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HQ 560850




March 3, 1998
CLA-2 RR:CR:SM 560850 CW

CATEGORY: CLASSIFICATION VALUATION

TARIFF NO.: 9802.00.80

Mr. Alan Harlam
President
Karew
500 Wood Street
P.O. Box 929
Bristol, R.I. 02809-0929

RE: Eligibility of decorative steel banding assembled to bathroom accessory products abroad for subheading 9802.00.80, HTSUS, treatment; assists

Dear Mr. Harlam:

This is in response to your letter of September 19, 1997, requesting a ruling on the dutiable status of stamped metal banding of U.S. origin which is returned to the U.S. after having been assembled to various bathroom accessory products in China.

FACTS:

You state that your company's bathroom accessory line consists of waste baskets, tissue box covers, lotion dispenser with cover, toothbrush holder, drinking cup and holder, soap dish with stand, and a towel holder, all of which are made, at least in part, of metalwork components.
The basic steel shape of each item (which you describe as the "base") is created in China from flat steel stock which is cut to shape, stamped with a pattern (top and bottom border for the banding), and welded into final shape. Each piece is decorated with a banding made in the U.S. from cold rolled steel that is stamped with a decorative pattern. The banding is shipped to China in 100-foot coils. In China, the banding is cut to length and spot-welded onto the steel, after which a single coat of paint is applied to the steel to protect it from rusting during the ocean shipment to the U.S.

When the products arrive at your factory in the U.S., they are subjected to decorative painting which includes a special paint treatment on the banding portion of each piece and a three-step process on the remainder of the piece. Each piece then undergoes a final inspection, labeling (hang tag & UPC label), and packaging.

You ask whether the steel banding which is provided to the Chinese facility free of charge is considered an assist and whether the banding is exempt from duty under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS).

ISSUES:

1. Whether the banding is considered an assist under the Customs valuation statute.

2. Whether the banding is eligible for a duty allowance under subheading 9802.00.80, HTSUS, when returned to the U.S. as part of the bathroom accessory products.

LAW AND ANALYSIS:

Assist

Merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act (TAA; 19 U.S.C. 1401a). The primary method of appraisement under the TAA is transaction value, defined in section 402(b) of the TAA (19 U.S.C. 1401a(b)), as the price actually paid or payable for the merchandise when sold for exportation to the U.S., plus amounts equal to the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1)(C). The term "price actually paid or payable" means the total payment (whether direct or indirect) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. 1401a(b)(4). The term "assist" means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the U.S. of the merchandise: materials, components, parts and similar items incorporated in the imported merchandise. 19 U.S.C. 1401a(h)(1)(A)(i).

The subject steel banding is a component supplied free of charge by your company (i.e., the buyer) to the Chinese company (i.e., the seller) for use in connection with the production of the imported metalwork components. Therefore, the banding is an assist whose value must be added to the price actually paid or payable for the imported merchandise.

If the assist consists of materials, components, parts, or similar items incorporated in the imported merchandise, and was produced by the buyer, its value would be the cost of production. 19 CFR 152.103(d)(1). Since you state that the steel banding was produced by your company in the U.S., the value of the subject assist would be its cost of production. The value of this type of assist would also include transportation costs to the place of production. Id. Consequently, the costs to transport the subject banding to China would also be included in the value of the assist.

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, 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 appraised value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation 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. 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).

Section 10.16(b)(3), Customs Regulations (19 CFR 10.16(b)(3)), provides that the "[a]pplication of preservative paint or coating, including preservative metallic coating, lubricants, or protective encapsulation" is an example of an operation which is incidental to the assembly process. In addition, according to 19 CFR 10.16(b)(6), "cutting to length of wire, thread, tape, foil, and similar products exported in continuous length" is operation incidental to assembly.

In this case, spot-welding the banding to the bathroom accessory products clearly is an acceptable assembly operation pursuant to 19 CFR 10.16(a). Moreover, we find that the foreign operations consisting of cutting the rolls of banding to length and painting the metalwork components (presumably including the banding component) for the purpose of protecting the steel from rusting during the ocean shipment back to the U.S. are incidental to the assembly process pursuant to 19 CFR 10.16(b). Therefore, an allowance in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the U.S.-origin banding components when they are returned as part of the bathroom accessory products, upon compliance with the documentation requirements of 19 CFR 10.24.

Section 10.17, Customs Regulations (19 CFR 10.17), provides, in pertinent part, as follows:

The value of fabricated components to be subtracted from the full value of the assembled article is the cost of the components when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers, or, if no purchase was made, the value of the components at the time of their shipment for exportation, f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers.

Thus, while the value of the banding assist (to be added to the price actually paid or payable to obtain the full appraised value of the imported products) includes its cost of production plus transportation costs to China, the value of the banding component to be deducted under subheading 9802.00.80, HTSUS, consists of its value at the time of its exportation from the U.S. Therefore, the cost of transporting the banding from the U.S. port of exportation to the Chinese facility would be part of the value of the imported assembled articles upon which duty would be assessed.

HOLDING:

Based upon the information you have submitted, the decorative metal banding which Karew provides to the Chinese seller free of charge is an assist whose value must be added to the price actually paid or payable for the imported assembled merchandise. However, an allowance in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the banding component when it is returned as part of the assembled bathroom accessory products, upon compliance with the documentation requirements of 19 CFR 10.24.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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


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