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HQ 561024




August 27, 1998

CLA-2 RR:CR:SM 561024 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

John B. Pellegrini, Esq.
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, NY 10022-3219

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to cushions used in footwear bottoms; scored; painted

Dear Mr. Pellegrini

This is in reference to your letter dated May 29, 1998, requesting a ruling on behalf of Reebok International, Ltd. ("Reebok"), concerning the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to certain cushions used in footwear bottoms. A sample of a scored sheet of the cushion material as exported and a footwear bottom with the cushions in place were submitted with your request.

FACTS:

The article at issue are heel and forefoot cushions made of honeycomb plastic material known as "Hexalite." The cushions are of various sizes. It is stated that the cushion material is manufactured in the U.S. by Hexcel Corp., who exports them fully fabricated. The cushion material is exported in sheets that are scored so that individual cushions can be easily separated. [The sample cushion sheet measures 7 1/2 x 12 inches and is scored into 35 square pieces.]

It is stated that in certain styles of footwear, the cushion is painted in order to conform to the color of the balance of the shoe. When the cushion is painted, it is performed prior to separating the scored sheet since the color of the footwear to which the cushions must conform, is not determined until production. It is also stated that it not feasible to paint the cushions after assembly into the footwear bottom without getting paint on the footwear bottom.

The steps involved in painting the cushions are stated to include the following:
(1) apply a cleaning agent to the cushions by brush; (2) dry in oven for approximately 3 minutes; (3) apply primer coat with brush; (4) dry again for three minutes in oven; (5) apply single color coat with brush; (6) dry for another three minutes in oven. It is stated that the total painting process takes approximately nine minutes and 4.6 seconds, of which nine minutes represents drying time.

The cost of the painting process is stated to be $.02 per pair. [The cost and time given are for footwear produced in Thailand; however, Reebok believes this will not vary much from country to country.] The cost of a cushion, including separating the pieces is between $.35 and $2.00 per pair. It is stated that it takes about 24 hours to create a cushion and five seconds to separate a cushion. The cost of a footwear bottom is $3.18, and the cost of the footwear (the "Satellite 2000") with a cushion is $14.90 per pair. It is stated that it take about two hours to assemble the footwear, of which 24 minutes represents the time to assemble the footwear bottom.

ISSUE:

Whether the footwear cushions will qualify for the partial duty exemption under HTSUS subheading 9802.00.80, when imported into the U.S. as part of finished footwear.

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 this tariff provision is subject to duty upon the full cost or 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 10.14(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 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, lamination, 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. See 19 CFR 10.16(a). 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 10.16(c).

It is claimed that the cost of the cushions should be deducted from the dutiable value of the footwear upon importation into the U.S. since the cushions are complete when they are exported from the U.S., they do not lose their physical identity when incorporated into footwear bottoms, and the operations performed abroad are acceptable operations incidental to the assembly process.

As support that the cushions are fully-fabricated components, example 2 of 19 CFR 10.14 is cited which states that scribed or scored individual integrated circuits are fabricated components, and that segmenting the wafer into individual dice by flexing and breaking along the scribed or scored lines is an operation incidental to the assembly process. United States v. Texas Instruments, 545 F.2d 739 (CCPA 1976), is also cited, where it was determined that scoring silicon slices along marks established in the United States to separate the individual components was not a further fabrication. In addition, the court found that the scribing and breaking operations were incidental to the assembly process.

It is also claimed that painting the cushions is an operation incidental to the assembly process as it conforms the cushion to the color of the outersole. As support, Headquarters Ruling Letter (HRL) 555671 dated March 15, 1991, is cited, which allowed touch-up painting even though it enhanced the appearance of small portions of wooden venetian blinds by establishing a uniform color. It is also claimed that the time and cost of painting the cushions is minor when considering the factors, announced in United States v. Mast Industries, 515 F. Supp. 43, (CIT ), aff'd, 668 F.2d 501 (CCPA 1981).

In Mast, the court, in examining the legislative history of the meaning of "incidental to the assembly process," stated that

[t]he apparent legislative intent was to not preclude operations that provide an independent utility' or that are not essential to the assembly process; rather, 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 then indicated that relevant factors ["Mast factors"] included: (1) whether the relative cost and time of the operation are such that the operation may be considered minor; (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) whether economic or other practical considerations dictate that the operation be performed concurrently with assembly.

It is stated that it takes approximately nine minutes and 4.6 seconds to paint a cushion which includes drying time and that it takes approximately two hours to manufacture a representative article of footwear. The cost of painting is $.02 and the cost of the cushion component is $.45 per pair. The footwear incorporating these cushions costs $14.90 per pair. Therefore, it is claimed that the painting, excluding drying time, takes approximately .02 percent of the time necessary to manufacture the footwear. It is also stated that there is virtually no capital investment in the painting process, except for the baking oven which is also used to cure molded parts. Therefore, it is claimed that the painting cost of the cushion is less than 0.5 percent of the cost of the cushion and 0.1 percent of the cost of the footwear.

In regard to the second Mast factor, it is stated that the painting is not necessary to the assembly process because not all cushions are painted. It is claimed that this is only one factor that weighs against the application of subheading 9802.00.80, HTSUS.

In regard to the third Mast factor, it is claimed that painting is logically performed during the assembly process because Reebok does not know the color of the cushion until the footwear is being manufactured, and that it would not be feasible to decide the color in advance because the exact colors and quantities would have to be known. In regard to the fourth Mast factor, it is claimed that the same considerations as with the third mast factor apply.

Examining the sample provided, the cushion is wedged inside a hole in the outersole, such that the cushion is visible from the bottom of the sole. Therefore, for purposes of this ruling, we assume that an acceptable assembly takes place when the cushions are used in the manufacture of finished footwear. We also assume that the cushion components which are broken apart from the sheet are not subjected to any cutting to length and width.

Consistent with the holding in Texas Instruments and the example in 19 CFR 10.14, we find that the breaking the cushions apart along the scored lines is an operation incidental to the foreign assembly process. We also find that painting the cushions is not a significant operation when considering the assembly of the footwear, and therefore may be considered incidental to the assembly of the footwear. Moreover, an analysis of the Mast factors support the conclusion that painting the cushions is an incidental operation even when including the cost and time necessary to break the cushions apart. This painting is most easily performed prior to assembly as it would be difficult to avoid also painting the outersole after the cushion is assembled. While the cushion sheets could be painted in the U.S., we agree that it is more practical to paint them prior to assembly to match the color and number of footwear bottoms into which they will be assembled.

Weighing the foregoing factors, we find that the painting is an incidental operation within the meaning of subheading 9802.00.80, HTSUS. Therefore, a duty allowance may be made under this tariff provision for the cost or value of the U.S. origin cushions.

HOLDING:

On the basis of the information and samples submitted, we find that the scribed cushion sheets exported abroad are fabricated components, and that painting and breaking them are operations incidental to the assembly process. Therefore, allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the cushions, provided the documentary requirements of 19 CFR 10.24 are satisfied.

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
Commercial Rulings Division

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