Internal Advice Request No. 71/92 on Protest No. xxxx-xx- xxxxxx; Applicability of partial duty exemption under HTSUSA subheading 9802.00.80 to trousers; wrinkle resistant fabric treatment; ovenbaking.

HQ 557012 April 22, 1993 CLA-2 CO:R:C:S 557012 MLR CATEGORY: Classification TARIFF NO.: 9802.00.80 District Director U.S. Customs Service Lincoln Juarez Bridge, Bldg. #2 P.O. Box 3130 Laredo, Texas 78044-3130 RE: Internal Advice Request No. 71/92 on Protest No. xxxx-xx- xxxxxx; Applicability of partial duty exemption under HTSUSA subheading 9802.00.80 to trousers; wrinkle resistant fabric treatment; ovenbaking. Dear Sir: This is in response to your memorandum of September 30, 1992, seeking internal advice regarding whether trousers subjected to a wrinkle resistant treatment are eligible for a partial duty exemption under subheading 9802.00.8060, Harmonized Tariff Schedule of the United States Annotated (HTSUSA). Samples of treated and untreated trousers were submitted with your request. FACTS: Radco Sportswear, Inc. (hereinafter, "Radco") imports men's and boys' trousers which have been assembled in Mexico by a related party, Dimmit Industries, S.A. de C.V. (hereinafter, "Dimmit"). Radco supplies all material components used in the assembly process to Dimmit, including U.S. origin fabric piece goods, trimmings, fusible, waistband and pocketing. The trimming, fusible, waistband and pocketing have been accorded duty allowances under subheading 9802.00.80, HTSUSA; however, Radco protests the denial of the duty exemption to the fabric piece goods which have been subjected to a procedure known as "Process 2000." Process 2000 is a chemical and ovenbaking treatment which entails washing the assembled trousers in a mix of chemicals, pressing and ovenbaking them. It is stated that this process permapresses the fabric, making it wrinkle resistant and providing excellent crease retention, and gives the fabric a soft appearance and texture. Radco states that the cost of the Process 2000 treatment when compared to other relevant costs is as follows: Item Cost Process Percentage 2000 of Value Cost of fabric piece goods $3.76 $0.37 10% With cost of other components $5.07 $0.37 7% With cost of labor and overhead before treatment $6.84 $0.37 5.5% Cost of completed trouser $12.50 $0.37 3% The total time required to complete the assembly of the trousers is stated to be 28 minutes, and in response to your memo dated June 10, 1992, requesting additional information, Radco provided information which indicated that the time required for the ovenbaking alone is 15 minutes. ISSUE: Whether the trousers subjected to the Process 2000 treatment qualify for the partial duty exemption available under subheading 9802.00.80, HTSUSA, when returned to the United States. 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, lubricating 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 10.14(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. See 19 CFR 10.16(a). 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 19 CFR 10.16(c). The Customs Regulations expressly provide that the chemical treatment of components or assembled articles to impart new characteristics, such as shower-proofing, permapressing, sanforizing, dyeing or bleaching of textiles, is not considered incidental to the assembly process. 19 CFR 10.16(c)(4). Customs has consistently held that an operation such as ovenbaking is a finishing operation involving substantial processing which is not an incidental operation of a minor nature. See Headquarters Ruling Letter (HRL) 554436 dated August 11, 1988, and HRL 555588 dated February 23, 1990. In HRL 027763 dated September 13, 1973, we also ruled that permapressing was not incidental to assembly. Furthermore, it was held that notwithstanding the question of whether or not trousers were structurally or chemically changed as a result of having been treated with synthetic resins before being oven-cured to produce a permanent press, the fact that the trousers were oven-cured introduced new characteristics by a non-assembly process, which did not exist before the heat treatment (i.e., "locking-in" the shape of the trousers, durable pleats and press creases, durable smooth seams, "locked-out" wrinkles, machine washability and dryability, and a fresh appearance without ironing). The same conclusion was reached in HRL 554290 dated October 10, 1986. [The foregoing rulings are distinguished from HRL 554599 dated June 8, 1987, which held that washing garments in a fabric softener and pressing them were operations incidental to assembly, because the inclusion of a softener in the wash cycle was considered a part of the cleaning process.] Based upon the aforementioned rulings, we are of the opinion that the operations of washing the trousers in a mix of chemicals, pressing and ovenbaking them, which give the trousers new characteristics, are not incidental to the assembly of the trousers. However, in light of General Motors Corp. v. United States, 770 F. Supp. 641 (CIT 1991), Radco alleges that the Process 2000 treatment should be considered an operation incidental to the assembly process. It was anticipated that the General Motors case would possibly expand the application of item 807.00, Tariff Schedules of the United States (TSUS) (the predecessor provision of 9802.00.80, HTSUSA), or if not, clarify the test used to determine whether or not an operation is incidental to assembly. The Court of International Trade held that a finish painting (pigmented topcoating) operation was incidental to the assembly of certain automobiles and, therefore, did not preclude eligibility under item 807.00, TSUS. This judgment was reversed in favor of the U.S. Government by the U.S. Court of Appeals for the Federal Circuit. General Motors v. United States, 976 F.2d 716 (Fed. Cir. 1992). Because the U.S. Court of Appeals for the Federal Circuit did not broaden the application of item 807.00, TSUS, we now have additional legal support to reaffirm our prior rulings. Therefore, we continue to follow the current Customs Regulations with regard to any 9802.00.80, HTSUSA, issue, unless it specifically involves the painting of automobile components as in the General Motors case. Notwithstanding the disposition of the General Motors case, Radco sets forth other arguments why the Process 2000 treatment should be considered an incidental operation. Radco claims that Process 2000 is analogous to certain painting operations described in General Motors to which Customs accorded concurrent classification under item 807.00, TSUS. Radco asserts that of all the operations performed in General Motor's paint shop: (1) cleaning, (2) spraying with a protective coating, (3) submersion in a primer tank, (4) baking, (5) sanding, (6) treating with a sealant, (7) baking again, (8) application of a surface primer, (9) application of a topcoat, (10) final oven curing and (11) waxing, only the final three operations were contested by Customs as not being incidental to the assembly of the automobiles. 976 F.2d at 718. Thus, it is alleged that the Process 2000 treatment which involves submersing the trousers in chemicals, pressing and ovenbaking them, is directly analogous to the first eight paint shop operations, and should therefore be allowed. The Court of Appeals in General Motors, however, specifically rejected the type of piecemeal analysis suggested by Radco: all coating operations performed upon the disputed components, including zinc phosphate, electro deposition primer, sealant, surface primer, sanding, baking, and waxing operations, are relevant and must be considered in conjunction with topcoat painting operations to determine if coating operations, collectively, are minor incidents to assembly. 976 F.2d at 720. Furthermore, although the court permitted a duty allowance on components that solely underwent preservative coating operations, the Process 2000 treatment is clearly more analogous to the operations described in 19 CFR 10.16(c)(4) (see above), which are not incidental to the assembly process, than they are to the preservative painting operations described in 19 CFR 10.16(b)(3). Radco also alleges that Congress amended the predecessor to subheading 9802.00.80, HTSUSA, item 807.00, TSUS, to provide specific examples of operations, e.g., cleaning, lubricating and painting, that are incidental to assembly. In an effort to show that the Process 2000 treatment is incidental to assembly, Radco uses the same analysis as the Court of International Trade in General Motors, which referred to the legislative history to this amendment where Congress stated that the purpose of the bill was to: (1) clarif[y] the type of articles which may be exported for assembly and then reimported and (2) enlarge[] the class of activities which may be performed abroad without subjecting the U.S. product to duty. 770 F. Supp. at 645 (citing S. Rep. No. 530, 89th Cong., 1st Sess. 24, reprinted in, 1965 U.S. Code Cong. & Admin. News 2449) (emphasis added by the Court). Radco claims that in order for an operation to be of the same nature as cleaning, lubricating, and painting, the subject operation must be "minor." The trial court in General Motors stated that if an operation is "a critical step prior to assembly" without which further assembly cannot occur, it cannot be considered "minor." 770 F. Supp. at 645 {citing Zwicker Knitting Mills v. United States, 82 Cust. Ct. 34, 48, 469 F. Supp. 727, 737 (1979), aff'd, 67 CCPA 37, 613 F.2d 295 (1980)}. Unlike operations previously considered, such as the fingertipping operation in Zwicker, which was considered a prerequisite to assembly completion, Radco alleges that the Process 2000 treatment is not critical to complete the assembly of the trousers. Quoting from the trial court in General Motors, Radco states that "this is best evidenced by the fact that the affected components are already assembled before they undergo the [Process 2000] operations." 770 F. Supp. at 645. Therefore, Radco claims that the Process 2000 treatment is minor, and of the same nature as cleaning, lubricating, and painting, and should be a permissible operation under subheading 9802.00.80, HTSUSA. However, we note that although the trial court in General Motors determined that the finish painting was not critical to complete the assembly of the affected components, this alone did not "save the case for GM" on appeal. 976 F.2d at 720. In Surgikos, Inc. v. United States, 12 C.I.T. 242, 244 (1988), although surgical sheets were completely assembled, the finish folding subsequently performed was determined to be an operation other than the actual assembly of the surgical sheets and an operation not incidental to assembly. Therefore, although the trousers are complete when they are subjected to the Process 2000 treatment, this does not make the treatment, in itself, an incidental operation. Lastly, Radco claims that in determining whether certain operations are incidental to the assembly and minor in nature, the following three factors must be examined: (a) whether [i] the cost of the operation relative to the cost of the affected components and [ii] the time required by the operation relative to the time required for assembly of the whole article were such that the operation may be considered "minor"; (b) whether the operations in question were necessary to the assembly process.... (c) whether the operations were so related to assembly that they were logically performed during assembly. 976 F.2d at 719 {citing United States v. Mast Industries, Inc., 69 CCPA 47, 54, 668 F.2d 501, 506 (1981); accord United States v. Oxford Industries, Inc., 69 CCPA 55, 60, 668 F.2d 507, 511 (1981)}. As stated in General Motors, the Mast decision identified these factors as "'relevant factors in this case.'" 976 F.2d at 719, citing 668 F.2d 501, 506. Therefore, the U.S. Court for the Federal Circuit in General Motors did not "read Mast as announcing factors that must invariably be used to the exclusion of all others, or that all such factors are pertinent in every case involving item 807.00." 976 F.2d at 719. Radco states that the cost and time required for the Process 2000 treatment are less significant than the cost and time required to complete the topcoating operation in General Motors (i.e., 14 percent cost and 10 percent time). Regarding the relative cost and time of an operation, in Samsonite Corp. v. United States, 702 F. Supp. 908, 911 (1988), aff'd, 889 F.2d 1074 (1989), the trial court stated that "[t]he magnitude of a particular process in terms of time and cost, however, does not make that process any less one of fabrication, nor does it make the result thereof any less significant." On appeal, the court stated "[t]he critical inquiry in determining whether fabrication rather than mere assembly took place ..., is not the amount of processing that occurred ..., but its nature." Furthermore, in General Motors it was stated that "where the operations are complex and involve significantly automated or non-labor processes (such as baking), this factor [i.e., time] provides little guidance on whether operations are of a 'minor nature.'" 976 F.2d at 721. As for the cost, we note that the Court of Appeals in General Motors considered the cost of machinery and equipment required, which was not provided here. Lastly, we find that as in Surgikos, the nexus between the Process 2000 treatment and the assembly of the trousers is lacking in this case. In Surgikos, the Court of International Trade, in applying the Mast criteria, held that certain post- assembly operations (cutting a rectangular opening in a surgical sheet and finish folding) were not minor operations incidental to the assembly of the sheets. This was based not only on information relating to cost and time relationships, but also on its finding that the operations were neither necessary nor directly related to the assembly operation. 12 C.I.T. at 245. Because we believe that our consistent position that permapressing and ovenbaking are finishing operations which are not minor, is supported by earlier judicial decisions and since the recent decision in General Motors does not affect this position, we find that a duty allowance for the fabric piece goods is precluded under subheading 9802.00.80, HTSUSA. HOLDING: On the basis of the information submitted, it is our opinion that the chemical and ovenbaking treatment of the trousers, unlike a mere pressing, are more than mere incidental operations to assembly. Therefore, only the trimming, fusible, waistband and pocketing are accorded a duty allowance under subheading 9802.00.80, HTSUSA, and duty is payable on the total value of the fabric piece goods in accordance with the appropriate tariff provision. Sincerely, John Durant, Director Commercial Rulings Division cc: Chief, NIS Branch 3