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HQ 951937


January 6, 1993

CLA-2 CO:R:C:M 951937 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 8532.23.00

District Director
300 South Ferry Street
Terminal Island
Room 2017
San Pedro, California 90731

RE: Protest No. 2704-92-100552; ceramic elements; capacitors; part; GRI 2(a); unfinished; EN Rule 2(a); Sangamo Capacitor Division; essential character; EN Rule 3(b); EN 85.32

Dear Sir:

This is in response to the Application for Further Review of Protest No. 2704-92-100552, dated February 6, 1992, which pertains to the tariff classification of ceramic elements for capacitors under the Harmonized Tariff Schedule of the United States (HTSUS). Samples of the ceramic elements as imported, in their various stages of manufacture, and in their three completed forms were submitted for examination.

FACTS:

Upon importation into the U.S., the entries of the ceramic elements were liquidated under subheading 8532.29.00, HTSUS, which provides for "Electrical capacitors, fixed, variable or adjustable (pre-set); parts thereof...Other fixed capacitors... Other."

The merchandise under consideration consists of two types of ceramic elements used to manufacture capacitors. In the U.S., the ceramic elements are combined with other imported components and domestic components to manufacture three types of completed capacitors, the RL9, RH3 and RH4 capacitors. The ceramic element to be manufactured into the RL9 capacitors is in a cylindrical shape and consists of two pieces of copper conducting material separated by a ceramic dielectric with attached end caps. The ceramic element to be manufactured into the RH3 and RH4 capacitors is in a cylindrical shape and consists of two pieces of copper conducting material separated by a ceramic dielectric.

The cost figures submitted by the protestant indicates that the percentages for the value of the ceramic elements per 1,000 units, the percentages for the value of the other imported components (end caps and wire), and the percentages for the value added in the U.S. (parts and labor) are as follows:

Capacitor Ceramic Element Other U.S. Value

RL9 53.5% 0.0% 46.5%
RH3 43.5% 17.5% 39.0%
RH4 52.0% 15.0% 33.0%

The protestant contends that the ceramic elements are properly classified under subheading 8532.90.00, HTSUS, which provides for "Electrical capacitors, fixed, variable or adjustable (pre-set); parts thereof...Parts."

ISSUE:

Are the ceramic elements for capacitors classified under subheading 8532.29.00, HTSUS, as unfinished capacitors pursuant to GRI 2(a), or are they classified under subheading 8532.90.00, HTSUS, as parts of capacitors?

LAW AND ANALYSIS:

The classification of merchandise under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1, HTSUS, states in part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes...."

The ceramic elements are classified under heading 8532, HTSUS, which provides for "Electrical capacitors, fixed, variable or adjustable (pre-set); parts thereof...." Classification to the eight digit subheading level is dependent upon whether the ceramic elements are considered unfinished capacitors pursuant to GRI 2(a), HTSUS, or parts of capacitors.

GRI 2(a), HTSUS, states that:

Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.

General Explanatory Note (EN) Rule 2(a) of the Harmonized Commodity Description and Coding System (HCDCS) states that:

(I) The first part of Rule 2(a) extends the scope of any heading which refers to a particular article to cover not only the complete article but also that article incomplete or unfinished, provided that, as presented, it has the essential character of the complete or finished article.

HCDCS p. 2. The Explanatory Notes, although not dispositive, are to be looked to for the proper interpretation of the HTSUS. 54 Fed. Reg. 35127, 35128 (August 23, 1989).

The issue to be determined is whether the ceramic elements as imported have the essential character of the completed capacitors. Whether merchandise was classifiable as capacitors or unfinished capacitors under the TSUS was examined in Sangamo Capacitor Division v. U.S., 9 CIT 154, 611 F. Supp. 967 (1985). In determining that silver mica plates which consisted of mica (the dielectric) and silver (the conducting material) were classified as articles of silver or mica depending on their chief value and not as capacitors or unfinished capacitors, the Court considered the common and commercial meaning of capacitors. The Court stated that "[t]he definitions...and the testimony established a capacitor to be used in electronic circuits for the purpose of introducing a capacitance. The components of a capacitor are two electrodes separated by a dielectric." Id. at 973.

In examining whether the silver mica plates were unfinished capacitors, the court analyzed the "substantially complete" factors found in Daisy-Heddon, Div. Victor Comptometer Corp. v. U.S., 66 CCPA 97, C.A.D. 1228 (1979). In reaching its decision that the silver mica plates were not unfinished capacitors, the Court relied heavily on the number of additional steps and materials added to the silvered mica plates which were required before industry standards for capacitors were met.

Congress has indicated that earlier tariff decisions must not be disregarded in applying the HTSUS. The conference report to the Omnibus Trade Bill of 1988, states that "on a case-by- case basis prior decisions should be considered instructive in interpreting the HTS[US], particularly where the nomenclature previously interpreted in those decisions remain unchanged and no dissimilar interpretation is required by the text of the HTS[US]." H. Rep. No. 100-576, 100th Cong., 2d Sess. 548, 550 (1988). Although the nomenclature involved in Sangamo and in heading 8532, HTSUS, both contain the phrase "Electrical capacitors", we do not find the analysis in Sangamo instructive in this case.

The protestant contends that the term "essential character" in GRI 2(a) is not defined in the HTSUS or in the HCDCS and, therefore, its meaning must be discerned from the interpretation of Rule 10(h) in the Tariff Schedules of the United States (TSUS) (the precursor tariff schedule to the HTSUS) and by examining the "substantially complete" factors found in Daisy-Heddon and reiterated in Sangamo. We disagree.

In Sangamo, the court relied heavily on Daisy-Heddon finding that the mechandise was not substantially complete and, therefore, unfinished. However, under GRI 2(a), if an article, has the essential character of the complete or finished article it will be considered unfinished.

In interpreting the HTSUS, we have consistently construed the term "essential character" to mean the attribute which strongly marks or serves to distinguish what an article is; that which is indispensable to the structure, core or condition of the article. In addition, the Explanatory Notes provide further factors which determine the essential character of goods. Factors such as bulk, quantity, weight or value, or the role of a constituent material in relation to the use of the goods are to be utilized, though the importance of certain factors will vary between different kinds of goods. See, EN Rule 3(b), HCDCS p. 4.

An electrical capacitor is defined in EN 85.32 as consisting "in principle of two conducting surfaces separated by an insulating material (dielectric), e.g., air, paper, mica, oil, resins, rubber and plastics, ceramics or glass." HCDCS p. 1383. The RL9 element and the RH3 and RH4 element meet this definition. They both consist of two pieces of copper conducting material separated by a ceramic dielectric. We are of the opinion that an article has the essential character of capacitor if it contains two conducting surfaces separated by an insulating material. Even though as imported the elements cannot function as capacitors, the components which are indispensable to the capacitor are the two conducting surfaces separated by the insulating material. We are not unmindful of the court's finding in Sangamo that the above cited definitions are exceedingly broad or that as imported the mechandise is incapable of introducing a known capacitance into an electric circuit. However, in our opinion, neither of these findings has a bearing on determining the essential character of the article.

Moreover, an examination of the value of the imported elements as compared to the value added in the U.S., and the value of the foreign components, when applicable, is inconclusive.

In the case of the RL9 capacitor, the imported element accounts for 53.5.% of the finished capacitor and the value added in the U.S. accounts for 46.5% of the finished capacitor. The RH3 element is 43.5% of the finished capacitor's value, as compared to 17.5% value added in the U.S. with the other 17.5% attributable to the foreign end caps and wire. The RH4 element is 52% of the finished capacitor's value, as compared to 33% value added in the U.S. with the other 15% attributable to the foreign end caps and wire. Moreover, the U.S. manufacturing processes for the RL9 element and the RH3 and RH4 element involve applying overcoat and undercoat, marking the capacitance value and voltage, various stages of testing and inspecting and packaging. The RH3 and RH4 element undergo the additional processes of attaching the end caps and wire leads. Although the protestant breaks down the U.S. manufacturing processes into 18 steps for the RH elements and 20 steps for the RL elements, we do not find that these processes are relevant to whether the imported elements have the essential character of a capacitor. Upon importation, the elements have the essential character of a capacitor, two conducting surfaces separated by an insulating material.

After review of the submitted samples, we conclude that the RL9 element and the RH3 and RH4 element are single layer, ceramic dielectric capacitors. Therefore, as the RL9 element and the RH3 and RH4 element have the essential character of a capacitor, they are classified under subheading 8532.23.00, HTSUS.

HOLDING:

Pursuant to GRI 2(a), HTSUS, the RL9 element and the RH3 and RH4 element are properly classified under subheading 8532.23.00, HTSUS, which provides for "Electrical capacitors, fixed, variable or adjustable (pre-set); parts thereof...Other fixed capacitors...Ceramic dielectric, single layer."

The protest should be denied. A copy of this decision should be attached to the Customs Form 19 and provided to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director
Commercial Rulings Division

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