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HQ 560470





January 29, 1998

CLA-2 RR:TC:SM 560470 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

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

RE: Applicability of partial duty exemption under subheading 9802.00.80, HTSUS, to finished hot water dispenser units; NAFTA preferential tariff treatment; General Note 12; Article 509; non-originating materials undergo applicable tariff shift

Dear Mr. Noell:

This is in response to your letter dated March 29, 1997 (received by our office on May 20, 1997), and subsequent facsimiles dated March 19, 1997 and January 5, 1998, on behalf of In-Sink-Erator, a division of Emerson Electric Co. (hereinafter "ISE"), which request a binding 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 hot water dispensers. No sample was received with your request.

FACTS:

We are informed that ISE plans to begin importing finished hot water dispenser units (model H-770), classifiable under subheading 8516.10.0040, HTSUS, from Mexico. The finished hot water dispenser unit, which is installed under a sink to provide hot water for beverages and other household uses, is comprised of two subassemblies, a valve assembly and a tank assembly. The valve assembly, which was the subject of a previous ruling request (HRL 560359, also dated January 29, 1998), is sold both as a portion of the finished dispenser and separately as a replacement part . We are informed that the complete list of component materials of the finished unit and their tariff classification are as follows:

HOT WATER DISPENSER VALVE ASSEMBLY

Component Material Tariff Classification

Bag* 3923.10.00
Base Plate 8203.30.00
Bushing 7415.29.00
Compression Nut* 7415.32.00
Compression Sleeve* 7415.21.00
Cover (cap) 3923.50.00
Dispenser Body 8481.90.00
Dispenser Cap 8481.90.00
Flow Straightener 7326.90.00
Gasket 4016.93.00
Hose Clamp* 7326.90.00
ICU Books 4911.10.00
Logo Nameplate 3919.90.00
Lubricant 3403.99.00
O-Ring 4016.93.00
Outlet Assembly 8307.90.00
Outlet End Piece 7415.39.00
Race Cap (knob) 3926.30.00
Retainer Spring Washer 7318.22.00
Screen 7326.90.00
Screw 7318.15.00
Self Tapping Screws 7318.14.00
Service Sticker 3919.10.00
Snap Ring 7318.29.00
Stem Spring 7320.90.00
Support Plate* 8302.30.00
Valve Body 8481.90.00
Valve Disk 8481.90.00
Valve Stem 8481.90.00
Vent Tube 3917.32.00
Wall Bracket* 8302.30.00
Washer 7318.22.00

HOT WATER DISPENSER TANK ASSEMBLY

Component Material Tariff Classification

Braze Paste 3810.10.00
Case Insulation 3923.90.00
Copper Fittings 7412.20.00
Copper Sheets 7409.11.00
Copper Tubing 7411.12.00
Eyelets 8308.10.00
Electric Heating Element 8516.80.00
Electrical Cord 8544.51.00
Insulation Tubing 8546.10.00
Insulation Sleeve 8546.10.00
Lead Wires 8544.51.00
Mounting Brackets 8302.90.00
Nameplate 3919.10.00
Plastic Bag 3923.10.00
RTV Compound 4016.93.00
Solder 3810.10.00
Steel coil 7225.91.00
Terminals 8536.90.00
Thermostat 9032.10.00
Valve Seat 8481.90.00

Items marked with an asterisk are not assembled in Mexico but are used by the installer of the finished article in the United States. We are informed that all of the materials, with the exception of the screw (classifiable under subheading 7318.15.00, HTSUS), the steel coil and the eyelets, are of U.S. origin. Additionally, we are informed that all the listed materials are U.S. fabricated components ready for assembly without further fabrication, with the exception of the following items: the screw ((classifiable under subheading 7318.50.00, HTSUS), lubricant, copper tubing, braze paste, copper sheets, solder, RTV compound, steel coil and eyelets. We are further informed that, with the exception of the screw (classifiable under subheading 7318.15.00, HTSUS), the steel coil and the eyelets, all materials utilized in the production of the valve assemblies qualify as NAFTA "originating materials." For purposes of this ruling we will assume that the tariff classifications provided are correct.

You describe the assembly process of the hot water dispenser in Mexico, by subassembly, as follows:

HOT WATER DISPENSER VALVE ASSEMBLY

Stem Assembly:

A rubber valve disk is inserted into a recess in the end of the valve stem. The valve stem is placed in a fixture and deformed in a press to retain the valve disk.

Valve Stem Assembly:

The stem assembly is placed into a coiled spring. A washer is placed on top of the spring. An o-ring is slipped over the valve stem which holds the washer and spring in place.

Valve Guide Assembly:

O-rings are manually inserted into the internal groove and external shoulder of the valve guide bushing.

Valve Body Assembly:

The valve stem assembly and the valve guide assembly are inserted into the valve body. The valve guide assembly is securely screwed into the threaded opening in the valve body. A snap ring is inserted into an exterior groove of the valve body. The assembly is then checked for leaks.

End Piece Assembly:

Screens are placed into the end piece outlet. A flow straightener is coiled and inserted into the end piece outlet. The flow straightener expands after insertion to retain the screens. An o-ring is manually slipped over the threaded end of the end piece.

Dispenser and Filler Assembly:

The body cap is screwed to the body. The vent tube is force fit over the nipple on the bottom rear of the body. The valve body assembly is inserted through the hole in the body cap and a retaining ring is snapped into the groove on the valve body. The assembly is inverted and the outlet assembly is inserted into the body. The end piece assembly is threaded into the outlet assembly. The base plate is attached to the body with three screws. The gasket is placed over the tubes (tubes inside the semi-circular opening of the gasket and a self tapping screw are driven into the body to hold the gasket in place until final installation). The assembly is inverted and silicone lubricant is applied to the knob (race cap) prior to installing the knob over the protruding end of the valve stem. The retainer spring (spring washer) is placed over the valve stem and a retainer ring is inserted into the groove of the valve stem to hold it in place. The nameplate logo is placed in the recess in the top of the knob. The cap is aligned and snapped into place. The tubing is bent over a mandrel and coiled to fit the packaging. This operation is analogous to coiling an extension cord into loops to facilitate shipping. When the dispenser is eventually installed, the installer will straighten the copper tubes to connect to the water supply and hot water from the hot water tank. The completed dispenser assembly is cleaned and packed for shipment.

HOT WATER DISPENSER TANK ASSEMBLY

Copper Tubes:

Copper tubing is fed from coils through a machine which de-reels the coils, straightens the tubing and cuts it to proper length.

Fuse Assembly:

Stripped lead wires are crimped to the thermal fuse ends in a press. The blade terminal is then crimped to one of the lead wires. A length of insulation tubing is slipped over the thermal fuse. An insulation sleeve is then slipped over the tubing. The other terminal is then crimped to the other lead wire to complete the assembly.

Instruction Assembly:

Hardware items such as compression nuts, compression sleeves, a wall bracket, a hose clamp, a support plate, a screw, a service sticker and instruction sheets are placed in a plastic bag. The open end of the plastic bag is sealed.

Brazed Valve Body Assembly:

A copper tube [inlet tube] is inserted into the side of the valve body. A valve seat is placed into the end of the valve body and another copper tube is inserted into the valve seat. The parts are brazed together with a premixed paste which contains fluxes, binders and the brazing alloy. The parts are cleaned. The tube is bent to allow it to enter the dispenser body.

Brazed Outlet Assembly:

A copper tube is inserted into the outlet fitting. The parts are brazed together with a premixed paste which contains fluxes, binders and the brazing alloy. The parts are cleaned.

Tank Assembly:

The tank bottom, tank top and expansion chamber are drawn from copper sheets on a mechanical press. These parts undergo subsequent operations which include the creation of forms, piercing of holes and flattening. The thermostat mounting bracket is brazed to the exterior of the tank bottom. A copper fitting and tube are brazed to the expansion chamber. Another fitting is brazed to the tank top. An electrical heating element is prelocated in the tank bottom resting on a removable wedge with the ends of the electrical heating element protruding through the holes in the tank bottom. The tank top and expansion chamber are aligned and staked together. This upper tank assembly is pressed to the tank bottom. These three parts are soldered together. The ends of the heating element are uncovered. The cleaned tank has an inlet fitting, a tank inlet fitting and a copper tube soldered to it. The tank is then dried to remove moisture from the heating element. The heating element is electrically tested and sealed with room temperature vulcanizing [RTV] compound. An o-ring is slipped over the threads of the drain screw. The drain screw is threaded into the bottom of the tank. After the RTV compound is partially cured, the tank is tested for leaks and proper internal assembly.

Case (or Jacket) and Cord Assembly:

Prepainted coiled steel is hand fed into a pneumatic blanking and piercing machine. A flat case blank is removed by hand and the case is formed in two hand operated bending brakes. Eyelets are inserted and headed along the seam to result in a rigid case. An internal tank mounting bracket is attached to the case with the other eyelets. A plastic strain relief bushing and electrical cord are inserted into an opening in the side of the case. A screw is driven through the terminal on the ground wire of the cord into the internal tank mounting bracket.

Jacket and Tank Assembly:

The thermostat is attache to the tank by slipping tabs into holes and driving a screw. The fuse assembly is attached by driving a thermostat screw against one terminal, bending the fuse assembly leads and pressing the other electrical connector to the tank's heating element terminal. A tab on the thermostat mounting bracket is bent against the fuse assembly to keep it close to the tank surface. A formed insulation piece is slipped over the tank. This assembly is placed inside the case and cord assembly. The bottom fitting on the tank is inserted through the hole in the internal mounting bracket. A nut is tightened over the fitting to hold the tank to the bracket. The electrical cord is connected by driving the thermostat screw against one terminal and sliding the other electrical connector onto the tank's heating element terminal. The bottom cover is placed over the case and a nut is driven to hold the bottom cover against the case. The upper cover is placed over the case and a nut is driven onto the top fitting on the tank. An electrical insulator is folded over the thermostat and held into position by slots and tabs. An adhesive label is pressed onto the nameplate. The nameplate is positioned over the opening in the case and screwed to the case. A protective plastic bag is slipped over the jacket and tank assembly. The unit is tested and packed along with the dispenser and filler assembly for shipment.

ISSUES:

I. Whether the finished hot water dispensers will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

II. Whether the hot water dispensers will qualify for preferential tariff treatment under the North American Free Trade Agreement.

LAW AND ANALYSIS:

I. Applicability of subheading 9802.00.80, HTSUS

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 HTSUS subheading 9802.00.80 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 assembly operations for purposes of subheading 9802.00.80 encompass any method used to join together solid components such as sewing, welding, soldering, riveting, force fitting, gluing, or the use of fasteners and may be accompanied by operations that are incidental to the assembly as provided in section 10.16(b). 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 case before us, you state that no claim for a duty allowance will be made under subheading 9802.00.80, HTSUS, with regard to the screw (classifiable under 7318.50.00, HTSUS), steel coil and eyelets, as these articles are not made in the U.S. In addition, you state that no duty allowance will be claimed for the lubricant, copper tubing, braze paste, copper sheets, solder or RTV compound as you concede that, although these items are made in the U.S., they are not fabricated components exported in a condition ready for assembly without further fabrication, as required by statute. With regard to the remaining U.S.-origin materials, however, we find that the components are in condition ready for assembly without further fabrication at the time of their exportation from the U.S. and are joined together by acceptable assembly operations (e.g., force fitting, screwing, brazing, soldering and the use of retaining snap rings and crews). Consequently, the finished hot water dispensers may enter the United States 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, except those items listed above, provided that the documentary requirements of 19 CFR 10.24 are satisfied.

II. Eligibility for preferential tariff treatment under NAFTA

The second issue concerns whether the imported hot water dispenser valve assemblies are 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 automotive fuel pumps are assembled in Mexico of U.S. materials and therefore, are neither wholly obtained or produced, nor produced exclusively from domestic materials. Because 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 102.11(a)(3).

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...."

New York Ruling B82918, dated March 7, 1997, states that the articles in question are classifiable under subheading 8516.10.0040, HTSUS, which provides for "Electric instantaneous or storage water heaters and immersion heaters: storage water heaters. The applicable tariff shift rule found in section 102.20(o) provides as follows:

8516.10 - 8516.79 A change to subheading 8516.10 through 8516.79 from any other subheading, including another subheading in that group.

You indicate that all materials utilized are either of U.S.-origin, or originate in a non-NAFTA country, thus qualifying as "foreign materials" subject to the rule set forth above. Under the facts provided, materials initially classified under subheading 3403.99, HTSUS (lubricant), subheading 3810.10, HTSUS (braze paste, solder), subheading 3919.10, HTSUS (service sticker, nameplate), subheading 3917.32 , HTSUS (vent tube), 3919.90, HTSUS (logo nameplate), subheading 3923.10, HTSUS (plastic bag), subheading 3923.50, HTSUS (plastic cap), subheading 3923.90, HTSUS (case insulations) subheading 3926.30, HTSUS (race cap - knob), subheading 4016.93, HTSUS (gasket, o-ring, RTV compound), subheading 4911.10, HTSUS (ICU books), subheading 7225.91, HTSUS (steel coil), subheading 7318.14, HTSUS (self tapping screws), subheading 7318.15, HTSUS (screws), subheading 7318.22, HTSUS (washer, retainer spring washer), subheading 7318.29, HTSUS (snap ring), subheading 7320.90, HTSUS (stem spring), subheading 7326.90, HTSUS (screen, flow straightener), subheading 7409.11, HTSUS (copper sheets), subheading 7411.12, HTSUS (copper tubing), subheading 7412.20, HTSUS (copper fittings), subheading 7415.29, HTSUS (bushing), subheading 7415.39, HTSUS (outlet end piece), subheading 8203.30, HTSUS (base plate), subheading 8203.90, HTSUS (mounting brackets), subheading 8307.90, HTSUS (outlet assembly), subheading 8308.10, HTSUS (eyelets), subheading 8481.90, HTSUS (dispenser body, dispenser cap, valve body, valve disk, valve stem, valve seat), subheading 8516.80, HTSUS (electrical heating element), subheading 8536.90, HTSUS (terminals), subheading 8544.51, HTSUS (lead wires, electrical cord), subheading 8546.10, HTSUS (insulation tubing, insulation sleeve) and subheading 9032.10, HTSUS (thermostat) are subsequently classified under subheading 8516.10, HTSUS, as a result of assembly processes in Mexico. Consequently, inasmuch as all foreign materials undergo the applicable tariff shift as a result of assembly processes in Mexico, under the NAFTA Marking Rules, the country of origin of the finished hot water dispenser is Mexico, pursuant to 19 CFR 102.11(a)(3).

In addition to the determination of origin required by General Note 12(a), in order to be eligible for tariff preferences under the NAFTA, goods must be "originating goods" pursuant to the rules of origin in General Note 12(b), HTSUS, which provides, in pertinent part, as follows:

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.

Insufficient information has been submitted to ascertain whether the valve assemblies are considered "originating" under General Note 12(b)(i). Inasmuch as the facts presented state that certain materials utilized in the assembly of the finished hot water dispenser valve assembly are not NAFTA-originating materials (e.g., the screw [classifiable under subheading 7318.15.00, HTSUS], the steel coil and the eyelets), General Note 12(b)(iii) is inapplicable. Thus, we will consider whether the valve assembly is considered originating under General Note 12(b)(ii)(A), which provides, in pertinent part, that the goods are "transformed in the territory of Canada, Mexico and/or the United States" in such a manner that:

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...

As previously indicated, the finished hot water dispenser is classifiable under subheading 8516.10.0040, HTSUS. With respect to General Note 12(b)(ii)(A), the applicable underscored tariff shift rule under General Note 12(t)/85.32 states:

32. (A) A change to subheadings
8516.10 through 8516.29 from subheading 8516.80 or any other heading; or

(B) A change to subheadings
8516.10 through 8516.29 from subheading
8516.90, whether or not there is also a change from subheading 8516.80 or 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.

Because the non-originating materials, initially classified under subheading 7318.15.00, HTSUS (screw), subheading 7225.91, HTSUS (steel coil), and subheading 8308.10, HTSUS (eyelets), are subsequently classified under subheading 8516.10.0040, HTSUS, as a result of assembly operations in Mexico, the non-originating materials satisfy the tariff shift rule in General Note 12(t)/85.30(A), HTSUS. Accordingly, assuming that all other components used in the assembly of the dispensers are, in fact, "originating materials," the finished hot water dispenser qualifies as an "originating good" pursuant to General Note 12(b)(ii), HTSUS, and is eligible for preferential tariff treatment under the NAFTA. The special MX rate of duty under subheading The special MX rate of duty under subheading 8516.10.0040, HTSUS, is free.

HOLDING:

Based on the information presented, the hot water dispenser may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of those fabricated components which were exported for assembly without further fabrication, as discussed above, and which are determined to be of U.S. origin, provided the documentary requirements of 19 CFR 10.24 are satisfied.

Based on the information provided, the imported hot water dispenser is considered to be a good of Mexico under the NAFTA Marking Rules and the non-originating materials used in the manufacture of the dispenser satisfy the required change in tariff classification under General Note 12(t), HTSUS. Accordingly, the finished assembly is eligible for NAFTA tariff preference pursuant to General Note 12(b)(ii)(A), HTSUS.

The holding set forth above applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 19 CFR 177.9(b)(1), which states that a ruling letter is issued on the assumption that all information furnished in connection with the ruling request and incorporated therein, either directly, by reference, or by implication, is accurate and complete in every material respect. Should it be subsequently determined that the information furnished is not complete and does not comply with 19 CFR 177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished, this may affect the determination of eligibility for preferential duty treatment.

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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