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HQ 555616


April 11, 1991

CLA-2 CO:R:C:S 555616 DSN

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

John M. Peterson, Esquire
Neville, Peterson & Williams
39 Broadway
New York, New York 10006

RE: Stretch limousines; assembly; incidental operations; 554539; 544159; 554808

Dear Mr. Peterson:

This is in response to your letters dated January 23, and March 15, 1990, on behalf of the U.S. Coachbuilders Coalition for Fair Trade and Southhampton Coachworks Ltd., requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to stretch limousines from either Canada or Mexico. We regret the delay in responding.

FACTS:

According to your submissions, stretch limousines are not manufactured by domestic automobile makers. Instead, independent manufacturers purchase U.S.-made automobiles and cut them in half and insert midbodies. There are three vehicles commonly purchased for use as stretch limousines: the Lincoln Town Car, Cadillac Brougham and Mercury Grand Marquis. The coachbuilding industry refers to these vehicles as "chassis" which is a term used to describe completed cars which are used as the basic vehicles in the construction of stretch limousines. Prior to exportation, the above-mentioned automobiles are considered "ready-to-drive" vehicles, featuring a complete outer body, a full power train, and a finished interior. Your client, Southhamption Coachworks Ltd., intends to purchase the above automobiles and export them to either Canada or Mexico for assembly into stretch limousines.

You state there are approximately eleven prinicpal operations in the production of stretch limousines. They are as follows:

1. The interior furnishings of the vehicles are disassembled and removed.

2. The drive train is disconnected by removing the drive shaft and drive shaft couplings.

3. The "front-to-back" systems are severed including the electrical wiring, fuel lines, brake lines, and exhaust. Various wires are also cut and stripped of insulation and are then prepared for retermination. Fuel and brake lines are flared to accept extension splices.

4. The dashboard and related controls are removed.

5. Metal brackets are welded to the inside of the vehicle to prevent any "twisting" when the chassis is bisected.

6. The vehicle is cut in half by a reciprocating saw, thermal arc cutter or oxy-acetylene torch. At this stage the vehicle is separated into two halves with each half resting on its own axle.

7. Extra holes are cut into the frame to provide additional welding positions so that the extension can be properly integrated.

8. A recess is pressed into the original metal roof on both sides of the "cut" which enables acceptance of the extended sheet metal roof.

9. The original heating and air conditioning systems are drained to allow the lines to be spliced so that other valves can be inserted to the secondary climate system.

10. Certain trim components such as carpeting, headliner, chrome and panel trim are cut to allow splicing of added lengths.

11. Welding operations are performed to reconnect the vehicle with the addition of a center chassis extension. Other extensions such as frames, rocker panels, roof rails, floors, roof, windows, door posts, exhaust pipes and drive shafts are welded to the vehicle. The "front-to-back" systems are attached to extension splices, and interior features are restored.

According to your submissions, the above operations are extremely complex and require skilled labor to perform.

ISSUE:

Whether the stretch limousines will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

LAW AND 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 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.

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. 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).

We have consistently held that extensive disassembly operations performed abroad on an exported article constitute non-assembly operations. See, Headquarters Ruling Letters (HRL) 554539 of August 25, 1987 and 544159 of December 16, 1988, where Customs denied item 807.00, Tariff Schedules of the United States (the precursor provision to subheading 9802.00.80, HTSUS) treatment to certain power steering pumps and their constituent parts exported for remanufacture because the pumps required a complete disassembly operation before being reassembled with refurbished parts and new replacement parts of U.S.-origin. Upon reconsideraton, Customs determined that the new U.S.-origin replacement parts were entitled to item 807.00, TSUS, treatment because those parts complied with the statutory requirements in that they were (1) exported in condition ready for assembly, (2) did not lose their physical identity, and (3) were not advanced in value or improved in condition except by being assembled. However, in HRL 554808 of August 25, 1989, we ruled that certain preparatory steps undertaken in connection with the production of luxury vans, including some disassembly operations, were considered incidental to assembly, because they were of a minor nature and were necessary for safety reasons.

We are of the opinion that the vehicles in this case are not ready to enter into the assembly process in their condition as exported without further fabrication. After the vehicles are exported to Mexico they are stripped and cut in half, and certain trim components are cut to allow splicing of added lengths. These steps are necessary before the midsection can be inserted and all the other various components can be reinserted and spliced with extensions to comply with the configurations of stretch limousines. The above-described pre-assembly operations are clearly substantial and significant fabricating processess which establish that the passenger vehicles are not in condition ready for assembly without further fabrication when exported. As the U.S.-origin vehicles do not meet the requirement of clause (a) of subheading 9802.00.80, HTSUS, no allowance in duty can be made for the cost or value of the U.S. vehicles. However, as we stated in HRL 544159, allowances in duty may be made under this tariff provision for the cost or value of any U.S.-origin parts that may be separately exported to Mexico or Canada and assembled with the passenger vehicle.

HOLDING:

On the basis of the information submitted, we conclude that the extensive disassembly and cutting operations performed in Mexico on the U.S. vehicles prior to assembly operations to create stretch limousines are not acceptable assembly operations
or operations incidental to the assembly process, but rather constitute a further fabrication of the exported vehicles. Therefore, the stretch limousines will not qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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