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HQ 562484




October 22, 2002

CLA-02 RR:CR:SM 562484 EAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Ms. Mollie R. Coyne
Mr. John M. Peterson
Neville Peterson, LLP
80 Broad Street – 34th Floor
New York, NY 10004

RE: Applicability of partial duty exemption under subheading 9802.00.80, HTSUS, to bows from China; incidental to assembly; cutting to length; “notching” operations

Dear Ms. Coyne and Mr. Peterson:

This is in response to your letter dated July 21, 2002, on behalf of Berwick Offray Industries, requesting a ruling regarding the eligibility of ready to make bows for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). A sample bow has been submitted with this request.

FACTS:

The subject item is a ready to make bow that is marketed under the trade name “Perfect Bow.” You state that the bows are entirely assembled in China from components of U.S. origin, such as woven textile and extruded plastic ribbons and either non-woven or plastic streamers, that are exported from the U.S. to China in a condition you describe as “ready for assembly without further fabrication.”

The textile ribbons and streamers, described above, are exported to China on spools in continuous length. Therefore, the first step of the manufacturing process entails cutting the ribbons and streamers to length. The ribbons are then “notched” by folding the ribbon and trimming the corners of the fold at an angle thereby removing a portion of the material located at the fold. After notching, the notched ribbons and streamers are then assembled together by tying the streamer around the mid-point of the ribbon. Subsequently, the ribbon and streamer are laid out flat, and small plastic fasteners are assembled to them by hand at the various intervals where the ribbon is notched.

Upon completion of the described manufacturing process, the bows are “folded accordion-style” and packed flat to await exportation to the United States. Subsequent to importation into the United States and ultimate purchase by the consumer, the Perfect Bow’s intended form is achieved as the result of a simple process which entails pulling the two streamer ends with one hand while simultaneously “bunching up” the ribbon with the other hand. As completed, the Perfect Bow is intended to serve as a decoration for boxes and other various packages.

ISSUE:

Whether the Perfect Bow, upon importation into the U.S., qualifies for the duty exemption 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 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 C.F.R. 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(b). 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). Subsection 10.16(c)(5) provides that “machining, polishing, burnishing plating (other than plating incidental to the assembly) or any other process which imparts significant new characteristics or qualities to the article affected” is not incidental to the assembly process.

In the case under consideration, it must be determined if the processing operations that occur in China are permissible under subheading 9802.00.80, HTSUS, such that the imported bows may qualify for the subheading’s partial duty exemption. Specifically, we must determine whether the operations described above are considered to be acceptable assembly operations or operations incidental to the assembly process.

You state that the United States origin textile ribbons and streamers are exported on spools of continuous length to China, where upon arrival, they are cut to length. Section 10.16(b)(6), Customs Regulations (19 CFR 10.16(b)(6)) specifically allows for the cutting to length of such products as an operation incidental to the assembly process. See Headquarters Ruling Letter (HRL) 557462, dated September 13, 1994; HRL 560731, dated January 30, 1998. Therefore, in accordance with 19 CFR 10.16(b)(6), the cutting to length of the ribbons and streamers is a permissible operation which is considered to be incidental to the assembly process.

Additionally, you state that the streamers and ribbons are fastened together (subsequent to notching, discussed infra) by tying the streamer around the mid-point of the ribbon. Subsequently, small plastic fasteners are assembled to them by hand at the various intervals where the ribbon is notched. As stated, supra, section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method utilized to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners (emphasis added). Therefore, as performed in the manner described, the fastening of the streamers to the ribbons is a permissible form of assembly.

The remaining issue in the case under consideration, therefore, concerns whether the notching procedure is considered to be incidental to the assembly process.

Customs has consistently held that notching operations, similar to the one utilized in the production of the Perfect Bow, are not considered to be operations incidental to the assembly process. See HRL 555600, dated August 16, 1990 (notching operation not considered incidental to the assembly process because the notched ribbon was advanced in value or improved in condition by a procedure that was “neither an assembly operation nor an operation incidental thereto”); HRL 555425, dated October 17, 1989 (notching of exported ribbon while abroad constituted a further fabrication of the ribbon component).

However, you posit that the notching operation performed on the ribbons constitutes nothing more than the “trimming or cutting of small amounts of excess materials” and is therefore incidental to the assembly process in accordance with 19 CFR §16(b)(4). Furthermore, you submit that in light of the U.S. Supreme Court’s decision in United States v. Haggar Apparel Co., 526 U.S. 380 (1999), the precedent established in HRL’s 555425 and 555600 no longer constitutes “good law” because it preceded Haggar and failed to give consideration or deference to the above-cited Customs Regulation.

“Fabricated component” is described in section 10.12(d), Customs Regulations (19 CFR 10.12(d)), as “a manufactured article ready for assembly in the condition as exported except for operations incidental to the assembly.” In the instant case, it is apparent that the ribbons are not exported from the U.S. to China in a condition ready for assembly. It is also apparent that the notching operation constitutes more than the mere “trimming” or “cutting of excess materials.” The notching procedure constitutes a further fabrication as it imparts additional qualities to the ribbon and improves its condition to the extent that the cutting significantly contributes to the fundamental characteristics and aesthetic appearance of the Perfect Bow.

The ribbon must be notched in order to achieve the fundamental ready to make characteristics of the Perfect Bow. An analysis of the assembly and set-up processes illustrates this principle. As described above, there are three main components to the Perfect Bow: fasteners, ribbons and streamers. The streamers are routed though the middle of the notched portions of the ribbons and are tied in a small knot to the uppermost section of ribbon (at the notched portion of the respective ribbon). The ribbon is further secured at each layer of the bow by small plastic fasteners, which are placed around the notched section of the ribbon at each respective layer. Therefore, when the consumer pulls the streamers, the pulling action has the effect of drawing the streamer through the notched portions of the ribbon, thereby pulling the bow into its intended form.

The mechanics of the described process are relatively simple, but the contribution of the notched ribbon to the process is significant. The assembly process and ready to make qualities of the bow hinges on the fact that the ribbons are notched. It follows that, in this case, notching is not incidental to the assembly process but rather is essential to the final shape of the ribbon component as well as the assembly process and therefore constitutes a further fabrication of the component.

Subsequent to formation of the completed bow, the notched portion of the ribbon is, to a great extent, hidden under the main surface area of the bow. However, the notches form an interlocking foundation that supplies the Perfect Bow with its visible characteristics. The result is what you describe as a “beautiful, professional-looking bow.” It is very likely that a ready to make bow would not be visually similar, or as aesthetically pleasing, if an uncut ribbon were used in production.

Therefore, considering the totality of the circumstances, we find that the notching procedure at issue constitutes an operation beyond consideration as incidental to the assembly process. Rather, notching is a crucial element of the assembly process that provides the Perfect Bow with its fundamental characteristics.

However, you assert that 19 CFR 10.16(b)(4) is owed deference to the extent that the provision allows for the removal of small amounts of excess material prior to the assembly of a fabricated component of United States origin. You state that less than 10% of the total surface area of the ribbon is removed as a result of this “simple” procedure; therefore, in consideration of cases such as HRL 561526, dated February 9, 2000, the notching operation should be considered incidental to the assembly process.

In HRL 561526, Customs considered whether the trimming of excess material from women’s undergarments while abroad constituted a process that was incidental to the assembly process. Upon exportation from the United States, the fabric for the garments was patterned with the contoured outlines of each respective article of clothing. A machining process in the foreign country of manufacture allowed the operator to simultaneously cut the excess fabric according to the drawn contoured patterns (constituting several inches from each article), and also to sew elastic fabric onto the clothing. We held that the exported fabric was not a fabricated component, even though all that was required abroad was the cutting to form (and sewing of elastic trim) because the cutting operations were not incidental to the assembly process. The determination was based not only on a finding that the cutting resulted “in the removal of relatively substantial amounts of fabric”, but also on the nature of the change which had occurred to the component product. “While the cutting is accomplished very quickly, it is clearly more than simple cutting to length or trimming small amounts of excess material.” Id. Rather, the garments had been cut to a “pattern that gave the final form and shape” to the merchandise. Id.

Similarly, in the case at bar, the ribbons are cut while abroad not to remove excess material but for the purpose of giving the ribbons their final form and shape. The notching procedure contributes to the facilitation of assembly, aesthetic appearance and functional capabilities of the completed bow, thereby precluding the notching procedure from consideration as a process incidental to the assembly process.

Moreover, the Supreme Court’s decision in Haggar Apparel Co., 526 U.S. 380, 393 (1999), does not affect this analysis. In Haggar Apparel Co., the Supreme Court held that subheading 9802.00.80, HTSUS, was ambiguous for purposes of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-44 (1984), and Customs must use its discretion to determine how best to implement the policy in cases not covered by the specific terms of subheading 9802.00.80, HTSUS. Therefore, the Customs Regulations may not be disregarded. Id. at 394. The decisions in HRL’s 555600 and 555425 were based upon the Customs Regulations implementing subheading 9802.00.80, HTSUS. Therefore, they remain valid ruling letters.

Accordingly, based upon the information provided and upon our interpretation of the applicable Custom’s Regulations, we find that the notching operation, described above, constitutes more than mere “trimming, filing, or cutting off of small amounts of excess materials” from a fabricated component. See 19 CFR 10.16(b)(4). Therefore, for purposes of classification in subheading 9802.00.80, HTSUS, we find that the notching operation is not an operation incidental to the assembly process.

HOLDING:

Based upon the information and sample submitted, notching the ribbon utilized in the assembly of the Perfect Bow, prior to assembly of the various constituent products, does not qualify as an operation incidental to the assembly process. Therefore, the U.S.-origin ribbons subjected to this process abroad are not eligible for a duty allowance under subheading 9802.00.80, HTSUS.

A copy of this ruling 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,

Myles B. Harmon

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