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HQ 555785


March 8, 1991

CLA-2 CO:R:C:S 555785 LS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Steven H. Becker, Esq.
Coudert Brothers
200 Park Avenue
New York, New York 10166

RE: Applicability of subheading 9802.00.80, HTSUS, to stator core part of unassembled electric motor; beveling operation on steel lamination components; incidental operation; 19 CFR 10.16(b),(c); 554305; 555216

Dear Mr. Becker:

This is in response to your letter dated November 14, 1990, amended by your letter of February 14, 1991, requesting a ruling, on behalf of General Electric Company, regarding the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to a stator core which is imported as part of an unassembled electric motor.

FACTS:

The following facts are based upon your two letters and several telephone conversations with a member of my staff.

GE plans to ship various U.S. components to Mexico for assembly into stator cores. The stator core will then be one of several items which are packaged together in Mexico and shipped to the U.S. to be sold to customers as electric motors in kit form. The U.S. customers then must insert the stator core, together with the other components (such as a rotor, end shields, and clamp bolts), into a shell that houses the entire motor used for pumps or other machinery.

You claim that the stator core is assembled in Mexico by means of the following operations:

1. Inserting slot insulators (into which copper magnet wire will be wound) into stacked circular steel laminations

2. Conducting two to three wire-winding operations

3. Injecting the wire into the stator

4. Inserting the wedge insulators

5. Pressing down the wire windings

6. Connecting the leads, which themselves are the product of a subassembly operation

7. Lacing

8. Surge testing

9. Applying to all parts, except the leads, a varnish sealant for purposes of waterproofing and preventing rust

10. "Trimming" the right angle edge of the bottom of the stacked laminations of the stator core to achieve a minute bevel or chamfer

11. Further testing, which is more comprehensive than the surge testing in Step 8.

12. Packing the stator core with the other components for shipment as electric motors in kit form.

You request that we address the issue of whether the minute trimming of the edge of the stator core constitutes an operation incidental to the assembly process within the meaning of subheading 9802.00.80, HTSUS, so as to entitle the U.S. components of the stator core to a duty allowance when the electric motors are imported.

You state that the circular steel laminations of the stator core are exported from the U.S. to Mexico already stacked or pressed together. Further, the trimming or beveling of the stacked laminations is performed in Mexico to facilitate the insertion of the stator core into the shell by GE's customers after the motor in kit form is imported into the U.S. You also state that the customers would not be able to achieve a snug fit of the stator core in the shell without the bevel because they do not have the special machinery and expertise possessed by GE. In fact, when GE itself completes assembly of the entire motor by inserting the stator core into the shell in Mexico, it does not have to perform the beveling operation because it has the ability to achieve a perfect fit even with the sharp right angle edge of the stacked laminations.

You have submitted two samples of the stator core, one with the beveled edge and the other without. A "chamfer machine" uses a blade to cut away the sharp right angle edge along the circumference of the stator, thus producing the chamfer or bevel. A diagram submitted shows the dimensions of the corner to be beveled as approximately .032 inches on the circumferential surface of the stator, and approximately .038 inches on the "insertion end" of the stator. The sample has a smooth beveled surface along approximately 3/4 of the circumference. The total width of the bevel varies along the circumference, with some areas being narrower than others. GE states that some of this unevenness is due to defects in the steel laminations.

You claim that the trimming operation cannot be performed in the U.S. prior to exporting the stacked steel laminations to Mexico because of a certain ordered progression of the Mexican operations. First, the beveling has to follow application of the varnish/sealant. If the beveling is done before the varnishing, deposits of the varnish/sealant would build up along the chamfer, thus defeating the chamfer's purpose of facilitating insertion of the stator into the shell. Second, application of the varnish must occur after the performance of Steps 1-8 in Mexico because the varnish acts as a sealant and insulates the wires in the stator core from water damage. Also, the surge testing has to be done before application of the varnish.

You also contend that it would be highly impractical and uneconomical for GE's U.S. customers to trim the corners of the stator after the motor kit is returned to the U.S. First, the customer is neither equipped to perform such an operation, nor willing to accept the financial consequences of doing so. The customer also cannot practically do its own final testing or rectify any problems detected thereby.

As to the impracticality of GE doing the trimming operation in the U.S. following the importation of the motor kits, you state that the packaged kits are sold directly to GE's customers after their arrival at a GE warehouse. This warehouse is not equipped to do the final testing, which must follow the beveling and is presently done in Mexico. Even if GE were to become equipped to do the beveling and testing in the U.S., the performance of such operations in its warehouse would be impractical and uneconomical. Upon the detection of defects after the final testing, the affected stators would have to be returned to Mexico to rectify the problems, thus resulting in unnecessary and wasteful packing and shipping expenses. You also claim that packing and repacking can cause further defects. In addition, even without the return of defective stators, the performance of the beveling and final testing in the U.S. would lead to delay, as well as added labor, administrative, and packing costs.

You contend that beveling or "trimming" the edge of the stator constitutes an operation incidental to the assembly process for three reasons. First, trimming small amounts of excess materials is specifically listed in section 10.16(b)(4), Customs Regulations (19 CFR 10.16(b)(4)) as an example of an operation incidental to assembly. You assert that because only a minute amount of material is removed from the edge of the stator, this operation falls within the parameters of 19 CFR 10.16(b)(4). Alternatively, you claim that the trimming constitutes an "[a]djustment in the shape or form of a component to the extent required by the assembly being performed abroad," pursuant to 19 CFR 10.16(b)(5), even though the assembly to which it is related is performed by GE's customer in the U.S.

Second, you contend that all of the four criteria set forth in United States v. Mast Industries, Inc., 515 F. Supp. 43, 1 CIT 188, aff'd, 668 F. 2d 501, 69 CCPA 47 (1981), are present here and that they lead to a conclusion that the trimming operation is incidental to the assembly process. With regard to the first Mast factor, you state that because the beveling operation comprises about 5.6% of the time involved to assemble the stator, and 0.26% of the cost of the stator, it is considered to be "minor" in nature. You further state that this is evident because only 0.01768% to 0.04126% of the material of the stator is trimmed off.

Lastly, after citing to several Headquarters Ruling Letters (HRLs) to support your position, you conclude that the miniscule chamfer, or bevel, that results from the trimming does not impart to the stator any significant new characteristics or properties.

ISSUE:

Whether the operation of beveling the edge of the stator core constitutes an operation incidental to the assembly process within the meaning of subheading 9802.00.80, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, 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 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 subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article less the cost or value of the U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)) provides in part:

The assembly operations performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners, and may be preceded, accompanied, or followed by operations incidental to the assembly as illustrated in paragraph (b) of this section.

For purposes of this discussion, which focuses on the issue of whether beveling the edge of the stator core constitutes an operation incidental to the assembly process, we assume that at least some of the foreign operations outlined in the facts, as steps 1-4, and 6, constitute assembly operations. You have neither requested a ruling as to these operations nor provided sufficient information to make such determinations. We note that certain wire winding operations have been found to constitute assembly operations. See General Instrument Corp. v. United States, C.A.D. 1128, 61 CCPA 86, 499 F.2d 1318 (1974).

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. See 19 CFR 10.16(a). Examples of operations considered incidental to the assembly process are delineated at 19 CFR 10.16(b). However, any significant process, operation, or treatment whose primary purpose is the fabrication, completion, or physical or chemical improvement of a component, or which is not related to the assembly process, is not regarded as incidental to the assembly and precludes the application of the exemption under subheading 9802.00.80, HTSUS. See 19 CFR 10.16(c).

We first consider whether beveling the stator core edge falls within one of the examples of incidental operations set forth in 19 CFR 10.16(b). We do not believe that 19 CFR 10.16(b)(4), which refers to "trimming, filing, or cutting off of small amounts of excess materials," was intended to cover the beveling operation performed on the stator cores because the sharp right angle edge of the stacked laminations cannot be considered "excess material." Cf. HRL 555216 dated June 8, 1989 (grinding and sanding operations to remove excess material and smooth out imperfections caused by welding are incidental to
that assembly). This is supported by the fact that when GE itself inserts the stator core into the shell in Mexico the beveling operation is not necessary.

We also find that 19 CFR 10.16(b)(5) is not directly applicable because the adjustment in shape achieved by the beveling operation is not required by the assembly operation performed abroad. Instead, the beveling is performed for purposes of facilitating the insertion of the stator core into the shell of a motor after the core is imported into the U.S. as part of a kit.

Next, we consider the applicability of 19 CFR 10.16(c). In many instances, we have held that when an operation is not related to the foreign assembly, but to a subsequent assembly performed after the component is returned to the U.S., it is not considered to be incidental to assembly. See HRL 554305 dated October 28, 1986. However, in Mast, 69 CCPA at 52, 668 F.2d at 505, the court stated the relation of the operation to the assembly performed abroad is just one relevant factor to consider in determining whether the operation is incidental to the assembly process.

In a situation, like the instant one, where the beveling results in a change in shape which is not substantial, we find that it does not constitute a fabrication of the stator core. The beveling operation does not fit within any of the examples of operations set forth in 19 CFR 10.16(c). Although the beveling may be considered a machining operation, it does not meet the other factor in 19 CFR 10.16(c)(5), i.e., that it impart significant new characteristics or qualities to the article affected.

In Mast, the court considered the legislative history of the phrase "incidental to the assembly process," and found that Congress intended a balancing of all relevant factors to ascertain whether an operation of a "minor nature" was incidental to the assembly process. The court stated that relevant factors included:

(1) whether the relative cost of the operation 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.

Applying the relevant factors discussed in Mast to the facts of this case, we find that two of them are present. First, the beveling operation comprises about 5.6% of the time involved to assemble the stator, and 0.26% of the cost of the stator. These cost and time comparisons indicate that the beveling operation is of a minor nature. The fourth criterion mentioned in Mast is also present here. The numerous economic and practical reasons for performing the beveling operation in Mexico as the last step prior to the final testing are outlined in this ruling. These considerations also indicate that the beveling operation is incidental to the assembly of the stator core.

Considering these factors, and the fact that the beveling operation results in a small adjustment in shape to the edge of the stator core, we conclude that this operation is relatively minor in nature and is thus considered to be incidental to the assembly processes performed in Mexico.

HOLDING:

For the foregoing reasons, the beveling operation performed in Mexico on the stator core of the unassembled electric motor kit is an operation incidental to the assembly process.

Sincerely,

John Durant, Director
Commercial Rulings Division

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