• HQ H131535
• Apr 21, 2011

• Type : • HTSUS :
•  Related:   78577   

CLA-2 OT:RR:CTF:VS H131535 KSG

Jorge A. Torres
President
Interlink Trade Services
10601 S. Jackson Road, Suite 200
Pharr, TX 78577

Re: Hearing aid sub-assemblies; tariff classification; NAFTA eligibility; country of origin marking

Dear Mr. Torres:

This letter is in response to your request for a binding ruling filed on behalf of Starkey Laboratories, Inc., asking for the proper tariff classification and country of origin marking of two hearing aid sub-assemblies and whether the hearing aid sub-assemblies are eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). In response to U.S. Customs and Border Protection’s (“CBP”) request for additional information dated July 27, 2010, you submitted a letter dated September 23, 2010, which is included in the file. FACTS:

This case involves two hearing aid sub-assemblies: (1) a hearing aid microphone sub-assembly; and (2) a hearing aid receptor sub-assembly imported into the U.S. after assembly in Mexico. Both sub-assemblies will be incorporated into a hearing aid device in the U.S. The hearing aid microphone sub-assembly turns sound into electricity. The hearing aid receptor sub-assembly turns electricity into sound. The importer proposed that both imported goods be classified in subheading 9021.90.4040 of the Harmonized Tariff Schedule of the United States (“HTSUS”). CBP disagreed with this tariff classification in its letter dated July 27, 2010.

The hearing aid microphone sub-assembly is composed of the following components: a Vietnamese-origin microphone, classified in subheading 8518.10, HTSUS, and five sets of wires produced in Denmark, classified in subheading 8544.99, HTSUS. The costs of the various parts were also provided but the transaction value of the completed sub-assemblies was not provided. The total cost and net cost were also not provided. In Mexico, microphones are placed into the fixture, the wires are soldered onto pads, tested, and packed for shipment to the U.S.

The hearing aid receptor sub-assembly is composed of a U.S.-origin receptor, classified in subheading 8518.29, HTSUS, U.S.-origin plastic covers classified in heading 3923 or 3926, HTSUS, U.S.-origin plastic wire insulation classified in heading 3917, and two electrical wires produced in Denmark, classified in subheading 8544.99, HTSUS.

In Mexico, the receptor is placed onto the fixture, the wires are soldered and inserted into the receptor tube, a cap is placed on the tubes so the notch on the tube and the notch on the cap line up, the receptor wires are placed into the notch, and loctite is applied to the wires and cap. Then, the receptor sub-assembly is cured under ultraviolet light for five seconds, tubing tweezers are used to place the receptor cushion on the receiver, receptor wires are routed, and the sub-assembly is checked for quality control and packed for shipment to the U.S.

ISSUES:

What is the proper tariff classification of the two hearing aid subassemblies?

Whether the two imported hearing aid subassemblies are eligible for preferential tariff treatment under the NAFTA?

What is the country of origin of the two hearing aid sub-assemblies?

LAW AND ANALYSIS:

Tariff Classification of the two sub-assemblies

Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.

The HTSUS provisions under consideration in this case are as follows:

8518.10.80 Microphones and stands therefore; loudspeakers, whether or not mounted in their enclosures; headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers; audio-frequency electric amplifiers; electric sound amplifier sets; parts therefore; microphones and stands therefore; other * * * * * * * * * * * * * 8518.29.80 Microphones and stands therefore; loudspeakers, whether or not mounted in their enclosures; headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and one or more loudspeakers; audio-frequency electric amplifiers; electric sound amplifier sets; parts therefore; Other; Other

9021.90.40 Orthopedic appliances, including crutches, surgical belts and trusses, splints and other fracture appliances; artificial parts of the body; hearing aids and other appliances which are worn or carried, or implanted in the body, to compensate for a defect or disability; parts and accessories thereof: Other: Parts and Accessories for hearing aids and for pacemakers for stimulating heart muscles

Chapter Note 2(a), Chapter 90, HTSUS, states that: “Subject to note 1 above, parts and accessories for machines, apparatus, instruments or articles of this chapter are to be classified according to the following rules: (a) parts and accessories which are goods included in any of the headings of this chapter or of chapter 84, 85, or 91 (other than heading 8487, 8548, or 9033) are in all cases to be classified in their respective headings…”

Chapter Note 2(a) would exclude goods of 8518 from classification in Chapter 90, HTSUS. Therefore, the importer’s classification of the two sub-assemblies in Chapter 90, HTSUS, is incorrect. Pursuant to GRI 1, both sub-assemblies would be fully described by the text of the heading as “microphones” and “loudspeakers” as set forth in headings 8518.10.80 and 8518.29.80.

II. NAFTA Eligibility

General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(ii) provides, in pertinent part:

(ii) Goods that originate in the territory of a NAFTA party under the terms of 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, in accordance with section 201 of the NAFTA Implementation Act.

General Note 12(b), HTSUS, provides, in pertinent part: For 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 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;

Because the imported sub-assemblies are not produced entirely in Mexico and/or the United States, pursuant to GN 12(b)(i), we must determine whether GN 12(b)(ii) is met. In order to make this determination, the tariff-shift rule set forth in GN 12(t) for the imported goods must be examined.

The GN 12(t) rule for subheading 8518.10 through 8518.29, HTSUS, is as follows:

A change to subheadings 8518.10 through 8518.29 from any other heading; or

A change to any of subheadings 8518.10 through 8518.29 from within that subheading or any other subheading within heading 8518, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:

30 percent where the transaction value is used, or 25 percent where the net cost method is used. Since the electrical wires from Denmark in the receptor sub-assembly undergo a heading change as a result of the processing in Mexico, the tariff shift rule set forth above is met for the receptor sub-assembly. The receptor sub-assembly is considered an originating good under the NAFTA.

However, for the microphone sub-assembly, the Vietnamese-origin microphone would not undergo the required tariff shift. Insufficient information was submitted to determine if the microphone sub-assembly qualifies as originating based on satisfaction of the regional value content requirement, based either under the transaction value method or the net cost method. We were not provided with the transaction value or the total cost of the imported sub-assembly. Further, although you provided a value for non-originating materials (all the materials are non-originating in this case), we are unable to substantiate these values without invoices and other business records. Based on the information submitted, the microphone sub-assembly would not be considered an originating good under the NAFTA.

III. Country of origin under the NAFTA

We must next determine the country of origin of the two sub-assemblies under the NAFTA. We look to the NAFTA Marking Rules contained in 19 CFR Part 102 of the CBP Regulations in determining the marking of the imported sub-assemblies.  Section 102.11 sets forth the General Rules for determining the country of origin of imported merchandise, with the exception of textile goods which are subject to the provisions of § 102.21. Since neither of the sub-assemblies are wholly obtained or produced in a NAFTA country or produced exclusively from domestic materials, 19 CFR 102.11(a)(1) and (2) are inapplicable.

We proceed to § 102.11(a)(3), which provides that 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 § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied. The sub-assemblies are classified in subheadings 8518.10 and 8518.29, HTSUS, and therefore, the applicable rule set forth in § 102.20 is:8518.10 – 8518.90     A change to subheading 8518.10 through 8519.90 from any other heading.

With regard to the microphone sub-assembly, the microphone of Vietnamese-origin is classified in the same heading as the finished sub-assembly, so it does not satisfy the tariff-shift rule.

Applying the hierarchy set forth in 19 CFR 102.11, we must next examine 102.11(b) to determine the country of origin of the microphone sub-assembly. The language of 19 CFR 102.11(b)(1) determines the country of origin based on the single material that imparts the essential character to the good. As we find that the microphone imparts the essential character to the good, it would determine the country of origin of the microphone sub-assembly. Accordingly, the country of origin of the microphone sub-assembly under 19 CFR 102.11 would be Vietnam. With regard to the receptor sub-assembly, the wires from Denmark classified in heading 8544, the U.S. covers classified in headings 3923 or 3926 and the U.S.-origin plastic insulation classified in heading 3917 satisfy the tariff-shift rule, but the U.S. receptor which is classified in heading 8518 does not.

Applying the hierarchy set forth in 19 CFR 102.11, we must next examine 102.11(b) to determine the country of origin of the receptor sub-assembly. The language of 19 CFR 102.11(b)(1) determines the country of origin based on the single material that imparts the essential character to the good. As we find that the receptor imparts the essential character to the good, it would determine the country of origin of the receptor sub-assembly. Accordingly, the country of origin of the receptor sub-assembly under 19 CFR 102.11 would be the U.S.

The NAFTA preference override provided in 19 CFR 102.19(b) would then apply. This regulation provides as follows: …”if a good which is originating within the meaning of 181.1(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.” Accordingly, pursuant to 19 CFR 102.19(b), the country of origin for duty purposes of the receptor sub-assembly would be Mexico. However, the receptor sub-assembly is not required to be marked as it is a product of the U.S.

HOLDING: By operation of GRI 1, the microphone sub-assembly is classified under subheading 8518.10, HTSUS, and the receptor sub-assembly is classified under subheading 8518.29, HTSUS.

The receptor sub-assembly would be considered an originating good under the NAFTA. The country of origin is the U.S. and therefore, the receptor sub-assembly is not be required to be marked. However, pursuant to 19 CFR 102.19(b), the country of origin for duty purposes is Mexico.

The microphone sub-assembly would not be considered an originating good under the NAFTA. Further, the country of origin of the microphone sub-assembly for duty and marking purposes is Vietnam.

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 CBP officer handling the transaction.
Sincerely,

Monika R. Brenner, Chief,
Valuation & Special Programs Branch