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HQ 556715


August 19, 1992

CLA-2 CO:R:C:S 556715 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80; 4016.92.0000; 9609.10.00

Mr. Paul F. Wegener
M.G. Maher & Co., Inc.
One Canal Place Suite 2100
New Orleans, LA 70130

RE: Applicability of partial duty exemption to pencils; pencil slats; erasers; 555565; 555525; 067389; 556099; 555020

Dear Mr. Wegener:

This is in response to your letter of April 28, 1992, on behalf of Staedtler, Inc., requesting a ruling on the tariff classification and applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to pencils and erasers to be imported from Germany. Samples of the above items were submitted for our review.

FACTS:

You state that the pencil slats are manufactured from cedar lumber of U.S.-origin. The wood is selectively cut into squares 16 feet long for maximum quality yield. The cut wood is then scientifically stacked and kiln-dried for two weeks in a co- generation plant. The long squares are then cut into square blocks which measure 7 1/4" long, which are then individually inspected. Each block is carefully positioned in the multiple saw for best grain structure. Next, the slats are scientifically stacked for maximum exposure, and submitted to a high vacuum to remove all air and moisture, opening the wood cells to receive wax and stain. The slats then undergo emulsion under high pressure for complete impregnation. Finally, the slats which have been waxed and stained are transported to giant kilns for 10 to 13 days of temperature and humidity in a scientifically controlled automatic cycle to ensure complete penetration and slow moisture reduction.

You have asked us to consider two possible scenarios. In the first scenario, the finished pencil slats are exported to Germany where they are grooved, leads are inserted, the slats are glued together, cut again, and then painted and marked. The wood is cut into a hexagonal shape with one pass through the pencil mill. Upon completion, the pencils are shipped to the U.S.

In the second contemplated scenario, the finished pencil slats are grooved in the U.S. and exported to Germany where the leads are inserted, the slats are glued together, milled to a hexagonal shape, painted and marked. Upon completion, the pencils are shipped to the U.S.

ISSUE:

(1) What is the proper tariff classification of the erasers and pencils under the HTSUS.

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

LAW AND ANALYSIS:

I. Tariff Classification of erasers and pencils

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.

Based on the sample, the erasers which are made of rubber are specifically provided for under subheading 4016.92.0000, HTSUS, which provides for "[o]ther articles of vulcanized rubber other than hard rubber: Other: Erasers. Articles classified under this provision are subject to duty at a rate of 4.2 percent ad valorem.

The pencils are specifically provided for under subheading 9609.10.00, HTSUS, which provides for "[p]encils (other than those pencils of heading 9608), crayons, pencil leads, pastels, drawing charcoals, writing or drawing chalks and tailors' chalks: Pencils and crayons, with leads encased in a rigid sheath. Articles classified under this provision are subject to duty at a rate of 14 cents per gross plus 4.3 percent ad valorem.

II. Application of duty exemption under subheading 9802.00.80, HTSUS

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, 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 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 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, operations 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).

The question presented in the instant case is whether the grooving and/or milling of the pencils slats in Germany constitutes a "fabrication" or operation incidental to the assembly process.

We have previously held that subheading 9802.00.80, HTSUS, applies to materials exported in continuous lengths that are merely cut to individual lengths abroad prior to assembly. See HRL's 555565 dated May 14, 1990, and 555525 dated June 5, 1990. Moreover, section 10.16(b), Customs Regulations (19 CFR 10.16(b)), provides that operations incidental to the assembly process include trimming, filing or cutting off of small amounts of excess materials, and adjustments in the shape or form of a component to the extent required by the assembly being performed abroad.

However, under section 10.14(a) of the Customs Regulations (19 CFR 10.14(a)) interpreting subheading 9802.00.80, HTSUS, materials undefined in final dimensions and shapes which are cut into specific shapes or patterns are not considered fabricated components. For example, uncut textile fabrics exported in bolts, or other materials such as lumber, leather, sheet metal or plastic sheeting exported in basic shapes and forms to be fabricated into components for assembly are not considered fully fabricated when exported. See HRL 067389 dated January 28, 1982 (trimming and shaping steel plates into different shapes is not an acceptable incidental operation), HRL 556099 dated July 31, 1991 (U.S.-origin non-woven materials and fabric cut to shape in Canada is not eligible for the duty allowance available under subheading 9802.00.80, HTSUS), and HRL 555020 dated July 11, 1988 (lenses exported from the U.S. are not fabricated components in condition ready for assembly since they must be cut into various shapes to fit into frames while abroad).

Based on the above-cited cases, it is our position that under either scenario, cutting the pencil slats to hexagonal shapes suitable for use as pencils is not an acceptable assembly operation or an operation incidental to assembly, but rather is a further fabrication of the pencil slats. The cutting operation in this case does not simply involve cutting a component to length, but is more analogous to cutting fabric to a specific pattern piece in order to enter it into a proper assembly (i.e., sewing) operation. See 19 CFR 10.16(c)(2). Moreover, the cutting of the pencils into hexagonal shapes does not qualify as an operation incidental to the assembly process, since it constitutes more than merely trimming, filing, or removing excess materials. Nor, does the cutting serve to adjust the shape or form of the pencil to the extent required by the assembly, since this operation occurs only after the assembly has occurred. Accordingly, as the U.S.-cut pencil slats do not meet all of the requirements of subheading 9802.00.80, HTSUS, no allowances in duty may be made for the cost or value of the U.S.-cut wood slats which are imported into Germany and used in the production of the pencils.

HOLDING:

The proper tariff classification of the erasers is subheading 4016.92.0000, HTSUS, which provides for "[o]ther articles of vulcanized rubber other than hard rubber: Other: Erasers. Articles classified under this provision are subject to a duty at a rate of 4.2 percent ad valorem.
On the basis of the information and sample submitted, it is our opinion that the operations performed on the U.S.-cut wood pencils slats are not considered proper assembly operations or operations incidental to the assembly process. Therefore, no allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the U.S.-origin wood. The pencils are fully dutiable under subheading 9609.10.00, HTSUS, at a rate of 14 cents per gross plus 4.3 percent ad valorem.

Sincerely,

John Durant, Director

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