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HQ 559519




September 11, 1996

CLA-2 RR:TC:SM 559519 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. Jim McNamara, General Manager
Rudolf Miles & Sons Incorporated
P.O. Box 1388
McAllen, Texas 78502-1388

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to certain electrical motors which are assembled in Mexico from U.S. origin components; fabrication; punching; HQ 558813

Dear Mr. McNamara:

This is in response to your letters dated October 20, 1995 and August 26, 1996, on behalf of General Electric ("GE") requesting a ruling on the applicability of the partial duty exemption of subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS") to electrical motors assembled in Mexico of U.S. components. We regret the delay in responding.

FACTS:

You state that GE intends to import electrical motors into the U.S. which are assembled in Mexico from U.S. components. The assembled motor itself will be fully enclosed in a cap (top section) and can (lower section). You are concerned as to whether the cap and can components, which are of U.S. origin, are entitled to allowances in duty under subheading 9802.00.80, HTSUS, when assembled with the electrical motor. You state that prior to the assembly, a drain hole is punched in the can and cap to allow any moisture that might build up inside the enclosure to drain out. You indicate that the punching is not accomplished to accommodate the assembly of another component into the punched hole. You have submitted a diagram (Attachments B and C to your letter) showing component end locations of the drain holes. You claim that the punching of the hole is best accomplished immediately prior to the assembly operation due to the fact that, based on customer demands, the hole could be punched in one of 12 alternative positions at 15 degree increments along a 180 degree radius. You contend that the punching of the holes at the assembly site allows for only four different sizes of caps and cans to be maintained in inventory at the assembly plant. Otherwise, if, for example, the holes were punched into all the caps in the U.S. by the U.S. supplier, then GE would have to maintain 48 part numbers versus 4 in inventory at the assembly location (4 cap sizes x 12 potential positions for holes) which would create a tremendous financial burden on GE. According to your submission, the time required for the punching operation of the cap and can is approximately 6 seconds which is 1 percent of the total time required to assemble the motor and represents approximately 0.1 percent of the total cost of the finished motor.

ISSUE:

Are the U.S.-origin caps and cans which are used in the assembly of electrical motors in Mexico in the manner described above entitled to allowances in duty under subheading 9802.00.80, HTSUS, when imported into the U.S. as part of an assembled electrical motor?

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, lubrication, 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 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.

In this case, although no information was provided detailing the enclosure operation of the caps and cans to the electrical motors, we will assume for purposes of this ruling that the method used in the enclosure operation would be considered an acceptable assembly operation within the meaning of subheading 9802.00.80, HTSUS and 19 CFR 10.16(a).

The question presented in this case is whether the operation of punching a hole in the cap and can prior to the assembly of the electrical motors constitutes "further fabrication" of the caps or is "incidental to the assembly" of the motors.

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. See 19 CFR 10.16(a). 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). In HQ 558813 (February 1, 1995), Customs ruled that the operation of drilling bleed holes in a piston to allow gas or liquid to flow or drain was a significant operation, and thus was not considered to be an incidental operation within the meaning of 9802.00.80, HTSUS. Customs further stated that the drilling operation appears to be a significant step in the fabrication of the pistons.

In this case, we are of the opinion that the operation that entails punching a hole into the U.S. origin caps and cans prior to the assembly of the electrical motors is a significant process which constitutes a further fabrication of the caps and cans. As in HQ 558813, where the pistons could not be used without the bleed holes, the caps and cans cannot be used to enclose the electrical motors without the drain hole. These drain holes protect the enclosed electrical motor from being damaged by moisture, which in our opinion is a significant characteristic of a complete cap and can. Thus, in our opinion, the pre-assembly punching operation is a significant process which constitutes a finishing step in the fabrication of the components (i.e., completed caps and cans). Since the punching operation is considered to be a further fabrication of the caps and cans, contrary to condition (a) of the statute, the question as to whether or not the punching operation is incidental to the assembly process under condition (c) of the statute, is not relevant for purposes of subheading 9802.00.80, HTSUS. Accordingly, a duty allowance may not be granted upon importation of the electrical motors for the cost or value of the caps and cans.

HOLDING:

On the basis of the information presented, it is our opinion that the U.S.-origin caps and cans which are used in the assembly of electrical motors are not in condition ready for assembly without further fabrication when exported to Mexico, since a drain hole must be punched in the caps and cans in Mexico prior to assembly. Therefore, no allowance in duty may be made for the cost or value of the caps and cans under subheading 9802.00.80, HTSUS, upon importation of the electrical motors. Since the punching operation is considered to be a further fabrication of the caps and cans, the question as to whether or not the punching operation is incidental to the assembly process is not relevant for purposes of subheading 9802.00.80, HTSUS. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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