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HQ 556281


March 2, 1992

CLA-2 CO:R:C:S: 556281 CW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Ms. Gendy Allbrook
Customs Compliance Manager
20525 Mariani Avenue
Cupertino, California 95014

RE: Applicability of partial duty exemption to printed circuit board assemblies; testing; replacement; 053095

Dear Ms. Allbrook:

This is in response to your letter of September 16, 1991 and a fax transmittal of January 21, 1992, on behalf of Apple Computer, Inc., requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to certain printed circuit board assemblies (PCBAs) of U.S. origin to be assembled into personal computers in Ireland.

FACTS:

According to your submissions, U.S.-origin PCBAs, consisting of mother and daughter boards and an interconnect card, will be sent to Ireland for assembly into personal computers. In Ireland, the mother board first is placed into the bottom case plastics and fastened to the daughter board via a female to male surface mount connector and four screws. The interconnect card is fastened to the top case plastics with two screws and connected by a ribbon cable to a connector on the daughter board. The board assemblies are then tested prior to their assembly into personal computers. The PCBAs which fail the test are reworked, which usually entails replacing the defective component(s). Once the PCBAs are assembled into the personal computers, another test is conducted and, if the PCBA fails, it is removed from the computer, any faulty components are replaced, and it is reinserted into the computer.

You estimate that approximately .05% of the PCBAs from the U.S. will require repair during the foreign assembly process, and that the average repair cost of a PCBA will be $10 to $15, or

2.5% to 5.8% of the cost of the PCBA. You further state that the cost of the components which commonly are replaced is insignificant in comparison to the cost of the PCBAs themselves. Under these circumstances, you contend that the repair of the PCBAs should be considered a minor operation which is incidental to the assembly operation performed in Ireland.

ISSUE:

Whether the testing abroad of U.S. origin PCBAs and the replacement of any defective components constitute operations incidental to the assembly of the PCBAs to personal computers, so as to qualify the PCBAs for a duty allowance under subheading 9802.00.80, HTSUS, when returned to the U.S. incorporated into personal computers.

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 condiiton 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 appraised value of the 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, section 10.16(c), Customs Regulations (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. 501 (1988), 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.

In the instant case, the testing performed before and after the foreign assembly is considered an operation incidental to assembly as it is specifically enumerated as such in 19 CFR 10.16(b)(7). Moreover, applying the Mast criteria, we find that, under the circumstances of this case, replacing any defective components on the U.S.-origin PCBAs during the foreign assembly process is incidental to assembly. The replacement operation will be performed on only approximately .05% of the U.S.-origin PCBAs, and the operation appears to be minor since the the estimated average cost to repair a faulty PCBA ranges from 2.5% to 5.8% of the cost of the PCBA. In the Mast case, the court found that buttonholing and pocket slitting operations performed on fabric components abroad prior to assembly of the components into women's pants were minor as the cost of each operation represented no more than 15% of the cost of the affected components.

In addition, the repair operation appears to be sufficiently necessary and related to the assembly of functional personal computers that it is logically performed concurrently with assembly. Therefore, based on the specific facts presented in
this case, we conclude that the minor repairs performed abroad on certain of the U.S.-origin PCBAs during the assembly of the PCBAs with personal computers will not preclude an allowance in duty under subheading 9802.00.80, HTSUS, for the cost or value of the PCBAs when they are returned to the U.S. as part of personal computers.

HOLDING:

On the basis of the information provided, we find that the testing and minor repair of U.S.-origin PCBAs in Ireland during the process of assembling the PCBAS into personal computers constitute operations incidental to the foreign assembly and will not preclude an allowance in duty under subheading 9802.00.80, HTSUS, for the cost or value of the PCBAS when returned as part of computers. This presumes compliance with the documentation requirements of 19 CFR 10.24.

Sincerely,

John Durant, Director

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