Applicability of gas turbines for a partial duty exemption under subheading 9802.00.80, HTSUSA.

HQ 556626 August 4, 1992 CLA-2 CO:R:C:S 556626 SER CATEGORY: Classification TARIFF NO.: 9892.00.80 Robert H. Schor, Esq. Barnes, Richardson & Colburn 475 Park Avenue South New York, NY. 10016 RE: Applicability of gas turbines for a partial duty exemption under subheading 9802.00.80, HTSUSA. Dear Mr. Schor: This is in reference to your letter of April 2, 1992, on behalf of Asea Brown Boveri, Inc., concerning the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to gas turbines manufactured in Switzerland and assembled, in part, with U.S. components. FACTS: Gas turbine blades, manufactured in the U.S., are exported to Switzerland for assembly into gas turbines or gas turbine generator sets, and then returned to the U.S. Specifically, upon importation into Switzerland, the U.S. turbine blades will undergo three main operations prior to their assembly into gas turbines or turbine generator sets. First, they will be cleansed by immersion in a grease dissolvent. Second, the blades will be painted or encapsulated in a protective plastic coating. Finally, the heel portion of the blade will be machined simultaneously with the raceway in the rotor shaft to create an interlocking fit. In regard to the machining operations, cuts will be machined in the shaft assembly to match the blade machined cuts. All this is done to create an interlocking force fit joint between the blade and the shaft. ISSUE: Whether gas turbines or gas turbine generator sets with the U.S.-origin blades incorporated therein, will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUSA, when imported into the U.S. -2- LAW AND ANALYSIS: Subheading 9802.00.80, HTSUSA, 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, lubrication, and painting. All three requirements of subheading 9802.00.80, HTSUSA, 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 10.16(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 gluing, laminating, welding, soldering, riveting, force fitting, sewing, or the use of fasteners. Operations incidental to the assembly process are not considered further fabrication operations, as they as of a minor nature and cannot always be provided for in advance of the assembly operations. Examples of operations which are incidental to the assembly process include trimming, filing, or cutting off of small amounts of excess materials. See, section 10.16(b), Customs Regulations (19 CFR 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, HTSUSA, to that component. See, section 10.16(c), Customs Regulations (19 CFR 10.16(c)). Examples of operations not considered incidental to assembly include: machining, polishing, burnishing, peening, plating, ... and any other operation, treatment or process which imparts significant new characteristics or qualities to the articles affected. See, section 10.16(c)(5). -3- It is our position that a duty allowance may not be made for the U.S.-origin turbine blades since they are not exported in a condition ready for assembly without further fabrication. Section 10.16(c)(5) explicitly includes "machining" as an operation which is not incidental to the assembly process. Therefore, this operation precludes application of the exemption to turbine blades. Furthermore, the holding in the case, Samsonite Corporation v. U.S., 702 F.Supp. 908 (CIT 1988), aff'd, 889 F.2d 1074 (Fed.Cir. 1989), supports our conclusion that the U.S.-origin turbine blades are not exported in a condition ready for assembly without further fabrication. In Samsonite, straight steel strips were sent abroad for bending into a squared "C" shape and then assembled into luggage. The plaintiff argued that the bending of the strips was a mere adjustment in shape required by the assembly being performed abroad. The Court of International Trade stated that without the resultant shape the final article could not be completed, and, therefore, further fabrication was necessary. Similarly, in this case, without the machining of the blade heels, the assembly of the final article could not be completed. In addition, the machining of the blade heels goes beyond mere adjustments in the shape or form of a component as the drawing which you submitted of the blade shows that the cuts required are substantial. Therefore, no allowance in duty may be made under subheading 9802.00.80, HTSUSA, for the cost or value of the turbine blades. HOLDING: The machining of the U.S.-origin turbine blades would constitute a further fabrication of these components, thereby precluding a duty allowance under subheading 9802.00.80, HTSUSA. Sincerely, John Durant, Director Commercial Rulings Division