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HQ

560500

October 29,
1997

CLA-2 RR:TC:SM 560505 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. Robert Noell, Vice-President
Cain Customs Brokers
415 S. Industrial
Hildago, TX 78557

RE: Eligibility of a coupling device for duty exemption under subheading 9802.00.80;
NAFTA Preference; Article 509

Dear Mr. Noell:

This is in reference to your letter dated May 26, 1997, on behalf of MCE Manufacturing Corporation ("MCE") requesting a ruling as to whether certain electronic coupling devices to be imported from Mexico are entitled to the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS) and/or preferential duty treatment under the North American Free Trade Implementation Act (NAFTA).

FACTS:

The coupling devices are described as self-contained electronic assemblies which function as a means of electronic coupling, dividing, or combining radio frequency signals or power into three or more ports. These devices are comprised of a printed circuit card (which may have electronic components attached such as diodes or resistors), a metal or plastic housing and cover, and radio frequency and/or DC connectors. You state that the assembly process performed in Mexico is as follows:

1. Flux and solder are applied to the printed circuit board in the areas where the connectors, other electronic devices (capacitors, resistors, etc.) and shorting leads will be attached.

2. The shorting leads are soldered to the circuit board.

3. Loctite is applied to the screws. The circuit board is screwed to the housing.

4. Connectors are pressed into holes in the side of the housing. The connectors are soldered to the circuit board.

5. The coupling device is electronically tested and tuned for the application.

6. The cover is screwed to the housing.

7. Final electronic testing is performed

In the Bill of Materials attached to your request, you indicate that all of the components of the imported article are "NAFTA Originating." For purposes of this ruling, we are assuming that the components are, in fact, "originating materials." You also itemize those parts which are "9802 components" and those which are not. In a telephone conversation with this office (October 20, 1997), you advised that all of the components and materials are of U.S.-origin. As distinguished from materials such as solder and flux, the "9802 Components" refers to those solid components (of U.S.-origin) which are assembled in Mexico.

ISSUE:

1. Whether the coupling device will be entitled to the partial duty exemption under subheading 9802.00.80, HTSUS, upon importation into the U.S.

2. Whether the coupling device will be entitled to preferential duty treatment under the NAFTA upon importation into the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.80

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 the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

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.

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.

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 HTSUS subheading 9802.00.80 to that component. See 19 CFR 10.16(c).

We find that the gluing, soldering and other methods of connecting the various parts are acceptable assembly operations, as these processes are used to fit or join together solid components. Testing and tuning the coupling device for the particular application is an operation incidental to the assembly of the device. Therefore, as the U.S. components used in the assembly process will be exported in condition ready for assembly without further fabrication, will not lose their physical identities in the assembled article, and will not be advanced in value or improved in condition except by assembly operations, the coupling device will be eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, upon return from Mexico.

NAFTA Preference

To be eligible for tariff preference under the NAFTA, goods must be "originating goods" within the meaning of General Note 12(b), HTSUS. 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:

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

Since the coupling device is produced in Mexico exclusively from originating materials (i.e., materials of U.S.-origin), General Note 12(b)(iii) is applicable and the imported device will be eligible for NAFTA Preference upon importation. However, General Note 12(a)(ii), HTSUS, provides, in pertinent part, the following:

(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.

Therefore, provided the imported article is classified under a subheading for which the "Special" rate of duty of "MX" is applicable, and is considered to be a product of Mexico, it will be eligible for the "Special" MX rate of duty. In New York Ruling Letter B86122 dated July 1, 1997, in response to your request, Customs held that the coupling devices were properly classifiable under subheading 8525.10.2030, HTSUS. Articles classified under this provision are eligible for the "MX" rate of duty. We must now determine whether, under the NAFTA Marking Rules, the imported coupler is considered to be a product of Mexico.

Part 102 of the regulations sets forth the rules for determining the country of origin of imported goods for purposes of Annex 311 of the North American Free Trade Agreement ("NAFTA"). Section 102.0 provides that one of the purposes of such rules is for determining the rate of duty applicable to originating goods.
Section 102.11(a) of the regulations provides that "[t]he 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 requirements of these rules are satisfied."

The imported coupler is neither "wholly obtained or produced," nor "produced exclusively from domestic (Mexican) materials." Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20. ("Foreign material" is defined in section 102.1(e) of the regulations 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.") Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good. As noted, the coupler is classifiable under subheading 8525.10.2030, HTSUS. The foreign (U.S.) components and materials appear to be classified as follows:
subheading 7326.90 subheading 8536.90
8534.00 subheading 7326.90 subheading 8544.49 subheading 7318.15 heading 3506.00
subheading 3215.90 subheading 3810.10

The applicable change in tariff classification set out in section 102.20(o), Section XVI: Chapters 84 through 85 of the regulations, provides:

8525.10-8525.20 ---.

A change to subheading 8525.10 through 8525.20 from any other subheading outside that group.

Accordingly, since the foreign parts and materials imported into Mexico undergo the applicable change in tariff classification set out in section 102.20, the coupler will be considered a product of Mexico and will be entitled to the "Special" MX rate of duty upon entry.

HOLDING:

1) The coupling device will be entitled to the partial duty exemption under subheading 9802.00.80, HTSUS, upon return from Mexico, provided the documentation requirements of section 10.24, Customs Regulations (19 CFR 10.24), are satisfied.

2) As the coupling device will be produced in Mexico exclusively from originating materials, it will be eligible for NAFTA Preference upon importation. Further, since it will be classified under a subheading for which the "Special" MX rate of duty is applicable, and is considered to be a product of Mexico, it will be entitled to the "MX" NAFTA preferential rate of duty.

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,
Commercial

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