CLA-2:RR:CR:GC 967222 IOR
Tariff No.: 8519.93.40; 8519.99.00 HTSUS
Jorge Torres
Director – Trade Compliance and Consulting Services
Parker & Company
7801 S. Jackson Rd.
Pharr, TX 78577
Re: Compact disc mechanism; cassette mechanism; foreign trade zone
Dear Mr. Torres:
This is in response to your letter of May 7, 2004, to the Director, National Commodity Specialist Division (NCSD) New York, on behalf of Samtech Corporation (“Samtech”), requesting a binding ruling on the classification under the Harmonized Tariff Schedule of the United States (HTSUS), and North American Free Trade Agreement (NAFTA) eligibility of a compact disc mechanism and a cassette mechanism withdrawn from a United States Foreign Trade Zone (FTZ). Your ruling request was referred to this office for reply by the NCSD.
FACTS:
Compact Disc Mechanism (CDM)
A main chassis assembly (part # CDC-02), described as a CDM, will be imported from China, and admitted into an FTZ in McAllen, Texas. As imported, part # CDC-02 cannot function as a CDM without the addition of a printed circuit board (PCB), a metal bracket, and three screws. The PCB and metal bracket are stated to have Mexico as the country of origin, and the screws are said to be of U.S. origin. You state that the components will be in the FTZ in nonprivileged foreign status, and the screws will be in domestic status. These components will be assembled in the FTZ, into a functional CDM (capable of playing compact discs). After assembly the CDM will undergo a functionality test, quality control inspection, labeling and packing.
Cassette Mechanism (CM)
A functional CM will be imported, with an asserted country of origin of China, and admitted into an FTZ in McAllen, Texas. In the FTZ, the CM will undergo a quality control inspection, and a labeling and repacking operation. The process flow diagram indicates that the CM is capable of playing cassette tapes.
After the foregoing processes in the FTZ, the CDM’s and the CM’s will be sold and shipped to customers in the U.S. and Mexico, who will incorporate the units into complete Automobile Audio Systems. The CDM and the CM are unable to function without an external power source.
With regard to the CDM, you request the correct classification under the HTSUS for each of the components of the CDM, as well as the completed CDM as entered for consumption or withdrawn for exportation to Mexico, whether it qualifies for NAFTA preference, and whether the duty rate for the components admitted into the FTZ is at the duty rate of the completed functional CDM. You propose that the completed CDM is classified specifically in subheading 8519.99.0045, HTSUS. You also request confirmation that the functional CDM qualifies for NAFTA preferential treatment when assembled in the FTZ.
With regard to the CM, you request the correct classification under the HTSUS for the CM, and whether the CM withdrawn from the FTZ is subject to NAFTA duty deferral upon exportation to Mexico. You propose that the completed CM is classified specifically in subheading 8519.93.4000, HTSUS.
ISSUES:
Whether a ruling may be issued with respect to the classification of components to be admitted in an FTZ in nonprivileged foreign status for further assembly into a single article?
What is the classification of the compact disc mechanism and the cassette mechanism under the HTSUS?
Whether the duty rate for the components of the compact disc mechanism is at the duty rate of the complete functional compact disc mechanism?
Whether the cassette mechanism is subject to NAFTA duty deferral upon exportation to Mexico?
Whether goods assembled from non-originating material in a U.S. FTZ are eligible for NAFTA preference upon withdrawal for consumption in the U.S.?
May Customs and Border Protection (CBP) issue a ruling with respect to the origin of a U.S. producer’s or exporter’s goods for the purpose of determining whether the goods are eligible for preferential treatment under the NAFTA?
LAW AND ANALYSIS:
Classification of Merchandise Admitted into an FTZ
Under section 146.65(a)(2) of the CBP Regulations (19 CFR 146.65(a)(2)), non-privileged foreign status merchandise (NPF) is subject to tariff classification in accordance with its character, condition and quantity as constructively transferred to customs territory at the time the entry or entry summary is filed with CBP. In accordance with 19 CFR 146.32(b), the tariff classification of merchandise upon admission into the FTZ is required only with respect to privileged foreign (PF) status merchandise. In accordance with 19 CFR 177.1(a), CBP is limited to issuing rulings with regard to prospective transactions. Therefore, as the components will be in the FTZ in NPF status and the entry of the components into Customs territory prior to their assembly into a CDM is not a proposed CBP transaction, CBP is precluded from issuing a ruling as to the classification of the components prior to their assembly into the CDM, which is entered for consumption.
You do not state whether the functional CM will be admitted in PF or NPF status. With respect to PF status merchandise, 19 CFR 146.65(a)(1) provides that PF status merchandise will be classified according to its character, condition and quantity, at the rate of duty and tax in force on the date of filing the application for privileged status. PF status may only be given to merchandise which has not been manipulated or further manufactured so as to effect a change in tariff classification. 19 CFR 146.41(a). Because the CM is not manipulated or further manufactured, the classification of the CM is the same whether it is in PF or NPF status.
Classification and Duty Rate of Merchandise Withdrawn from an FTZ
We can provide you with the classification of the CDM and CM, as the entry of those articles is a proposed CBP transaction.
Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that most goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS subheadings under consideration are as follows:
Turntables, record players, cassette players and other sound reproducing apparatus, not incorporating a sound recording device:
Other sound reproducing apparatus:
Other, cassette type:
Designed exclusively for motor-vehicle installation
8519.99.00 Other
In accordance with GRI 1 and GRI 2(a), which in part, extends the terms of a heading to include incomplete or unfinished articles provided that, at importation, they have the essential character of the complete or finished article, the CDM and CM are both classified in heading 8519, HTSUS. Classification of the CDM and CM in heading 8519, HTSUS, is consistent with the classification decision in HQ 963674, dated September 28, 2001, in which it was held that a cassette deck mechanism, although incomplete because it can’t function without an external power supply, and the PCB of the radio to which it will be attached, has the essential character of a cassette tape player. The CDM is classified specifically in 8519.99.00, HTSUS, as “Turntables, record players, cassette players other sound reproducing apparatus, not incorporating a sound recording device: Other sound reproducing apparatus: Other.” The CM is classified specifically in 8519.93.40, HTSUS, as “Turntables, record players, cassette players other sound reproducing apparatus, not incorporating a sound recording device: Other sound reproducing apparatus: Other, cassette type: Designed exclusively for motor-vehicle installation.”
You ask whether the duty rate for the components of the complete functional CDM is at the duty rate of the complete functional CDM. NPF status merchandise is subject to duty based on the good in its condition and quantity, and at its weight, at the time of its exportation from an FTZ for exportation to Canada or Mexico, or for entry into a Canadian or Mexican duty-deferral program. 19 CFR 181.53(b)(4). The foreign components of the complete CDM are NPF status merchandise. Therefore, upon withdrawal from the FTZ, duty will be assessed on the complete CDM based on its condition, quantity and weight. The individual components will not have any duty rate, although their value will be included in the appraised value of the complete CDM, in accordance with 19 CFR 146.65(b).
NAFTA Duty Deferral
With regard to whether the CM is subject to NAFTA duty deferral, upon withdrawal and exportation to Mexico, the specific language of 19 U.S.C. §81c(a), seventh proviso, provides for duty deferral with respect to foreign merchandise withdrawn from an FTZ and exported to Canada or Mexico as follows:
That no merchandise that consists of goods subject to NAFTA drawback, as defined in section 3333(a) of this title, that is manufactured or otherwise changed in condition shall be exported to a NAFTA country…without an assessment of a duty on the merchandise…and the payment of the assessed duty before the 61st day after the date of exportation of the article….
Under section 203(a) of the NAFTA Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. §3333), goods subject to NAFTA drawback are any goods other than, among others:
(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph--
(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good, and ....
The Customs Regulations issued under the authority of the NAFTA Implementation Act further define “same condition” in 19 CFR 181.45(b)(1), as including a good that has been subjected to certain operations, provided that no such operation materially alters the characteristics of the good, including “packing”, “repacking”, “labeling” and “testing.” The CM is subjected to quality control, labeling and repacking, which operations do not materially alter the characteristics of the CM, therefore the CM is exported in the same condition in which it is imported into the U.S., is not subject to NAFTA drawback and the NAFTA duty deferral rules do not apply.
NAFTA Preference
With regard to NAFTA preference for the functional CDM withdrawn from the FTZ and entered for consumption in the U.S., the provision in 19 U.S.C. §3332(a)(1)(B), which sets forth the requirements for a good to qualify as originating if produced from non-originating material, is not applicable to goods produced in an FTZ or subzone and entered for consumption in the U.S. 19 U.S.C. §3332(a)(2)(A). In accordance with the statute, operations performed in an FTZ will not render the CDM originating based on a change in tariff classification that occurs to the non-originating materials in the zone. See CSD 95-3.
With regard to NAFTA preference for the functional CDM withdrawn from the FTZ for exportation to Mexico, CBP issues administrative rulings pertaining to the eligibility of goods under the NAFTA for preferential tariff treatment pursuant to 19 CFR 181.92. The regulations set forth who may request such a ruling in 19 CFR 181.92(b)(5), and a U.S. producer or U.S. exporter is not included among those. For purposes of the issue of NAFTA preference upon entry into Mexico, Samtech is a U.S. producer and U.S. exporter. Accordingly, CBP may not issue a ruling to a U.S. producer or U.S. exporter, Samtech in this case, with respect to the origin of the producer’s or exporter’s goods for the purpose of determining whether the goods are eligible for preferential tariff treatment under NAFTA. See e.g. HQ 561654, dated January 31, 2001.
HOLDING:
CBP may not issue a ruling with respect to the classification of components to be admitted in an FTZ in nonprivileged foreign status for further assembly because such classification is not a prospective CBP transaction.
By application of GRI 1 and 2(A), the compact disc mechanism and cassette mechanism are provided for in heading 8519, HTSUSA. The compact disc mechanism is classified in subheading 8519.99.0045, HTSUSA, as “Turntables, record players, cassette players other sound reproducing apparatus, not incorporating a sound recording device: Other sound reproducing apparatus: Other…Optical disc (including compact disc) players” with a column one, general duty rate of “Free.” The cassette mechanism is classified in subheading 8519.93.4000, HTSUS, as “Turntables, record players, cassette players other sound reproducing apparatus, not incorporating a sound recording device: Other sound reproducing apparatus: Other, cassette type: Designed exclusively for motor-vehicle installation” with a column one, general duty rate of 3.7%. Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov.
The foreign components of the complete compact disc mechanism are NPF status merchandise, and upon withdrawal of the complete compact disc mechanism from the FTZ, duty will be assessed on the complete compact disc mechanism based on its condition, quantity and weight.
The cassette mechanism is not subject to NAFTA duty deferral upon exportation to Mexico, because it is exported in the same condition as imported into the U.S. within the meaning of 19 U.S.C. §3333(a)(2), and is not a good subject to NAFTA drawback.
Goods assembled from non-originating material in a U.S. FTZ are not eligible for NAFTA preference upon withdrawal for consumption in the U.S. in accordance with 19 U.S.C. §3332(a)(2)(A).
CBP may not issue a ruling to a U.S. producer or U.S. exporter with respect to the origin of the producer’s or exporter’s goods for the purpose of determining whether the goods are eligible for preferential tariff treatment under NAFTA.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division