CLA-2 RR:CR:TE 962347 RH
Kenneth G. Weigel, Esq.
Kirkland & Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005
RE: Request for reconsideration of HQ 960165; Prefabricated Home; Heading 9406
Dear Mr. Weigel:
This is in response to your letters of November 5, 1998, February 1, 2000, February 9, 2000, and March 6, 2001, on behalf of your client, Lindal Cedar Homes, Inc., requesting reconsideration of Headquarters Ruling Letter (HQ) 960165, dated September 18, 1997. In that ruling, Customs determined that merchandise referenced as “prefabricated home kits”, classified in New York Ruling Letter (NY) A88769, dated November 25, 1996, was correctly precluded from classification in heading 9406 of the Harmonized Tariff Schedule of the United States (HTSUS), in the provision for “prefabricated buildings.” In addition to your written submission, several photographs of sample “prefabricated homes” were submitted to this office for review.
We note that your client’s submission pertaining to HQ 960165 and NY A88769 did not address a specific model or style of home, but rather discussed Lindal’s “prefabricated home kits” generally, as did those rulings. However, the holding in those rulings is correct based on the facts that were presented. This ruling will address the three specific Lindal “prefabricated home kits” mentioned in your current submission: the Justus Homes, Timber Frame Homes (Post and Beam) and Timber Frame Homes (Post and Beam) with “partially assembled wall panels.”
Our office met with you on October 20, 1999, to discuss the issues raised in your request and on January 18, 2001, members of my staff traveled to Stafford, Virginia, to look at the imported merchandise and to see how it was applied in the construction of a building. The home in question was of a post and beam
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construction. At the time of the visit, the construction of the home had advanced to the point where the frame, the floors, and some of the walls were already built. Various materials were present at the site to be used to complete the building.
In your letters you request confidential treatment with regard to certain information placed in brackets for identification. We grant your request for confidential treatment for commercial and financial information referring to the materials, cost figures and production detail of the merchandise. It has long been the position of the Customs Service that a section 177.2(b)(7) grant of confidentiality is coterminous with Exemption 4 of the Freedom of Information Act (5 U.S.C. 552(b)(4)). Exemption 4 was enacted to protect from disclosure information such as customer lists, costs, identities of suppliers, quantities of merchandise, formulas, assets, profits, losses, market shares, and similar information, the disclosure of which would enure to the competitive disadvantage of the party providing the information. However, we do not find that the bracketed information describing the materials and how they are “assembled” discloses any harmful facts to your client. Moreover, that information pertains to the underlying classification issue. Accordingly, confidentiality is denied with regard to that information.
Under the provisions of 31 CFR 1.6, if a Freedom of Information Act request is made for your submission you will be notified and given an opportunity to further justify your request and, if appropriate, an opportunity to prevent disclosure through judicial action.
FACTS:
Your client imports home packages or “kits” into the United States and markets them through independent dealers. Lindal manufactures two types of homes, the Justus Homes and the Timber Frame Homes. In your most recent letter you also present a third type of construction which is the same as the Timber Frame Homes with the addition of a number of partially assembled wall panels, described by you as “plywood or OSB (oriented strand board) sheeting nailed to the appropriate number of precut 2 x 4 or 2 x 6 wall studs and a bottom plate.
Lindal supplies its customers with catalogues containing photographs, layouts and detailed plans of various models available. Once the customer identifies a particular model, the dealer helps the customer with the basic blueprints for the future home. When a customer orders a home, Lindal manufactures or obtains the necessary materials in Canada based on the customized plans and packages them together for shipment to the United States. According to the information provided, the parts are prenumbered to correspond with numbers on the plans
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for easy identification and inventory, i.e., all 2 x 4 by 14 feet long boards will have a specific number stamped on the end of the board. Lindal’s home packages are intended for specific customers and are delivered directly to the building site.
At the building site, an inventory verification check is conducted by the local Lindal dealer to ensure that the package is complete. The buyer, or private contractor, then builds the home based on the house plans and materials included in the package. Instruction manuals are provided to guide the builder through the construction process.
A “Bill of Materials” lists all the parts contained in the package. The list groups the various materials according to which home component they belong, such as floors, walls and roof. In addition, the package includes windows, doors and hardware such as nails, screws, bolts, framing anchors, beam hangers and caulking.
The Justus Homes are made of solid wood cedar walls consisting of logs that are designed and produced to interlock at the tops, bottoms and sides. Where one wall joins another, the logs interlock through a dovetail joint. Each log is cut to specific size and shape and is numbered. At the factory, each wall is partially assembled to ensure the woodworking is done correctly and that each joint fits. The walls are then disassembled for transportation purposes. At the jobsite, the logs are fitted together in the planned and previously assembled numbered sequence. The windows and doors are also assembled before shipment.
The Lindal Timber Frame home is made of post and beam construction, which bear the weight of the home, rather than frame walls. You state that this design allows large open spaces into which large walls of assembled glass windows are inserted. You state that the windows constitute many, if not the majority, of the exterior wall panels of the Lindal Frame home. You further state that the solid “wall panels” are made from 2 x 4 or 2 x 6 dimension lumber and plywood and may be imported assembled, although they are generally not fabricated prior to importation in order to save on transportation costs.
The post and beam materials of the Lindal Frame home are cut to size for use at the jobsite. The perimeter beams or “box beams” consist of a sandwich made of softwood dimension lumber formed into a box shape that is filled with foam for insulating properties. The beams are imported in ten, twelve, and fourteen-foot lengths.
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In NY A88769, Customs held that the subject merchandise was precluded from classification in heading 9406, HTSUS. This holding was confirmed in
HQ 960165. In support of your claim that Customs erred in precluding your client’s merchandise from classification in heading 9406, HTSUS, you reference NY 857348, dated November 9, 1990, and HQ 950312, dated December 31, 1991, which you state classified identical merchandise in heading 9406, HTSUS. Additionally, you state that HQ 950312 was issued to “Linwood Homes, Ltd.”, which was started by your client’s family and uses nearly identical production and assembly processes as those used by Lindal. As such, you conclude that Lindal’s merchandise should also be classified in heading 9406, HTSUS.
You also dispute Customs interpretation of “finished in the factory or put up as elements” as set forth in Note 4 to Chapter 94, HTSUS. You state that Customs interpretation of “put up as elements” as meaning” to erect: build” is overly broad and thus not true to the intent and meaning of that note.
ISSUE:
What is the proper classification for the subject merchandise? LAW AND ANALYSIS:
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes. Merchandise that cannot be classified in accordance with GRI 1 is to be classified in accordance with subsequent GRI's taken in order.
Additionally, the Explanatory Notes (EN’s) to the Harmonized Commodity Description and Coding System constitute the official interpretation of the nomenclature at the international level. The EN’s are not legally binding. However, they do represent the considered views of classification experts of the Harmonized System Committee. It has therefore been the practice of the Customs Service to follow, whenever possible, the terms of the EN’s when interpreting the HTSUS.
GRI 2(a) states that any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished, entered unassembled or assembled.
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Heading 9406, HTSUS, provides for “Prefabricated buildings.” Note 4 to Chapter 94, HTSUS, states:
For the purposes of heading 9406, the expression “prefabricated buildings” means buildings which are finished in the factory or put up as elements, entered together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings.
The EN to heading 9406, HTSUS, state:
This heading covers prefabricated buildings, also known as “industrialized buildings”, of all materials:
These buildings, which can be designed for a variety of uses, such as housing, worksite accommodation, offices, schools, shops, sheds, garages and greenhouses, are generally presented in the form of:
complete buildings, fully assembled, ready for use;
complete buildings, unassembled;
incomplete buildings, whether or not assembled, having the essential character of prefabricated buildings.
Although heading 9406, HTSUS, is a broad eo nomine provision encompassing a variety of prefabricated structures, the terms of the heading and accompanying EN do stipulate certain criteria which must be satisfied to fit within the parameters of the term “prefabricated building.” One of these critical factors is that the
unassembled building display the core features or essential character of structures built in a factory. Generally speaking, “essential character” has been interpreted to mean the attribute which strongly marks or serves to distinguish what an article is; that which is indispensable to the structure, core or condition of the article. See HQ 950312, dated December 31, 1991.
It is clear that the EN to heading 9406, HTSUS, provide that such merchandise be classified as “prefabricated buildings” in the case where they are imported complete and fully assembled, ready to use; complete but unassembled; or having the essential character of prefabricated buildings. Your client’s homes are not complete and fully assembled or complete but unassembled. Thus, the question remains as to whether the Lindal home kits have the essential character of a prefabricated building.
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We disagree with your argument that Customs interpretation of Note 4 to Chapter 94, HTSUS, is overly broad. Note 4 states that prefabricated buildings means “buildings that are finished in the factory or put up as elements.” We emphasize that this prefix, “pre”, before the word “fabricate” is an indication that the “fabrication” is to be done prior to importation. The term “elements” is construed by Customs to indicate the parts required to “assemble” or erect the completed home because what is entered is not a complete structure, and thus, not “finished in the factory.” However, with regard to incomplete and unassembled buildings, as in this case, we are guided by the EN to heading 9406, HTSUS, requiring that the elements which make up the incomplete and unassembled building possess the essential character of the finished structure.
The Justus Homes have solid cedar walls consisting of “logs” that are designed and produced through various wood working processes. Each “log” is extensively worked with joints, which allows them to be interlocked at the tops, bottoms and sides. Where one wall joins another, the “logs” interlock through a double dovetail joint. You state that each log is cut to specific size and shape and numbered and at the factory each wall is partially assembled to ensure the woodworking is done correctly and that each joint fits. The walls are then disassembled for transportation purposes. At the jobsite, the logs are merely fitted together in the planned and previously assembled sequence to form the structure.
The pictures and samples of the Justus log-cabin components as well as the Construction Guide indicate that all of the imported components as a whole exhibit the essential character of a prefabricated building. Therefore, we find that the Justus Homes are unassembled prefabricated buildings classifiable in subheading 9406.00.4000, HTSUS.
This is not the case with the Timber Frame post and beam home kits. When my staff visited the construction site of one of these homes, dimension lumber was present in various sizes. However, the lumber was not recognizable as part of a specific prefabricated home, but was merely general sawn lumber in a quantity that would be used to build the home. Other materials such as plywood, OSB, flooring boards, siding paneling and moldings, and certain engineered products such as glulam beams and I-beams were all in material form, which is usual for conventional building construction. Additionally, we disagree with your claim that
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the Timber Frame Home kits include assembled glass “wall panels” that make up the majority of the exterior walls. These glass wall panels are, in fact, windows, which, like doors are finished articles of commerce that can be purchased in various sizes for installation into a particular building. By themselves, they do not confer the status of “prefabricated buildings.” However, we agree with you that heading 9406, HTSUS, does not require assembled wall panels. In fact, the Justus Home does not have any assembled wall sections but is, nevertheless, classifiable in heading 9406, HTSUS.
For the purpose of the Timber Frame Homes, we reiterate our finding in
HQ 960165, that “since a prefabricated building must be a building finished in the factory, the merchandise cannot be materials that are simply pre-cut to size and nothing more. Also, any cutting of indeterminate or random materials on site is limited to circumstances when the merchandise has entered the United States in sections and only minor cutting is required.” The benefit to a consumer of the Timber Frame Homes is having all the needed materials present and delivered by one company and in one comprehensive order. Lindal’s numbering system is a convenient inventory system and method to identify the various wood boards, i.e., a board stamped by Lindal with Part No. 414 means that it is framing lumber 2 x 6 x RL. Such a part is lumber which can and is used in a number of locations in the construction of the home such as the exterior walls, loft, gables, etc.
Therefore, we find that the Timber Frame Home kits are a collection of materials needed to build a home and do not have the essential character of a prefabricated building. The materials in the post and beam home kits are classified separately under their applicable tariff provisions.
The third type of home has a post and beam structure with a number of partially assembled wall panels. These partially assembled wall panels consist of plywood or OSB sheeting nailed to the appropriate number of precut 2 x 4 or
2 x 6 wall studs, along with a bottom plate. We have obtained copies of two entries of this merchandise which contain a list of all the materials for each entry. In one entry, wall panels represented only 4.1 percent of the total value of the shipment of materials to build the home. In the other shipment, the partially assembled wall panels represented only 3.6 percent of the total value of the shipped materials. This ruling does not reveal the specific information on the material list as that is confidential information.
Thus, it is clear that the wall panels represent a very small part of the imported merchandise and we cannot reasonably conclude that they provide the essential character of the finished building. The shipments are merely materials which will be used to construct the home and which represent approximately 96 percent of the value of the shipment. As stated above, a particular component or material
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does not create a prefabricated building of heading 9406, HTSUS. It is the design, preparation and transformation of materials that create a prefabricated building, although materials may include products that already have a certain amount of assembly. For example, plywood is manufactured by assembling
wood veneer sheets together; glulam or glue laminated timber is manufactured by face-gluing lumber boards; windows and doors are clearly assembled products. These “assembled” materials are bought and sold for use as materials in many applications and buildings. However, these “assembled” materials do not constitute, by themselves, the essential character of a prefabricated building. Furthermore, a conglomeration of materials shipped together does not become a prefabricated building simply by packing them together. Accordingly, we find that the third type of structure is not a prefabricated building under heading 9406, HTSUS. All the materials, including the partially, pre-manufactured walls, are classifiable separately under their applicable tariff provisions.
Finally, we address the rulings referenced in your submission. The merchandise discussed in NY 857348, consisted of standard packages of which 85 percent of the components were ready to assemble. Additionally, the logs and glulaminated beams that made up 60 percent of the standard packages were notched and trimmed and similarly ready to assemble. For classification purposes, these packages met the requisite “essential character” test.
With respect to the ruling issued to Linwood Homes, HQ 950132, in your submission you state that although you feel the classification in that determination was correct, it was based on factual error because, like Lindal, the merchandise addressed in HQ 950132 did not contain any preassembled components. We have records that clearly demonstrate otherwise. Upon review of the background file for HQ 950132, our records show that:
The National Import Specialist for this commodity personally visited the seller’s facilities at the time to discuss how the merchandise was processed and shipped to the United States;
The seller’s list of materials, on Linwood stationary, includes prefabricated wall sections, prefabricated gable sections and glulam beams.
As such, your claim is without basis. HQ 950312 reflects both accurate information and the appropriate classification of that merchandise in heading 9406, HTSUS.
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HOLDING:
The Justus Homes are classifiable under heading 9406, HTSUS, as prefabricated buildings. The Timber Frame Homes and the Timber Frame Homes with partially preassembled walls are precluded from classification in heading 9406, HTSUS, for the reasons stated above. The materials in these home packages are classified separately under their applicable subheadings.
If a ruling is desired for the separate materials, please submit detailed descriptions including the construction, the species of wood of all layers and any other future processing. An individual ruling request should be limited to five items of the same class or kind.
Sincerely,
John Durant, Director
Commercial Rulings Division