptable assembly
process).
You state that the "forming" that takes place in assembly
step #5, consists of the banding of the notched end of the outer
member to accommodate the placement of the bumper. The outer
member Will be placed in a machine which will quickly band the
notched metal of the outer member in an upright position to
accommodate the bumper stop placement. You state that the
placement of the bumper forms a closure at one end of the drawer
slide, so that the intermediate member will not fall out during
the remainder of the assembly process and thereafter. Thus, you
claim that the bending of the outer member to hold the bumper
stop is clearly an operation incidental to assembly.
Pursuant to 19 CFR 10.16(b)(5), adjustments in the shape or
form of a component to the extent required by the assembly being
performed abroad is considered an operation incidental to the
assembly process. We have previously held in HRL 555533 dated
June 4, 1990, that bending or deforming a portion of a bracket
used in a starter solenoid switch, by means of a press, over a
sub-assembled housing unit for the sole purpose of attaching the
bracket to the unit, was an. acceptable operation incidental to
assembly. In addition, we held in HRL 555486 dated November 20,
1989, that bending the edges of mylar slot insulators assembled
into stator cores was an operation incidental to assembly, based
on the fact that the bending was so related to the assembly that
it would not be feasible to perform it except during assembly.
Consistent with HRL's 555533 and 555486 and 19 CFR
10.16(b)(5), we are of the opinion that the bending (forming) of
the steel on the outer member is an operation incidental to the
assembly process which does not preclude the partial duty
exemption available under subheading 9802.00.80, HTSUS. The
forming of the outer member could not be undertaken in the U.S.
as it would be impossible to assemble the outer and intermediate
members together if the outer member was formed prior to the
assembly process. If the notched end of the outer member were
formed prior to assembly, it would close off one end of the outer
member making the assembly of the outer member and intermediate
member impossible. It would also be impractical to form the metal
in a process separate from the placement of the bumper on the end
of the outer member, as it is necessary to ensure that the two
will fit together properly. In addition, you state that the cost
and time of the bending operation is minor. Accordingly, we find
that bending the steel on the outer member of the drawer slide is
minor in nature and qualifies as an operation incidental to the
assembly operation.
Next, you state that Accuride may undertake the plating
processes in Mexico as opposed to the U.S. and you believe that
this operation should not affect the eligibility of the drawer
slides for a duty exemption under subheading 9802.00.80, HTSUS.
It is your position that the plating operation constitutes an
operation incidental to the assembly process. You state that the
electrostatic powder coating and the zinc plating that are
applied to the drawer slide members are utilized primarily to
protects the drawer slides from corrosion. Moreover, you claim
that given the purpose and nature of the application of a
corrosion protective coating, the processes are more logically
performed in Mexico immediately prior to the assembly process.
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. See section 10.16(a), Customs Regulations (19
CFR 10.16(a)). For instance, section 10.16(b)(1), Customs
Regulations (19 CFR 10.16(a)), provides that cleaning is an
incidental 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. See 19 CFR 10.16(c).
Regarding the plating operation, 19 CFR 10.16(c)(5) provides
that "plating (other than plating incidental to the assembly)" is
an example of an operation which is not incidental to assembly.
Therefore, as plating is specifically cited in the regulations as
generally "not incidental to the assembly" process, the burden
falls upon the importer to establish that the plating operation
in this case is incidental to the assembly process.
In United States v. Mast Industries, Inc., 515 F. Supp. 43, 1
CIT 188 (1981), aff'd, 69 CCPA 47, 668 F.2d 501 (1981), 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 required by the
operation are such that the operation may be considered
minor;
(2) whether the operation is necessary to the ssembly
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.
In order to be considered incidental to assembly, the foreign
operations should be such that they ordinarily cannot be provided
for in advance, are concomitant with and closely related to the
assembly process, and are of such a minor nature as to leave no
doubt that they are merely incidental to the assembly process.
This would exclude those operations considered substantial or
material in nature so as to approach the status of a fabrication
that significantly advances the components in value or condition
while abroad.
We have previously held that under certain circumstances,
coating or plating of various components to prevent corrosion is
considered an operation incidental to assembly. See HRL 556197
dated December 4, 1991, in which we held thatgunitee coating of
steel water pipes to prevent corrosion associated with water was
considered an operation incidental to assembly. See also HRL
556124 dated October 31, 1991, in which we held that powder
coating spring brakes to protect against corrosion associated
with snow and ice removal was considered an operation incidental
to assembly; and HRL 556271 dated January 15, 1992, which held
that the operations which consisted of zinc plating, rinsing,
dichromate dipping, rinsing and drying of cases and covers of gas
furnace ignition devices to prevent corrosion before being
assembled with other components to complete the ignition devices,
were incidental to assembly. Furthermore, in HRL 556271, the time
involved in plating the cases and covers of gas furnace ignition
devices was 1.08 minutes, while the total time to assemble an
ignition device was 41.46 minutes; thus, the plating time
represented 2.6 percent of the total assembly time.
However, we recently held in HRL 557133 dated June 3, 1993,
that plating clips with gold to provide maximum electrical
conductivity while reducing the rate of oxidation of the metal
before they are force-fitted inside metal shells for use in
pinsockets does not constitute' an operation incidental to the
assembly process. We stated that the plating in that case
significantly altered the fundamental characteristics of the
clips, thereby making it the type of plating operation which is
precluded under 19 CFR 10.16(c)(5). In addition, the time
involved in plating the clips represented approximately 72
percent of the total time involved in the assembly of the clips.
We also stated that there was no evidence that the plating was so
closely related to the assembly process as to make it logically
performed concurrently with that operation. We also found that
the amount of capital investment for the plating operation was
much more significant than that for the assembly operation.
In the instant case, based on the information provided in
your submission dated August 19, 1993, regarding the cost and
time of the plating operation, we conclude that the plating and
electrostatic powder coating operations are not incidental to the
assembly operation. Unlike the plating operation in HRL 556271
(described above) where the time involved in plating a case and
cover for a gas furnace ignition device with zinc dichromate
represented 2.6 percent of the total assembly time, here, the
time involved in plating the drawer slides represents
approximately 33.2 percent of the total assembly time.
(Information regarding the time involved for the elecrostatic
powder coating operation was unavailable). In addition, the cost
involved in plating and coating the drawer slides represents
approximately 3.3 percent (zinc plating) and 46.1 percent
(electrostatic powder coating) of the cost of the U.S. components
being plated. In General Motors v. United States, 770 F. Supp.
641 (CIT 1991), 976 F.2d 716 (Fed. Cir. 1992), the Court of
Appeals for the Federal Circuit reversed the lower court's
holding that topcoat painting operations performed on U.S.-origin
sheet metal components shipped to Mexico for assembly into
automobiles were "incidental to assembly," considering the cost
of all of the painting operations (including undercoating,
sanding, baking, topcoating, and waxing). Based on the time and
cost figures for the plating and coating operations, it appears
that these operations are not minor, and therefore, not "incidental
to the assembly process."
Furthermore, we are not satisfied that the plating and coatings
operations are logically performed concurrently with the assembly
in view of economic and other practical considerations. Nor do we
see any persuasive reason why the drawer slides cannot be plated
and coated in the U.S. prior to being exported to Mexico for
assembly. Simply because the protective coatings must be applied
prior to the assembly process, does not mean that the plating and
coating operation cannot take place in the U.S. Therefore, we find
no evidence that the plating and electrostatic coating operations
are so closely related to the assembly process as to make it
logically performed concurrently with those operations.
Thus, applying the Mast criteria and consistent with our
previous rulings, it is our opinion that the plating and coating
operations are not incidental to the assembly process.
HOLDING:
On the basis of the information provided, the steel sheets
imported from Japan undergo a substantial transformation in the
U.S. into "products of" the U.S. Moreover, the assembly of the
drawer slides is considered an acceptable assembly operation
pursuant to subheading 9802.00.80, HTSUS. However, it is our
opinion that the operations of plating and coating the drawer slide
components are not considered operations incidental to the assembly
process. Therefore, if the plating and coating operations are
performed in Mexico, no allowance in duty may be made under
subheading 9802.00.80, HTSUS, for the cost or value of the U.S.-origin drawer slide components.
Sincerely,
John Durant, Director
Commercial Rulings Division