CLA-2 RR:TC:SM 559519 AT
Mr. Jim McNamara, General Manager
Rudolf Miles & Sons Incorporated
P.O. Box 1388
McAllen, Texas 78502-1388
RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.80 to certain electrical motors which are
assembled in Mexico from U.S. origin components;
fabrication; punching; HQ 558813
Dear Mr. McNamara:
This is in response to your letters dated October 20, 1995
and August 26, 1996, on behalf of General Electric ("GE")
requesting a ruling on the applicability of the partial duty
exemption of subheading 9802.00.80, Harmonized Tariff Schedule of
the United States ("HTSUS") to electrical motors assembled in
Mexico of U.S. components. We regret the delay in responding.
FACTS:
You state that GE intends to import electrical motors into
the U.S. which are assembled in Mexico from U.S. components. The
assembled motor itself will be fully enclosed in a cap (top
section) and can (lower section). You are concerned as to
whether the cap and can components, which are of U.S. origin,
are entitled to allowances in duty under subheading 9802.00.80,
HTSUS, when assembled with the electrical motor. You state that
prior to the assembly, a drain hole is punched in the can and cap
to allow any moisture that might build up inside the enclosure to
drain out. You indicate that the punching is not accomplished to accommodate the assembly of another component into the punched
hole. You have submitted a diagram (Attachments B and C to your
letter) showing component end locations of the drain holes. You
claim that the punching of the hole is best accomplished
immediately prior to the assembly operation due to the fact that,
based on customer demands, the hole could be punched in one of 12
alternative positions at 15 degree increments along a 180 degree
radius. You contend that the punching of the holes at the
assembly site allows for only four different sizes of caps and
cans to be maintained in inventory at the assembly plant.
Otherwise, if, for example, the holes were punched into all the
caps in the U.S. by the U.S. supplier, then GE would have to
maintain 48 part numbers versus 4 in inventory at the assembly
location (4 cap sizes x 12 potential positions for holes) which
would create a tremendous financial burden on GE. According to
your submission, the time required for the punching operation of
the cap and can is approximately 6 seconds which is 1 percent of
the total time required to assemble the motor and represents
approximately 0.1 percent of the total cost of the finished
motor.
ISSUE:
Are the U.S.-origin caps and cans which are used in the
assembly of electrical motors in Mexico in the manner described
above entitled to allowances in duty under subheading 9802.00.80,
HTSUS, when imported into the U.S. as part of an assembled
electrical motor?
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,
lubrication, 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 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, 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,
laminating, sewing, or the use of fasteners.
In this case, although no information was provided detailing
the enclosure operation of the caps and cans to the electrical
motors, we will assume for purposes of this ruling that the
method used in the enclosure operation would be considered an
acceptable assembly operation within the meaning of subheading
9802.00.80, HTSUS and 19 CFR 10.16(a).
The question presented in this case is whether the operation
of punching a hole in the cap and can prior to the assembly of
the electrical motors constitutes "further fabrication" of the
caps or is "incidental to the assembly" of the motors.
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). In HQ 558813 (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 further stated that the drilling
operation appears to be a significant step in the fabrication of
the pistons.
In this case, we are of the opinion that the operation that
entails punching a hole into the U.S. origin caps and cans prior
to the assembly of the electrical motors is a significant process
which constitutes a further fabrication of the caps and cans.
As in HQ 558813, where the pistons could not be used without the
bleed holes, the caps and cans cannot be used to enclose the
electrical motors without the drain hole. These drain holes
protect the enclosed electrical motor from being damaged by
moisture, which in our opinion is a significant characteristic of
a complete cap and can. Thus, in our opinion, the pre-assembly
punching operation is a significant process which constitutes a
finishing step in the fabrication of the components (i.e.,
completed caps and cans). Since the punching operation is
considered to be a further fabrication of the caps and cans,
contrary to condition (a) of the statute, the question as to
whether or not the punching operation is incidental to the
assembly process under condition (c) of the statute, is not
relevant for purposes of subheading 9802.00.80, HTSUS.
Accordingly, a duty allowance may not be granted upon importation
of the electrical motors for the cost or value of the caps and
cans.
HOLDING:
On the basis of the information presented, it is our opinion
that the U.S.-origin caps and cans which are used in the assembly
of electrical motors are not in condition ready for assembly
without further fabrication when exported to Mexico, since a
drain hole must be punched in the caps and cans in Mexico prior
to assembly. Therefore, no allowance in duty may be made for the
cost or value of the caps and cans under subheading 9802.00.80,
HTSUS, upon importation of the electrical motors. Since the
punching operation is considered to be a further fabrication of
the caps and cans, the question as to whether or not the punching
operation is incidental to the assembly process is not relevant
for purposes of subheading 9802.00.80, HTSUS. A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is 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
Tariff Classification Appeals Division