Protest No. 2304-12-100007; Fishing Lures; Subheading 9802.00.80, HTSUS; Painting

HQ H217795 October 9, 2012 OT:RR:CTF:VS H217795 BGK CATEGORY: Classification Port Director U.S. Customs and Border Protection Port of Laredo P.O. Box 3130 Laredo, TX 78044-3130 Re: Protest No. 2304-12-100007; Fishing Lures; Subheading 9802.00.80, HTSUS; Painting Dear Port Director: This is in response to the Application for Further Review of Protest No. 2304-12-100007, which pertains to the eligibility of certain fishing lures for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). Photographs of the operations that occurred in Mexico were provided, along with samples of the finished lures. FACTS: Plastic Research and Development Corporation (Pradco) manufactures bodies for fishing lures in the U.S. These are then exported to Mexico for further operations to create finished fishing lures. In Mexico, the bodies are painted, given eyes, and assembled with hooks and rings. The operations are as follows: The body is dipped in a UV clear coat; A tape mask is applied, as needed; Paint is applied, starting with basecoats, and subsequently applying more detailed accents; Logos are printed onto the painted body; Eyes are glued or painted onto the body; A topcoat is applied to the body and eye; and Hooks are assembled to the body via small metal rings. The fishing lures are then packaged for retail sale. ISSUE: Whether the fishing lures are eligible for a partial duty exemption 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. . ..” 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, the gluing of the eyes and joining the hooks to body with metal rings explicitly constitute assembly. See 19 C.F.R. § 10.16(a). It is therefore necessary to determine if the painting operations constitute further fabrication of the imported bodies or are considered operations incidental to the assembly process. 19 C.F.R. § 10.14(a) states, in pertinent part, that “[c]omponents 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.” 19 C.F.R. § 10.16(b)&(c) provide examples of operations incidental and not incidental to the assembly process. The “[a]pplication of paint or preservative coating, including preservative metallic coating, lubricants, or protective encapsulation” is considered an operation incidental to assembly. 19 C.F.R. § 10.16(b). In DaimlerChrysler Corp. v. United States, 361 F.3d 1378 (Fed. Cir 2004), the Court of Appeals for the Federal Circuit (CAFC) held that “painting”, of any nature, is an operation incidental to assembly for purposes of subheading 9802.00.80, HTSUS. In DaimlerChrysler, the company assembled trucks from U.S-origin sheet metal in Mexico. The truck components were subjected to a series of preservative coatings, known as primer coats, which were subsequently baked and were then painted with a color coat and clear coat, known as the top coats. As the Customs Regulations in place at the time distinguished between preservative painting, which was treated as an operation incidental to assembly, and decorative painting, which was treated as an operation not incidental to assembly, Customs denied DaimlerChrysler’s use of subheading 9802.00.80, HTSUS. In reviewing these regulations, the CAFC applied the two-step Chevron analysis. See Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In reviewing the validity of an agency regulation under Chevron, the court must determine if: (1) “‘Congress has directly spoken to the precise question at issue,’ then ‘that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress[;]’ [and (2)] ‘if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.’” DaimlerChrysler, 361 F.3d at 1381 (citing Chevron, 467 U.S. at 842-43). In DaimlerChrysler, the CAFC found that the Supreme Court had already answered the first part of the analysis with respect to painting in United States v. Haggar Apparel Co., 526 U.S. 380 (1999). In analyzing another portion of the regulations relating to subheading 9802.00.80, HTSUS, the Court found that Congress had established two different categories of operations incidental to assembly, those that were unambiguously provided for in the subheading, like painting, and those that were general and ambiguous. DaimlerChrysler, 361 F.3d at 1382 (citing Haggar, 526 U.S. at 393). As the Supreme Court determined that painting was unambiguously provided for by Congress in subheading 9802.00.80, HTSUS, the CAFC determined that the Customs Regulations must give effect to this intent. Id. at 1384-85. The CAFC determined that making a distinction between preservative and decorative painting did not give effect to the unambiguous intent of Congress, and the regulation was, therefore, invalid. Id. The court was not persuaded by Customs’ argument that allowing all painting would allow for extensive operations, such as painting a copy of the ceiling of the Sistine Chapel onto the good, to be considered operations incidental to assembly. Id. at 1385. U.S. Customs and Border Protection (CBP), amended 19 C.F.R. § 10.16, effective July 14, 2008, to reflect the CAFC’s holding in DaimlerChrysler. See 73 Fed. Reg. 33299 (June 12, 2008). As such, all painting, whether decorative or otherwise, is considered an operation incidental to assembly for purposes of subheading 9802.00.80, HTSUS. Therefore, we find the painting operations in this case are incidental to assembly, and do not affect the eligibility of the fishing lures for a partial duty exemption under subheading 9802.00.80, HTSUS. We find the fishing lures at issue will be eligible for a partial duty exemption under subheading 9802.00.80, HTSUS, provided the documentary requirements of 19 C.F.R. § 10.24 are satisfied. The protestant has provided both the required Importer’s Declaration and Assembler’s Declaration. See 19 C.F.R. § 10.24(a). The Assembler’s Declaration, however, simply states “various” for the quantity and value of the U.S.-origin components and gives the Mexican assembler’s information for the name and address of the manufacturer. A Manufacturer’s Affidavit is provided that gives a name and address of the manufacturer in the U.S. (the U.S. importer), the shipping period, and a destination that matches the information for the Mexican assembler. A list of components is attached. The document contains a blank for the document number section, and the attached list of components does not contain all the fields listed on the affidavit as being attached, such as the country of origin. A U.S. entity, address, and code are listed in field 1, “Manufacturer’s Name, Address, and Code,” and although no manufacturing location is listing in field 3, “Manufacturing Location – Name, address, and code,” the same code that appears in field 1, is listed in field 3. Although the Assembler’s Declaration gives the Mexican assembler’s information for the manufacturer of the components, we do not find this error to be controlling, given that a Manufacturer’s Affidavit was also provided listing a U.S. manufacturer. Additionally, 19 C.F.R. § 10.24(d) allows the waiver of certain details from the assembler’s affidavit when components are purchased from various sources or exported at various ports and dates on a continuing basis provided the “port director is satisfied that the importer and assembler have established reliable controls to insure that all components for which an exemption is claimed are in fact products of the United States”. No evidence of such controls has been presented. Provided the port director is satisfied that the documentation meets the requirements of 19 C.F.R. § 10.24, the fishing lures at issue are eligible for a partial duty exemption under subheading 9802.00.80, HTSUS. HOLDING: The fishing lures at issue are eligible for a partial duty exemption under subheading 9802.00.80, HTSUS. The protest should be GRANTED, provided the port director is satisfied that the documentation meets the requirements of 19 C.F.R. § 10.24. 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