Application for Further Review of Protest No. 3801-10-100374; Subheading 9802.00.80, Harmonized Tariff Schedule of the United States; Partial duty exemption for U.S. origin polyurethane film and polyethylene carrier

HQ H167117 July 6, 2012 OT:RR:CTF:VS H167117 BGK CATEGORY: Classification Port Director U.S. Customs and Border Protection Port of Port Huron 526 Water Street - Room 301 Port Huron, MI 48060-5471 Re: Application for Further Review of Protest No. 3801-10-100374; Subheading 9802.00.80, Harmonized Tariff Schedule of the United States; Partial duty exemption for U.S. origin polyurethane film and polyethylene carrier Dear Port Director: This is in response to the Application for Further Review of Protest No. 3801-10-100374 filed on behalf of Kay Automotive Graphics, Inc. (Kay), which pertains to the application of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to certain protective polyurethane film and polyethylene carrier. A supplemental submission was also submitted on October 31, 2011 in response to specific questions from this office. U.S. Customs and Border Protection (CBP) Laboratories and Scientific Services (LSS) conducted an analysis on the samples submitted. The entries at issue were liquidated on September 3, 2010, and the protest was received by CBP on November 8, 2010. We note that the protest was timely filed. FACTS: Kay exports U.S. manufactured rolls of polyurethane film (PU film) attached to a U.S. manufactured polyethylene carrier (PE carrier) to Wales for application of an adhesive coating and release liner to form PU Film 1, and, in some instances, top coating and gloss polyester to form PU Film 2. The films are designed to enhance a vehicle’s appearance and protect against abrasion. It is stated that the purpose of the top coat is to protect the adhesive coated film from moisture ingress, staining, and weathering. The goods at issue were originally entered under subheading 9802.00.50, HTSUS; however, CBP appraised the goods under subheading 3919.90.50, HTSUS. Kay then filed a protest seeking treatment under subheading 9802.00.80, HTSUS. Along with its protest submission, Kay Automotive submitted a narrative of the processing operation that occurs in Wales, a presentation with pictures of the process, and samples of the film at issue throughout various stages of processing. Invoices from the factory in Wales contain the product information and pricing, statements regarding the “value of goods of US origin” and “added value in the UK”, and the shipping terms. The invoices also contain the following statement: “This is to certify that the goods on this invoice are of origin of the USA, and are being returned after being adhesive coated.” This statement is signed by an individual identifying himself with the company that owns the factory in Wales. In their supplemental submission, Kay provided more detail about the processing that occurs in Wales, along with “Declarations by Assembler,” containing information regarding the components exported from the United States and the date and place of export, and endorsements by the importer, all dated October 27, 2011. When exported from the U.S., the uncoated PU film rolls measure approximately 460 meters in length and 1.25 to 1.232 meters or 1.430 to 1.397 meters in width. The rolls are attached to a PE carrier on the surface to prevent the PU film from sticking to itself. In Wales, an adhesive coating and release liner are applied to the film. The adhesive is applied to the release liner through a roller coating technique as the release liner comes off its roll on an unwind. The adhesive coated release liner is then passed through a drying oven. At the opposite end of the drying oven, the PU film is fed from an unwind through a laminator where the adhesive coated release liner is laminated to the side of the film without the PE carrier. After the film is laminated to the adhesive coated release liner, the resulting product is rewound onto a roll. The resulting product is layered as follows: PE carrier, PU film, adhesive coating, and release liner. At this point, the roll may proceed to the application of the top coat, or it may be cut for export to the United States. After the application of the adhesive coating and release liner, the article is referred to as PU Film 1. The rolls are cut from their original 460 meters to approximately 225-230 meters when exported to the United States. Because the manufacturer occasionally finds topcoat variances at the outer edge, approximately 12 millimeters are slit off each side of the roll in order to remove the imperfect edges. The roll is then shipped to the U.S. If the roll proceeds to the application of the top coat, the roll maintains its original length until after the top coat and gloss polyurethane are applied. To begin the process of the application of the top coat, the PE carrier is removed. The PE carrier removed at this stage is not returned to the U.S. The top coat is applied on the side of the PU film where the PE carrier used to be, opposite the adhesive coating and release liner. The top coat is an acrylic and resin blend. However, as neither is able to adhere to the PU film on its own, the acrylic and resin are dissolved in a solvent, which aids the blend to adhere to the surface. The resin and acrylic begin as solid blocks that are reduced to a powder. The powder is then dissolved into the solvent. The new blend is then coated onto the PU film in the same manner, and on the same machinery, as the adhesive coating was applied to the release layer. After the application of the top coat, the film moves through the drying oven where the heat dries off the solvent, leaving behind a thin, one millimeter, layer of film covering the entire top surface of the PU film. At the end of the drying oven, a gloss polyester film is fed off a roll, passed through a laminator, and laminated over the top coat on the PU film. The gloss polyester is stated to provide a gloss finish to the top coat and protect the surface during transit and subsequent processing conducted in the U.S. The film then undergoes the same cutting and slitting operations as PU Film 1. This is what is referred to in this decision as PU Film 2. The analysis of LSS concluded that the PU Film 2 is composed of the following identified layers: (1) polyester-type material, (2) acrylic-type material, (3) polyurethane, (4) acrylate-type adhesive, and (5) polyethylene terephthalate and silicon-type materials. LSS concluded that this is consistent with Kay’s claim. The layers are individually identifiable and distinct from one another. It was also concluded, however, that the layers are not reasonably detachable. The exported PU film is analytically identifiable under the added gloss polyester and acrylic-resin layers. ISSUE: Whether PU Film 1 and PU Film 2 are eligible for entry under subheading 9802.00.80, HTSUS. LAW AND ANALYSIS: Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: Articles . . . 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 an article may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full appraised value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation requirements of 19 C.F.R. § 10.24. Section 10.14(a), Customs Regulations (19 C.F.R. § 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 [U.S.] to qualify for the exemption. Components will not lose their entitlement to the exemption by being subject to operations incidental to the assembly either before, during, or after their assembly with other components. Section 10.16(a), Customs Regulations (19 C.F.R. § 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, laminating, sewing, or the use of fasteners. . ..” (emphasis added). 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 C.F.R. § 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 C.F.R. § 10.16(c). In this case, there are four operations occurring: the application of the adhesive and the release layer, the application of the top coat, the application of the gloss polyester, and the cutting of the rolls. In General Instrument Corporation v. United States, 462 F. 2d 1156, 1158 (C.C.P.A. 1972), the court agreed with the importer that item 807.00, TSUS, the predecessor to subheading 9802.00.80, HTSUS, “does not require that a component be either visible or detachable without injury to itself or the assembly.” LSS has concluded in this situation that while the layers are not reasonably detachable, they remain separately identifiable. Adhesive Layer and Release Liner The adhesive coating allows for the lamination of the release liner to the U.S. film. It is clear from the samples and photographs in the submission that both the U.S. film and release liner are solid components. Both gluing and laminating are explicitly enumerated in 19 C.F.R. § 10.16(a) as acceptable methods for assembling two solid components. The operations related to the application of the adhesive and release liner constitutes an acceptable assembly operation. See Headquarters Ruling Letter (HRL) 953990, dated August 2, 1993 (laminating fabric with medical grade adhesive and applying a release liner is an acceptable assembly operation). PU Film 1 goes on to the cutting process at the completion of this process, and PU Film 2 continues on to the application of the top coat and the gloss polyester. Top Coat The top coat is an acrylic and resin blend. Acrylic and resin powders are dissolved into a solvent that assists in adhering the blend to the surface. The new blend is then coated onto the PU film in the same manner as the adhesive coating was applied to the release layer. After the application of the top coat, the film moves through the drying oven where the heat dries off the solvent, leaving behind a thin, one millimeter, layer of film covering the entire top surface of the polyurethane film. LSS has confirmed that a separately identifiable acrylic-resin layer exists between the gloss polyester and PU film. As stated above, 19 C.F.R. § 10.16(a) requires the assembly to be of solid components. Kay, citing C.J. Tower & Sons of Buffalo, Inc. v. United States, 304 F. Supp. 1187 (Cust. Ct. 1969), claims the application of the acrylic-resin blend in liquid form does not prevent the operation from being considered assembly. C.J. Tower held that an assembly occurred when U.S. sheets of polyester were covered with Canadian-origin adhesive or adhesive promoter and polyethylene, in liquid form, was applied through an extrusion process. The court found that this was a combination of the manufacturing process of the foreign material and the assembly process of the polyethylene and the solid, U.S.-origin polyester, which it did not find to be prohibited by item 807.00, TSUS. It was noted by the court that the process was “a controlled operation which anticipate[d] the transformation of the liquid into a solid before completion of the process, and provide[d] in advance for the adhesion of the two solids together in the final product.” C.J. Tower, 340 F. Supp. at 1190. Kay also relies on Sigma Instruments, Inc. v. United States, 724 F.2d 930, (Fed. Cir. 1983) for the proposition that an assembly may occur when the foreign part is applied to the U.S. component in a molten form that subsequently hardens. In Sigma Instruments, U.S.-origin terminals were aligned in a mold and a liquid compound was poured into the mold around the terminals and hardened. The molding ensured the terminals were held in a predesigned spatial relationship. Your office argues that the process at issue is more akin to a coating process than an assembly with a component in molten form. You cite to Headquarters Ruling Letter (HRL) 731419, dated August 29, 1988, and HRL 553450, dated June 12, 1985, for support. In HRL 731419, polyester fabric was coated with asphalt, which cooled to a solid state. CBP held that this was not a solid being attached while in liquid form because the asphalt added another characteristic to the fabric; it created the basic article and could not qualify as an assembly. HRL 553450 held that melting thermoplastic pellets and extruding the resultant molten material over copper wires was not a process of assembly, but amounted to a coating process. CBP distinguished Sigma Instruments on the grounds that the molten thermoplastic provided insulation to one component, the wire, whereas the compound in Sigma Instruments held terminals in a fixed position. We find C.J. Tower to be controlling in this case. As explained in C.J. Tower, combining a manufacturing and assembly step is not prohibited by subheading 9802.00.80, HTSUS. In this case, the acrylic and resin start out as solids and are mixed with a solvent to adhere the blend to the surface of the PU film. The PU film and PE carrier are solid, fabricated components. The top-coat is manufactured while being assembled with the PU film, as in C.J. Tower. Therefore, we find that the application of the acrylic-resin blend is an acceptable assembly operation under subheading 9802.00.80, HTSUS. Gloss Polyester We also find the application of the gloss polyester to be an acceptable assembly operation under 19 C.F.R. § 10.16(a). The gloss polyester begins on a roll and is fed from an unwind through a laminator on top of the top coated film. This results in the lamination of the top coated film to the gloss polyester. As stated above, lamination is expressly provided for as an acceptable assembly operation under 19 C.F.R. § 10.16(a). Cutting 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 C.F.R. § 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 C.F.R. § 10.16(c). Operations that are considered incidental to assembly are found at 19 C.F.R. § 10.16(b). Section 10.16(b)(4) provides for trimming, filing, or cutting off of small amounts of excess materials. Additionally, § 10.16(b)(6) allows cutting to length of wire, thread, tape, foil, and similar products exported in continuous length. In the operations at issue, the 460 meter rolls of both PU Film 1, including U.S.-origin PU film and PE carrier, and PU Film 2, including U.S.-origin PU film, are cut into two rolls of approximately 225-230 meters. This is an explicitly enumerated acceptable operation under 19 C.F.R. § 10.16(b)(6). As such, cutting to length is an acceptable operation incidental to the assembly process. The rolls are also cut through a slitting operation. It was clarified that the rolls exported to the UK are wider than required in order to ensure that any movement of the web does not affect the finished width requirement. The slitting operation removes approximately 12 millimeters off each edge of the roll to remove any imperfections. In General Instrument Corp. v. United States, 480 F.2d 1402 (C.C.P.A. 1973), rolls of anode foil were exported for assembly into electrolytic capacitors. Originally, the anode foil was exported in the width used; however, when it was discovered that the edges were damaged during handling prior to use, the company began exporting foil in a wider width to be trimmed for use abroad. The court held that trimming the edges amounted to an operation incidental to the assembly process, citing C.J. Tower, which also held that trimming off edges was not a bar to treatment. Trimming was also considered an operation incidental to assembly in HRL 555361, dated August 3, 1989, where a molten rubber coating was applied to a three or four-ply textile backing. After the application of the rubber to the top of the backing, the coated textile material was trimmed to remove any excess rubber cement on the sides and ensure the sides were even. In this case, the film is exported wider than necessary to allow for movement during the operation, and the roll is slit to the proper width after the assembly operations are complete. The purpose of the slitting is to ensure the sides are even, as the top coat may be imperfect at the edges. Only 12 millimeters are removed on each side, totaling approximately 2.4 percent of the total width. As such, based on the above, we find that the slitting operation that occurs in Wales is an acceptable trimming operation under 19 C.F.R. § 10.16(b)(4). HOLDING: Based on the facts presented, we find that the operations described above are proper assembly operations or operations incidental to assembly. Consequently, the imported goods are entitled to a partial duty exemption under subheading 9802.00.80, HTSUS. This protest should be granted. In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division