HQ 0556750 - Request for Internal Advice 26/92 concerning the classification and eligibility for duty-free treatment under the GSP of cordless rechargeable power tools - United States International Trade Commision Rulings

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HQ 556750

March 1, 1993

CLA-2 CO:R:C:S 556750 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 8508.10.00, 8508.80.00

District Director
U.S. Customs Service
880 Front St., Room 5-S-9
San Diego, California 92188

RE: Request for Internal Advice 26/92 concerning the classification and eligibility for duty-free treatment under the GSP of cordless rechargeable power tools

Dear Sir:

This is in response to your letter dated April 13, 1992, forwarding a request for internal advice made by Stein Shostak Shostak & O'Hara on behalf of Skil Corporation, with respect to the tariff classification and eligibility for duty-free treatment under the Generalized System of Preferences (GSP) (19 U.S.C. 2461- 2466) of certain cordless rechargeable power tools from Mexico. Various illustrations and photographs of the subject article were submitted for review.

FACTS:

The articles which are the subject of this internal advice request are a variety of cordless rechargeable power tools, including cordless screwdrivers and cordless drill/drivers. There are seven individually packaged rechargeable power tools at issue. Each package consists of a tool into which a rechargeable battery has been permanently assembled and sealed, a recharger assembly and a bit which is packaged in each of the four screwdriver boxes.

The tools are assembled in Mexico from U.S. and foreign- origin components. The rechargers are manufactured in China, the screwdriver bits are manufactured in Taiwan and the foreign made battery is believed to be manufactured in Japan.

ISSUES:

(1) What is the proper tariff classification of the cordless rechargeable power tools?

(2) Whether the subject merchandise is eligible for duty-free treatment under the GSP.

LAW AND ANALYSIS:

1. Tariff Classification of Cordless Rechargeable Power Tools

The General Rules of Interpretation (GRI's) to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 states in pertinent part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the [remaining GRIS]."

The Internal Advice applicant contends that the articles in question are classifiable, according to GRI 1, under Heading 8508, HTSUS, which provides for "[e]lectromechanical tools for working the hand with self-contained electric motor. . . " While we agree that the cordless rechargeable power tools are ultimately classifiable under Heading 8508, HTSUS, we cannot agree with the suggested method of classification.

The applicant argues that because the recharger is needed to continually recharge the tool, it becomes a part of the tool. They compare the articles in question to a waffle iron with a detachable cord and to a rechargeable flashlight that plugs directly into the wall. Both are distinguishable from the rechargeable power tools with recharger at issue in this internal advice request.

The applicant contends that the recharger is analogous to the detachable electric cord used to power a waffle iron. However, unlike the recharger for the tools in question, the detachable cord must be attached to the waffle iron, and the cord must be plugged into the wall, for the waffle iron to function. The recharger, regardless of its importance to the operation of the screwdriver or drill, is not used with either tool during their operation. The recharger is a separate article that is only utilized in preparation for the next use of the tool and it plays no part while the tool is functioning.

The applicant also contends that the articles in question are similar to rechargeable flashlights that plug directly into the wall. These flashlights, they argue, have the same components (rechargeable battery, transformer, etc.) as the rechargeable tools, although the components are located in a single housing. They further argue that the fact that the flashlight's components are located in a single housing should not affect the method of classification (GRI 1 vs. GRI 3). We disagree.

The rechargeable flashlight and the rechargeable tools with recharger are not comparable. Contrary to the applicant's claim, the fact that the components of the rechargeable flashlight are located within a single housing is relevant to the method used to classify that article.

As imported, the rechargeable flashlight falls within the terms of Heading 8513, HTSUS, which provides for portable electric lamps designed to function by their own source of energy, including storage batteries. Thus, it is classifiable according to GRI 1.

The rechargeable tools with their recharger are not covered by the terms of Heading 8508, HTSUS. While the tool itself--the screwdriver or the drill--would be classifiable as an electromechanical tool for working in the hand under this heading, the recharger would not. The recharger is a separate article that performs a separate function. Moreover, the fact that the recharger is manufactured specifically for each tool does not persuade us to consider the recharger a part of that tool.

Finally, in a letter dated December 9, 1992, the applicant argues that, even if we do not consider the tool and the recharger assembly to be a single article of commerce classifiable, according to GRI 1, under Heading 8508, HTSUS, the articles in question are still classifiable there, according to GRI 1, as "functional units." We disagree.

Note 4 to Section XVI states that "[w]here a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function." The Harmonized Commodity Description and Coding System Explanatory Note (EN) to Section XVI, Note 4, pg. 1133, states that "the expression 'intended to contribute together to a clearly defined function' covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole."

The articles in question do not contribute together to a clearly defined function covered by Heading 8508, HTSUS. The recharger assembly plays no part in the tool's performance as a hand-held electromechanical tool. While the recharger assembly is ultimately necessary for the operation of the tool, it is not in use when the tool itself is performing the function described by Heading 8508, HTSUS.

The Explanatory Note to Section XVI, Note 4, pg. 1133-1134, lists thirteen examples of machines or combinations of machines that fall within the meaning of the term, "functional unit." None of the examples listed includes a component that is not in use during the machine's performance of the function described by the appropriate heading.

The articles in question are not similar to those examples which include the machine's "acting" component (i.e., radio transmitter), as well as the machine's power source (i.e., power pack). The tool's power source is provided by the rechargeable battery, which has been permanently assembled and sealed into the tool itself. The recharger assembly is a component that is used before and after the tool itself performs its function of either driving a screw or drilling a hole. Thus, it is our opinion that the articles in question are not covered by the terms of Note 4 to Section XVI.

GRI 2(b) states that "[t]he classification of goods consisting of more than one material or substance shall be according to the principles of rule 3." The cordless rechargeable power tools are packaged in boxes which contain the following components: a tool into which a rechargeable battery has been permanently assembled and sealed; a recharger assembly; and a bit (in the screwdriver boxes). Thus, because the articles in question are not classifiable according to GRI 1 and because they consist of more than one material or substance, we must look to GRI 3.

GRI 3(b) states that when goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: "[m]ixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character . . . " [emphasis added].

The Explanatory Note to GRI 3(b), pg. 4, states that the term "goods put up in sets for retail sale" shall be taken to mean goods which:

(a) consist of at least two different articles which are, prima facie, classifiable in different headings . . .; (b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and (c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards ) [emphasis in original].

The articles in question meet part (a) of the above stated test for "goods put up in sets for retail sale," as the recharger and the tool itself are classifiable in different headings. They also meet part (b) of the test, as the articles are put together to carry out a specific activity performed by either the screwdriver or drill, and the recharger provides the tools with their source of power (although it is not used during the operation of the tool). Finally, they meet part (c) of the test, as the recharger, the tool (screwdriver or drill) and the bits (packaged with the screwdriver), are packed in boxes for direct sale to users.

Thus, it is our opinion that the cordless rechargeable power tools are goods put up in sets for retail sale for tariff purposes. See e.g., Headquarters Ruling Letter (HRL) 083672 dated May 16, 1989 (wherein this office classified a "rechargeable battery set," which consisted of a battery charger, rechargeable nickel-cadmium batteries and a module/adapter, according to GRI 3(b)). The essential character of these tools is provided by the tool itself. As such, they are classifiable, according to GRI 3(b), under Heading 8508, HTSUS.

2. Eligibility of cordless rechargeable power tools for duty-free treatment under the GSP

Under the GSP, eligible articles the growth, product or manufacture of a designated developing beneficiary country (BDC) which are imported directly into the customs territory of the U.S. from the BDC may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the BDC, plus (2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b).

As stated in General Note 3(c)(ii)(A), HTSUS, Mexico is a designated BDC. Based on our above analysis, we believe that the proper tariff classification of the subject merchandise is under subheadings 8508.10.00. and 8508.80.00, HTSUS. These two subheadings are GSP eligible provisions, and, therefore, the cordless rechargeable power tools will be entitled to duty-free treatment if the entire set is considered to be a "product of" Mexico and the 35% value-content requirement is met.

Prior to August 20, 1990, the GSP program differed from the Caribbean Basin Economic Recovery Act (CBI) and U.S.-Israeli FTA programs in that the latter programs included a "product of" requirement, while the GSP did not. This requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the beneficiary country or, if made of materials from a non-beneficiary country, those materials must be substantially transformed in the beneficiary country into a new or different article of commerce. In Madison Galleries, Ltd. v. United States, 688 F. Supp. 1544 (CIT 1988), aff'd 870 F.2d 627 (Fed. Cir. 1989), the court concluded that, under the GSP statute, it is unnecessary for an article to be a "product of" a GSP country to be eligible for duty-free treatment under that program. However, section 226 of the Customs and Trade Act of 1990 (Public Law 101-382) included an amendment to the GSP statute requiring an article to be a "product of" a GSP country for it to receive duty-free treatment. This amendment was effective for articles entered, or withdrawn from warehouse for consumption, on or after August 20, 1990. See T.D. 91-7 dated January 16, 1991 (25 Cust. Bull. 6).

In T.D. 91-7, Customs held that as a general rule, a collection classifiable in one subheading pursuant to the GRI's will receive CBI treatment only if all of the items or components in the collection are considered "products of" the beneficiary country. To illustrate the application of the "product of" requirement to sets under the CBI, we used the example of a hairdressing set consisting of a comb, brush, and scissors manufactured in Jamaica from materials originating in Jamaica, as well as an electric hair clipper manufactured in Taiwan (a non-BC country) and imported into Jamaica for packaging with the other items of the set. We also stated that in cases where the entire imported set is not the "product of" a BDC, as required by the CBI statute, neither the set nor any part thereof would be entitled to duty-free treatment under this program. The above requirements also exist under the GSP statute with respect to articles entered on or after August 20, 1990.

We have previously held that although a toy set may be properly classifiable under GRI 1, the merchandise must still satisfy the "product of" requirement to be eligible for duty-free treatment pursuant to the GSP. In HRL 555999 dated November 20, 1991, we held that toy farm sets from Mexico, consisting of Mexican-origin components and Chinese farm animals which are simply packaged together in Mexico, are not entitled to duty-free treatment since the "product of" requirement has not been met. See 19 U.S.C. 2463(b)(2) (no article of a BDC shall be eligible for GSP treatment by virtue of having merely undergone simple combining or packaging operations).

Because the cordless rechargeable power tool sets include component parts which are sourced outside of Mexico, it is clear that these parts are not wholly the growth, product, or manufacture of that BDC. The mere packaging of the Taiwanese-origin bits and the Chinese-origin rechargers with the other items in the set clearly will not substantially transform these non-Mexican components into "products of" Mexico. Therefore, even assuming arguendo that the assembly of the tool substantially transformed the U.S. and foreign components included therein into "products of" Mexico, because the entire cordless rechargeable power tool sets are not "products of" Mexico, as required by the GSP statute, neither the sets nor any parts thereof are entitled to duty-free treatment under this program.

Finally, the issue of whether the cordless rechargeable power tools will satisfy the 35% value-content requirement under the GSP is not relevant in this case since the entire set does not meet the "product of" requirement.

HOLDING:

The cordless rechargeable drills are classifiable under subheading 8508.10.00, HTSUS, which provides for electromechanical drills of all kinds. The corresponding rate of duty (Column 1/General) for articles of this subheading is 2.2 percent ad valorem.

The cordless rechargeable screwdrivers are classifiable under subheading 8508.80.00, HTSUS, which provides for other electromechanical tools for working in the hand with self- contained electric motor. The corresponding rate of duty (Column 1/General) for articles of this subheading is 2.2 percent ad valorem.

Because the imported cordless rechargeable power tool sets are not "products of" Mexico, as required under the GSP statute, neither the sets nor any of the components in the sets are entitled to duty-free treatment under this program.

Sincerely,

John Durant, Director

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