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HQ 559235




December 16, 1996

CLA-2-05 RR:TC:SM 559235 DEC

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.80

Mr. Robert Noell
Cain Customs Brokers
P.O. Box 150
Hidalgo, TX 78557

RE: Moisture liquid indicator; HTSUS 9802.00.80; crimping; soldering; testing; pressing; packaging; 19 CFR 10.14; 19 CFR 10.16; HRL 557744; originating good; NAFTA Article 509

Dear Mr. Noell:

This is in response to your letter dated May 22, 1995, in which you seek a ruling regarding the eligibility of certain moisture liquid indicators for the partial duty exemption under the Harmonized Tariff Schedule of the United States (HTSUS) subheading 9802.00.80. In addition, you seek a ruling with respect to the eligibility of these articles for a preferential duty rate under the North American Free Trade Agreement (NAFTA) as an originating good. We regret the delay in responding to your ruling request.

FACTS:

Alco Controls Division of Emerson Electric Company (Also) intends to import moisture liquid indicators from Mexico. The moisture liquid indicators are installed in the liquid line after the filter-drier and before the thermo expansion valve in commercial refrigeration and air conditioning systems. The product has indicator paper that is installed in the top of the post of the body of the product that changes color to indicate the presence of moisture in the refrigerant line. Excessive moisture in these lines may cause failure of these system components.

You state that the processing in Mexico will involve the placement of the indicator paper into a punch tool. The body of the article will then be placed in a nest. The punch tool will cut a circle of indicator paper and press it into the top of the post of the body. The lip of the post will be crimped which will secure the indicator paper in place. The sight glass will be placed in the top of the body with the convex side up. The lip of the top of the body will be crimped, securing the sight glass into place. Flux will be applied to the circumference of the sight glass. A solder ring will be placed on the circumference of the sight glass. The sight glass will then be soldered to the assembly. The moisture liquid indicator will be checked for leaks. Plastic caps will be placed in the open lids of the assembly and the article will be packaged for shipment. You state that all of the components used in the production of the moisture liquid indicator (indicator paper, body, sight glass, flux, solder ring, and plastic caps are of U.S. origin and that the processing described above occurs in Mexico.

ISSUE:

1. Whether the United States-made components that are transported to Mexico for processing as described above are entitled to subheading 9802.00.80, HTSUS, treatment when returned as an assembled moisture liquid indicator.

2. Whether the moisture liquid indicators qualify as an originating article under the NAFTA.

LAW AND ANALYSIS:

1. Applicability of Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, Harmonized Tariff Schedule of the United States (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 therein, 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).

In this case, you have indicated that the processing at issue consists of the punch-cutting of the indicator paper to conform to the shape of the body of the moisture liquid indicator, the pressing of the indicator paper into the top of the post of the body, the crimping of the lip of the post to secure the indicator paper in place, the placement of the sight glass on the top of the body, the crimping of the top of the body to secure the sight glass into place, the application of flux to the circumference of the sight glass, the placement of a solder ring on the circumference of the sight glass, and the soldering of the sight glass to the assembly. The moisture liquid indicator is then checked for leaks and plastic caps are placed in the open lids of the assembly and the article is packaged for shipment.

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that assembly operations for purposes of subheading 9802.00.80 encompass any method used to join solid components such as welding, soldering, riveting, force fitting, or the use of fasteners and may be accompanied by operations that are incidental to the assembly as provided in section 10.16(b). Clearly, the crimping operations are acceptable assembly operations. In Headquarters Ruling Letter (HRL) 557744, dated December 22, 1993, we determined that crimping operations performed on safety fuse plugs are considered acceptable assembly operations pursuant to 19 CFR 10.16(a). The soldering of the sight glass to the moisture liquid indicator's body is an acceptable assembly operation. Soldering is expressly provided for in 19 CFR 10.16(a) as is force
fitting which is used to attach the plastic caps to the ends of the body. Testing for leaks and packaging are operations that are incidental to the assembly as provided for in 19 CFR

With respect to the punch-cutting of the indicator paper which is placed into the body of the moisture liquid indicator and cut, section 10.14(a), example 4, expressly addresses the type of processing involved here. Example 4 provides that

[u]ncut textile fabrics exported in bolts from which wearing apparel components will be cut according to a pattern are not regarded as fabricated components. Similarly, other materials, such as lumber, leather, sheet metal, plastic sheeting, exported in basic shapes and forms to be fabricated into components for assembly, are not eligible for treatment as fabricated components.

Since the indicator paper is exported in sheets and cut to the basic circular shape appropriate for installation in the moisture liquid indicator while abroad, it will not be deemed to be exported in a condition ready for assembly. Therefore, the indicator paper will not be entitled to a duty allowance when imported as part of the moisture liquid indicator.

2. NAFTA Originating Materials

General Note 12, HTSUS provides that
goods imported into the customs territory of the United states are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as `goods originating in the territory of a NAFTA party' only if--

(i) they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States; or
. . .
(iii) they are goods produced entirely in the territory of Canada, Mexico, and/or the United States exclusively from originating materials . . ..

For purposes of this ruling, we are assuming that the components used in the production of the moisture liquid indicators, which you indicate are U.S.-origin, are originating goods under the NAFTA. Provided the port director is satisfied that this condition is satisfied, the moisture liquid indicators that are assembled in Mexico using only United States components will qualify as originating articles and will be entitled to the NAFTA preferential rate of duty.

HOLDING:

1. On the basis of the information provided, the operations performed in Mexico constitute acceptable assembly operations or operations incidental thereto within the meaning of subheading 9802.00.80, HTSUS, with the exception of the punch-cutting operation performed on the indicator paper. Since the indicator paper is further fabricated in Mexico, it will not be eligible for the duty allowance pursuant to subheading 9802.00.80, HTSUS, although the other U.S. components are eligible for the duty allowance, assuming compliance with the documentary requirements of
19 CFR 10.24.

2. The moisture liquid indicators which are assembled in Mexico from United States components qualify as originating articles under the NAFTA.

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

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