Applicability of duty exemptions under HTSUS subheadings 9801.00.10 and 9802.00.80 to core elements of catalytic converters assembled in Japan

HQ 555203 December 12, 1988 CLA-2 CO:R:C:V 555203 GRV CATEGORY: CLASSIFICATION TARIFF NO.: 9801.00.10; 800.00; 9802.00.80; 807.00 John E. Brady Bill White, Inc. Customs Brokers P.O. Box 92756 Los Angeles, California 90009-2756 RE: Applicability of duty exemptions under HTSUS subheadings 9801.00.10 and 9802.00.80 to core elements of catalytic converters assembled in Japan Dear Mr. Brady: This is in response to your letter of November 22, 1988, on behalf of TABC, Inc., requesting a ruling on the applicability of subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS) (item 800.00, Tariff Schedules of the United States (TSUS)), to substrate elements of catalytic converters to be returned to the U.S. as part of motor vehicles from Japan. FACTS: You state that the basic elements of a catalytic converter are the substrate--a coated ceramic element which forms the core --and the steel casing enclosing the substrate. You advise that substrate elements of U.S. origin will be purchased by your client and chemically coated at its facility in Long Beach, California. The coated elements will then be exported to Japan where they will be placed into steel casings which will be welded shut. The completed catalytic converters will then become part of exhaust systems, which, in turn, will be installed into motor vehicles to be imported into the U.S. You maintain that the coated substrate elements will not be subjected to any processing, other than packing for export, following their manufacture in the U.S. ISSUE: Whether the U.S. products to be exported (substrate elements) will qualify for the duty exemption available under HTSUS subheading 9801.00.10 (TSUS 800.00) or subheading 9802.00.80 (TSUS 807.00) when returned to the U.S. - 2 - LAW & ANALYSIS: Effective January 1, 1989, the Harmonized Tariff Schedule of the United States (HTSUS) will supercede and replace the Tar- iff Schedules of the United States (TSUS). TSUS items 800.00 and 807.00 will be carried over into the HTSUS without change as subheadings 9801.00.10 and 9802.00.80, respectively. HTSUS subheading 9801.00.10 provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. In regard to the instant case, we believe that the assembly in Japan of coated substrate elements of U.S. origin with foreign steel casings to form completed catalytic converters, and the subsequent assembly of the converters with other foreign compo- nents to create motor vehicles, clearly advances the value and improves the condition of the substrate elements. This is self- evident from the fact that the substrate elements to be exported from the U.S. will not become capable of performing the function for which they are designed until after the assembly operations to be performed abroad. However, the information submitted indicates that an allow- ance in duty for the value of the substrate elements may be made under HTSUS subheading 9802.00.80 upon importation of the motor vehicles from Japan. This tariff provision applies to articles assembled abroad in whole or in part of fabricated components, the product of the U.S., which were exported in condition ready for assembly without further fabrication, have not lost their physical identity in such articles by change in form, shape or otherwise, and have not been advanced in value or improved in condition abroad except by the assembly operation and operations incidental thereto. An article entered under HTSUS subheading 9802.00.80 is subject to duty upon the full appraised value of the imported article, less the cost or value of such products of the U.S. Placing the coated substrate elements into steel casings abroad and welding the casings shut constitutes an acceptable assembly operation for purposes of HTSUS subheading 9802.00.80 (see section 10.16(a), Customs Regulations (19 CFR 10.16(a))). Moreover, the subsequent joining of the catalytic converter to other components to form the exhaust system, and the joining of the exhaust system to the motor vehicle, will not preclude appli- cation of this partial duty exemption to the motor vehicles to be imported. - 3 - HOLDING: On the basis of the information submitted, as the U.S. sub- strate elements will be advanced in value and improved in condi- tion abroad as a result of the welding assembly operation, the substrate elements will not qualify for the duty exemption under HTSUS subheading 9801.00.10. However, allowances in duty may be made under HTSUS subheading 9802.00.80 for the cost or value of the coated substrate elements of U.S. origin when they are re- turned to the U.S. as part of the exhaust systems of motor vehi- cles from Japan, upon compliance with the applicable Customs Regulations (19 CFR 10.11-10.24). Sincerely, John Durant, Director Commercial Rulings Division CO:R:C:V:VILDERS:GRV:12/07/88:12/09/88