CLA 02: RR:CR:SM 561152 MFC
Mr. Richard G. Seley
Director Regulatory Matters
Rudolph Miles & Sons, Inc.
P.O. Box 11057
El Paso, Texas 79993
RE: NAFTA Preference; country of origin marking; eligibility of steel angles and H sections for partial duty exemption under subheading 9802.00.80, HTSUS; classification; Article 509
Dear Mr. Seley:
This is in reference to your letter dated September 17, 1998 requesting a ruling concerning the classification, country of origin, North American Free Trade Agreement (“NAFTA”) eligibility, and eligibility for a partial duty exemption under subheading 9802.00.8065 of the Harmonized Tariff Schedule of the United States (“HTSUS”) of steel angles and H sections assembled in Mexico and imported into the U.S. by your client, SME Industries, Inc. (“SME”). The request included a drawing of the assembled article.
FACTS:
The subject merchandise is described as a section of U.S. origin non-alloy steel H beam to which U.S. origin non-alloy steel angles have been welded in Mexico. The assembled article is depicted in drawing number 40. You state that the finished article will be used in a specific location in a cement kiln pre-heater building constructed for the Rinker Cement Plant in Miami, Florida. As specified in drawing number 40, the H section is W30x132 (wide flange shape, 30 inches deep, 132 lbs./ft) that is made of ASTM A572gr50 carbon steel. The section is 27' 2 11/16" long. SME orders the steel section from the mill rolled to a length that allows for trimming. For purposes of this ruling, we assume that the sections and angles are of U.S. origin, as you have asserted in your letter. The H section and a stock length of angle will be sent to Mexico.
In Mexico, the H section is sawed to the exact length required and is drilled with twenty-four holes, size 13/16." The stock length of angle will be punched with 13/16" holes every three inches along the length and four pieces will be sheared to a length of 1' 11 1/2" each to create what are known as “Clip Angles.” The holes in the clip angles will facilitate the article’s installation after importation by matching these holes with holes in a beam or column at the job site. You state that one hole in each angle is needed to position the clip angle to the beam prior to welding. Also in Mexico, the four end connection angles (clip angles) are assembled to the beam by welding them to the ends.
Finally, the assembled article will be cleaned (by sandblasting) and spray painted for corrosion protection in Mexico. The finished articles are then exported to the United States.
ISSUES:
1) What is the tariff classification of the assembled steel article?
2) Whether the assembled article is eligible for preferential duty treatment under the NAFTA.
3) What is the country of origin of the assembled article for country of origin marking purposes?
4) Whether the subject merchandise is eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, upon importation into the U.S.
LAW AND ANALYSIS
A. Classification
The imported assembled article is classifiable in subheading 7308.90.3000, HTSUS, which provides for “Structures... and parts of structures...of iron or steel...: Other: Columns, pillars, posts, beams, girders, and similar structural units: Not in part of alloy steel.”
You have stated that you believe the classification of the H section to be in subheading 7216.33.00, HTSUS, which provides for “Angles, shapes and sections of iron or nonalloy steel: U, I, or H sections, not further worked than hot-rolled, hot-drawn or extruded, of a height of 80 mm or more: H sections”, and that the angle is also classified within heading 7216. We concur.
B. NAFTA Preference
Article 401 of the NAFTA is incorporated into General Note (“GN”) 12 of the Harmonized Tariff Schedule of the United States (“HTSUS”) which provides, in pertinent part, as follows:
(a)(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 set forth in regulations issued by the Secretary of the Treasury (whether or not 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, in accordance with section 201 of the North American Free Trade Implementation Act.
(b) 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 [de minimis provision], 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 or the rules set forth therein, or....
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials....
Thus, by operation of GN 12, the eligibility of an article for NAFTA preferential treatment is predicated upon a finding that the goods are originating in the territory of a NAFTA party under GN 12(b) and that they are goods of Canada or Mexico under the NAFTA Marking Rules.
You have asserted that the angles and section are of U.S. origin and, therefore, we will assume for purposes of this ruling that they qualify as NAFTA originating materials when they leave the U.S. Since the angles and section qualify as NAFTA originating materials when they leave the U.S., the finished good when imported into the U.S. after assembly in Mexico is an originating good pursuant to GN 12(b)(iii), HTSUS.
C. Country of Origin Marking
The marking statute, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304.
The country of origin marking requirements for a “good of a NAFTA country” are determined in accordance with Annex 311 of the NAFTA, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103 182, 107 Stat. 2057) (December 8, 1993) and the regulations set forth in 19 CFR Parts 102 and 134.
Section 134.1(b) (19 CFR §134.1(b)) of the regulations defines “country of origin” as the country of manufacture, production, or growth. In order to change the country of origin, further work or material added to the article in another country must effect a substantial transformation. However, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. 19 CFR §134.4(b). A “good of a NAFTA country” is an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. 19 CFR §134.1(g).
Part 102 of the regulations (19 CFR Part 102), contains the “NAFTA Marking Rules” for purposes of determining whether a good is a good of a NAFTA country. Section 102.11 of the regulations (19 CFR §102.11) sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that:
“[t]he 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 requirements of these rules are satisfied.”
"Foreign Material" is defined in section 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."
Because the H section and angles are of U.S. origin, the subject merchandise is neither wholly obtained or produced, nor produced exclusively from domestic materials. Accordingly, we must attempt to determine the country of origin pursuant to section 102.11(a)(3). We look at the foreign materials to determine if such materials have undergone the required tariff shift pursuant to this rule. Both the H section and the angles are of foreign (non-Mexican) origin.
We are now directed to 19 CFR §102.20 to determine whether the required tariff shift has occurred. As discussed above, the sections and angles are both classified separately in heading 7216, HTSUS, while the assembled merchandise is classifiable in subheading 7308.90.3000, HTSUS. Section 102.20(n) states that the rule for a good classifiable under heading 7308 is
“[a] change to heading 7308 from any other heading, except for changes resulting from the following processes performed on angles, shapes, or sections classified in heading 7216:
(a) drilling, punching, notching, cutting, cambering, or sweeping, whether performed individually or in combination;
(b) adding attachments or weldments for composite construction;
(c) adding attachments for handling purposes;
(d) adding weldments, connectors, or attachments to H-sections or I-sections; provided that the maximum dimension of the weldments, connectors, or attachments is not greater than the dimension between the inner surfaces of the flanges of the H-sections or I-sections;
(e) painting, galvanizing, or otherwise coating;
(f) adding a simple base plate without stiffening elements, individually or in combination with drilling, punching, notching, or cutting, to create an article suitable as a column.”
Because the change from heading 7216 to heading 7308 in this case clearly results from certain of the processes described above, the applicable tariff shift rule is not satisfied.
Section 102.11(b) provides a country of origin determination for goods that cannot be classified under paragraph (a), and states that the country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good. 19 CFR §102.11(b)(1).
The general rules of interpretation in section 102.18(b)(1) (19 CFR §102.18(b)(1)) state that:
(b) (1) For purposes of identifying the material that imparts the essential character to a good under §102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the §102.20 specific rule or other requirements applicable to the good.
* * *
(2) For purposes of determining which one or two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under §102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:
(i) The nature of each material, such as its bulk, quantity, weight or value; and
(ii) The role of each material in relation to the use of the good.
Applying section 102.18(b)(2) to the facts of this case, we note that the subject merchandise is comprised of an H section to which four clip angles are attached. Based on the facts presented and weighing the above factors, we find that the H section clearly manifests the essential character of the subject merchandise. Therefore, pursuant to section 102.11(b)(2), the country of origin of the subject merchandise is the U.S. The marking statute only requires articles of foreign origin to be marked with their country of origin (19 U.S.C. §1304). Since the country of origin for marking purposes of the subject merchandise imported into the U.S. will be the U.S., it will be excepted from country of origin marking requirements.
However, for duty purposes, 19 CFR §102.19(b) provides that the subject merchandise will be treated as a product of Mexico. Section 102.19(b) states that:
If, under any other provision of this part, the country of origin of a good which is originating within the meaning of §181(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.
Thus, the subject merchandise will be subject to the NAFTA “MX” preferential duty rate since it was last advanced in value or improved in condition in Mexico before its return to the U.S. Section 102.19(b) “is intended to facilitate the application of the appropriate NAFTA preferential duty rate under General Note 12(a), HTSUS, in the case of originating goods the origin of which is determined to be the United States under the Part 102 provisions.” 60 Fed. Reg. 22312, 22318 (May 5, 1995) (Notice of Proposed Rulemaking, Final Rule published 61 Fed. Reg. 28932 (June 6, 1996)).
D. 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 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. 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. See, 19 CFR §10.16(c).
While the welding operation performed abroad in this case clearly is an acceptable assembly operation, it is necessary to determine whether the drilling and hole-punching operations are considered incidental to the foreign assembly process. 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. The Mast court, in examining the legislative history of the phrase “incidental to the assembly process,” stated that Congress intended a balancing of all relevant factors to ascertain whether an operation of a “minor nature” was incidental to the assembly process. The court stated that relevant factors included:
(1) whether the relative cost of the operation and time required by the operation were 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.
With regard to the first Mast criterion, you supplied information that the cost of the H section is estimated to be $760.00, while the cost to drill the holes in the H section is estimated to be $4.10 (0.5% of the cost of the H section). The cost of the angle is estimated to be $17.00, while the cost to punch holes in the angle is estimated at $2.50 (14.7% of the cost of the angle). The above cost comparisons tend to support your contention that the drilling and hole-punching operations are incidental to assembly.
Regarding the time comparison part of the first Mast criterion, you estimate that the time to drill and punch the holes in the section and angles is 40 minutes, while you estimate that the total assembly time is 80 minutes. Thus, approximately 50% of the total time needed to perform the foreign processing is necessary to complete the drilling and hole-punching operations. This time comparison supports a finding that the drilling and hole-punching operations are not incidental to the assembly of the subject merchandise.
Whether the drilling and hole-punching operations are necessary to the assembly process is the second Mast criteria. In Rudolph Miles v. United States, C.A.D. 1202, 65 CCPA 32, 567 F.2d 979 (1978) rev'g, C.D. 4689, 78 Cust. Ct. 35, 427 F. Supp. 417 (1977), the issue was whether the burning of slots and holes into Z beams in Mexico, so that wear and support plates and other components could be attached prior to the beams' joinder to boxcars abroad, constituted a further fabrication of the beams. The court held that the burning of the holes and slots was concomitant with the foreign assembly process and was not substantial enough to preclude the application of the precursor provision to subheading 9802.00.80, HTSUS. We have previously ruled on several occasions that drilling or punching holes in various components is an operation incidental to assembly where the operation is not substantial and is necessary for the assembly process. See Headquarters Ruling Letter (“HRL”) 560599 (March 13, 1998) (holes cross-drilled in an insulator are a necessary prerequisite to subsequent assembly and are incidental operations); HRL 555671 (March 15, 1991) (punching holes into wooden venetian blinds which will later be used in a subsequent assembly operation abroad is incidental to the assembly); HRL 555394 (August 15, 1989) (punching a hole into a vertical blind strip, which allowed for the subsequent attachment of a plastic hook, was considered an incidental operation).
By contrast, in certain cases, we have denied application of subheading 9802.00.80 where the drilling or punching of holes was unnecessary to the assembly process. See HRL 558813 (February 1, 1995) (drilling bleed holes in a piston to allow gas or liquid to flow or drain was a significant operation); HRL 555474 (September 5, 1990) (drilling holes into water mattress inserts to allow air and water to flow or drain is a further fabrication). With the exception of one hole in each clip angle (needed to align the angle to the beam abroad), the holes in the subject merchandise are not necessary for the foreign assembly but are created for use in the erection of the final product at job sites in the U.S. As you have acknowledged, this factor weighs against finding the drilling and hole-punching operations to be incidental to assembly.
Regarding the third and fourth Mast factors, you have presented information which indicates that, due to the difficulty of handling such heavy materials (you stated that the subject merchandise weighs 3,649 pounds), it is more efficient and economical to drill and punch the holes during the assembly process. You note that one hole in each angle is needed to position the clip angle prior to welding and, therefore, the cost to drill and punch the additional holes is greatly minimized by making them during the processing in Mexico. We are satisfied by the information submitted that the drilling and hole-punching operations are sufficiently related to assembly that they are logically performed during the assembly process (the third Mast criterion). However, we are not persuaded that “economic or other practical considerations dictate that the operation be performed concurrently with assembly [emphasis added]” (the fourth Mast factor).
In consideration of all of the Mast factors discussed, it is our opinion that, on balance, the drilling and hole-punching operations performed on the H-beams and angles are not minor operations incidental to the assembly process. Consequently, the returned assembled articles will not be entitled to a duty allowance under subheading 9802.00.80, HTSUS.
HOLDING:
Based on the information provided, we find as follows:
The classification of the subject assembled merchandise is subheading 7308.90.3000, HTSUS.
The subject merchandise is eligible for preferential duty treatment under the NAFTA because it is comprised of NAFTA originating materials, the H section and angles.
The subject merchandise is exempt from country of origin marking requirements under 19 U.S.C. §1304 as the U.S. is its country of origin.
The subject merchandise is not eligible for a duty allowance under subheading 9802.00.8065, HTSUS, as the drilling and hole-punching operations performed in Mexico are not considered operations incidental to assembly.
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,
John Durant, Director
Commercial Rulings Division