CLA-2-05-CO:R:C:S 558813 DEC
TARIFF NO: 9802.00.80
Mr. Robert Noel
Cain Customs Brokers
Texano Industrial Park
415 South Industrial
Hidalgo, Texas 78557
RE: NAFTA Article 509; 19 CFR 10.16; United States v. Mast
Industries, Inc.,
515 F.Supp. 43, 1 CIT 188, aff'd, 69 CCPA 47, 668 F.2d 501
(1988);
Originating good; HRL 554920; C.S.D. 93-7; C.S.D. 90-53;
C.S.D. 89-121
Dear Mr. Noell:
This is in response to your letter dated September 29, 1994,
in which you seek a ruling regarding the eligibility for the
partial duty exemption under the Harmonized Tariff Schedule of
the United States (HTSUS) subheading 9802.00.80. In addition,
you seek a ruling with respect whether the article qualifies as
an originating good under the North American Free Trade Agreement
(NAFTA).
FACTS:
The Alco Controls Division of Emerson Electric plans to
import valves from Mexico. The valves are designed to control
refrigerant flow in air conditioning and refrigeration systems.
The component parts of the valves are of U.S.-origin that will be
sent to Mexico to undergo the following processes:
1. The piston is placed in a fixture and bleed holes
are drilled through it.
The piston is unloaded and deburred.
2. The ring grove of the piston is then remachined to
insure that the grove
will allow the piston gasket to seat properly.
3. The piston seat is pressed into the piston. One edge of the piston is
"rolled" (ground off at an angle). A diameter hole is drilled through the
piston seat. The piston seat is then deburred. The drilling is done
subsequent to pressing since pressing would deform the piston seat if it
already had a hole in it.
4. The piston ring is then opened and placed in the piston grove.
5, The body is then stamped with the part number. The seat of the body is
"faced" (a cleaning operation to insure that the valve will close
completely).
6. The end of the plunger is lathed and finished to a 60 degree angle.
7. An O ring is put over the threaded end of the enclosing tube and collar
assembly. The compression spring is inserted into the plunger. The
plunger, with the spring and the piston, are placed in the tube and collar
assembly. The tube and collar assembly is screwed into the body.
8. The assembled valve is tested for leaks. The closures are placed on the
ends of the copper tubing. The valve is then packed for shipping.
ISSUE:
1. Whether the United States-made components that are transported to Mexico
to undergo the operations described above are entitled to subheading 9802.00.80,
HTSUS treatment.
2. Whether the imported valves qualify as originating goods under the North
American Free Trade Agreement.
LAW AND ANALYSIS:
1. Applicability of Subheading 9802.00.80, HTSUS
Subheading 9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS) provides for 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 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 United States components assembled abroad provided the section
10.24, Customs Regulations (19 CFR 10.24) documentary requirements are satisfied.
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states, in part, that
The 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.
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
subheading 9802.00.80, HTSUS, 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.
In this case, you have indicated that all the components of the valve that are
sent to Mexico for assembly are of United States origin. The operations performed in
Mexico include the drilling of bleed holes and removing the burrs from the piston. In
addition, the ring grove of the piston is remachined so that the piston gasket will sit
properly. The piston seat is pressed into the piston and a hole is drilled though it. The
piston ring is opened and placed in the piston grove. The body is stamped with a part
number. The seat of body is cleaned. The end of the plunger is lathed and finished.
An O-ring is placed over the threaded end of the tube and collar assembly. The
compression spring is inserted into the plunger. The plunger with the spring and piston
are placed in the tube and collar assembly. The tube and collar assembly is screwed
into the body. The assembled valve is tested for leaks and packaged.
The drilling of bleed holes in the piston is not an assembly operation or an
operation incidental to assembly. Customs has 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, the drilling operations in question are distinguishable from the
above-described cases since the holes made by burning, drilling or punching were
subsequently used in the assembly process. In this case, the holes drilled in the piston
are not used in the subsequent assembly of the valve, but, rather, are created to allow
gas or liquid to flow or drain through the 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 of the bleed holes is not an incidental operation. The
drilling operation appears to be a significant step in the fabrication of the pistons. It
clearly is not a necessary prerequisite to the subsequent assembly of the valve, and
the operation is not related directly to the assembly process. 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 piston is not
exported in condition ready for assembly without further fabrication. Therefore, no duty
allowance under subheading 9802.00.80, HTSUS, will be allowed for the cost or value
of the piston.
The pressing of the piston seat into the piston is an acceptable assembly as
force fitting is specifically enumerated as an acceptable assembly operation in 19 CFR
10.16(a). Customs is satisfied that the drilling into the piston seat does not disqualify it
from subheading 9802.00.80, HTSUS, because the piston seat would be deformed
during the pressing process if it already had a hole in it, and the hole facilitates the
subsequent fitting of the piston to the plunger.
Opening the piston ring and placing it in the piston groove is an acceptable
assembly operation. In addition, the stamping of the valve body with the part number
and the "facing" (a cleaning operation to insure that the valve will close completely) of
the body are operations incidental to the assembly of the valve (see 19 CFR
10.16(b)(1) and 10.16(b)(7)). Therefore, the piston ring and the valve body are eligible
for the subheading 9802.00.80, HTSUS, duty exemption.
The plunger is not entitled to a duty exemption because the lathing operation is
a further fabrication pursuant to 19 CFR 10.16(c)(5). The lathing operations, which
impart significant new characteristics to the plunger by altering its shape, indicate that it
is not exported in a condition ready for assembly without further fabrication.
The placement of the O-ring and the compression spring, the screwing together
of the tube and collar assembly to the valve body, and the force fitting of the closures
on the ends of the copper tubing are all acceptable assembly operations. Accordingly,
the O-ring, compression spring, the tube and collar assembly, the valve body, and the
closures are entitled to the duty exemption under subheading 9802.00.80, HTSUS. In
addition, the testing of the valve for leaks (see 19 CFR 10.16(b)(7)) is an operation
incidental to the assembly of the valve.
2. NAFTA Originating Materials
General Note 12, HTSUS provides that
goods imported into the customs territory of the
United states are eligible for the tariff treatment
and quantitative limitations set forth in the tariff
schedule as `goods originating in the territory of a
NAFTA party' only if--
(i) they are goods wholly obtained or produced
in the territory of Canada, Mexico and/or the
United States; or
. . .
(iii) they are goods produced entirely in the
territory of Canada, Mexico, and/or the United
States exclusively from originating materials . . ..
You advise that all of the components used in the assembly of the valves are of U.S.
origin. Assuming that these components qualify as "originating materials" under
General Note 12, HTSUS, the assembled valves to be imported will qualify as
originating goods and will be entitled to the NAFTA preferential rate of duty.
HOLDING:
1. Based on the information provided, the piston and the plunger will be
subjected to operations abroad that are deemed to be further fabrications of those
components. Therefore, these two components will not qualify for a duty allowance
under subheading 9802.00.80, HTSUS. However, the cost or value of all of the other
U.S.-origin components that will be used to produce the finished valve may receive
duty allowances under 9802.00.80, HTSUS, as the operations performed to those
components in Mexico constitute acceptable assembly operations and operations
incidental thereto.
2. Assuming that these components qualify as "originating materials" under
General Note 12, HTSUS, the assembled valves to be imported will qualify as
originating goods and will be entitled to the NAFTA preferential rate of duty.
A copy of this ruling letter should be attached to the entry documents filed at the
time this merchandise is entered. If the documents have been filed without a copy, this
ruling should be brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant
Director, Commercial Rulings Division