OT:RR:CTF:VS H308581 EE
Suzanne Kane
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue NW
Washington DC, 20036
RE: Aircraft engines; Subheading 9802.00.80, HTSUS
Dear Ms. Kane:
This is in response to your correspondence, dated January 21, 2020, on behalf of your client, JetBlue Airways Corporation (“JetBlue”), in which you request a ruling concerning the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”) to certain U.S.-origin aircraft engines that are exported for assembly abroad and reimported into the United States as part of an aircraft that JetBlue purchases from a foreign supplier.
You have asked that certain information submitted in connection with this request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in your request will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
JetBlue, incorporated in Delaware and headquartered in Long Island City, New York, carries more than 42 million customers a year to more than 100 cities in the United States, Caribbean and Latin America with an average of 1,000 daily flights. JetBlue’s current fleet includes a total of 259 aircraft and 22,000 crewmembers. JetBlue’s fleet of aircraft include the [X] family of aircraft (“[X] Family”), which are manufactured in [Country A], [Country B] and the United States, among other locations. The [X] Family includes the following models: [X] aircraft.
JetBlue purchases passenger aircraft for its domestic and international flight operations and enters them into the United States. Each [X] Family aircraft contains two engines, of which one, both or neither are manufactured in the United States. You state that these aircraft are classified under subheading 8802.40.0040, Harmonized Tariff Schedule of the United States (“HTSUS”), and are entitled to duty-free treatment pursuant to the World Trade Organization (“WTO”) Agreement on Trade in Civil Aircraft. Currently, however, new aircraft classified under subheading 8802.40.0040, HTSUS, are subject to additional tariffs under Section 301 of the Trade Act of 1974.
Pursuant to an October 19, 2011 purchase agreement, JetBlue purchases the [X] Family aircraft, including the [X] aircraft, from [Company A]. As of December 2019, JetBlue has accepted delivery of approximately [X] Family aircraft from [Company A] and has an additional [X] Family aircraft on order. [Company A] manufactures the [X] Family aircraft, which are singleaisle passenger jetliners, at its facilities in [Country A], [Country B] and the United States, among other locations.
You state that [Company A] contracts with [Company B] for the purchase of new engines that are assembled into the [Company A]-manufactured aircraft. Each [X] Family aircraft is equipped with two [Company C] engines, some of which are manufactured in the United States. [XXXXX]
When [Company A] receives engines from [Company B], the engines go through a two-step assembly process. First, the engines are delivered, ready for installation, to [X]. Aircraft systems such as fuel, hydraulic, pneumatic, fire detection and electrical units are installed into the engine through fastening, riveting and force-fitting processes. The systems are visually inspected as they are installed. Next, the fully-equipped engine is installed directly onto the aircraft via a pylon, which is part of the wing. Installation of the fully-equipped engine involves bolting the unit to the pylon using standard hand wrenches. After the fully-equipped engine is bolted to the pylon, connections for the various aircraft systems (e.g., fuel, hydraulic and electrical systems) are made to the pylon interface through a fastening process. The remaining parts of the propulsion system (e.g., nacelles and engine mounts) are bolted and connected to the finished aircraft by [Company A or X]. The aircraft undergoes customer inspection, test flights and documentation updates before it is delivered to JetBlue. JetBlue remits final payment for the assembled aircraft upon delivery to JetBlue in the United States. You state that JetBlue, [Company A] and [Company B] are unrelated.
In summary, transactions between JetBlue, [Company A] and [Company B] for the sale of [X] Family aircraft and aircraft engines involve the following steps for the acquisition of [X] aircraft:
JetBlue orders [X] Family aircraft from [Company A];
JetBlue chooses [Company B] engines to power the [X] Family aircraft it purchases from [Company A];
[Company A] purchases engines from [Company B] to install on its [X] Family aircraft; and
JetBlue purchases [X] Family aircraft from [Company A] and enters the aircraft into the United States.
To illustrate JetBlue's transactions involving [X] Family aircraft equipped with U.S.origin engine(s), you included documents for the purchase and entry of an [X] aircraft (the “December 2019 Aircraft”) that is equipped with a pair of [Company B] engines, one of which is a U.S.-origin engine. The Entry Summary (CBP Form 7501) provides that the December 2019 Aircraft entered the United States on December 5, 2019 under entry number [X]. Line item one of the Entry Summary covers the importation of this [X] aircraft. The December 2019 Aircraft’s U.S. Federal Aviation Administration (“FAA”) registration number is [X], the manufacturer's serial number (“MSN”) for the aircraft is [X] and the engines’ serial numbers are [X] (manufactured in the United States) and [X] (manufactured in [Country A]). The December 2019 Aircraft was exported from [Company A]’s delivery center in [Country A], and its value was declared as [X]. You state that the set of documents for entry number [X] is generally representative of the documents and factual circumstances of all of JetBlue's transactions with [Company A] and [Company B] for the sale of the [X] Family aircraft that are equipped with [Company B] engines.
You provided a commercial invoice (“[Company B] Invoice”) from [Company B] to [Company A], dated September 23, 2019, for purchase order [X] for the purchase of a [X] model engine, assigned engine serial number [X]. According to the [Company B] Invoice, the total amount due from [Company A] for [X] was [X]. You provided the air waybill for the shipment evidencing that [Company B] shipped [X] to [Company A] on September 13, 2019. You provided a manufacturer’s affidavit prepared by [Company C] certifying that [X] was manufactured by [Company C] at its Connecticut facility in the United States. You also provided [Company A]’s summary of its purchase orders for [Company B] engines, confirming that [Company A] issued purchase order [X] to [Company B] with a Purchase Order Delivery Date of [X]. You provided a [Company A] payment receipt dated [X], which lists a payment of [X] from [Company A] to [Company B], [X], for the purchase of multiple engines, including [X]. You state that [Company A] remits payment to [Company B] for the purchased engines [X]. Additionally, you included a supplementary internal [Company A] document and SAP data from [Company A] that confirm the [X] payment of [X] includes a payment of [X] for invoice number [X].
Additionally, you provided a bill of sale from [Company A] to JetBlue, dated November 21, 2019, for the December 2019 Aircraft, which is equipped with the U.S.-origin [X] (“[Company A] Bill of Sale”). The [Company A] Bill of Sale states that the seller ([Company A]) sells, delivers, and transfers title of the aircraft, registered as [X], to JetBlue. Additionally, you provided an invoice from [Company A] to JetBlue, dated November 21, 2019, for the December 2019 Aircraft, which also states that the aircraft is equipped with [X]. The Entry Summary submitted indicates that the December 2019 Aircraft is registered as [X] and entered the United States for consumption on December 5, 2019, under subheading 9903.89.05, HTSUS.
ISSUE:
Whether the aircraft that JetBlue purchases from [Company A] is eligible for a partial duty exemption under subheading 9802.00.80, HTSUS.
LAW AND ANALYSIS:
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 an article may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full appraised value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation requirements of 19 C.F.R. § 10.24.
Section 10.14(a), U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 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), CBP Regulations (19 C.F.R. § 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. See 19 C.F.R. § 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 C.F.R. § 10.16(c).
HQ H302202, dated June 21, 2019, concerned the eligibility of a certain electric vehicle for a partial duty exemption under subheading 9802.00.80, HTSUS. In that case, the electric motor and motor controller manufactured in the United States were exported to China for assembly into the finished electric vehicle, which involved the joining or fitting together of solid components using bolts or fasteners. CBP stated that the U.S.-manufactured electric motor and the motor controller were ready for assembly without further fabrication at the time of their exportation from the United States, finding that their installation into the electric vehicle constituted acceptable means of assembly pursuant to 19 C.F.R. § 10.16(a). Accordingly, CBP held that the electric vehicle was eligible for a partial duty exemption under subheading 9802.00.80, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.24 were satisfied.
In HQ 561873, dated November 7, 2000, gas turbine engines were assembled in Germany using various components, some of which included U.S.-origin parts, via operations that included welding, force fitting, soldering and the use of fasteners. Upon completion of the assembly process, the engines were imported into the United States. CBP found that the assembly operations conformed to the requirements of 19 C.F.R. § 10.16(a) and that the imported turbine engines were eligible for partial duty exemption under subheading 9802.00.80, HTSUS. See also HQ 556976, dated June 9, 1994.
In the instant case, you state that the processing in [Country A] consists of installation of aircraft systems onto the U.S.-manufactured engine through fastening, riveting, and force-fitting processes. Then, the engine is installed onto the aircraft by attaching the engine through bolting and fastening a number of accessories and connections before the engine is prepared for final testing as part of the aircraft. Based on your submission, the processing in [Country A] will involve only assembly operations. Further, the installation of the U.S. origin engine which involves fastening, riveting, force-fitting, and bolting processes constitute acceptable means of assembly pursuant to 19 C.F.R. § 10.16(a) and in accordance with HQ H302202 and HQ 561873. Since the U.S.-manufactured engine will be exported from the United States in condition ready for assembly without further fabrication, will not lose its physical identity in the assembled aircraft, and will not be advanced in value or improved in condition in [Country A] except by being assembled into the aircraft, an allowance in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the U.S.-origin engine when returned as part of the aircraft, provided the documentary requirements of 19 C.F.R. § 10.24 are satisfied.
U.S. Note 4 to Subchapter II, which is applicable to subheading 9802.00.80, HTSUS, provides:
The value of the products of the United States assembled into the imported article shall be:
(i) The cost of such products at the time of the last purchase; or
(ii) If no charge is made, the value of such products at the time of the shipment for exportation, as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value of such products shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended.
Furthermore, 19 C.F.R. § 10.17 provides that:
The value of fabricated components to be subtracted from the full value of the assembled article is the cost of the components when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers, or, if no purchase was made, the value of the components at the time of their shipment for exportation, f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers. However, if the appraising officer concludes that the cost or value of the fabricated components so ascertained does not represent a reasonable cost or value, then the value of the components shall be determined in accordance with section 402 or section 402a, Tariff Act of 1930, as amended (19 U.S.C. 1401a, 1402).
HQ 547489, dated March 20, 2000, concerned the valuation of U.S.-manufactured radios used in the assembly of automobiles subsequently imported into the United States. In that ruling, it was agreed that the requirements of subheading 9802.00.80, HTSUS, were satisfied. Regarding the value of the U.S. origin radios, CBP held that in accordance with 19 C.F.R. § 10.17, the value of the radios was the cost for the U.S.-produced radios when last purchased, FOB U.S. port of export.
In the instant case, you claim that for purposes of calculating the partial duty exemption under subheading 9802.00.80, HTSUS, the proper value of each U.S.-manufactured [Company B] engine installed on [Company A] [X] Family aircraft purchased and imported by JetBlue is [X]. As previously noted, you provided invoice number [X] for the sale of engine [X] for [X] from [Company B] in the United States to [Company A] in [Country A]. You also provided a payment receipt indicating that [Company A], [X], remitted to [Company B] a [X] payment of [X] and an accompanying internal document and SAP data from [Company A] indicating that [X] payment included a payment of [X] for invoice number [X] for engine [X]. Based on these documents, we find that this price is the price at the time of the last purchase. Accordingly, in accordance with 19 C.F.R. § 10.17, the cost for the U.S.-manufactured engines when last purchased, FOB U.S. port of export is [X].
In accordance with Chapter 99, Subchapter III, U.S. Note 21(a), HTSUS, the additional duties imposed by subheading 9903.89.05, HTSUS, do not apply to goods for which entry is properly claimed under a provision of Chapter 98 of the HTSUS, except for goods entered under subheadings 9802.00.40, 9802.00.50 and 9802.00.60 and subheading 9802.00.80, HTSUS. For subheading 9802.00.80, HTSUS, the additional duties apply to the value of the article less the cost or value of such products of the United States. As such, in the instant case, the additional duties imposed by subheading 9903.89.05, HTSUS, apply to the aircraft at issue less the value of the U.S.-manufactured engines.
HOLDING:
On the basis of the information submitted, the aircraft at issue, which is subject to additional duties imposed by subheading 9903.89.05, HTSUS, is eligible for a partial duty exemption under subheading 9802.00.80, HTSUS. The cost for the U.S.-manufactured engines when last purchased, FOB U.S. port of export in accordance with 19 C.F.R. § 10.17, is [X].
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch