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HQ 557018




March 28, 1994

CLA-2 CO:R:C:S 557018 BLS

TARIFF NO.: 9802.00.80

Mr. Alex Romero, Jr.
A.F. Romero & Co., Inc.
477 Railroad Blvd.
Calexico, California 92331-0989

RE: Gas sterilization of medical products; incidental to assembly; Mast; General Motors;HRL 555154; HRL 554333; HRL 553055

Dear Mr. Romero:

This is in further reference to your letters dated November 16, 1992 and March 5, 1993, and a subsequent submission dated May 8, 1993, on behalf of Tri-State Hospital Supply Corporation ("Tri-State"), requesting a ruling that sterilization of certain I.V. Extension sets ("I.V. sets") to be performed in Mexico will be considered an operation incidental to assembly under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). The sets, composed of plastic components of U.S. origin, are currently being imported under subheading 9802.00.80, HTSUS. However, the sterilization process is being performed in the U.S. after assembly and importation. Samples have been submitted.

FACTS:

The I.V. sets are used by hospitals to access the primary I.V. line for the main purpose of drug infusion via a syringe. Although variations exist in the configuration of the sets, due to individual hospitals utilizing different techniques, each set is used in a similar manner within the hospital.

The operations are similar for the entire product line. Each I.V. set goes through the same method of assembly, testing and packaging (the only difference being variations in plastic fittings, tubing length and complexity). In general, the sets are assembled as follows:

1) The plastic tubing is cut to length using an automatic tubing cutter.

2) Components specified in the Bill-Of-Material are pulled
from stock.

3) Using an assembly line production method, individual plastic components are joined to the tubing by solvent bonding. Assemblers dip one end of the tubing (about 1/4") into the solvent dispenser and "wet" the area intended for connection. The tubing is then inserted into the plastic component(s). This is continued until the extension set is completely assembled. Some extension sets require clamps, valves and other items to be placed or assembled within the extension set assembly process. All actual assembly is done manually.

4) After the bonding/assembly is complete, the extension is allowed to cure for 24-72 hours.

5) After curing, the I.V. sets are 100% flow tested to check for clogs caused by the solvent. To do this, an end of each set is placed over an air source (manually) to ensure "continuity" throughout. Sets which are clogged are rejected.

6) The next step is the leak test. Again, all sets are manually placed onto a test fixture which is computer controlled. The opposite end of the set is closed with a leak-proof connector to allow testing for leaks. The test fixture either signals the operator to "accept" or "reject" the set. The program to start the test is prompted manually. It is possible to test four I.V. sets at a time. All sets are 100% leak tested.

7) After the leak test, caps are manually placed or screwed onto the ends of the individual sets. These serve as "dust caps" but are also vented to allow sterilant gas to penetrate the inside of the set.

8) After capping, the I.V. set will be manually placed into a "pouch" and are then run into a small machine called a band sealer. The band sealer closes the opening in the pouch by temporarily applying heat and pressure. The pouch serves as the "sterile barrier" after the product has been sterilized. Thus, the product is sterile until the pouch is opened by the end-user.

9) The individually pouched extension sets will be placed manually within a corrugated box, and the boxes will be placed onto pallets. The pallets will then be moved into a room for a 12-24 hours for pre-humidification, a process which promotes the growth of bacteria through high temperature and humidity. This process facilitates sterilization. Each pallet will then be placed into a chamber for gas sterilization. Between 36,000 and 60,000 sets will be processed during the 8-10 hour period required for sterilization. The length of time required for sterilization and
the number of sets sterilized during the process is dependent on the type of sets involved. However, if only one unit were to be sterilized, the period of time required for such operation would also be 8-10 hours.

10) After sterilization, aeration and quality control inspection, the product will be imported into the United States.

ISSUE:

Whether sterilization of the I.V. sets in Mexico is considered a minor operation incidental to assembly under subheading 9802.00.80, HTSUS.

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 subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article less the cost or value of the U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

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

In United States v. Mast Industries, Inc., 1 CIT 230, 517 F.Supp. 694 (1981), aff'd, 69 CCPA 55, 668 F.2d 501 (1981), thecourt stated that Congress intended a balancing of all relevant factors to ascertain whether an operation of a "minor nature" is incidental to the assembly process. The court indicated that dependent on the particular case, relevant factors may include:

1) the relative cost and time of the particular operation;

2) whether the operation is necessary to the assembly process;

3) whether the operation is so related to the assembly that it is logically performed during assembly; and

4) if performed concurrently with assembly, whether economic or practical considerations dictate that the operations be so performed.

In General Motors Corp. v. U.S., 15 CIT 372,770 F. Supp. 641 (1991), rev'd, 976 F.2d 716 (Fed. Cir. 1992), the Court of International Trade held that topcoat painting operations performed on U.S.-origin sheet metal components shipped to Mexico for assembly into automobiles were "incidental to assembly" within the meaning of TSUSA item 807.00 (now HTSUS subheading 9802.00.80). On appeal, the Court of Appeals for the Federal Circuit reversed the lower court and held that, considering the cost of all of the painting operations performed abroad (including undercoating, sanding, baking, topcoating, and waxing), these operations were not minor, and, therefore, not "incidental to assembly." As a result, no duty allowance under item 807.00 was permitted for the cost or value of the U.S. components which were subjected to the painting operations.

The appellate court reasoned that, although item 807.00 specifically refers to "painting," it is simply an example of an operation which is potentially incidental to the assembly process--not a definitive statement that all painting operations, no matter how extensive, are allowed under item 807.00(c)." The court recognized from the statute's legislative history that only operations (including painting) "of a minor nature incidental to the assembly process" are permitted. Id. at 719.

In the instant case, the time required for the sterilization operation is 8-10 hours, whether 36,000 units or one (1) unit is sterilized. A pre-humidification process, of 12-24 hours, is also required to prepare the merchandise for sterilization. (It is noted that on a per man-hour basis, the average productivity rate is 26.7 units, which includes assembly, testing, and packaging, but not pre-sterilization or
sterilization.) The substantial time required to ensure that the I.V. sets are properly sterilized supports a finding that the process is significant, and not a monor, operation. In this regard, special equipment is required for the sterilization operation, which requires exposure of the material to a sterilant gas of a precise concentration for a specific period of time at a special temperature and humidity level and at a particular pressure. The significance of the process is underscored by the fact that the I.V. sets could not be used for their intended purpose without being sterilized. While on a per unit basis the cost of the process as a percentage of the cost of the U.S. components is not significant as compared to the cost of the U.S. components (3%-3 1/2%), it is noted that the capital investment in the sterilization equipment and facilities ($52,000) will approximate one-third the cost of the investment required for assembly ($152,700).

With regard to the other relevant factors, it is apparent that sterilization is not a prerequisite to assembly of the I.V. sets, since it is performed after assembly, and it is not directly related to the assembly process.

Accordingly, after balancing all of the relevant factors, we find that the sterilization operation in this case is not a minor operation incidental to the assembly process.

PRIOR DECISIONS-STERILIZATION

In prior Headquarters decisions, we found that sterilization was an operation incidental to assembly. Thus, Headquarters Ruling Letter (HRL) 553055, dated July 3, 1984, involved the sterilization by heat of cotton-tipped applicators; HRL 554333, dated November 5, 1986, involved drugs that were dissolved, filtered, and placed in a sterile environment; and in HRL 555154, dated March 20, 1989, certain medical products were gas sterilized. In HRL 554333, we stated that sterilizing assembled components for "ultimate use in surgical operations or prospective care is comparable to a cleaning process and, as such, can be considered incidental to the overall assembly process". In HRL 555154, we followed HRL 554333 in holding that the gas sterilization operation therein involved was similarly comparable to a cleaning process and therefore incidental to assembly. In this regard, section 10.16(b), Customs Regulations (19 CFR 10.16(b)), includes "cleaning" as one of the enumerated examples of operations which are incidental to the assembly process.

Based on the decisions in Mast and General Motors, supra, Customs will no longer consider sterilization to be comparable to a cleaning process and incidental
to assembly, without an analysis of the relevant factors in each case as set forth by the court in Mast. Customs will determine whether a particular process of sterilization is incidental to assembly in the same manner as any other operation which is not actually part of the assembly process. A case-by-case methodology will be used, based on the criteria set forth in Mast.

HOLDING:

Sterilization of the assembled I.V. sets in Mexico is considered a significant operation, and not a minor operation incidental to assembly, under the provisions of subheading 9802.00.80, HTSUS. Therefore, the I.V. sets are not eligible for a partial duty exemption upon importation into the U.S. Any sterilization operation which is not an actual part of the assembly process will be analyzed on a case-by-case basis to determine whether such operation is incidental to assembly. HRLs 555154, 554333, and 553055 are modified to the extent that they may have held that any process of sterilization is a minor operation incidental to assembly.

In accordance with section 625, this ruling will become effective 60 days after its publication in the Customs Bulletin. Publication of rulings or decisions pursuant to section 623 does not constitute a change of practice or position in accordance with section 177.10(c)(1), Customs Regulations (19 CFR 177.10(c)(1).

Sincerely,

John Durant, Director
Commercial Rulings Division

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