RR:CR:SM 560599 JML

TARIFF NO: 9802.00.80


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

RE: Eligibility of connector subassemblies imported from Mexico for a partial duty exemption under subheading 9802.00.80, HTSUS; eligibility for NAFTA preferential tariff treatment.

Dear Mr. Noell:

This is in response to your letter of July 31, 1997, on behalf of your client, MCE Manufacturing Corporation ("MCE"), requesting a binding ruling for connector subassemblies imported from Mexico. Specifically, you request a ruling with respect to whether the imported connector subassemblies will be eligible for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS"), and preferential tariff treatment under NAFTA. We regret the delay in responding.

FACTS:

MCE intends to import assembled connector subassemblies from Mexico. You describe the connector subassemblies ("connectors") as devices which function as a means of mating a resistive element with passive microwave and radio frequency components such as adapters, attenuators, equalizers, and terminations.

The assembly process for the connectors involves placing an insulator and connector body in a fixture and pressing them together. The insulator is then crossed drilled using the holes in the connector body as a guide. The components from above are then placed in a fixture and a center conductor is pressed into the apparatus. The middle area of the connector body is then filled with epoxy. The subassembly is then checked for accurate dimensions and packed for shipment.

A bill of materials submitted in connection with your ruling request indicates that the tariff classification of the various materials are as follows: insulator in subheading 8547.20, HTSUS, connector body in subheading 8536.90, HTSUS, epoxy subheading in 3208.90, HTSUS, and center conductor in subheading 8526.90, HTSUS. All the materials are purported to be of U.S. origin except for the center conductor, which is from France.

With regard to the tariff classification of the assembled connectors, you claim that they are classified under subheading 8525.10.20, HTSUS (transmission apparatus: television...other: other converters, decoders, preamplifiers, line amplifiers...directional couplers and other couplers). In support of this classification you submitted New York Ruling B86122, dated July 1, 1997, wherein the subject connectors were classified accordingly.

ISSUES:

1) Whether the connectors assembled in Mexico are eligible for duty allowances under subheading 9802.00.80, HTSUS.

2) Whether the connectors are eligible for NAFTA duty preference.

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, 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). When a particular operation is employed that is not specifically enumerated in the regulation, application of the criteria specified by the court in United States v. Mast Industries, 515 F. Supp. 43, 1 CIT 188, aff'd, 668 F.2d 501, 69 CCPA 47, (1981), is appropriate. 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 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.

You claim subheading 9802.00.80, HTSUS, duty allowances for two of the materials involved in producing the connectors: the insulator and the connector body. Presumably, you concede that the other materials involved in the production of the connectors are not eligible subheading 9802.00.80, HTSUS, components. For purposes of this ruling, only those materials you contend are eligible will be considered.

Based upon the information provided, we are of the opinion that the assembly processes you describe -- placing an insulator and connector body in a fixture and pressing them together, then pressing a center conductor into the same (including application of the epoxy to secure the components) -- are acceptable forms of assembly. See 19 CFR 10.16(a).

With regard to cross drilling the insulator, we have previously ruled that drilling or punching holes in various components is an operation incidental to the assembly where the drilling or punching operation is not substantial. See also HRL 061429, dated March 28, 1980 (holes drilled and punched through plastic cabinet, wood decal, and oscillator shield to accommodate locks and coil were deemed to be incidental to assembly, as they were not substantial); and HRL 555394, dated August 15, 1989 (punching a hole into a vertical blind strip which allows for the subsequent attachment of a plastic hook, is considered an incidental operation). By contrast, in HRL 558813, dated February 1, 1995, Customs ruled that the operation of drilling bleed holes in a piston to allow gas or liquid to flow or drain was a significant operation, and thus was not considered to be an incidental operation within the meaning of 9802.00.80, HTSUS. Customs determined that the holes drilled in the piston were not used in the subsequent assembly, but, rather, were created to allow gas or liquid to flow or drain through the insert. Consequently, Customs determined that the drilling operation was a significant step in the fabrication of the pistons. See also HRL 559519, dated September 11, 1996 (punching holes in caps and cans which enclose electric motors to allow moisture to drain through was a significant operation and therefore not incidental to assembly).

In the present case, we are of the opinion that the cross drilling is not significant and therefore is incidental to the assembly of the connectors. Similar to HRLs 061429 and 555394, the drilled holes are used in the subsequent assembly of the connectors to provide a space to fill with epoxy so that the insulator is secured within the housing. Moreover, an analysis of the Mast criteria supports the conclusion that the drilling of the holes is an incidental operation. The drilling is clearly a necessary prerequisite to the subsequent assembly of the connectors, and related directly to the assembly process. Weighing the above factors, we conclude that the drilling operation 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 insulator and connector body.

NAFTA PREFERENCE

General Note 12, HTSUS, incorporates Article 401 of the North American Free Trade Agreement ("NAFTA") into the HTSUS. Note 12(a)(ii) provides, in pertinent part:

(ii) [g]oods 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 set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States 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...

Accordingly, the connectors at issue will be eligible for the "Special" "MX" rate of duty provided they are a NAFTA "originating" good under General Note 12(b), HTSUS, and they qualify to be marked as a product of Mexico under the marking rules. General Note 12(b) provides, in pertinent part:

[f]or the 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 materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note;.........

Although you submitted a bill of materials as evidence that the materials used in the production of the connectors (with the exception of the French-origin center conductor) are of "U.S. origin" and therefore result in the connectors being "originating" under General Note 12(b), HTSUS, we do not consider the bill of materials dispositive of that fact. That is, we do not view the evidence presented in the bill of materials sufficient to support a finding that the connectors are "goods wholly obtained or produced entirely in the territory of Canada, Mexico, and/or the United States" pursuant to General Note 12(b)(i), HTSUS. Thus, we must examine whether the materials used in the production of the connectors (i.e. the insulator, connector body, epoxy and center conductor) undergo the required change in tariff classification in Mexico pursuant to General Note 12(b)(ii)(A), HTSUS. The rule applicable to goods of subheading 8525.10.20, HTSUS, is provided for in General Note 12(t)/85.74--12(t)83, HTSUS, which provides:

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

In this regard, we note the tariff classifications of the materials used in the production of the connectors: insulator in subheading 8547.20, HTSUS, connector body in subheading 8536.90, HTSUS, epoxy in subheading 3208.90, HTSUS, and center conductor in subheading 8526.90, HTSUS. Because all of the above materials are classified in tariff headings other than 8525.10 through 8525.20, HTSUS, the requirements of the rule are met. Consequently, the connectors are considered "originating" under General Note 12(b), HTSUS. 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. Section 102.11(a), Customs Regulations (19 CFR 102.11(a)), states that the country of origin of a good is the country in which:

(1) [t]he good is wholly obtained or produced; (2) [t]he good is produced exclusively from domestic materials; or (3) [e]ach 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 since the connectors are not wholly obtained or produced, nor produced exclusively from domestic materials as those terms are defined under section 102.1, Customs Regulations (19 CFR 102.1). Accordingly, section 102.11(a)(3), Customs Regulations (19 CFR 102.11(a)(3)), is the applicable rule that must be applied to determine the origin of the subassemblies. Pursuant to section 102.11(a)(3), 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, Customs Regulations (19 CFR 102.20).

As the finished dividers are classified in subheading 8525.10, HTSUS (transmission apparatus: television...other: other converters, decoders, preamplifiers, line amplifiers...directional couplers and other couplers), we note the applicable change in tariff classification rule set out in section 102.20(o), Customs Regulations (19 CFR 102.20(o)), [s]ection XVI: [c]hapters 84 through 85:

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

Thus, all of the materials incorporated into the connectors (i.e. because they are all "foreign materials"), must meet the above rule. Noting the tariff classification of the materials -- insulator in subheading 8547.20, HTSUS, connector body in subheading 8536.90, HTSUS, epoxy in subheading 3208.90, HTSUS, and center conductor in subheading 8526.90, HTSUS -- the applicable rule is satisfied as none of the above-mentioned materials are within the group of subheadings between 8525.10 through 8525.20. Thus, based upon the information provided, the connectors are products of Mexico pursuant to section 102.11(a)(3).

Based upon the information submitted, because the connectors are considered "originating goods" under General Note 12(b) and products of Mexico under the NAFTA Marking Rules as required by General Note 12(a)(ii), HTSUS, they are entitled to NAFTA tariff preference at the "MX" duty rate.

HOLDING:

On the basis of the information provided, it is Customs opinion that the operations to be performed in Mexico to create the connector subassemblies are acceptable assembly operations or operations incidental thereto pursuant to 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 insulator and connector body upon compliance with the documentary requirements of section 10.24, Customs Regulations.

In addition, based on your submissions concerning the countries of origin of the materials used in the production of the connectors, as well as their applicable tariff classifications, we find that the connectors will be eligible for NAFTA tariff preference under the "MX" duty rate, as the connectors are considered "originating goods" and are products of Mexico under the NAFTA Marking Rules (19 CFR Part 102), as required by General Note 12, HTSUS.

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