CLA-2 CO:R:C:S 557018 BLS
Mr. Alex Romero, Jr.
A.F. Romero & Co., Inc.
477 Railroad Blvd.
Calexico, California 92331-0989
RE: Gas sterilization of medical products; incidental to
assembly; Mast; General Motors;HRL 555154; HRL 554333;
HRL 553055
Dear Mr. Romero:
This is in further reference to your letters dated
November 16, 1992 and March 5, 1993, and a subsequent
submission dated May 8, 1993, on behalf of Tri-State Hospital
Supply Corporation ("Tri-State"), requesting a ruling that
sterilization of certain I.V. Extension sets ("I.V. sets") to
be performed in Mexico will be considered an operation
incidental to assembly under subheading 9802.00.80, Harmonized
Tariff Schedule of the United States (HTSUS). The sets,
composed of plastic components of U.S. origin, are currently
being imported under subheading 9802.00.80, HTSUS. However,
the sterilization process is being performed in the U.S. after
assembly and importation. Samples have been submitted.
FACTS:
The I.V. sets are used by hospitals to access the primary
I.V. line for the main purpose of drug infusion via a syringe.
Although variations exist in the configuration of the sets,
due to individual hospitals utilizing different techniques,
each set is used in a similar manner within the hospital.
The operations are similar for the entire product line.
Each I.V. set goes through the same method of assembly,
testing and packaging (the only difference being variations in
plastic fittings, tubing length and complexity). In general,
the sets are assembled as follows:
1) The plastic tubing is cut to length using an automatic
tubing cutter.
2) Components specified in the Bill-Of-Material are
pulled
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from stock.
3) Using an assembly line production method, individual
plastic components are joined to the tubing by solvent
bonding. Assemblers dip one end of the tubing (about 1/4")
into the solvent dispenser and "wet" the area intended for
connection. The tubing is then inserted into the plastic
component(s). This is continued until the extension set is
completely assembled. Some extension sets require clamps,
valves and other items to be placed or assembled within the
extension set assembly process. All actual assembly is done
manually.
4) After the bonding/assembly is complete, the extension
is allowed to cure for 24-72 hours.
5) After curing, the I.V. sets are 100% flow tested to
check for clogs caused by the solvent. To do this, an end of
each set is placed over an air source (manually) to ensure
"continuity" throughout. Sets which are clogged are rejected.
6) The next step is the leak test. Again, all sets are
manually placed onto a test fixture which is computer
controlled. The opposite end of the set is closed with a
leak-proof connector to allow testing for leaks. The test
fixture either signals the operator to "accept" or "reject"
the set. The program to start the test is prompted manually.
It is possible to test four I.V. sets at a time. All sets are
100% leak tested.
7) After the leak test, caps are manually placed or
screwed onto the ends of the individual sets. These serve as
"dust caps" but are also vented to allow sterilant gas to
penetrate the inside of the set.
8) After capping, the I.V. set will be manually placed
into a "pouch" and are then run into a small machine called a
band sealer. The band sealer closes the opening in the pouch
by temporarily applying heat and pressure. The pouch serves as
the "sterile barrier" after the product has been sterilized.
Thus, the product is sterile until the pouch is opened by the
end-user.
9) The individually pouched extension sets will be placed
manually within a corrugated box, and the boxes will be placed
onto pallets. The pallets will then be moved into a room for
a 12-24 hours for pre-humidification, a process which promotes
the growth of bacteria through high temperature and humidity.
This process facilitates sterilization. Each pallet will then
be placed into a chamber for gas sterilization. Between 36,000
and 60,000 sets will be processed during the 8-10 hour period
required for sterilization. The length of time required for
sterilization and
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the number of sets sterilized during the process is dependent
on the type of sets involved. However, if only one unit were
to be sterilized, the period of time required for such
operation would also be 8-10 hours.
10) After sterilization, aeration and quality control
inspection, the product will be imported into the United
States.
ISSUE:
Whether sterilization of the I.V. sets in Mexico is
considered a minor operation incidental to assembly under
subheading 9802.00.80, HTSUS.
LAW AND ANALYSIS:
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 subheading 9802.00.80, HTSUS, is
subject to duty upon the full value of the imported assembled
article less the cost or value of the U.S. components, upon
compliance with the documentary requirements of section 10.24,
Customs Regulations (19 CFR 10.24).
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).)
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In United States v. Mast Industries, Inc., 1 CIT 230, 517
F.Supp. 694 (1981), aff'd, 69 CCPA 55, 668 F.2d 501 (1981),
thecourt stated that 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 indicated that dependent on the particular
case, relevant factors may include:
1) the relative cost and time of the particular
operation;
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) if performed concurrently with assembly,
whether economic or practical considerations
dictate that the operations be so performed.
In General Motors Corp. v. U.S., 15 CIT 372,770 F. Supp.
641 (1991), rev'd, 976 F.2d 716 (Fed. Cir. 1992), the Court of
International Trade held that topcoat painting operations
performed on U.S.-origin sheet metal components shipped to
Mexico for assembly into automobiles were "incidental to
assembly" within the meaning of TSUSA item 807.00 (now HTSUS
subheading 9802.00.80). On appeal, the Court of Appeals for
the Federal Circuit reversed the lower court and held that,
considering the cost of all of the painting operations
performed abroad (including undercoating, sanding, baking,
topcoating, and waxing), these operations were not minor, and,
therefore, not "incidental to assembly." As a result, no duty
allowance under item 807.00 was permitted for the cost or
value of the U.S. components which were subjected to the
painting operations.
The appellate court reasoned that, although item 807.00
specifically refers to "painting," it is simply an example of
an operation which is potentially incidental to the assembly
process--not a definitive statement that all painting
operations, no matter how extensive, are allowed under item
807.00(c)." The court recognized from the statute's
legislative history that only operations (including painting)
"of a minor nature incidental to the assembly process" are
permitted. Id. at 719.
In the instant case, the time required for the
sterilization operation is 8-10 hours, whether 36,000 units or
one (1) unit is sterilized. A pre-humidification process, of
12-24 hours, is also required to prepare the merchandise for
sterilization. (It is noted that on a per man-hour basis, the
average productivity rate is 26.7 units, which includes
assembly, testing, and packaging, but not pre-sterilization or
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sterilization.) The substantial time required to ensure that
the I.V. sets are properly sterilized supports a finding that
the process is significant, and not a monor,
operation. In this regard, special equipment is required for
the sterilization operation, which requires exposure of the
material to a sterilant gas of a precise concentration for a
specific period of time at a special temperature and humidity
level and at a particular pressure. The significance of the
process is underscored by the fact that the I.V. sets could
not be used for their intended purpose without being
sterilized. While on a per unit basis the cost of the process
as a percentage of the cost of the U.S. components is not
significant as compared to the cost of the U.S. components
(3%-3 1/2%), it is noted that the capital investment in the
sterilization equipment and facilities ($52,000) will
approximate one-third the cost of the investment required for
assembly ($152,700).
With regard to the other relevant factors, it is apparent
that sterilization is not a prerequisite to assembly of the
I.V. sets, since it is performed after assembly, and it is not
directly related to the assembly process.
Accordingly, after balancing all of the relevant factors,
we find that the sterilization operation in this case is not
a minor operation incidental to the assembly process.
PRIOR DECISIONS-STERILIZATION
In prior Headquarters decisions, we found that
sterilization was an operation incidental to assembly. Thus,
Headquarters Ruling Letter (HRL) 553055, dated July 3, 1984,
involved the sterilization by heat of cotton-tipped
applicators; HRL 554333, dated November 5, 1986, involved
drugs that were dissolved, filtered, and placed in a sterile
environment; and in HRL 555154, dated March 20, 1989, certain
medical products were gas sterilized. In HRL 554333, we stated
that sterilizing assembled components for "ultimate use in
surgical operations or prospective care is comparable to a
cleaning process and, as such, can be considered incidental to
the overall assembly process". In HRL 555154, we followed HRL
554333 in holding that the gas sterilization operation therein
involved was similarly comparable to a cleaning process and
therefore incidental to assembly. In this regard, section
10.16(b), Customs Regulations (19 CFR 10.16(b)), includes
"cleaning" as one of the enumerated examples of operations
which are incidental to the assembly process.
Based on the decisions in Mast and General Motors, supra,
Customs will no longer consider sterilization to be comparable
to a cleaning process and incidental
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to assembly, without an analysis of the relevant factors in
each case as set forth by the court in Mast. Customs will
determine whether a particular process of
sterilization is incidental to assembly in the same manner as
any other operation which is not actually part of the assembly
process. A case-by-case methodology will be used, based on
the criteria set forth in Mast.
HOLDING:
Sterilization of the assembled I.V. sets in Mexico is
considered a significant operation, and not a minor operation
incidental to assembly, under the provisions of subheading
9802.00.80, HTSUS. Therefore, the I.V. sets are not eligible
for a partial duty exemption upon importation into the U.S.
Any sterilization operation which is not an actual part of
the assembly process will be analyzed on a case-by-case basis
to determine whether such operation is incidental to assembly.
HRLs 555154, 554333, and 553055 are modified to the extent
that they may have held that any process of sterilization is
a minor operation incidental to assembly.
In accordance with section 625, this ruling will become
effective 60 days after its publication in the Customs
Bulletin. Publication of rulings or decisions pursuant to
section 623 does not constitute a change of practice or
position in accordance with section 177.10(c)(1), Customs
Regulations (19 CFR 177.10(c)(1).
Sincerely,
John Durant, Director
Commercial Rulings Division