HQ 0555239 - Tariff treatment and country of origin marking requirements applicable to batteries and an adapter module to be imported from Mexico - United States International Trade Commision Rulings

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HQ 555239

May 14, 1990

CLA-2 CO:R:C:V 555239 KAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10 - 9802.00.80 - 8507.30.00

Mr. Gordon W. Larson
Rudolph Miles & Sons, Inc.
4950 Gateway East
P.O. Box 144
El Paso, Texas 79942

RE: Tariff treatment and country of origin marking requirements applicable to batteries and an adapter module to be imported from Mexico

Dear Mr. Larson:

This is in response to your letter dated December 5, 1988, on behalf of Gates Energy Products Company, requesting a ruling on the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS), to batteries and an adapter module packaged together in Mexico and imported into the U.S. You also inquire as to the tariff classification and country of origin marking requirements applicable to the imported products. Samples were submitted for examination. We regret the delay in responding to your request.

FACTS:

The completed package being imported for retail sale contains two rechargeable nickel cadmium size AA batteries and an adapter module. The adapter module enables the batteries to be recharged when used with a battery charger (sold separately). Gates ships U.S.-origin nickel cadmium battery cells and clear plastic heat shrinkable tubing to its subsidiary in Mexico. The subsidiary cuts the clear plastic heat shrinkable tubing to length in order to fit the battery cells. The battery cells are then inserted into the tubing and the tubing is heat shrunk around each battery cell. This process is designed to protect the batteries from electrical shorts. A pressure sensitive label is then applied. The batteries are then blister packed together with an adapter module of Haitian origin. The blister packaged article is then imported into the U.S.

ISSUE:

1. Whether the described batteries and adapter module will be eligible for the exemption from duty in HTSUS subheading 9801.00.10 or subheading 9802.00.80 when imported into the U.S.

2. What is the proper tariff classification of the subject merchandise?

3. Whether country of origin marking requirements are applicable to the imported merchandise.

LAW AND ANALYSIS:

I. Applicability of subheadings 9801.00.10 and 9802.00.80, HTSUS

Subheading 9801.00.10, HTSUS, provides for duty-free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. Articles satisfying the above conditions of the statute will be afforded duty-free treatment, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met.

In the instant case, the exported battery cells will be subjected to an operation which results in the merchandise being advanced in value or improved in condition. Clear plastic shrinkable tubing is first cut to length, the battery cells are placed into the tubing, and the tubing is then heat shrunk around each of the batteries. We have previously stated that cutting exported merchandise to length generally results in advancing it in value and improving it in condition. See, Headquarters Ruling Letters 555174 dated April 25, 1989, and 554736 dated February 16, 1988. Heat shrinking the tubing around the battery cells also advances in value and improves in condition the batteries. The clear plastic shrinkable tubing surrounding each battery becomes a necessary part of the battery for use by the consumer. The heat shrinking procedure protects the battery from electric shorts, thereby rendering it suitable for sale upon return to the U.S. Since the shrinkable tubing has become a necessary part of the battery, it is distinguishable from packaging for transportation or retail sale. See, Headquarters Ruling Letter 079133 dated June 23, 1987, where plastic bags specifically made to hold barium were found to be used in the administration of the barium and, therefore, distinguishable from packaging for transportation or retail sale.

Although the batteries are not entitled to the HTSUS subheading 9801.00.10 duty exemption, we believe that they are entitled to an allowance in duty under HTSUS subheading 9802.00.80. HTSUS subheading 9802.00.80 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 U.S. 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).

As your documentation and samples attest, the U.S. components (battery cells, plastic tubing and labels) meet the requirements of HTSUS subheading 9802.00.80. The components are of U.S. origin and are exported in condition ready for assembly. The cutting to length of the clear plastic shrinkable tubing is considered an operation incidental to the assembly process pursuant to section 10.16(b)(6), Customs Regulations (19 CFR 10.16(b)(6)). See also, General Instrument Corporation v. United States, 60 CCPA 178, C.A.D. 1106, 480 F.2d 1402 (1973), rev'g, 67 Cust.Ct. 127, C.D. 4263 (1971). Heat shrinking the plastic tubing around the battery cells is considered an acceptable assembly operation in view of General Instrument Corporation v. United States, 70 Cust.Ct. 64, C.D. 4408 (1973). In that case, precut lengths of tubular sleeving, called "shrink sleeving," assembled abroad with other components to form selenium rectifiers, were determined to be entitled to allowances in duty under the precursor tariff provision to HTSUS subheading 9802.00.80. See also, Headquarters Ruling Letter 555503 dated March 15, 1990 (heat shrinking heat reactive tubing around a coax cable is considered an acceptable assembly operation). Moreover, affixing the label to the battery is an acceptable assembly step under 19 CFR 10.16(a).

II. Classification of the batteries and adapter module

Classification under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1 provides, in part, that "classification shall be determined according to the terms of the headings and any relative section or chapter notes."

In accordance with GRI 1, the adapter module is prima facie classifiable in subheading 8504.40.00, HTSUS, which provides for "electrical transformers, static converters . . . [s]tatic converters." The nickel-cadmium batteries are prima facie classifiable in subheading 8507.30.00, HTSUS, which provides for "[e]lectric storage batteries . . . [n]ickel-cadmium storage batteries."

GRI 2 is not applicable since the subject articles are neither "incomplete or unfinished" nor "mixtures or combinations . . . of a given material or substance." Accordingly, reference must be made to GRI 3.

Under GRI 3, when goods are prima facie classifiable under two or more headings, classification is effected as follows:

(a) The heading which provides the most specific description shall be preferred to the heading providing a more general description. However, when two or more headings each refer . . . to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) . . . [G]oods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character.

Accordingly, if the subject articles constitute a "set," GRI 3 requires that the respective headings in which the components are described be regarded a equally specific, thereby requiring classification based on GRI 3(b).

In accordance with Explanatory Note (X) to GRI 3, the term "goods put up in sets for retail sale" means goods which:

(a) consist of two different articles which are, prima facie, classifiable in different headings; (b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and (c) are put up in a manner suitable for sale directly to users without repackaging.

Inasmuch as the adapter module is prima facie classifiable in heading 8504, and the nickel-cadmium batteries are prima facie classifiable in heading 8507, the subject merchandise satisfies criterion (a). The articles also satisfy criterion (b), because they "meet a particular need or carry out a specific activity" by providing the user with rechargeable batteries and an adapter module for the recharging process. Finally, the subject articles satisfy criterion (c), because they are imported "suitable for sale directly to users without repackaging." Therefore, these articles are classifiable in accordance with GRI 3(b), which requires classification based on the component which imparts the set's essential character.

We agree with you that the nickel-cadmium rechargeable batteries impart the set's essential character. The set functions as batteries. The main reason for purchasing the set is to have batteries that can be reused once inserted in the adapter module and plugged into a separately purchased battery recharger. Accordingly, the subject merchandise is classifiable in subheading 8507.30.00, HTSUS, which provides for "electric storage batteries," dutiable at the rate of 5.1 percent ad valorem.

III. Applicability of country of origin marking requirements

Regarding country of origin marking requirements, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), generally provides that all articles of foreign origin (or their containers) imported into the U.S. are required to be legibly, conspicuously, and permanently marked to indicate the country of origin to an ultimate purchaser in the U.S. For purposes of this statute, "country of origin" means the country of manufacture, product or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" (See section 134.1(b), Customs Regulations (19 CFR 134.1)).

Section 10.22, Customs Regulations (19 CFR 10.22), constitutes an exception to the general rule that the country of origin of an article is the country where the last substantial transformation occurs. This provision, which specifies the country of origin marking requirements for articles entitled to a duty exemption under HTSUS subheading 9802.00.80, provides as follows:

Assembled articles entitled to the exemption are considered products of the country of assembly for the purposes of the country of origin marking requirements of section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304). If an imported assembled article is made entirely of American-made materials, the United States origin of the material may be disclosed by using a legend such as "Assembled in from material of U.S. origin," or a similar phrase.

Thus, since the shrink-wrapped battery cells are entitled to HTSUS subheading 9802.00.80 treatment, they are considered products of Mexico for country of origin marking purposes and must be marked accordingly. As this article is assembled abroad entirely of U.S. components, the battery cells may be marked with a legend such as, "Assembled in Mexico from material of U.S. origin," or a similar phrase.

Regarding the adapter module of Haitian origin, merely packaging this item with the battery cells in Mexico to create a set will not, under the circumstances of this case, effect a substantial transformation so as to render Mexico the country of origin of the module for country of origin marking purposes. Therefore, the adapter module must be separately marked to indicate its Haitian origin. Pursuant to 19 CFR 134.32(d), the container may be marked instead of the individual articles if marking the container (the blister packaging material in this case) will reasonably indicate to the ultimate purchaser the country of origin of the articles. The blister packaging must be marked to indicate the origin of the individual articles, if the country of origin on the articles is obscured by the packaging. Any marking on the container must separately indicate that the battery is a product of Mexico and that the adapter module is a product of Haiti.

HOLDING:

On the basis of the information and samples submitted, as the U.S. battery cells and heat shrinkable tubing will be advanced in value and improved in condition abroad as a result of the cutting to length and shrinking operations, the completed battery will not qualify for the duty exemption under HTSUS subheading 9801.00.10. The imported set, consisting of the batteries and adapter module, is classifiable under HTSUS subheading 8507.30.00, dutiable at the rate of 5.1 percent ad valorem. However, an allowance in duty may be made for the cost or value of the U.S. components (the battery cells, heat shrinkable tubing and labels) under subheading 9802.00.80, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.24. The batteries are considered products of Mexico and the adapter module is considered a product of Haiti for country of origin marking purposes and, therefore, they (or the blister packaging) must be marked accordingly.

Sincerely,

Jerry Laderberg

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