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HQ 556764


October 5, 1992

CLA-2 CO:R:C:S 556764 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Kenneth R. Paley, Esq.
Sharretts, Paley, Carter & Blauvelt, P.C. 1701 L Street, N.W.
Washington, D.C. 20036

RE: Applicability of the partial duty exemption under HTSUSA 9802.00.80 to imported hydraulic units; assembly; C.S.D. 85- 25; substantial transformation; "product of"; bolting

Dear Mr. Paley:

This is in response to your letter of April 30, 1992, on behalf of Robert Bosch Corporation, Automotive Group, requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to certain hydraulic units to be imported as part of automobiles. A sample of the merchandise was submitted for our review.

FACTS:

Robert Bosch Corporation manufactures hydraulic units in the U.S. which are included as parts of automobiles. You state that the articles are produced by a lengthy, complex, labor-intensive process from hundreds of components that your client either fabricates from raw materials or sources from domestic or foreign suppliers. These components then undergo an assembly process which is subdivided into various stages of assembly, to create the final product.

You state that two types of hydraulic units are produced in the U.S. by your client: a three-channel unit and a four-channel unit. The four-channel unit differs from the three-channel unit in that it encompasses a number of additional components which are combined into another kind of subassembly that is incorporated into the article in the final stage of production.

The U.S. manufacturing processes for the five major subassemblies that go directly into the production of the final products are as follows:
1. Cover - A bar of aluminum is subjected to an extrusion process for shaping, then is passed several times through a Turmat Machine for the drilling and finishing of holes. It is then subjected to the electrical process of deburring and brushing. Next, the subcomponent undergoes an electrochemical chromating process. Finally, the parts are washed and stationed for final assembly.

2. Housing - The basic manufacturing process for this subassembly is similar to the subassembly described above, except that this procedure is more complex and entails more drilling, machining, and finishing.

3. Magnet valve - A special imported steel is hardened, turned, ground, and honed. Holes are then drilled to micron- close tolerance to create the valve body. Other subcomponents are machined and press-fitted. Certain subcomponents known as Electro Coils are subjected to a winding, molding process and an electric check. Finally, all the subcomponents are assembled, washed, and staged for the final assembly.

4. Pump element - An unfinished, domestically produced subcomponent known as a plunger and barrel is machined, coined, pickled, ground, hardened through heat treatment, and washed. It is then combined with other components, including an American-made pump body, a filter screen, 0-rings, and springs to produce a complete pump element, which is staged for final assembly.

5. Plunger assembly - (only used in four-channel hydraulic units) - Various subcomponents, including bushings, plungers, a valve seat, and a closing cover, are coined, pickled, ground, hardened through heat treatment, and washed. Those articles are then combined with additional subcomponents such as o-rings, springs, tappets, pins, and retaining rings in a particularly intricate process to create the plunger assembly, which is then staged for final assembly. The manufacture of this subassembly is especially labor-intensive and requires exceptionally high and close tolerance.

Three magnet valves and one of each of the other four subassemblies (three in the case of the three-channel hydraulic units) are then assembled together and further combined with other components, including inlet pipes, relays, an accumulator, a DC motor, and protective covers, to produce the final hydraulic units. Every hydraulic unit is tested by the manufacturer before shipment.

In certain cases, the finished hydraulic units are sold and exported to foreign auto manufacturers, which bolt the units into their automobiles. Certain automobiles containing the hydraulic units are then exported back into the U.S. for sale. This ruling concerns those hydraulic units which have been assembled in the U.S. and subsequently exported to be assembled into foreign automobiles and returned to the U.S.

ISSUE:

Whether the hydraulic units will qualify for a duty allowance under HTSUS subheading 9802.00.80 when returned to the U.S. as part of automobiles.

LAW AND ANALYSIS:

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).

For a component to be eligible for subheading 9802.00.80, HTSUS, treatment it must first be a "product of" the U.S. According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a "product of the United States" is an article manufactured within the customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.

A substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article or material before being subjected to the manufacturing process. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

We have previously held in C.S.D. 85-25 dated September 25, 1984 (Headquarters Ruling Letter (HRL) 071827), that the process of incorporating numerous component parts onto a printed circuit board subassembly constituted a processing sufficiently complex to result in the subassembly being considered a substantially transformed constituent material of the final article (matrix printer) for purposes of the Generalized System of Preferences (GSP). The focus of C.S.D. 85-25 was a PCBA which was produced by assembling in excess of 50 discrete fabricated components (e.g., resistors, capacitors, diodes, transistors, integrated circuits, sockets, and connectors) onto a printed circuit board. Customs determined that the assembly of the PCBA involved a large number of components and a significant number of different operations, required a relatively significant period of time as well as skill, attention to detail, and quality control, and resulted in significant economic benefit to the country of assembly from the standpoint of both the value added to the PCBA and the overall employment generated thereby. In addition, Customs found in C.S.D. 85-25 that the PCBA represented a distinct article which was different from both the components from which it was made and the matrix printer into which it was incorporated and, therefore, the assembled PCBA constituted an intermediate article within the meaning of 19 CFR 10.177(a).

In the present case, we are of the opinion that the foreign materials used in the production of the hydraulic unit are substantially transformed into a "product of" the U.S. You state that hundreds of different components are used to produce the final article. These separate components imported into the U.S. acquire new attributes, and we find that the final article differs in character and use from the component parts of which it is composed. Moreover, the production of the hydraulic unit involves substantial operations (cutting, mounting, soldering, quality control testing, extruding, drilling, punching, machining, hardening, coining, etc.), which increase the value of the individual components, endow them with new qualities and result in an article with a new and distinct commercial identity.

On the basis of the information submitted, we are of the opinion that the assembly of the hydraulic units in the U.S. results in a substantial transformation of the foreign materials into a "product of" the U.S. Next, we must address the issue of whether the hydraulic unit is eligible for the duty exemption available under subheading 9802.00.80, HTSUS, when it is exported, incorporated into an automobile by means of bolting, and subsequently returned to the U.S.

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.

The operation which results in securely joining the hydraulic unit to the automobile by means of bolting is considered an acceptable assembly operation. See 19 CFR 10.16(a). Therefore, as the U.S. components used in the assembly process will be exported in condition ready for assembly without further fabrication, will not lose their physical identity in the assembled article, and will not be advanced in value or improved in condition except by assembly operations, the returned hydraulic unit will be eligible for an allowance in duty under subheading 9802.00.80, HTSUSA.

HOLDING:

Based on the information and sample submitted, we are of the opinion that the materials imported into the U.S. and assembled into the hydraulic unit are substantially transformed into a "product of" the U.S. Additionally, the foreign operations which consist of bolting the hydraulic unit into an automobile is an acceptable assembly operation. Therefore, the imported automobile may be entered under subheading 9802.00.80, HTSUS, with an allowance in duty for the cost or value of the hydraulic unit, upon compliance with the documentary requirements of 19 CFR 10.24.

Sincerely,

John Durant, Director

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