HQ 0083222 - Classification of unassembled components at the time of application for privileged status in an Foreign Trade Zone (FTZ); incomplete or unfinished article having the essential character of the complete or finished article - United States International Trade Commision Rulings

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HQ 083222

April 25, 1989

CLA-2 CO:R:CV:G: 083222 JLV

CATEGORY: CLASSIFICATION

TARIFF NO.:

Brian S. Goldstein, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, New York 10004

RE: Classification of unassembled components at the time of application for privileged status in an Foreign Trade Zone (FTZ); incomplete or unfinished article having the essential character of the complete or finished article

Dear Mr. Goldstein:

In a letter of September 23, 1988, on behalf of your client, Subaru-Isuzu Automotive Inc. ("SIA"), you requested a ruling on the tariff classification of certain automotive parts which will be imported by SIA for assembly with other parts into a finished light duty pickup truck in a foreign trade subzone (FTZ). You presented multiple situations as proposed transactions. This ruling is our decision on the issues presented.

FACTS:

SIA proposes several transactions which are ultimately related to the production of a light duty pickup truck ("T.F.R.") in an FTZ in the United States. The merchandise involved in the transactions consists of components produced in Japan, components produced in the United States, and components produced in the FTZ. Although SIA intends to increase the domestic content of the components, you state that the listed parts will remain the same, with slight changes contemplated in the sourcing of certain parts.

You describe the parts as consisting of the following component categories: panel parts, frame, engine assembly, transmission assembly, trim parts, chassis parts (other than frame) and other miscellaneous parts. However, according to the list of parts, there are few assemblies or subassemblies of parts in these categories. With the exception of the
engine assembly, transmission assembly, various small motors (e.g., starter motor; blower; alternator), and a few other small assemblies, the parts as imported will consist of unassembled, discrete components for use in making various subassemblies, such as doors, frames, axles, cargo boxes, and bodies.

As shown in Exhibit A-1, the components imported from Japan will be grouped according to "trim parts," "chassis parts," "panel parts," and "other parts (engine and transmission assemblies, and nuts, bolts, washers, bushings, and similar miscellaneous fasteners and pins for various sections of the vehicle)." SIA initially proposes to ship these components, although grouped in this manner, on the same vessel and in unequal numbers, and to import them at the same port. No specific quantities, however, were proposed, nor did you indicate whether the components would be individually packaged, packaged in bulk (like items only), or packaged in kits for individual vehicles. The imported components will be put into inventory in the FTZ for eventual assembly with the U.S. components and the components produced in the FTZ.

In the alternative, SIA also proposes to ship these same groupings of parts on different vessels for importation at different ports and at different times. No specific information was given on this proposal. All the components, however, would ultimately be put into inventory in the FTZ for the same assembly operation.

Prior to the manipulation or manufacture of these components, SIA proposes to apply for privileged status of the components by specific groupings on separate days. Under Scheme I, the groupings would be as follows: Group A, consisting of panel parts, frames (sides only), and engine assemblies; Group B, consisting of transmission assemblies, trim parts, and chassis parts; and Group C, consisting of other parts. Under Scheme II, the groupings would be as follows: Group A, consisting of panel parts and sides of frames; Group B, consisting of engine assemblies, transmission assemblies, trim parts, and chassis parts, and Group C, consisting of other parts.

The FTZ subzone operation at the SIA facility will consist of four distinct stages: stamping, body assembly, painting, and final assembly. In the stamping operation, parts will be manufactured from plastic and steel materials. In the body assembly operation, the body components will be assembled. In the painting operation, the body parts will be
painted and coated in eight different steps. In the final assembly operation the painted bodies will be assembled, together with all the remaining components (approximately 1,500 to 1,800) on an assembly line.

With this overview of the operation and description of the condition of the unassembled components, you seek a determination that the unassembled components from Japan, if shipped on the same vessel and imported at the same time, do not constitute motor vehicles which, although incomplete, have the essential character of complete motor vehicles for purposes of GRI 2(a) under the Harmonized Tariff Schedule of the United States (HTS). You also seek a determination that, even if these unassembled components are incomplete and unassembled motor vehicles within the meaning of GRI 2(a), SIA may segregate or group shipments of unassembled components into different lots for purposes of claiming privileged status.

ISSUE:

1. Under the facts as given, do the unassembled components, shipped on the same vessel and imported on the same date, constitute unassembled incomplete motor vehicles classifiable as "completed" or "finished" motor vehicles within the meaning of GRI 2(a)?

2. For purposes of claiming privileged status under 19 U.S.C. 81c and 19 CFR 146.41 and 146.65 for components which are physically or constructively segregated out of a single shipment, does the application of GRI 2(a) preclude such claim if the shipment consists of components which constitute unassembled and incomplete foreign articles that are classifiable as the article?

LAW AND ANALYSIS:

Tariff classification of articles imported into the customs territory of the United States is governed under the HTS by the General Rules of Interpretation (GRI's) and any relevant section or chapter notes. GRI 2(a) provides as follows:

2(a). Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

Under the first sentence in GRI 2(a), an incomplete article having the essential character of the complete or finished article is classified under the heading for the complete article. The second sentence in GRI 2(a) extends this tariff treatment to the same article that is presented unassembled or disassembled. In this case, the articles are both incomplete and unassembled. The first question, therefore, is whether they have the essential character of the complete article, and the second question is whether they are "unassembled" as the term is used in GRI 2(a).

The Explanatory Notes (EN) to the Harmonized Commodity Description and Coding System are the official interpretation for the HTS at the international level. EN 2(a)(I), (V), and VII) provide some guidance on the intent of GRI 2(a):

(I) The first part of Rule 2 (a) extends the scope of any heading which refers to a particular article to cover not only the complete article but also that article incomplete or unfinished, provided that, as presented, it has the essential character of the complete or finished article. [under- scoring added for emphasis]

(V) The second part of Rule 2 (a) provides that complete or finished articles
presented unassembled or disassembled are to be classified in the same heading as the assembled article.
When goods are so presented, it is usually for reasons such as requirements or convenience of packing, handling or transport.
[Underscoring added for emphasis]

(VII) For the purposes of this Rule [2(a)], "articles presented unassembled or disassembled" means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts, etc.) or by riveting or welding, for example, provided only simple assembly operations are involved. [Under- scoring added for emphasis]

EN (I) does not provide much instructive language on the GRI 2(a) requirement that an incomplete article must have the essential character of the complete article. However, it is reasonable to say that in order to have the essential character of a motor vehicle, the imported components must be advanced to the point that they are recognizable as a motor vehicle, i.e., having the essential features of a vehicle, whether assembled or unassembled. In this case we have some parts of the frame (side rails only), some parts of the body panels, the engine and transmission assemblies, and some of the suspension components. Except for the engines and transmissions, there are no identifiable subassemblies. There is no evidence that any of these components are intended to be assembled into a specific motor vehicle, nor is there any evidence that they constitute something other than discrete components intended for inventory for a manufacturing operation. Furthermore, each of the various possible subassemblies (body, chassis, cargo box) are so incomplete as to defy even partial assembly until additional significant structural components are added. We cannot, under the facts as presented, conclude that these components have the essential character of a pickup truck or of any other motor vehicle.

However, even if the components in the shipment were to constitute incomplete motor vehicles which had the essential character of vehicles under GRI 2(a), the shipment of components could not be classified under the heading for the vehicles because they are not "unassembled" within the limited scope of GRI 2(a).

If an incomplete (or complete) article is also unassembled, EN (V) and (VII) describe the usual circumstances surrounding the "unassembled" state at the time of presentation: (1) the article is usually presented unassembled for convenience or for requirements necessitated by considerations arising from packaging, transport, or handling, and (2) it is put together by simple assembly operations involving simple fixing devices.

Shipment of these components in an "unassembled" condition does not have any apparent relation to the requirements necessary to the packing, handling, or transport of motor vehicles. Nor does the condition of the components in the shipment have any apparent relation to convenience in the packing, handling, or transport of motor vehicles. The condition of the components is more readily identifiable as a shipment of inventory items for a manufacturing operation or as replacement parts.

Finally, the description of the assembly in the FTZ subzone precludes any consideration of the process as a "simple" assembly within the meaning of EN 2(a)(VI), even though the primary means of joining these components may be by "nuts and bolts and welding operations." With the exception of the motor and transmission assemblies, there are no significant body or chassis subassemblies that can be easily assembled into a finished or complete motor vehicle. These motor vehicles will be assembled in a special-purpose subzone that allows automobile and truck manufacturing.

Concerning the second issue, we need only address whether GRI 2(a) applies to articles shipped unassembled into an FTZ and for which privileged status is claimed on all or part of the unassembled articles. In prior decisions on the application of classification principles to foreign articles which are placed directly into an FTZ without entry or withdrawal from a warehouse for consumption, Customs has determined that these principles do not apply until a claim for privileged status is made or the articles are entered into the customs territory of the United States. C.S.D. 83-97.

Classification of articles in the tariff schedule are governed by the GRI's. Classification and rate of duty, as provided in the tariff schedule, apply to articles imported into the customs territory of the United States. General Note 1, HTS. The FTZ act establishes a distinction between the geographical territory of the United States and the customs territory of the United States, and the customs laws do not apply, unless a specific provision allows or requires otherwise, to articles placed in an FTZ. Hawaiian Independent Refinery v. United States, 460 F.Supp. 1249; 19 U.S.C. 81c(a). Therefore, GRI 2(a) would not apply to articles placed in an FTZ until such time as a claim for privileged status is made or the articles are transferred from the FTZ to the customs territory of the United States. Furthermore, GRI 2(a) would apply only to the condition (i.e., the specific grouping of components) of the articles at the time the claim for privileged status is made, or at the time the articles are transferred from the FTZ.

HOLDING:

The shipment of unassembled Japanese components for pickup trucks, as described in this letter, cannot be classified under GRI 2(a) as finished or complete pickup trucks because, as presented, (1) these components do not have the essential character of the complete vehicles, (2) their unassembled condition is not related to any identified special requirements or to any reasonable convenience in the packing, transport, or handling of pickup trucks, and (3) the required assembly process is a substantial manufacturing process.

Within the limitations of 19 U.S.C. 81c(a), unassembled components of a shipment may be segregated into distinct groups in order to claim privileged status for the components as individual parts. Classification principles, such as GRI 2(a), which apply at the time articles are entered, or withdrawn from warehouse for consumption, do not apply to articles placed in an FTZ, except when these principles must be applied to articles in an FTZ, such as in a claim for privileged status.

Sincerely,

John Durant, Director

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