Applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States ("HTSUS") to certain precious metal jewelry lockets

HQ H035996 January 5, 2009 OT:RR:CTF:VS H035996 YAG CATEGORY: Valuation Mr. John M. Peterson Neville Peterson LLP 17 State Street – 19th Floor New York, New York 10004 RE: Applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (“HTSUS”) to certain precious metal jewelry lockets Dear Mr. Peterson: This is in response to your ruling request, dated August 15, 2008, on behalf of your client, LVB Manufacturing Co., LLC, concerning the applicability of subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (“HTSUS”), to certain jewelry products (lockets) from Hong Kong. Samples of all components sent abroad and the finished product were submitted with your request. FACTS: LVB Manufacturing intends to import into the United States certain precious metal jewelry lockets from Hong Kong, made in part from fabricated components of the United States. The lockets consist of six (6) basic components. The left (front) shell, the right (back) shell of the lockets as well as metal bails will be fabricated in the United States from gold or gold plated with rhodium. The left and right shells are in the shape of the good into which they will be made, i.e. in the shape of a heart. These components will then be exported to Hong Kong where they will be combined with certain foreign origin components. These foreign components include a base metal hinged frame in the shape of two hearts, a heart-shaped retainer, and a heart-shaped paper insert. In Hong Kong, the U.S. origin right and left shells of the locket (in other words the front and the back of the locket) will be force-fit and crimped to the base metal hinged frame in the shape of two hearts. The hinged frame has grooved edges and the shells must fit over these securely. In fact, you state that it is necessary to bend the edges of the shells to ensure a secure fit over the frame component. Additionally, in conjunction with force-fitting and crimping of the right shell (back of the locket) with the hinged frame, the metal bail is formed into a loop and attached to the frame in a single bending/crimping operation. After the bail is inserted, the foreign origin retaining rings are pressed into the sides of the locket and are crimped into place. The locket is then ready for operations to complete the article. Such operations include: placing decorative findings, such as a United States origin bas-relief floret, to the front of the locket by soldering or force-fitting; performing ornamental machine-engraving; applying an open-faced etching component, produced in the United States to the locket by soldering; and, finally, subjecting the front shell to surface engraving of a pattern, painting and polishing. Additionally, in some cases, a preservative coat of rhodium is applied to the golden components of the jewelry to preserve the gold. ISSUE: Whether the left (front) and the right (back) shells of the lockets as well as metal bails, and decorative findings attached to the lockets in Hong Kong, collectively the U.S. originated components, qualify for the HTSUS subheading 9802.00.80 duty allowance. LAW AND ANALYSIS: 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, 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, HTSUS, to that component. See 19 CFR §10.16(c). A. The components are fabricated components of U.S. Origin In this case, while no information was provided as to where the metal originated, the components are cut to a particular shape, rolled to uniform widths, and fabricated in the United States in such a way that their only use is as front and back shell components of the subject lockets. Similarly, the bail is stamped into a very particular shape which is thicker in the middle. The bail also features outcroppings on either end that are designed to fit within the locket and firmly ] anchor the bail to the back shell of the locket. Thus, we find that these components are fabricated components of U.S. origin. See Headquarters Ruling Letter ("HRL") 954021, dated November 1, 1993 (materials, cut-to-shape in the United States, and used in the foreign assembly of jewelry presentation boxes qualify as fabricated components under 19 CFR §10.14(a)). B. The components were exported in condition ready for assembly without further fabrication It is stated that the components are already shaped and exported in condition ready for assembly without further fabrication. As exported from the United States, the shell components have already acquired unique shapes that dedicate them to their use in the manufacture of lockets. The left and right shell components exported from the United States are crimped at the edges in Hong Kong, to ensure that they fit into the hinged frame. Furthermore, the bail is formed into a loop and attached to the locket by crimping. We find that the crimping and force-fitting of the left and right shell components to the hinged frame and the loop to the locket is an acceptable form of assembly pursuant to 19 CFR §10.16(a). See HRL 560667, dated February 20, 1998 (the fitting together of the tube and the fitting, as well as end forming and flanging the tube so the fittings would not slide off the tube, were either acceptable forms of the assembly or operations incidental thereto for purposes of 9802.00.80 HTSUS); HRL 556422, dated March 24, 1992 (crimping a shell fitting which was attached to aluminum tubing so as to join the tubing to a rubber house was an acceptable assembly and the resulting deformation of the fitting was incidental to assembly under Section 10.16(b)(5)); and HRL 555533, dated June 4, 1990 (bending or deforming a portion of a bracket used in a starter solenoid switch, by means of a press, over a sub-assembled housing unit for the sole purpose of attaching the bracket to the unit was an acceptable operation incidental to assembly). Furthermore, we find that bending the heart-shaped components and bail are operations incidental to the assembly process. Section 10.16(b)(5) states that adjustments in the shape or form of a component to the extent required by the assembly being performed abroad are operations incidental to the assembly process. The bending of the heart-shaped components allows them to better fit to the other components as part of the assembly process. The folding enables the bail to be inserted and fitted into the grooves of a heart-shaped locket before the retaining rings are pressed into the sides of the locket and are crimped into place. Additionally, the metal bail is formed into a loop and attached to the frame in a single operation, which is done in conjunction with force-fitting and crimping of the right shell (back of the locket) with the hinged frame. In Samsonite Corp. v. United States, 12 C.I.T. 1146, 702 F. Supp. 908 (Ct. Int'l Trade 1988), the Court held that bending cannot be considered incidental to assembly where it does more than adjust the article and results in the creation of the component to be assembled. In HRL 555612, dated September 13, 1990, CBP stated that the U.S. plastic border material, exported in a straight pre-notched condition to be hand-wrapped, i.e., bent, around a picture print sandwich to create the picture frame, was not exported in condition ready for assembly without further fabrication, as required by subheading 9802.00.80, HTSUS. However, in contrast to Samsonite Corp. v. United States and HRL 555612, in HRL 555486, dated November 20, 1989, CBP ruled that bending the edges of mylar slot insulators assembled into stator cores was an operation incidental to assembly, based on the fact that the bending was so related to the assembly that it would not be feasible to perform it except during assembly. We find that folding the bail in this case is analogous to the situation in HRL 555486, and, therefore, it may be considered an operation incidental to the assembly process. Finally, it is stated that the bas-relief florets or decorative findings are attached to the lockets by means of ultrasonic welding or soldering. Pursuant to 19 CFR 10.16(a), which specifically identifies soldering and welding as assembly operations, we find that applying decorative findings to the lockets is an acceptable assembly operation. C. Whether the components 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 It is also claimed that the post-assembly operations, such as etching, engraving, and the processes of polishing and the application of a preservative coat of rhodium constitute operations incidental to the assembly. It is stated that some lockets may be lightly polished to remove rough surface, scratches, and burrs resulting from the assembly process. Section 19 CFR §10.16(c)(5) states that polishing, which imparts significant new characteristics or qualities to an article is not an incidental operation. However, in HRL 555595, dated May 21, 1990, CBP found that the polishing did not impart a significant new characteristic to the leather-wrapped eyeglass temple or to the front of the nylon sunglass frame, but was instead analogous to a cleaning operation. In this case, we find that polishing the lockets in order to remove rough surface and scratches is akin to a cleaning operation discussed in HRL 555595 and qualifies as an operation incidental to the assembly process pursuant to 19 CFR §10.16(b)(1), which provides that cleaning is an operation incidental to the assembly process. As to the application of a preservative coat of rhodium, the importer claims that this coating purely preserves the gold and does not impart coloring or decorative characteristics. We have previously held that under certain circumstances, coating or plating of various components to prevent corrosion is considered an operation incidental to assembly. See HRL 556197, dated December 4, 1991 (coating of steel water pipes to prevent corrosion associated with water was considered an operation incidental to assembly); HRL 556124, dated October 31, 1991 (powder coating spring brakes to protect against corrosion associated with snow and ice removal was considered an operation incidental to assembly). We find that applying a coat of rhodium to preserve the gold is analogous to the situations in described in HRL 556197 and HRL 556124; thus, we determine that the application of a preservative coat of rhodium is an operation incidental to assembly pursuant to 19 CFR §10.16(b)(3), which provides that the application of paint or preservative coating, including preservative metallic coating, lubricants, or protective encapsulation are operations incidental to the assembly. With respect to etching and engraving, it is claimed that it is impossible to engrave or etch the locket components in the United States before the assembly process abroad. Since the exported locket components are in flat profile and the assembly process involves crimping the edges of the component to achieve a sure fit to the heart frame, etching or engraving of the flat components in the United States would be destroyed by curving which occurs during the assembly process. Additionally, it is claimed that it is more practical to perform etching, engraving and application of decorative findings during the assembly process in Hong Kong. After the engraving process, the locket components must be aligned (the engraving and etching processes cause the top and bottom shells to become misaligned). It is argued that unless an alignment process is performed prior to the assembly of the different locket components, the locking mechanism may not line up, thus preventing the locket from closing properly. It is stated that any attempt to etch or engrave the lockets in the United States after the assembly in Hong Kong would lead to misalignment. Additionally, since applying preservative coating is an operation incidental to assembly and is done at the time of the assembly of the locket, etching or engraving the lockets after the preservative coating is applied would compromise the article by causing scratches and damage to the engraved and etched area of the locket. As a result, you claim that in this case, the etching or surface working of the lockets is an incidental operation. Nonetheless, 19 CFR §10.16(c)(5) states that “machining, polishing, burnishing, peening, plating (other than plating incidental to the assembly), embossing, pressing, stamping, extruding, drawing, annealing, tempering, case hardening, and any other operation, treatment or process which imparts significant new characteristics or qualities to the articles affected is not an operation incidental to the assembly.” However, in Daimler-Chrysler Corp. v. United States, the Court held that the entire painting process, including preservative and decorative painting, constituted an operation incidental to the assembly and qualified for the partial duty exemption. See Daimler-Chrysler Corp. v. United States, 361 F.3d 1378 (Mar. 18, 2004). In this case, even though engraving and etching impart some decorative characteristics to the lockets, such characteristics are not so significant as to impart a new quality to articles affected as provided by 19 CFR §10.16(c)(5). In fact, the market value of the lockets is claimed not to be materially advanced by etching or engraving, and these processes do not turn the lockets into new items, but simply provide a choice of various styles of lockets for consumers. Further, etching and engraving are most easily performed at the time of the assembly of lockets, as it would be difficult and impractical to perform these processes before the front and the back components are curved and after the lockets are completely assembled. As a result, based on the information and explanations provided, we find that etching and engraving are not significant operations, and, therefore, may be considered incidental to the assembly of lockets. Thus, a duty allowance may be made under this tariff provision for the cost or value of the U.S. origin components. HOLDING: On the basis of the information and samples submitted, we find that the allowances in duty under subheading 9802.00.80 may be made for the U.S. originated components exported abroad, which include the left (front) shells, the right (back) shells of the lockets as well as metal bails, and decorative findings, provided the documentary requirements of 19 CFR §10.24 are satisfied. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch