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HQ 555513


October 9, 1990

CLA-2 CO:R:C:V 555513 GRV

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.80

Mr. David S. Simpson, Jr.
Vice President
William F. Joffroy Custom House Brokers, Inc. Nogales, Arizona 85628-0698

RE: Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.80 to retractile cords imported from Mexico. 19 CFR 10.14;further fabrication (coiling, heat curing and reverse winding);Zwicker;Dillingham;Samsonite;19 CFR 10.16(c);significant operations;Mast;Surgikos;relative time/cost

Dear Mr. Simpson:

This is in response to your letters of October 18, and November 8, 1989, on behalf of Whitney Blake Company of Vermont, Inc., requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to retractile cords imported from Mexico. Photographs of the foreign operation and samples of the article were submitted for examination.

FACTS:

Reels of straight wire (denominated "cordage") and various terminals (connectors) will be exported to Mexico for operations resulting in retractile cords. In Mexico, the wire will be despooled, cut-to-length, coiled onto mandrel rods, heated in an oven to cure the coil, unwound from the mandrel rods, and reverse wound on a rotating arbor. The ends of the wire will then have connectors attached to them.

The finished cords will then be inspected and packaged for return to the U.S.

ISSUE:

Whether the U.S. components are entitled to the partial duty exemption under HTSUS subheading 9802.00.80 when returned to the U.S.
LAW & ANALYSIS:

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, lubricating, 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 HTSUS subheading 9802.00.80 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).

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 exporta- tion from the United States to qualify for the exemption.

As there is no one, all-embracing definition of what steps or processes constitute "further fabrication" within the meaning of this statutory provision, whether a particular foreign process constitutes a "further fabrication" depends upon the facts of the particular case. See, Zwicker Knitting Mills v. United States, C.D. 4786, 82 Cust.Ct. 34, 469 F.Supp. 727 (1979), aff'd, C.A.D. 1240, 67 CCPA 37, 613 F.2d 295 (1980).

In E. Dillingham, Inc., v. United States, C.D. 4278, 67 Cust.Ct. 226 (1971), modified, C.A.D. 1078, 60 CCPA 39, 470 F.2d 629 (1972), fiber and fabric were exported to be assembled into papermaker's felts. However, before the fibers were needled into the fabric, they were subjected to certain preparatory processing steps. Stating that "the correct starting point for the application of item 807.00 [the precursor tariff provision to HTSUS subheading 9802.00.80] must be the components as "exported," in the condition in which they leave the United States," the court found the opening, oiling, and carding operations performed on fiber exported in bulk, baled form before it met up with the fabric component constituted "further fabrication" of the fiber within clause (a) of TSUS item 807.00, for without the performance of these operations, the en masse fiber component was not ready for assembly. The raw material was worked upon to change it into an altered form having new properties. Accordingly, the duty exemption was denied to the fiber. However, the U.S. fabric component, into which the fibers were needled, was found entitled to TSUS item 807.00.

In the recent case of Samsonite Corporation v. United States, Slip Op. 88-166, 12 CIT ___, 702 F.Supp. 908 (1988), aff'd, 8 Fed.Cir. ___, 889 F.2d 1074 (1989), reh'g denied In Banc, (January 25, 1990), straight strips of U.S. steel were exported to be assembled into luggage bags. Once abroad, the strips were bent by machine into a form analogous to a square- sided letter C and subjected to other operations prior to being assembled into the luggage bags. As the straight strips of steel could not be placed immediately into the assembly of the luggage bags without the bending operation, the court found that the strips were not exported in condition ready for assembly. In considering whether the bending of the strips was an incidental operation, the court found that the bending process did more than "adjust" the article within the ambit of section 10.16 (b)(5), Customs Regulations (19 CFR 10.16(b)(5)), but rather created the component to be assembled, the essence of which was its configuration. Accordingly, the court upheld Customs denial of the duty allowance under TSUS item 807.00.

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 operation. Examples of operations considered incidental to the assembly process are delineated at section 10.16(b), Customs Regulations (19 CFR 10.16(b)). 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 HTSUS subheading 9802.00.80 to that component. 19 CFR 10.16(c).

In United States v. Mast Industries, Inc., 515 F.Supp. 43, 1 CIT 188, aff'd, 69 CCPA 47, 668 F.2d (1981), the court, in considering the legislative history of the meaning of "incidental to the assembly process," stated that:

[t]he apparent legislative intent was to not preclude operations that provide an "independent utility" or that are not essential to the assembly process; rather, Congress intended a balancing of all relevant factors to ascertain whether an operation of a "minor nature" is incidental to the assembly process.
The court then indicated that relevant factors included:

(1) whether the relative cost and time required by the operation were such that the operation may be considered minor;
(2) whether the operation is necessary to the assembly process;
(3) whether the operation is so related to the assembly that it is logically performed during assembly; and, (4) whether economic or other practical considerations dictate that the operation be performed concurrently with assembly.

However, in Surgikos, Inc. v. United States, 12 CIT __, Slip Op. 88-35 (1988), the court applied the Mast criteria to certain operations performed on surgical sheets and found that the fenestration and finish folding operations did not constitute minor operations, as these operations constituted over one- fourth of the labor-related costs and amounted to almost one-third of the time involved to assemble the article.

In the present case, the straight wire component is exported on reels. The wire is despooled, cut-to-length, coiled onto mandrel rods, heated in an oven to cure the coil, unwound from the mandrel rods, and reverse wound on a rotating arbor before any assembly operations are begun. Just as the preparatory steps in the Dillingham and Samsonite cases resulted in a change in the form or shape of the exported U.S. product, the pre-assembly operations performed in this case significantly change the shape of the exported straight wire. Therefore, we find that the wire was not exported in condition ready for assembly as required by clause (a) of the statute.

Further, the nature of the coiling and other operations performed on the wire before its assembly with the connectors compels us to conclude that it is not an operation incidental to the assembly process, but rather constitutes a significant process whose primary purpose is the fabrication and physical improvement of the wire component, as provided for at 19 CFR 10.16(c). Information provided regarding the time and cost of the foreign operations performed on the wire (until the retractile cords are inspected and packaged for return to the U.S.) shows that 40% of the total time and cost is required for the cutting-to-length, coiling, heat curing and reverse winding operations. This militates against a conclusion that these operations are "minor." Moreover, no information has been submitted to indicate that these operations are necessary or so related to the assembly that they are logically performed concurrently with assembly. Therefore, we believe that the wire component is not entitled to a duty allowance, as it fails to meet the requirements of both clause (a) and clause (c) of HTSUS subheading 9802.00.80.

However, the connector components will be entitled to the duty exemption, as they are merely attached to the ends of the retractile cords by a crimping operation, which constitutes an acceptable assembly operation.

HOLDING:

On the basis of the information and samples/photographs submitted, we conclude that no allowance in duty may be made for the cost or value of the wire component under HTSUS subheading 9802.00.80, as it is not exported in condition ready for assembly but, rather, is subjected to operations deemed to constitute further fabrication. However, allowances in duty may be made for the cost or value of the various terminals under this tariff provision, upon compliance with the documentary requirements set forth in 19 CFR 10.24.

Sincerely,


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