RR:CR:SM 560599 JML
TARIFF NO: 9802.00.80
Mr. Robert Noell
Cain Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. Box 150
Hidalgo, TX 78557
RE: Eligibility of connector subassemblies imported from Mexico
for a partial duty exemption under subheading 9802.00.80, HTSUS;
eligibility for NAFTA preferential tariff treatment.
Dear Mr. Noell:
This is in response to your letter of July 31, 1997, on
behalf of your client, MCE Manufacturing Corporation ("MCE"),
requesting a binding ruling for connector subassemblies imported
from Mexico. Specifically, you request a ruling with respect to
whether the imported connector subassemblies will be eligible for
a partial duty exemption under subheading 9802.00.80, Harmonized
Tariff Schedule of the United States ("HTSUS"), and preferential
tariff treatment under NAFTA. We regret the delay in responding.
FACTS:
MCE intends to import assembled connector subassemblies from
Mexico. You describe the connector subassemblies ("connectors")
as devices which function as a means of mating a resistive
element with passive microwave and radio frequency components
such as adapters, attenuators, equalizers, and terminations.
The assembly process for the connectors involves placing an
insulator and connector body in a fixture and pressing them
together. The insulator is then crossed drilled using the holes
in the connector body as a guide. The components from above are
then placed in a fixture and a center conductor is pressed into
the apparatus. The middle area of the connector body is then
filled with epoxy. The subassembly is then checked for accurate
dimensions and packed for shipment.
A bill of materials submitted in connection with your ruling
request indicates that the tariff classification of the various
materials are as follows: insulator in subheading 8547.20, HTSUS,
connector body in subheading 8536.90, HTSUS, epoxy subheading in
3208.90, HTSUS, and center conductor in subheading 8526.90,
HTSUS. All the materials are purported to be of U.S. origin
except for the center conductor, which is from France.
With regard to the tariff classification of the assembled
connectors, you claim that they are classified under subheading
8525.10.20, HTSUS (transmission apparatus: television...other:
other converters, decoders, preamplifiers, line
amplifiers...directional couplers and other couplers). In
support of this classification you submitted New York Ruling
B86122, dated July 1, 1997, wherein the subject connectors were
classified accordingly.
ISSUES:
1) Whether the connectors assembled in Mexico are eligible
for duty allowances under subheading 9802.00.80, HTSUS.
2) Whether the connectors are eligible for NAFTA duty
preference.
LAW AND ANALYSIS:
SUBHEADING 9802.00.80
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 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 U.S. components assembled therein,
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,
lamination, 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. See 19 CFR 10.16(a). 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). When a particular operation is employed that is not
specifically enumerated in the regulation, application of the
criteria specified by the court in United States v. Mast
Industries, 515 F. Supp. 43, 1 CIT 188, aff'd, 668 F.2d 501, 69
CCPA 47, (1981), is appropriate. In Mast, 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.
You claim subheading 9802.00.80, HTSUS, duty allowances for
two of the materials involved in producing the connectors: the
insulator and the connector body. Presumably, you concede that
the other materials involved in the production of the connectors
are not eligible subheading 9802.00.80, HTSUS, components. For
purposes of this ruling, only those materials you contend are
eligible will be considered.
Based upon the information provided, we are of the opinion
that the assembly processes you describe -- placing an insulator
and connector body in a fixture and pressing them together, then
pressing a center conductor into the same (including application
of the epoxy to secure the components) -- are acceptable forms of
assembly. See 19 CFR 10.16(a).
With regard to cross drilling the insulator, we have
previously ruled that drilling or punching holes in various
components is an operation incidental to the assembly where the
drilling or punching operation is not substantial. See also 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). By contrast, in HRL 558813, dated
February 1, 1995, Customs ruled that the operation of drilling
bleed holes in a piston to allow gas or liquid to flow or drain
was a significant operation, and thus was not considered to be an
incidental operation within the meaning of 9802.00.80, HTSUS.
Customs determined that the holes drilled in the piston were not
used in the subsequent assembly, but, rather, were created to
allow gas or liquid to flow or drain through the insert.
Consequently, Customs determined that the drilling operation was
a significant step in the fabrication of the pistons. See also
HRL 559519, dated September 11, 1996 (punching holes in caps and
cans which enclose electric motors to allow moisture to drain
through was a significant operation and therefore not incidental
to assembly).
In the present case, we are of the opinion that the cross
drilling is not significant and therefore is incidental to the
assembly of the connectors. Similar to HRLs 061429 and 555394,
the drilled holes are used in the subsequent assembly of the
connectors to provide a space to fill with epoxy so that the
insulator is secured within the housing. Moreover, an analysis
of the Mast criteria supports the conclusion that the drilling of
the holes is an incidental operation. The drilling is clearly a
necessary prerequisite to the subsequent assembly of the
connectors, and related directly to the assembly process.
Weighing the above factors, we conclude that the drilling
operation is an incidental operation within the meaning of
subheading 9802.00.80, HTSUS. Therefore, a duty allowance may be
made under this tariff provision for the cost or value of the
U.S. origin insulator and connector body.
NAFTA PREFERENCE
General Note 12, HTSUS, incorporates Article 401 of the
North American Free Trade Agreement ("NAFTA") into the HTSUS.
Note 12(a)(ii) provides, in pertinent part:
(ii) [g]oods that originate in the territory of a NAFTA
party under subdivision (b) of this note and that
qualify to be marked as goods of Mexico under the terms
of the marking rules set forth in regulations issued by
the Secretary of the Treasury (without regard to
whether the goods are marked), when such goods are
imported into the customs territory of the United
States and are entered under a subheading for which a
rate of duty appears in the Special' subcolumn
followed by the symbol MX' in parentheses, are
eligible for such duty rate...
Accordingly, the connectors at issue will be eligible for
the "Special" "MX" rate of duty provided they are a NAFTA
"originating" good under General Note 12(b), HTSUS, and they
qualify to be marked as a product of Mexico under the marking
rules. General Note 12(b) provides, in pertinent part:
[f]or the purposes of this note, 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 entirely
in the territory of Canada, Mexico, and/or the United
States; or
(ii) they have been transformed in the territory of
Canada, Mexico and/or the United States so that --
(A) except as provided in subdivision (f) of this note,
each of the non-originating materials used in the
production of such goods undergoes a change in tariff
classification described in subdivisions (r), (s) and
(t) of this note;.........
Although you submitted a bill of materials as evidence that
the materials used in the production of the connectors (with the
exception of the French-origin center conductor) are of "U.S.
origin" and therefore result in the connectors being
"originating" under General Note 12(b), HTSUS, we do not consider
the bill of materials dispositive of that fact. That is, we do
not view the evidence presented in the bill of materials
sufficient to support a finding that the connectors are "goods
wholly obtained or produced entirely in the territory of Canada,
Mexico, and/or the United States" pursuant to General Note
12(b)(i), HTSUS. Thus, we must examine whether the materials
used in the production of the connectors (i.e. the insulator,
connector body, epoxy and center conductor) undergo the required
change in tariff classification in Mexico pursuant to General
Note 12(b)(ii)(A), HTSUS. The rule applicable to goods of
subheading 8525.10.20, HTSUS, is provided for in General Note
12(t)/85.74--12(t)83, HTSUS, which provides:
77. A change to subheading 8525.10 through 8525.20 from
any subheading outside that group.....
In this regard, we note the tariff classifications of the
materials used in the production of the connectors: insulator in
subheading 8547.20, HTSUS, connector body in subheading 8536.90,
HTSUS, epoxy in subheading 3208.90, HTSUS, and center conductor
in subheading 8526.90, HTSUS. Because all of the above materials
are classified in tariff headings other than 8525.10 through
8525.20, HTSUS, the requirements of the rule are met.
Consequently, the connectors are considered "originating" under
General Note 12(b), HTSUS.
Section 102.11, Customs Regulations (19 CFR 102.11), sets
forth the required hierarchy for determining whether a good is a
good of a NAFTA country for the purposes of country of origin
marking. Section 102.11(a), Customs Regulations (19 CFR
102.11(a)), states that the country of origin of a good is the
country in which:
(1) [t]he good is wholly obtained or produced;
(2) [t]he good is produced exclusively from domestic
materials; or
(3) [e]ach foreign material incorporated in that good
undergoes an applicable change in tariff classification set
out in section 102.20 and satisfies any other
applicable requirements of that section, and all other applicable
requirements of these rules are satisfied.
"Foreign material" is defined in 19 CFR 102.1(e) as "a
material whose country of origin as determined under these rules
is not the same country as the country in which the good is
produced." Sections 102.11(a)(1) and 102.11(a)(2) do not apply
to the facts presented in this case since the connectors are not
wholly obtained or produced, nor produced exclusively from
domestic materials as those terms are defined under section
102.1, Customs Regulations (19 CFR 102.1). Accordingly, section
102.11(a)(3), Customs Regulations (19 CFR 102.11(a)(3)), is the
applicable rule that must be applied to determine the origin of
the subassemblies. Pursuant to section 102.11(a)(3), the
country of origin of a good is the country in which each foreign
material incorporated in that good undergoes an applicable change
in tariff classification set out in section 102.20, Customs
Regulations (19 CFR 102.20).
As the finished dividers are classified in subheading
8525.10, HTSUS (transmission apparatus: television...other: other
converters, decoders, preamplifiers, line
amplifiers...directional couplers and other couplers), we note
the applicable change in tariff classification rule set out in
section 102.20(o), Customs Regulations (19 CFR 102.20(o)),
[s]ection XVI: [c]hapters 84 through 85:
8525.10-8525.20.......A change to subheading 8525.10
through 8525.20 from any other subheading outside that
group.
Thus, all of the materials incorporated into the connectors
(i.e. because they are all "foreign materials"), must meet the
above rule. Noting the tariff classification of the materials -- insulator in subheading 8547.20, HTSUS, connector body in
subheading 8536.90, HTSUS, epoxy in subheading 3208.90, HTSUS,
and center conductor in subheading 8526.90, HTSUS -- the
applicable rule is satisfied as none of the above-mentioned
materials are within the group of subheadings between 8525.10
through 8525.20. Thus, based upon the information provided, the
connectors are products of Mexico pursuant to section
102.11(a)(3).
Based upon the information submitted, because the connectors
are considered "originating goods" under General Note 12(b) and
products of Mexico under the NAFTA Marking Rules as required by
General Note 12(a)(ii), HTSUS, they are entitled to NAFTA tariff
preference at the "MX" duty rate.
HOLDING:
On the basis of the information provided, it is Customs
opinion that the operations to be performed in Mexico to create
the connector subassemblies are acceptable assembly operations or
operations incidental thereto pursuant to subheading 9802.00.80,
HTSUS. Therefore, a duty allowance may be made under this tariff
provision for the cost or value of the U.S. origin insulator and
connector body upon compliance with the documentary requirements
of section 10.24, Customs Regulations.
In addition, based on your submissions concerning the
countries of origin of the materials used in the production of
the connectors, as well as their applicable tariff
classifications, we find that the connectors will be eligible
for NAFTA tariff preference under the "MX" duty rate, as the
connectors are considered "originating goods" and are products of
Mexico under the NAFTA Marking Rules (19 CFR Part 102), as
required by General Note 12, HTSUS.
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are 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