RR:TC:SM 560519 JML

TARIFF NO: 9802.00.80


Mr. Robert Noell
Cain Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. Box 150
Hidalgo, TX 78557

RE: Eligibility of six-way electronic dividers imported from Mexico for a partial duty exemption under subheading 9802.00.80, HTSUS; eligibility for NAFTA preferential tariff treatment.

Dear Mr. Noell:

This is in response to your letter of June 10, 1997, on behalf of your client, MCE Manufacturing Corporation ("MCE"), requesting a binding ruling for six-way electronic dividers imported from Mexico. Specifically, you request a ruling with respect to whether the imported dividers will be eligible for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS"), and preferential tariff treatment under NAFTA. We regret the delay in responding.

FACTS:

MCE intends to import six-way dividers assembled. You describe the six-way dividers ("dividers") as self-contained electronic assemblies which function as a means of electronically coupling, dividing, or combining radio frequency signals or power into three or more ports. The dividers are comprised of printed circuit boards ("PCBs"), a metal or plastic housing or cover, a resistor, an isolator, and radio frequency and/or DC connectors. The other materials involved in producing the finished dividers are solder and flux, ink for printing, epoxy coating and loctite.

The assembly process for the dividers is to be performed in Mexico. It involves pressing the connectors into holes in the side of the housing. The PCBs will be pre-tinned at the areas where the resistor and connector are to be soldered and the resistors will be soldered to the PCBs. The PCBs will then be cleaned and screwed to the housing. The isolator is then screwed and soldered to the PCB. The connectors are then soldered to the PCB. The assembly is visually inspected and electronically tested. The cover is then screwed to the housing, the assembly will be inspected and tested, and the housing and the cover will be painted. The assembled dividers are then tested and packed for shipment. A bill of materials you submitted indicates that all materials involved in assembling the finished dividers, except for the resistors, are of U.S. origin. The resistors are of Japanese origin.

The bill of materials indicates that the tariff classification of the various materials are as follows: the cover in subheading 7326.90, HTSUS, the solder in 8311.30, HTSUS, the flux in 3810.10, HTSUS, the resistor in subheading 8533.10, HTSUS, the isolator in subheading 8529.90, HTSUS, the PCB in subheading 8534.00, HTSUS, the housing in 7326.90, HTSUS, the connector in subheading 8536.90, HTSUS, the ink in subheading 3215.90, HTSUS, the epoxy coating in subheading 3208.90, HTSUS, the loctite in subheading 3506.91, HTSUS, and the screws in subheading 7318.15, HTSUS.

With regard to the classification of the finished dividers, you claim that they are classified under subheading 8525.10, HTSUS (transmission apparatus: television...other: other converters, decoders, preamplifiers, line amplifiers...directional couplers and other couplers). In support of this classification you submitted New York Ruling B86122, dated July 1, 1997, wherein the subject couplers were classified accordingly.

ISSUES:

1) Whether the six-way dividers assembled in Mexico are eligible for duty allowances under subheading 9802.00.80, HTSUS.

2) Whether the imported dividers are eligible for NAFTA duty preference.

LAW AND ANALYSIS:

SUBHEADING 9802.00.80

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 this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, 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, lamination, sewing, or the use of fasteners.

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).

You claim subheading 9802.00.80, HTSUS, duty allowances for six of the materials involved in producing the dividers: the cover, the isolator, the PCB, the housing, the connector, and the screws. Presumably, the other materials involved in the production of the dividers are not eligible subheading 9802.00.80, HTSUS, components. For purposes of this ruling only those materials you contend are eligible will be considered.

The assembly processes you describe for the dividers -- pressing connectors into the side of the housing, soldering the connector to the PCB, screwing and soldering the isolator to the PCB, and screwing the cover to the housing -- are considered acceptable forms of assembly for purposes of subheading 9802.00.80, HTSUS. See 19 CFR 10.16(a); Headquarters Ruling Letter 555681, dated September 7, 1990 (attaching U.S. origin DS2 relays to printed circuit boards by means of soldering constituted an acceptable assembly operation pursuant to 19 CFR 10.16(a)); HRL 558765, dated September 22, 1995 (attaching U.S. origin components to PCBs is an acceptable form of assembly).

With respect to the painting of the cover and housing, section 10.16(c)(3), Customs Regulations (19 CFR 10.16(c)(3)), provides that "[p]ainting primarily intended to enhance the appearance of an article or to impart distinctive features or characteristics" is an example of an operation not considered incidental to assembly. However, section 10.16(b)(3), Customs Regulations (19 CFR 10.16(b)(3)), states that operations incidental to the assembly of an article include "[a]pplication of preservative paint or coating, including preservative metallic coating, lubricants, or protective encapsulation." You advised a member of my staff by telephone that the primary purpose of the painting operation is to enhance the article's decorative appearance. Therefore, we find that the painting operation in this case is not incidental to the assembly of the folders. As a result, no allowance in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the painted components -- the housing and cover.

Accordingly, the imported PCB assemblies from Mexico will be eligible for allowances in duty for the cost or value of the U.S. components not affected by the painting operations-- the isolator, the PCB, the connector, and screws -- under subheading 9802.00.80, HTSUS, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

NAFTA PREFERENCE

General Note 12, HTSUS, incorporates Article 401 of the North American Free Trade Agreement ("NAFTA") into the HTSUS. Note 12(a)(ii) provides, in pertinent part:

(ii) [g]oods 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 set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States 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...

Accordingly, the finished dividers at issue will be eligible for the "Special" "MX" rate of duty provided it is a NAFTA "originating" good under General Note 12(b), HTSUS, and they qualify to be marked as a product of Mexico under the marking rules. General Note 12(b) provides, in pertinent part:

[f]or the 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 materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note;.........

The bill of materials you submitted for the finished dividers indicates that all but one of the materials incorporated into them are of U.S. origin. The resistor is of Japanese origin. While the bill of materials you have provided by itself does not establish that the materials incorporated into the finished dividers are NAFTA "originating" pursuant to General Note 12, HTSUS, we will assume for the purposes of this ruling that all materials described as of "U.S. origin" are "originating" under General Note 12(b). With regard to the Japanese origin resistors -- the only non-originating goods used in the production of the dividers -- they must undergo a change in tariff classification as described in General Note 12(b)(ii)(A) for the dividers to be considered "originating." As the finished dividers are classified in subheading 8525.10, HTSUS (transmission apparatus: television...other: other converters, decoders, preamplifiers, line amplifiers...directional couplers and other couplers), we note the applicable rule located in General Note 12(t)/85.74--12(t)/85.83:

[a] change to subheadings 8525.10 through 8525.20 from any subheading outside that group............

As the resistor is classified in subheading 8533.10, HTSUS, a subheading outside 8525.10 through 8525.20, HTSUS, it clearly satisfies the applicable change in tariff classification rule. Consequently, the finished dividers would be considered "originating goods" for purposes of General Note 12(a)(ii).

Section 102.11, Customs Regulations (19 CFR 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. Section 102.11(a), Customs Regulations (19 CFR 102.11(a)), states that the country of origin of a good is the country in which:

(1) [t]he good is wholly obtained or produced; (2) [t]he good is produced exclusively from domestic materials; or (3) [e]ach 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 CFR 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 dividers are assembled in Mexico from U.S. and Japanese materials, and therefore they are neither wholly obtained or produced, nor produced exclusively from domestic materials as those terms are defined under section 102.1, Customs Regulations (19 CFR 102.1). Accordingly, section 102.11(a)(3), Customs Regulations (19 CFR 102.11(a)(3)), is the applicable rule that must be applied to determine the origin of the subassemblies. Pursuant to section 102.11(a)(3), the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20, Customs Regulations (19 CFR 102.20).

As the finished dividers are classified in subheading 8525.10, HTSUS (transmission apparatus: television...other: other converters, decoders, preamplifiers, line amplifiers...directional couplers and other couplers), we note the applicable change in tariff classification rule set out in section 102.20(o), Customs Regulations (19 CFR 102.20(o)), [s]ection XVI: [c]hapters 84 through 85:

8525.10-8525.20.......A change to subheading 8525.10 through 8525.20 from any other subheading outside that group.

Thus, all of the materials incorporated into the finished dividers (i.e. because they are all "foreign materials"), must meet the above rule. Noting the tariff classification of the materials -- the cover in subheading 7326.90, HTSUS, the solder in 8311.30, HTSUS, the flux in 3810.10, HTSUS, the resistor in subheading 8533.10, HTSUS, the isolator in subheading 8529.90, HTSUS, the PCB in subheading 8534.00, HTSUS, the housing in 7326.90, HTSUS, the connector in subheading 8536.90, HTSUS, the ink in subheading 3215.90, HTSUS, the epoxy coating in subheading 3208.90, HTSUS, the loctite in subheading 3506.91, HTSUS and the screws in subheading 7318.15, HTSUS -- the applicable rule is satisfied as none of the above-mentioned materials are within the group of subheadings between 8525.10 through 8525.20. Thus, based upon the information provided, the dividers are products of Mexico pursuant to section 102.11(a)(3).

Based upon the information submitted, because the finished six-way dividers are considered "originating goods" and products of Mexico under the NAFTA Marking Rules as required by General Note 12(a)(ii), HTSUS, they are entitled to NAFTA tariff preference at the MX" duty rate.

HOLDING:

On the basis of the information provided, it is Customs opinion that, except for the painting of the housing and cover, the operations to be performed in Mexico to create the six-way dividers are acceptable assembly operations or operations incidental thereto pursuant to subheading 9802.00.80, HTSUS. Therefore, a duty allowance may be made under this tariff provision for the cost or value of the U.S. origin components not affected by the painting (i.e. the isolator, the PCB, the connector, and the screws), upon compliance with the documentary requirements of section 10.24, Customs Regulations. As the painting of the housing and the cover is primarily intended to enhance the appearance of the dividers, this operation is not considered incidental to assembly. Therefore, no duty allowance may be for the cost or value of the housing and cover.

In addition, based on your submissions concerning the countries of origin of the materials incorporated into the finished dividers, as well as their applicable tariff classifications, we find that the dividers will be eligible for NAFTA tariff preference under the "MX" duty rate, as the finished dividers are considered "originating goods" and are products of Mexico under the NAFTA Marking Rules (19 CFR Part 102), as required by General Note 12, HTSUS.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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