CLA-2 CO:R:C:V 554808 GRV
TARIFF NO: 9802.00.80
S. Richard Shostak, Esq.
Stein Shostak Shostak & O'Hara
1101 Seventeenth St., N.W., Suite 806
Washington, D.C. 20036-4704
RE: Applicability of partial duty exemption under HTSUS subhead-
ing 9802.00.80 to luxury vans imported from Mexico.Data
General Corporation (1982);General Instrument Corp. (1973);
045638;058644;Southern Air Transport, Inc., (1980);Mast
Industries, Inc. (1981);Surgikos, Inc. (1988);General Motors
Corp. (pending litigation);limited holding.
Dear Mr. Shostak:
This is in response to your letters of October 21, 1987,
June 15, 1989, and August 3, 1989, on behalf of Pegasus
Industries, Inc., requesting a ruling on the applicability of
item 807.00, Tariff Schedules of the United States (TSUS) (now
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (HTSUS)), to certain luxury vans to be imported from
Mexico. Although you also inquired as to the applicability of
TSUS item 806.20 (now HTSUS subheading 9802.00.50) to certain
aspects of the transaction contemplated, we have been advised by
your firm that you no longer wish us to address this issue.
Numerous photographs showing the article as exported and
imported were submitted.
FACTS:
You state that newly purchased and fully functional U.S.-
manufactured panel trucks--modified by your client with fully
installed enlarged windows--and U.S.-manufactured seats, air
conditioners, lights, trays (ash and drink), metal ladders and
racks, and other components will be exported to Mexico for
assembly with certain foreign components into luxury vans. In
addition, other U.S. materials, such as carpeting, fabric,
plywood, etc., will be exported in bulk and cut to shape, etc.,
for assembly into the luxury vans. (You concede that these
latter materials are dutiable, as they will not be exported in
condition ready for assembly without further fabrication). The
panel trucks themselves will be driven from El Paso, Texas, to
Juarez, Mexico--a distance of approximately ten miles.
Prior to the commencement of assembly operations, certain
preparatory steps deemed incidental to assembly are undertaken.
These include the temporary removal of: (1) the engine cover,
plastic parts around doors, sunvisors, visor support, etc., so
that they can be reupholstered with fabric or carpet; (2) the
dash board, metal moldings around the dash, plaques from the
front doors, and electronic controls, so that a stereo or CB
radio may be installed; and 3) metal and plastic moldings and
seat pedestals for installation of insulation, carpets and/or
fabric to the interior of the chassis. Most of these components
will be reinstalled and those that will not will be consigned to
storage.
The U.S. and foreign components will be assembled to the
trucks by means of bolting, screwing, gluing, welding, and other
recognized means of assembly. The number and type of components
to be assembled may vary depending on the customer's order.
Following these operations, certain parts of the truck
(e.g., fiberglass running boards and the spare tire covers) will
be painted to protect them from the sun and to conform them to
the color of the van. Also, damaged trucks will be spot
painted. The resultant luxury vans will then be imported into
the U.S.
Regarding your assertion that the preparatory steps are
incidental to the assembly operation, you provide comparative
time/cost data showing that these steps take approximately 20-
25 minutes with one operator and cost approximately $ .44,
compared to 45 hours for the total conversion time and $ 175.92
for the total labor cost of the assembly operation. You submit
that these statistics attest to the minor nature of the
preparatory steps.
ISSUE:
Whether the returned luxury vans will be eligible for the
partial duty exemption under HTSUS subheading 9802.00.80.
LAW AND ANALYSIS:
HTSUS subheading 9802.00.80 provides a partial duty exemp-
tion for:
[a]rticles assembled abroad in whole or in part of fab-
ricated 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 HTSUS subheading 9802.00.80 must be
satisfied before a component may receive a duty allowance. An
article entered under HTSUS subheading 9802.00.80 is subject to
duty upon the full value of the imported assembled article less
the cost or value of such U.S. components, upon compliance with
the documentary requirements of section 10.24 of the Customs
Regulations (19 CFR 10.24).
The legislative purpose of this tariff provision is to
encourage the foreign assembly of U.S.-made components. Data
General Corporation v. United States, 4 CIT 182 (1982). In
General Instrument Corp. v. United States, 480 F.2d 1402, 1405,
60 CCPA 178, C.A.D. 1106 (1973), rev'g, 67 Cust.Ct. 127, C.D.
4263 (1971), the court stated that:
[t]he only reasonable interpretation of item 807.00 is
that all elements that go into the imported final
article which meet the conditions the item imposes on
the fabricated components are subject to the exclusion
it provides.
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 exporta-
tion 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.
In our opinion, the fact that a U.S. component (such as the
modified panel truck in this case) is in a functional or
operating condition when exported for assembly abroad will not,
in itself, preclude the application of HTSUS subheading
9802.00.80 to the returned assembled article. In Headquarters
Ruling Letter (HRL) 045638 (May 13, 1976), a fully functional
commercial jet aircraft of U.S. manufacture was exported to
Canada where a U.S.-manufactured flight data recorder and standby
gyro were installed in the aircraft. We held that the returned
aircraft was entitled to entry under TSUS item 807.00, and that
duty should be assessed against the full appraised value of the
aircraft less the cost or value of the flight data recorder,
standby gyro, and the aircraft itself. Similarly, in HRL 058644
(November 13, 1975), an American-made aircraft, which was
substantially complete, and various U.S. accessories were
exported to Canada for customization work. Although we
ultimately disallowed TSUS item 807.00 treatment to the airframe
because it was painted according to customer specifications (a
step not considered incidental to the assembly process), we found
the exported airframe and other component parts otherwise
eligible for TSUS item 807.00 exemption. See, Cf., Southern Air
Transport, Inc., v. United States, 84 Cust.Ct. 7, C.D. 4836
(1980).
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. Examples of operations considered incidental
to the assembly process are delineated at section 10.16(b),
Customs Regulations (19 CFR 10.16(b)). 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. See, section 10.16(c), Customs
Regulations (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 (1981), the court, in
considering 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 of the operation and
time required by the operator were 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.
Applying these factors to the facts in this case, we find
that the described preparatory steps taken prior to actual
assembly operations constitute operations "incidental to the
assembly process" within the meaning of that phrase. First, the
relative cost/time required to perform the pre-assembly
operations is less than one per cent of the total cost/time of
the entire assembly. (Cf., Surgikos, Inc. v. United States, 12
CIT __, Slip Op. 88-35 (1988), wherein the court, applying the
Mast criteria, found that fenestration and finish folding
operations performed after assembly operations did not constitute
minor operations, as these operations constituted over one-fourth
of the labor-related costs and amounted to almost one-third of
the time involved to assemble the article.) Further, the
preparatory operations appear to be necessary and related to the
assembly of the stereo or CB radio, insulation, carpet or fabric
to the panel truck. Lastly, practical considerations would seem
to dictate that the operations be performed concurrently with
assembly, as the panel trucks to be exported will be driven to
Mexico, which necessitates that the seats, etc., be in the trucks
for safety reasons.
Accordingly, we hold that, taken as a whole, the preparatory
steps taken in this case to temporarily remove certain components
prior to the assembly operations constitute operations incidental
to the assembly process, as they are of a minor nature and, on
balance, satisfy the previously-described Mast criteria. This
accords with our holding in ruling letter 058644, supra.
The assembly operations consist of installing the various
components into the stripped panel trucks by recognized means of
assembly (i.e., welding, gluing, etc.). See section 10.16(a),
Customs Regulations (19 CFR 10.16(a)). Based on the photographs
submitted in this case, it appears that the panel trucks and
other U.S. components will be exported in condition ready for
assembly without further fabrication, and that the assembly
operation will merely involve the joining or fitting together of
the various components without causing them to lose their
physical identity or to be advanced in value or improved in
condition abroad except by being assembled.
Regarding the painting operation, we cannot consider this
aspect of your ruling request as this very issue is now before
the Court of International Trade in General Motors Corp. v.
United States, No. 87-03-0047. This case involves Customs denial
of a TSUS item 807.00 classification for a painting operation
claimed to be "incidental" to the assembly of certain trucks
abroad. We held that the foreign operation, which consisted of
applying several coats of enamel finish paint to completed
trucks, was neither "minor" nor "incidental" to the assembly of
the vehicles. Thus, the pending case puts before the court the
question of whether a quantitative or qualitative test should be
used in determining whether an operation is "of a minor nature"
and "incidental to assembly," for purposes of TSUS item 807.00.
A decision in this case is expected to shed more light on the
controlling criteria where painting operations are in issue and
we decline to address this issue while it is before the court.
We wish to make it clear that this ruling is specifically
limited to the facts set forth herein.
HOLDING:
On the basis of the information and photographs presented,
it is our opinion that, with the exception of the painting
operation, the described process of assembling the panel trucks
with the other components constitutes an acceptable assembly
operation or operations incidental thereto, within the meaning
of HTSUS subheading 9802.00.80. We decline to address the issue
of whether the painting operation is incidental to assembly
while this issue is before the court.
Sincerely,
John Durant, Director
Commercial Rulings Division