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HQ 560349




August 21, 1997

CLA-2 RR:TC:SM 560349 KSG

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. Robert Noell
Vice President
Cains Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. Box 150
Hidalgo, Texas 78557

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to flapper assemblies; NAFTA preferential tariff treatment;
Article 509

Dear Mr. Noell:

This is in response to your letter of March 5, 1997, requesting a ruling regarding the applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTSUS), and the North American Free Trade Agreement ("NAFTA") to imported flapper assemblies. Several samples were submitted with your request.

FACTS:

Alco Controls plans to begin importing flapper assemblies from Mexico. The flapper assemblies are sub-assemblies of a filter/dryer, a device which is installed in a refrigerant line in heat pumps. The heat pumps are machines which heat and cool air in residential applications.
The flapper assembly is a valve that controls the direction of refrigerant through the filter/dryer.

The parts involved and the tariff classifications which you provided for the parts are: a flapper spring (classified at subheading 7320.20, HTSUS), a spring (classified at subheading 7320.20, HTSUS), a rivet (classified at subheading 8308.20, HTSUS), a poppet (classified at subheading 7318.22, HTSUS), a mounting plate (classified at subheading 7326.90, HTSUS), a flapper (classified at subheading 3926.90, HTSUS), and a centering cup (classified at subheading 7326.90, HTSUS). You state that all the parts are of U.S. origin.

The assembly process in Mexico consists of the following: 1) a flapper spring is placed over the tabs on the centering cup. The flapper is placed on top of the flapper spring and then the mounting plate is placed over the flapper; 2)the tabs of the centering cup are crimped over the mounting plate to hold the parts together; 3) the poppet is placed over the hole in the center of the mounting plate. A rivet is inserted through a spring, the poppet, and the hole in the center of the mounting cup; and 4) the end of the rivet is deformed on the centering cup end of the assembly to hold the parts together.

ISSUES:

I. Whether the flapper assembly will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

II. Whether the flapper assembly will qualify for preferential tariff treatment under the North American Free Trade Agreement.

LAW AND ANALYSIS:

I. Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
articles...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 value of the imported article, less the cost or value of the U.S. components, upon compliance with the documentary requirements of 19 CFR 10.24.

The applicable regulations for this exemption are set forth in 19 CFR 10.11 through 19 CFR 10.26. The provisions of 19 CFR 10.14(a) state 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.

Qualifying assembly abroad is described in 19 CFR 10.16. The assembly operations 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, and may be preceded, accompanied, or followed by operations incidental to the assembly. 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.

In the instant case, you have described processing in Mexico which involves only assembly operations. The parts are joined together by crimping and then with a rivet. The components are in condition ready for assembly without further fabrication at the time of their exportation from the United States. Consequently, the flapper assembly may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of any components which are determined to be of U.S. origin, provided the documentary requirements of 19 CFR 10.24 are satisfied.

II. NAFTA preferential tariff treatment

The second issue concerns whether the imported flapper assembly is entitled to preferential tariff treatment under NAFTA. Article 401 of NAFTA is incorporated into General Note 12, HTSUS. General Note 12(a) provides, in pertinent part, that:

(ii) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules ....and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate....

Thus, by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico.

Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

"Foreign material" is defined in 19 CFR 102.1(e) as "a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced." Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the flapper assemblies are assembled in Mexico of U.S. material and therefore are neither wholly obtained or produced, nor produced exclusively from domestic materials. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section

Section 102.11(a)(3) provides that the country of origin is the country in which "each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20...."

The flapper assembly is classified at subheading 8481.80.90, HTSUS. The applicable tariff shift rule found in section 102.20(o) provides as follows:

HTSUS Tariff Shift and/or other requirements

8481.10-8481.80.....A change to subheading 8481.10 through 8481.80 from any other heading, or from subheading 8481.90 except when resulting from a simple assembly.

In the instant case, the foreign materials are a flapper spring (classified at subheading 7320.20, HTSUS), a spring (classified at subheading 7320.20, HTSUS), a rivet (classified at subheading 8308.20, HTSUS), a poppet (classified at subheading 7318.22, HTSUS), a mounting plate (classified at subheading 7326.90, HTSUS), a flapper (classified at subheading 3926.90, HTSUS), and a centering cup (classified at subheading 7326.90, HTSUS). All the foreign materials ( U.S. in this case) undergo the applicable tariff shift. Pursuant to 19 CFR 102.11(a)(3), the country of origin of the flapper assembly is the country where the foreign materials undergo the applicable tariff shift, which is Mexico.

Accordingly, we find that under the NAFTA Marking Rules, the flapper assembly is a good of Mexico.

General Note 12(b) provides, in pertinent part, the following:

For purposes of this note, 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 entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico, and/or the United States so that-

(A) except as provided in subdivision (f) of this note, each of the non-originating material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein or

(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

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

We have insufficient information to determine whether the flapper assembly is considered "originating" under General Note 12(b)(i) or (iii).
Therefore, we will consider whether the flapper assembly is considered originating under General Note 12(b)(ii).

Based on the information presented, it appears that the flapper valve assembly would be classified at subheading 8481.80.90, HTSUS.
With respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t)/84.239 provides for a change in tariff classification to subheading 8481.10 through 8481.80 from any other heading; or a change to subheadings 8481.10 through 8481.80 from subheading 8481.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used is a qualifying change in tariff classification. Since the materials imported into Mexico undergo the applicable tariff shift, the flapper assembly is eligible for preferential tariff treatment under the NAFTA. The special MX rate of duty under subheading 8481.80.90, HTSUS, is free.

HOLDING:

The flapper assembly may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the components which are determined to be of U.S. origin, provided the documentary requirements of 19 CFR 10.24 are satisfied.

The flapper assembly is also eligible for preferential tariff treatment 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
Director
Tariff Classification Appeals
Division

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