CLA-2 RR:TC:SM 560359 KKV
Mr. Robert Noell
Cain Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. Box 150
Hidalgo, Texas 78557
RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to hot water dispenser valve assemblies; NAFTA preferential tariff treatment; General Note 12; Article 509; non-originating material undergoes applicable tariff shift
Dear Mr. Noell:
This is in response to your letter dated March 10, 1997 (and subsequent facsimiles dated March 19, 1997 and January 5, 1998), on behalf of In-Sink-Erator Division of Emerson Electric Co. (hereinafter “ISE”), which requests a binding ruling regarding the applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTSUS), and the North American Free Trade Agreement (“NAFTA”) to imported hot water valve assemblies. No sample was received with your request.
FACTS:
We are informed that ISE plans to begin importing hot water dispenser valve assemblies, classifiable under subheading 8481.80.1030, HTSUS, from Mexico. The hot water dispenser valve assemblies are subassemblies of a hot water dispenser (model H- 770) which is installed under a sink to provide hot water for beverages and other household uses. The item that ISE plans to import is a dispenser valve assembly that controls the flow of hot water from the hot water dispenser’s tank. We are informed that the complete list of component materials and their tariff classification are as follows:
Component Material Tariff Classification
Bag* 3923.10.00
Base Plate 8203.30.00
Bushing 7415.29.00
Compression Nut* 7415.32.00
Compression Sleeve* 7415.21.00
Cover (cap) 3923.50.00
Dispenser Body 8481.90.00
Dispenser Cap 8481.90.00
Flow Straightener 7326.90.00
Gasket 4016.93.00
Hose Clamp* 7326.90.00
ICU Books 4911.10.00
Logo Nameplate 3919.90.00
Lubricant 3403.99.00
O-Ring 4016.93.00
Outlet Assembly 8307.90.00
Outlet End Piece 7415.39.00
Race Cap (knob) 3926.30.00
Retainer Spring Washer 7318.22.00
Screen 7326.90.00
Screw 7318.15.00
Self Tapping Screws 7318.14.00
Service Sticker 3919.10.00
Snap Ring 7318.29.00
Stem Spring 7320.90.00
Support Plate* 8302.30.00
Valve Body 8481.90.00
Valve Disk 8481.90.00
Valve Stem 8481.90.00
Vent Tube 3917.32.00
Wall Bracket* 8302.30.00
Washer 7318.22.00
Items marked with an asterisk are not assembled in Mexico but are used by the installer of the finished article in the United States. We are informed that, with the exception of the screw (classifiable under subheading 7318.50.00, HTSUS), all of the materials are of U.S. origin. Additionally, we are informed that, with the exception of the screw (classifiable under 7318.50.00, HTSUS) and the lubricant classifiable under subheading 3403.99.00, all listed materials are U.S.-fabricated components ready for assembly without further fabrication. We are further informed that, with the exception of the screw (classifiable under subheading 7318.15.00, HTSUS), all materials utilized in the production of the valve assemblies qualify as NAFTA “originating materials.” For purposes of this ruling we will assume that the tariff classifications provided are correct.
You describe the assembly process of the finished hot water valve assembly in Mexico, by subassembly, as follows:
Stem Assembly:
A rubber valve disk is inserted into a recess in the end of the valve stem. The valve stem is placed in a fixture and deformed in a press to retain the valve disk.
Valve Stem Assembly:
The stem assembly is placed into a coiled spring. A washer is placed on top of the spring. An o-ring is slipped over the valve stem which holds the washer and spring in place.
Valve Guide Assembly:
O-rings are manually inserted into the internal groove and external shoulder of the valve guide bushing.
Valve Body Assembly:
The valve stem assembly and the valve guide assembly are inserted into the valve body. The valve guide assembly is securely screwed into the threaded opening in the valve body. A snap ring is inserted into an exterior groove of the valve body. The assembly is then checked for leaks.
End Piece Assembly:
Screens are placed into the end piece outlet. A flow straightener is coiled and inserted into the end piece outlet. The flow straightener expands after insertion to retain the screens. An o-ring is manually slipped over the threaded end of the end piece.
Dispenser and Filler Assembly:
The body cap is screwed to the body. The vent tube is force fit over the nipple on the bottom rear of the body. The valve body assembly is inserted through the hole in the body cap and a retaining ring is snapped into the groove on the valve body. The assembly is inverted and the outlet assembly is inserted into the body. The end piece assembly is threaded into the outlet assembly. The base plate is attached to the body with three screws. The gasket is placed over the tubes (tubes inside the semi-circular opening of the gasket and a self tapping screw are driven into the body to hold the gasket in place until final installation). The assembly is inverted and silicone lubricant is applied to the knob (race cap) prior to installing the knob over the protruding end of the valve stem. The retainer spring (spring washer) is placed over the valve stem and a retainer ring is inserted into the groove of the valve stem to hold it in place. The nameplate logo is placed in the recess in the top of the knob. The cap is aligned and snapped into place. The tubing is bent over a mandrel and coiled to fit the packaging. This operation is analogous to coiling an extension cord into loops to facilitate shipping. When the dispenser is eventually installed, the installer will straighten the copper tubes to connect to the water supply and hot water from the hot water tank. The completed dispenser assembly is cleaned and packed for shipment.
ISSUES:
I. Whether the hot water dispenser valve assemblies will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.
II. Whether the hot water dispenser valve assemblies will qualify for preferential tariff treatment under the North American Free Trade Agreement.
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.80, HTSUS
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 HTSUS subheading 9802.00.80 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 C.F.R. §10.24).
Section 10.14(a), Customs Regulations (19 C.F.R. §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 C.F.R. §10.16(a)), provides that assembly operations for purposes of subheading 9802.00.80 encompass any method used to join together solid components such as sewing, welding, soldering, riveting, force fitting,
gluing, or the use of fasteners and may be accompanied by operations that are incidental to the assembly as provided in section 10.16(b). 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.
In the case before us, you state that no claim for a duty allowance will be made under subheading 9802.00.80, HTSUS, with regard to the screw (classifiable under subheading 7318.50.00, HTSUS) as this item is not made in the U.S. In addition, you state that no duty allowance will be claimed for the lubricant, as you concede that, although made in the U.S., this item is not a fabricated component exported in condition ready for assembly without further fabrication, as required by statute. With regard to the remaining U.S.-origin materials, however, you have described processing in Mexico which involves only assembly operations. The components are in condition ready for assembly without further fabrication at the time of their exportation from the United States and are joined together by acceptable assembly operations (e.g., force fitting, screwing and the use of retaining snap rings and crews). Consequently, the hot water dispenser valve assemblies may enter the United States under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of any fabricated components which are determined to be of U.S. origin, except those items listed above, provided that the documentary requirements of 19 C.F.R. §10.24 are satisfied.
II. Eligibility for preferential tariff treatment under NAFTA
The second issue concerns whether the imported hot water dispenser valve assemblies are entitled to preferential tariff treatment under NAFTA. Article 401 of NAFTA is incorporated into General Note 12, HTSUS. General Note 12(a) provides, in pertinent part, that:
(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules ....and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “MX” in parentheses, are eligible for such duty rate....
Thus, by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico.
Section 102.11, Customs Regulations (19 C.F.R. §102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
“Foreign material” is defined in 19 C.F.R. §102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the automotive fuel pumps are assembled in Mexico of U.S. materials and therefore, are neither wholly obtained or produced, nor produced exclusively from domestic materials. Because an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3).
Section 102.11(a)(3) provides that the country of origin is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 C.F.R. §102.20....”
New York Ruling B82918, dated March 7, 1997, states that the articles in question are classifiable under subheading 8481.80.1030, HTSUS, which provides for “Taps, cocks, valves and similar appliances for pipes, boiler shells, tanks, vats or the like, including pressure-reducing valves and thermostatically controlled valves; parts thereof: other appliances, hand operated: of copper: sink and lavatory faucets.” The applicable tariff shift rule found in section 102.20(o) provides as follows:
8481.10 - 8481.80 A change to subheading 8481.10 through 8481.80 from any other heading, or from subheading 8481.90 except when resulting from a simple assembly.
You indicate that all materials utilized are either of U.S.-origin, or originate in a non- NAFTA country, thus qualifying as “foreign materials” subject to the rule set forth above. Under the facts provided, materials initially classified under subheading 3403.99, HTSUS (lubricant), subheading 3919.10, HTSUS (service sticker), subheading 3917.32 , HTSUS (vent tube), 3919.90, HTSUS (logo nameplate), subheading 3923.50, HTSUS (plastic cap), subheading 3926.30, HTSUS (race cap- knob), subheading 4016.93, HTSUS (gasket, o-ring), subheading 4911.10, HTSUS (ICU books), subheading 7318.14, HTSUS (self tapping screws), subheading 7318.15, HTSUS (screws), subheading 7318.22, HTSUS (washer, retainer spring washer), subheading 7318.29, HTSUS (snap ring), subheading 7320.90, HTSUS (stem spring), subheading 7326.90, HTSUS (screen, flow straightener), subheading 7415.29, HTSUS (bushing), subheading 7415.39, HTSUS (outlet end piece), subheading 8203.30, HTSUS (base plate), subheading 8307.90, HTSUS (outlet assembly), and subheading 8481.90, HTSUS (dispenser body, dispenser cap, valve body, valve disk, valve stem) are subsequently classified under subheading 8481.80, HTSUS as a result of assembly processes in Mexico. Section 102.1(o), Customs Regulations (19 CFR 102.(o)) defines “simple assembly” as “the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.” Here, although certain component materials are classifiable under subheading 8481.90, HTSUS, more than five foreign component materials are fitted together. Thus, the assembly operations performed in Mexico exceed “simple assembly” and the limitation on the relevant rule is inapplicable to the subject merchandise. Consequently, inasmuch as all foreign materials undergo the applicable tariff shift as a result of assembly processes in Mexico, under the NAFTA Marking Rules, the country of origin of the finished hot water dispenser valve assembly is Mexico, pursuant to 19 C.F.R. §102.11(a)(3).
In addition to the determination of origin required by General Note 12(a), in order to be eligible for tariff preferences under the NAFTA, goods must be "originating goods" pursuant to the rules of origin in General Note 12(b), HTSUS, which provides, in pertinent part, as follows:
For purposes of this note, goods imported into the Customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as ‘goods originating in the territory of a NAFTA party’ only if--
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico, and/or the United States so that-
(A) except as provided in subdivision (f) of this note, each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein or
(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Insufficient information has been submitted to ascertain whether the valve assemblies are considered “originating” under General Note 12(b)(i). Inasmuch as the facts presented state that the screw utilized in the assembly of the finished hot water dispenser valve assembly is not a NAFTA-originating material, General Note 12(b)(iii) is inapplicable. Thus, we will consider whether the valve assembly is considered originating under General Note 12(b)(ii)(A), which provides, in pertinent part, that the goods are “transformed in the territory of Canada, Mexico and/or the United States” in such a manner that:
Except as provided in subdivision (f) of this note, each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein...
As previously indicated, the finished hot water valve assembly is classifiable under subheading 8481.80.1030, HTSUS. With respect to General Note 12(b)(ii)(A), the applicable underscored tariff shift rule under General Note 12(t)/84.239 states:
239. (A) A change to subheadings 8481.10 through 8481.80 from any other heading; or
(B) A change to subheadings 8481.10 through 8481.80 from subheading 8481.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Because the non-originating screw, initially classified under subheading 7318.15.00, HTSUS, is subsequently classified under subheading 8481.80.1030, HTSUS, as a result of assembly operations in Mexico, the non-originating material satisfies the tariff shift rule in General Note 12(t)/84.239(A), HTSUS. Accordingly, assuming that all other components used in the assembly of the valve assembly are, in fact, “originating materials,” the finished hot water valve assembly qualifies as an “originating good” pursuant to General Note 12(b)(ii), HTSUS, and is eligible for preferential tariff treatment under the NAFTA. The special MX rate of duty under subheading 8481.80.1030, HTSUS, is free. Additionally, we note the applicability of General Note 12(t)/84, Subheading Rule, which states, “[t]he underscoring of the designations in subdivision 239 pertains to goods provided for in subheadings 8481.20, 8481.30 or 8481.80 for use in a motor vehicle of chapter 87.”
HOLDING:
Based on the information presented, the hot water dispenser valve assembly may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of those fabricated components which were exported for assembly without further fabrication, as discussed above, and which are determined to be of U.S. origin, provided the documentary requirements of 19 C.F.R. §10.24 are satisfied.
Based on the information provided, the imported hot water dispenser valve assembly is considered to be a good of Mexico under the NAFTA Marking Rules and the only non-originating material used in the manufacture of the valve assembly satisfies the required change in tariff classification under General Note 12(t), HTSUS. Accordingly, the finished assembly is eligible for NAFTA tariff preference pursuant to General Note 12(b)(ii)(A), HTSUS.
The holding set forth above applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 19 C.F.R. §177.9(b)(1), which states that a ruling letter is issued on the assumption that all information furnished in connection with the ruling request and incorporated therein, either directly, by reference, or by implication, is accurate and complete in every material respect. Should it be subsequently determined that the information furnished is not complete and does not comply with 19 C.F.R. §177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished, this may affect the determination of eligibility for preferential duty treatment.
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
Commercial Rulings Division