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HQ 558020




November 17, 1994

CLA-2 CO:R:C:S 558020 DEC

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.80

Ms. Audrey Adams
District Director
United States Customs Service
P.O. Box 3130
Laredo, Texas 78044-3130

RE: Internal Advice No. 30/94; Fuel injection nozzles disassembled and assembled in Mexico; HRL 554539; HRL 544159; HRL 554808

Dear Ms. Adams:

This is in response to your memorandum of July 11, 1994, forwarding a request for internal advice from counsel for Caterpillar, Incorporated concerning the eligibility of certain fuel injection nozzles assembled in Mexico for the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

Caterpillar Incorporated (Caterpillar) exports diesel fuel injection nozzles to Mexico for disassembly and the reassembly of any reusable components together with new components such as gaskets, o-rings, and washers. Caterpillar leaves the fuel nozzles intact for shipment from the United States to Mexico to protect the critical components inside. Once the nozzles are in Mexico, they are completely disassembled and the reusable pieces are separated by component piece, cleaned, possibly reground, and inspected prior to assembly. Caterpillar contends that because the diesel fuel injection nozzles are especially susceptible to damage, it is not feasible to disassemble the nozzles in the United States since damage to the component parts would occur while the parts are en route to Mexico.

ISSUE:

Whether, under the above circumstances, the returned diesel fuel injection nozzles qualify for the partial duty exemption provided for in HTSUS subheading 9802.00.80.

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 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, 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 cost or value of the imported assembled article, less the cost or value of the United States components assembled abroad provided the section 10.24, Customs Regulations (19 CFR 10.24) documentary requirements are satisfied.

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states, in part, that

The 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 19 CFR 10.16(c).

Customs has addressed the applicability of subheading 9802.00.80, HTSUS, to disassembly operations. In Headquarters Ruling Letter (HRL) 554539, dated August 25, 1987, Customs denied the application of item 807.00, Tariff Schedule of the United States (TSUS) (the precursor provision to subheading 9802.00.80, HTSUS), to certain power steering pumps and their constituent parts exported for remanufacture because the pumps required a complete disassembly operation before being reassembled with refurbished parts and new replacement parts of United States origin. It was determined that only assembly operations and operations incidental thereto are permitted to obtain the exemption provided for under the statute. It was the disassembly that disqualified the assembled article from obtaining the duty exemption provided for under this provision.

Upon reconsideration (see HRL 554159, dated December 16, 1988), Customs determined that the new United States origin replacement parts were entitled to the item 807.00, TSUS, treatment because those parts complied with the statutory requirements in that they were (1) exported in condition ready for assembly, (2) did not lose their physical identity, and (3) were not advanced in value or improved in condition except by being assembled. However, in HRL 554808, dated August 25, 1989, Customs determined that certain preparatory steps undertaken in connection with the production of luxury vans, including some disassembly operations, were considered incidental to assembly because they were deemed to be of a minor nature and were necessary for safety reasons.

In this case, the fuel nozzles exported to Mexico to be repaired and reassembled undergo a disassembly process prior to being assembled. This disassembly operation is neither an acceptable assembly operation nor an operation incidental to the subsequent assembly process. After the fuel nozzles are exported to Mexico, the reusable pieces are totally disassembled and separated by component piece, cleaned, possibly reground, and inspected prior to the assembly operation which involves used parts as well as new United States parts. The disassembly process in this case, unlike the situation presented in HRL 554808, dated August 25, 1989, appears to be a significant rather than a minor operation. Consequently, Customs finds that allowances in duty under subheading 9802.00.80, HTSUS, may not be made to the used items that are disassembled and subsequently reassembled into the fuel injection nozzles.

HOLDING:

The disassembly operations performed in Mexico on the fuel injection nozzles prior to the assembly of new and used components into remanufactured fuel injection nozzles are not acceptable assembly operations or operations incidental to the assembly process. Therefore, the repaired and reassembled fuel injection nozzles are
entitled to allowances in duty under subheading 9802.00.80, HTSUS, only with respect to the new United States origin replacement parts that are used in the assembly of the remanufactured fuel nozzles, upon compliance with the documentary requirements of 19 CFR 10.24.

Sincerely,

John Durant

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