Applicability of duty exemption under HTSUS subheading 9802.00.80 to U.S.-origin tubing sent to Mexico to be cut to specific lengths and notched for parts of bicycle frames

HQ 556380 March 3, 1992 CLA-2 CO:R:C:S 556380 RAH CATEGORY: Classification TARIFF NO.: 9802.00.80 Mr. Deral Rackley Huffy Bicycles P.O. Box 318 Celina, Ohio 43822 RE: Applicability of duty exemption under HTSUS subheading 9802.00.80 to U.S.-origin tubing sent to Mexico to be cut to specific lengths and notched for parts of bicycle frames Dear Mr. Rackley: This is in response to Mr. La Rue's letter dated October 23, 1991, concerning the eligibility for a duty exemption under subheading 9802.00.80, Harmonized Tariff Schedules of the United States (HTSUS), for U.S.-origin tubing sent to Mexico to be cut to specific lengths and notched prior to assembly with other components to create finished bicycles. FACTS: Huffy Bicycles is a manufacturer of bicycles in the process of starting an assembly operation in Mexico. As part of that operation, U.S.-origin components will be shipped to a plant in Mexico to be assembled into bicycles. More specifically, U.S.-origin tubing will be sent to Mexico in 20' lengths where it will be cut into top and bottom tubes that form part of the bicycle frame. The top tube will be notched at both ends and the down tube will be notched at only one end. This procedure will occur prior to the assembly of the bicycles in Mexico. Mr. La Rue contends that the notching operation performed in Mexico on the U.S.-origin tubing is incidental to assembly under the provisions of subheading 9802.00.80, HTSUS. Moreover, he states that notching is a critical operation and is necessary for proper fit-up and alignment of all frame parts and so related to the assembly that it is logically performed during the assembly. Finally, the time and cost of the notching operation - 2 - is slight compared to the total cost and time of the complete assembly. The estimated cost and time to notch the tubes are as follows: COST PER TUBE TIME REQUIRED top tube .026 cents .0044 hours per tube down tube .012 cents .00186 hours per tube The total estimated cost of production is $35.00. The total estimated time to assemble the bicycle is .9 hours or 54 minutes. These figures are based on the average size bicycle and will vary depending on the dimensions of the bicycle assembled. ISSUE: Whether the U.S.-origin tubing cut and notched in Mexico to specific lengths for parts of bicycle frames qualifies for a duty allowance under subheading 9802.00.80, HTSUS, when imported into the United States as part of finished bicycles. LAW AND ANALYSIS: All articles imported into the U.S. are subject to duty unless specifically exempted therefrom under the HTSUS. 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, - 3 - 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. 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). In United States v. Mast Industries, Inc. 515 F. Supp 43, 1 CIT 188, aff'd, 69 CCPA 47, 668 F.2d 501 (1988), the court considered the legislative history of the phrase "incidental to the assembly process," and found 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. In the instant case, cutting the tubing to specific lengths is considered an operation incidental to the assembly process pursuant to 19 CFR 10.16(b)(6). Furthermore, in applying the - 4 - Mast criteria to the facts in question, we find that the notching operation to be performed in Mexico is incidental to the assembly process. The cost/time involved to perform the notching is less than one percent of the overall cost/time required for the assemblage of the bicycle. Additionally, we find that the notching operation is essential to the assembly process in that it is necessary to facilitate proper fit-up and alignment of the frame parts. We further find that the cutting and notching operation will not cause the tubing to lose its physical identity. After the operation, it is merely shorter in length and slightly angled on the ends. Finally, we find the notching operation in question analogous to slotting which we have held to be an incidental operation. See, Customs Ruling Letter 555450, dated June 28, 1990 (slotting of a plastic relay cover is an incidental operation). Moreover, in Rudolph Miles v. U.S., C.A.D. 1202, 65 CCPA 32 (1978), the appellate court held that the burning of holes and slots in Z-beams prior to their joinder to boxcars, so that wear and support plates and other components could be initially attached, did not constitute further fabrication and was incidental to the assembly process. Based on the foregoing, we conclude that the tubing exported to Mexico for cutting and notching is exported in condition ready for assembly without further fabrication. We further find that the tubing has not lost its physical identity by change in form, shape, or otherwise. Finally, we find that the tubing is not advanced in value or improved in condition in Mexico except by operations incidental to the assembly process. HOLDING: The cutting of U.S.-origin tubing to specific lengths in Mexico and the notching of one or both ends of the cut tubes prior to assembly with other components to produce finished bicycles are considered operations incidental to the assembly process. Therefore, the cut and notched tubes will be entitled to a duty allowance under subheading 9802.00.80, HTSUS, when returned as part of assembled bicycles, upon compliance with the documentation requirements of 19 CFR 10.24. Sincerely, John Durant, Director Commercial Rulings Division