CLA-2 RR:TC:SM 560521 KSG

Gerald M. Duffy
Vice President/ General Manager
Talon
Two LakePointe Plaza
4135 South Stream Blvd.
Charlotte, NC 28217

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to zipper chain; NAFTA country of origin marking; Article 509

Dear Mr. Duffy:

This is in response to your letter of June 17, 1997, requesting a ruling regarding the applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTSUS), and the North American Free Trade Agreement ("NAFTA") to imported zipper chain. A sample was submitted with your request.

FACTS:

Talon, Inc. is entering into a contract to manufacture or assemble zipper chain in Mexico from raw materials made in the U.S. You state that the process being done in Mexico involves forming wire from round diameter brass wire of U.S. origin and then cutting and attaching this formed wire onto woven textile tape of U.S. origin. The wire is formed by a wire mill machine that puts a groove into the wire. Final finishing, including heat setting, marking, and reeling of the metal zipper chain will be done in the U.S. The product will then be shipped as chain or will be manufactured into finished cut-to-length zippers in the U.S.

ISSUES:

I. Whether the zipper chain will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

II. What is the country of origin for marking of the zipper chain? III. Whether the zipper chain will qualify for preferential tariff treatment under the North American Free Trade Agreement.

LAW AND ANALYSIS:

I. Subheading 9802.00.80, HTSUS

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

articles...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 value of the imported article, less the cost or value of the U.S. components, upon compliance with the documentary requirements of 19 CFR 10.24.

The applicable regulations for this exemption are set forth in 19 CFR 10.11 through 19 CFR 10.26. The provisions of 19 CFR 10.14(a) state in part that the 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.

Qualifying assembly abroad is described in 19 CFR 10.16. The assembly operations 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, and may be preceded, accompanied, or followed by operations incidental to the assembly. 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 subheading 9802.00.80, HTSUS, to that component.

In the instant case, attaching the formed wire onto woven textile tape is considered an acceptable assembly operation pursuant to 10 CFR 10.16(a) because solid components are being joined together.

However, forming the wire from round diameter brass wire so that it can be attached to the textile tape is not an acceptable assembly operation or operation incidental to the assembly, but is a further fabrication of the wire. This conclusion is based on prior Customs rulings. In HRL 553732, dated December 20, 1990, Customs held that stainless steel strip which was unrolled through a wheel housing that put a slight bend in the strip, constitutes a further fabrication and therefore, the stainless steel strip is not entitled to the duty allowance under subheading 9802.00.80, HTSUS. In HRL 557513, dated January 21, 1994, Customs determined that wire that passes over a preforming roller head in a machine process which shapes the wire into its final form before passing into a finished strand was considered to be a further fabrication of the wire independent of the assembly.

Consequently, the zipper chain may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the woven textile tape, provided the documentary requirements of 19 CFR 10.24 are satisfied. No duty allowance may be made for the cost or value of the wire.

II. NAFTA country of origin marking

The second issue presented is whether the zipper chain will be considered to be a good of Mexico for country of origin marking purposes. A good of a NAFTA country is defined in 19 CFR 134.1(g) as an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules. The NAFTA Marking Rules are defined in 19 CFR 134.1(j) as the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. 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 and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the 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 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." Sections102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the zippers are processed in Mexico of U.S. material and therefore are not wholly obtained or produced, nor produced exclusively from domestic materials. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which "each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20...."

The zipper is classified at 9607.11.00, HTSUS. The applicable tariff shift rule found in section 102.20(s) provides as follows:

HTSUS Tariff Shift and/or other requirements

9607.11-9607.19.....A change to subheading 9607.11 through 9607.19 from any other subheading, except from subheading 9607.20 when that change is pursuant to General Rule of Interpretation 2(a).

In the instant case, the foreign materials are textile tape, which is classified in subheading 5806, HTSUS and brass wire, which is classified at subheading 7408.21, HTSUS. Therefore, both foreign materials undergo the applicable tariff shift. Pursuant to 19 CFR 102.11(a)(3), the country of origin of the zipper is the country where the foreign materials undergo the applicable tariff shift, which is Mexico.

III. NAFTA preferential tariff treatment

The third issue concerns whether the imported zipper chain is entitled to preferential tariff treatment under NAFTA. Article 401 of NAFTA is incorporated into General Note 12, HTSUS. General Note 12(a) provides, in pertinent part, that:

(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....

Thus by operation of General Note 12, the eligibility of a particular article for NAFTA duty preference is predicated, in part, upon an origin determination under the NAFTA Marking Rules of either Canada or Mexico. As discussed above, in the instant case, we find that under the NAFTA Marking Rules the zipper chain is a good of Mexico.

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:

(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 material used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein or

(B) the goods otherwise satisfy the applicable requirements of subdivision (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials. We have insufficient information to determine whether the zipper chain is considered "originating" under General Note 12(b)(i) or (iii). However, with respect to General Note 12(b)(ii)(A), the applicable tariff shift rule under General Note 12(t)/96.5(a) provides for a change in tariff classification to subheadings 9607.11 through 9607.19 from any other chapter. Since the materials imported into Mexico undergo the applicable tariff shift, the zipper chain is eligible for preferential tariff treatment under the NAFTA. The special MX rate of duty under subheading 9607.11.00, HTSUS, is free.

HOLDING:

The zipper chain may enter the U.S. under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the woven textile tape, provided the documentary requirements of 19 CFR 10.24 are satisfied. No duty allowance may be made for the cost or value of the wire under subheading 9802.00.80, HTSUS.

Pursuant to the NAFTA Marking Rules of origin set forth at 19 CFR 102.11, the country of origin of the zipper chain is Mexico. In accordance with 19 U.S.C. 1304, the good must be marked to indicate that Mexico is the country of origin. The zipper chain, an originating good under General Note 12(b)(ii)(A), is eligible for preferential tariff treatment under the NAFTA at the "MX" rate.

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
Tariff Classification Appeals
Division