Internal Advice; HTSUS subheading 9802.00.80; padlocks; plating; Haggar

HQ W561672 June 1, 2001 CLA-2 RR:CR:SM W561672 MLR CATEGORY: Classification TARIFF NO.: 9802.00.80 Port Director U.S. Customs Service 9 N. Grand Ave. Nogales, Arizona 79907 RE: Internal Advice; HTSUS subheading 9802.00.80; padlocks; plating; Haggar Dear Sir: This is in reference to your letter dated March 2, 2000, requesting internal advice whether a plating operation is “incidental to the assembly process” within the meaning of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). Further information was presented by counsel for Master Lock on June 6, 2000. FACTS: Master Lock Company ships U.S.-origin steel lock body plates, cylinders, and shackles to an affiliated factory in Mexico, Master Lock de Nogales, S.A. de C.V., where the U.S.-origin lock body plates are assembled to form lock bodies. The lock bodies are then sent to another Mexican subcontractor and zinc plated for corrosion resistance. This occurs by placing about 500-2,000 lock bodies inside a plating barrel. The lock bodies are cleaned by soaking in acid. The lock bodies are dipped into a plating solution of cadmium and cyanide acid which puts a cadmium finish on the lock body. After plating, the lock bodies are returned to Master Lock de Nogales, where they are made into padlocks. It is claimed that the plating can only occur after the lock body is assembled, but before assembly into a padlock. ISSUE: Whether the plated lock bodies qualify for subheading 9802.00.80, HTSUS, treatment. 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). In United States v. Haggar Apparel Co., 526 U.S. 380, 393 (1999), the Supreme Court held that subheading 9802.00.80, HTSUS, was ambiguous for purposes of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 842-44 (1984), and Customs must use its discretion to determine how best to implement the policy in cases not covered by the specific terms of subheading 9802.00.80, HTSUS. Therefore, the customs regulations may not be disregarded. Id. at 394. 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 and cannot always be provided for in advance of the assembly operations. See 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, HTSUS, to that component. See 19 CFR 10.16(c). Subsections 10.16(b)(1), (2), and (3) specifically provide that “cleaning; removal of rust, grease, paint, or other preservative coating; and the application of preservative paint or coating, including preservative metallic coating, lubricants, or protective encapsulation” are considered incidental to the assembly process. Subsection 10.16(c)(5) provides that “machining, polishing, burnishing … plating (other than plating incidental to the assembly) … or any other process which imparts significant new characteristics or qualities to the article affected” is not incidental to the assembly process. No information has been provided concerning the operations involved in assembling the lock bodies in Mexico. Therefore, this ruling is limited to a consideration whether the plating process is incidental to assembly of the lock bodies. Customs is assuming that the operations involved in joining the various components of the lock bodies together in Mexico are acceptable assembly operations under subheading 9802.00.80, HTSUS. In this case, counsel claims that the plating operation performed in Mexico is incidental to the assembly process. The plating process first involves placing the lock bodies into a plating barrel where they are soaked in acid that is stated to be a cleaning process. According to 19 CFR 10.16(b)(1), this cleaning process is incidental to the assembly process. Next, the lock bodies are dipped into a plating solution of cadmium and cyanide acid that puts a cadmium finish on the lock bodies. The purpose is to provide resistance to corrosion. We find that this type of plating, indeed, is mainly used to give corrosion protection which may protect the finished padlocks from harsh outdoor environments. Accordingly, we find that the plating process is incidental to the assembly operation as 19 CFR 10.16(b)(3) allows the application of preservative metallic coating. See also Headquarters Ruling Letter 556197 dated December 4, 1991 (coating steel water pipes with gunite coating to prevent corrosion associated with water was an operation incidental to the assembly process, pursuant to 19 CFR 10.16(b)(3)); HRL 556124 dated October 31, 1991 (powder coating spring brakes to protect against corrosion associated with snow and ice removal was incidental to the assembly process, pursuant to 19 CFR 10.16(b)(3)). HOLDING: On the basis of the information submitted, pursuant to 19 CFR 10.16(b)(1) and (3), we find that the plating operation performed on the lock bodies in Mexico is incidental to the assembly process in Mexico. Therefore, assuming that the lock bodies otherwise satisfy the conditions and requirements of subheading 9802.00.80, HTSUS, and the documentation requirements of 19 CFR 10.24, the padlocks imported into the U.S. will be entitled to entry under this tariff provision. This decision should be mailed by your office to the internal advice requester no later than sixth days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other means of public distribution. Sincerely, John Durant, Director Commercial Rulings Division