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HQ 556574


May 12, 1992

CLA-2 CO:R:C:S 556574 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50; 9802.00.80

Ms. Elaine Jacoby
Miles & Joffroy
1185 Avenida Costa Este
Suite 1600
Otay Mesa, CA 92073

RE: Applicability of duty exemptions under HTSUS subheadings 9802.00.50 and 9802.00.80 to tractors from Mexico; 8716.40.00

Dear Ms. Jacoby:

This is in response to your letter dated January 10, 1992, on behalf of SuperBus, Inc., requesting a ruling on the tariff classification and applicability of subheadings 9802.00.50 and 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to tractors to be imported from Mexico.

FACTS:

SuperBus, Inc. proposes to import two types of articles -- passenger trailers and semi-tractors. The passenger trailer consists of a semi-trailer manufactured in Mexico and contains seating for approximately 48 to 60 passengers, entry and exit doors on the curb side of the trailer, modesty panels and stanchions or handholds for standees and ingress/egress to the passenger module, wheelchair accessibility features such as ramps, kneeling, tie-downs, and intercoms to the power module (tractor), farebox, closed circuit TV system, heating and ventilating system for passenger comfort.

The semi-tractors consist of a General Motors Corporation Volvo white cab over diesel tractors. These tractors are manufactured in the U.S. by GMC-Volvo and exported to Mexico where the following operations will be performed:

(1) The custom building and installation of wiring harnesses in the tractor and the installation of and wiring the panels where the electrical connections will be made. The wiring enables the tractor driver to operate all functions of the passenger module from the tractor, ie., opening and closing doors of the passenger module, turning lights on and off in the passenger module, kneeling the passenger module at the curb, operating the door interlock system, etc.;

(2) The installation of a particulate trap which is a clean air device which serves to filter and clean the diesel exhaust;

(3) The installation of monitors and an intercom system which provides driver/passenger communication.

All of the components which are assembled to the tractor in Mexico by means of soldering and screwing operations are of U.S.- origin. The tractor and passenger trailer modules will be connected and tested in Mexico to ensure proper functioning of all features. Next, the tractor and passenger modules will be disconnected to allow for separate importation into the U.S.

Duty-free treatment for the passenger trailers will be sought under the Generalized System of Preferences (GSP), while the tractors will be entered under the partial duty exemption provision of subheading 9802.00.50 or 9802.00.80, HTSUS. No ruling is requested regarding the eligibility of the trailers for GSP treatment.

ISSUES:

(1) What is the proper classification of the passenger trailer under the HTSUS?

(2) Whether the tractor will qualify for the partial duty exemption available under HTSUS subheading 9802.00.50 or 9802.00.80 when returned to the U.S.

LAW AND ANALYSIS:

Tariff Classification of passenger trailer

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's), taken in order. GRI 1 provides that classification is determined according to the terms of the headings and any relative section or chapter notes.

Subheading 8716.40.00, HTSUS, provides for: "[t]railers and semi-trailers; other vehicles, not mechanically propelled: [o]ther trailers and semi-trailers."

In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes, although not dispositive, are to be used to determine the proper interpretation of the HTSUS. 54 Fed. Reg. 35127, 35128 (August 23, 1989). Explanatory Note 87.16(A)(5)(a) (pp. 1439-1440) states that:

[t]his heading covers a group of non-mechanically propelled vehicles (other than those of the preceding headings) equipped with one or more wheels and constructed for the transport of goods or persons. . .

The heading includes:

(A) Trailers and semi-trailers

For the purposes of this heading, the term "trailers" and "semi-trailers" means vehicles (other than side-cars) of a kind designed solely to be coupled to another vehicle by means of a special coupling device (whether or not automatic). . .

Trailers falling here include:

(5) Other trailers such as:

(a) Motor vehicle trailers specially designed for the conveyance of persons.

Based upon the description in Explanatory Note 87.16(A)(5)(a), the subject passenger trailer is classifiable under subheading 8716.40.00, HTSUS.

Applicability of duty exemptions under subheadings 9802.00.50 and 9802.00.80, HTSUS

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g, C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

We are of the opinion that the operations performed abroad exceed an alteration and, therefore, the tractor will not be entitled to the partial duty exemption available under subheading 9802.00.50, HTSUS. The installation of monitors, an intercom system, a particulate trap and wiring harnesses into the tractor are operations which are necessary to adapt the tractor for use with the passenger trailer. Until these operations are performed, the tractor is incomplete for its intended specialized use. Therefore, as the foreign processing in this case constitutes more than an alteration, the tractor is ineligible for the partial duty exemption under subheading 9802.00.50, HTSUS.

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, (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 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 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.

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation 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.

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 HTSUS subheading 9802.00.80 to that component. See 19 CFR 10.16(c).

We are persuaded by the description provided that all of the U.S. components exported for assembly to create the specially adapted tractors meet the three requirement of HTSUS subheading 9802.00.80 and, therefore, are entitled to duty allowances under this tariff provision. The installation of a wiring harness, particulate trap, monitors and an intercom system in the tractor by means of soldering and screwing operations constitute acceptable means of assembly pursuant to 19 CFR 10.16(a). Therefore, as the U.S. components used in the assembly process, including the tractors, will be exported in condition ready for assembly without further fabrication, will not lose their physical identities in the assembled article, and will not be advanced in value or improved in condition except by assembly operations, the returned tractor assembled with the wiring harness, particulate trap, monitors and intercom system will be eligible for the partial duty exemption under subheading 9802.00.80, HTSUS.

HOLDING:

The passenger trailer is classifiable under subheading 8716.40.00, HTSUS, which provides for: "[t]railers and semi- trailers; other vehicles, not mechanically propelled: [o]ther trailers and semi-trailers." The general, column one rate of duty is 3.1 percent ad valorem.

On the basis of the information provided, it is our opinion that the processes performed abroad exceed an alteration, and, therefore preclude tariff treatment under HTSUS subheading 9802.00.50. However, the foreign operations performed on the U.S. components are proper assembly operations or operations incidental to assembly pursuant to HTSUS subheading 9802.00.80. Therefore, an allowance in duty may be made under this tariff provision for the cost or value of all U.S. components upon compliance with the documentary requirements of 19 CFR 10.24.

Sincerely,

John Durant, Director
Commercial Rulings Division

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