HQ 560349

August 21, 1997

CLA-2 RR:TC:SM 560349 KSG

CATEGORY: Classification

TARIFF NO.: 9802.00.80

Mr. Robert Noell
Vice President
Cains Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. Box 150
Hidalgo, Texas 78557

RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.80 to flapper assemblies; NAFTA
preferential tariff treatment;
Article 509

Dear Mr. Noell:

This is in response to your letter of March 5, 1997,
requesting a ruling regarding the applicability of
subheading 9802.00.80 of the Harmonized Tariff Schedule of
the United States (HTSUS), and the North American Free Trade
Agreement ("NAFTA") to imported flapper assemblies. Several
samples were submitted with your request.

FACTS:

Alco Controls plans to begin importing flapper
assemblies from Mexico. The flapper assemblies are sub-assemblies of a filter/dryer, a device which is installed in
a refrigerant line in heat pumps. The heat pumps are
machines which heat and cool air in residential
applications.
The flapper assembly is a valve that controls the direction
of refrigerant through the filter/dryer.

The parts involved and the tariff classifications which
you provided for the parts are: a flapper spring (classified
at subheading 7320.20, HTSUS), a spring (classified at
subheading 7320.20, HTSUS), a rivet (classified at
subheading 8308.20, HTSUS), a poppet (classified at
subheading 7318.22, HTSUS), a mounting plate (classified at
subheading 7326.90, HTSUS), a flapper (classified at
subheading 3926.90, HTSUS), and a centering cup (classified
at subheading 7326.90, HTSUS). You state that all the parts
are of U.S. origin.

The assembly process in Mexico consists of the
following: 1) a flapper spring is placed over the tabs on
the centering cup. The flapper is placed on top of the
flapper spring and then the mounting plate is placed over
the flapper; 2)the tabs of the centering cup are crimped
over the mounting plate to hold the parts together; 3) the
poppet is placed over the hole in the center of the mounting
plate. A rivet is inserted through a spring, the poppet,
and the hole in the center of the mounting cup; and 4) the
end of the rivet is deformed on the centering cup end of the
assembly to hold the parts together.

ISSUES:

I. Whether the flapper assembly will qualify for the
partial duty exemption available under subheading
9802.00.80, HTSUS, when returned to the U.S.

II. Whether the flapper assembly will qualify for
preferential tariff treatment under the North
American Free Trade Agreement.

LAW AND ANALYSIS:

I. Subheading 9802.00.80, HTSUS

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 a component may receive a duty
allowance. An article entered under this tariff provision
is subject to duty upon the full value of the imported
article, less the cost or value of the U.S. components, upon
compliance with the documentary requirements of 19 CFR
10.24.

The applicable regulations for this exemption are set
forth in 19 CFR 10.11 through 19 CFR 10.26. The provisions
of 19 CFR 10.14(a) state in part that the 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.

Qualifying assembly abroad is described in 19 CFR
10.16. The assembly operations 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, and may be
preceded, accompanied, or followed by operations incidental
to the assembly. 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. 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.

In the instant case, you have described processing in
Mexico which involves only assembly operations. The parts
are joined together by crimping and then with a rivet. The
components are in condition ready for assembly without
further fabrication at the time of their exportation from
the United States. Consequently, the flapper assembly may enter the U.S. under
subheading 9802.00.80, HTSUS, with allowances in duty for
the cost or value of any components which are determined to
be of U.S. origin, provided the documentary requirements of
19 CFR 10.24 are satisfied.

II. NAFTA preferential tariff treatment

The second issue concerns whether the imported flapper
assembly is entitled to preferential tariff treatment under
NAFTA. Article 401 of NAFTA is incorporated into General
Note 12, HTSUS. General Note 12(a) provides, in pertinent
part, that:

(ii) Goods that originate in the territory of a
NAFTA party under subdivision (b) of this note and
that qualify to be marked as goods of Mexico under
the terms of the marking rules ....and are entered
under a subheading for which a rate of duty appears
in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty
rate....

Thus, by operation of General Note 12, the eligibility of a
particular article for NAFTA duty preference is predicated,
in part, upon an origin determination under the NAFTA
Marking Rules of either Canada or Mexico.

Section 102.11, Customs Regulations (19 CFR 102.11),
sets forth the required hierarchy for determining whether a
good is a good of a NAFTA country for the purposes of
country of origin marking and determining the rate of duty
and staging category applicable to an originating good as
set out in Annex 302.2. Paragraph (a) of this section
states that the country of origin of a good is the country
in which:

(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic
materials; or
(3) Each foreign material incorporated in that good
undergoes an applicable change in tariff
classification set out in section 102.20 and
satisfies any other applicable requirements of that section, and all other applicable requirements of these
rules are satisfied.

"Foreign material" is defined in 19 CFR 102.1(e) as "a
material whose country of origin as determined under these
rules is not the same country
as the country in which the good is produced." Sections
102.11(a)(1) and 102.11(a)(2) do not apply to the facts
presented in this case because the flapper assemblies are
assembled in Mexico of U.S. material and therefore are
neither wholly obtained or produced, nor produced
exclusively from domestic materials. Since an analysis of
sections 102.11(a)(1) and 102.11(a)(2) will not yield a
country of origin determination, we look to section
102.11(a)(3).

Section 102.11(a)(3) provides that the country of
origin is the country in which "each foreign material
incorporated in that good undergoes an applicable change in
tariff classification as set forth in 19 CFR 102.20...."

The flapper assembly is classified at subheading
8481.80.90, HTSUS. The applicable tariff shift rule found
in section 102.20(o) provides as follows:

HTSUS Tariff Shift and/or other requirements

8481.10-8481.80.....A change to subheading 8481.10 through
8481.80
from any other heading, or from subheading
8481.90 except when resulting from a simple
assembly.

In the instant case, the foreign materials are a
flapper spring (classified at subheading 7320.20, HTSUS), a
spring (classified at subheading 7320.20, HTSUS), a rivet
(classified at subheading 8308.20, HTSUS), a poppet
(classified at subheading 7318.22, HTSUS), a mounting plate
(classified at subheading 7326.90, HTSUS), a flapper
(classified at subheading 3926.90, HTSUS), and a centering
cup (classified at subheading 7326.90, HTSUS). All the
foreign materials ( U.S. in this case) undergo the
applicable tariff shift. Pursuant to 19 CFR 102.11(a)(3),
the country of origin of the flapper assembly is the country
where the foreign materials undergo the applicable tariff
shift, which is Mexico.

Accordingly, we find that under the NAFTA Marking Rules, the
flapper assembly is a good of Mexico.

General Note 12(b) provides, in pertinent part, the
following:

For purposes of this note, goods imported into the
Customs territory of the United States are
eligible for the tariff treatment and quantitative
limitations set forth in the tariff schedule as
"goods originating in the territory of a NAFTA
party only if:

(I)they are goods wholly obtained or produced entirely
in the territory of Canada, Mexico and/or the
United States; or

(ii) they have been transformed in the territory
of Canada, Mexico, and/or the United States so
that-

(A) except as provided in subdivision (f) of
this note, each of the non-originating material used in the
production of such goods undergoes a
change in tariff
classification described in subdivisions (r), (s)
and (t) of this note or the rules
set forth therein or

(B) the goods otherwise satisfy the applicable
requirements of subdivisions (r), (s) and
(t) where no change in tariff
classification is required, and the goods satisfy
all other requirements of
this note; or

(iii) they are goods produced entirely in the
territory of Canada, Mexico and/or the United
States exclusively from originating materials.

We have insufficient information to determine whether
the flapper assembly is considered "originating" under
General Note 12(b)(i) or (iii).
Therefore, we will consider whether the flapper assembly is
considered originating under General Note 12(b)(ii).

Based on the information presented, it appears that the
flapper valve assembly would be classified at subheading
8481.80.90, HTSUS.
With respect to General Note 12(b)(ii)(A), the applicable
tariff shift rule under General Note 12(t)/84.239 provides
for a change in tariff classification to subheading 8481.10
through 8481.80 from any other heading; or a change to
subheadings 8481.10 through 8481.80 from subheading 8481.90,
whether or not there is also a change from any other
heading, provided there is a regional value content of not
less than: (1) 60 percent where the transaction value method
is used, or (2) 50 percent where the net cost method is used
is a qualifying change in tariff classification. Since the
materials imported into Mexico undergo the applicable tariff
shift, the flapper assembly is eligible for preferential
tariff treatment under the NAFTA. The special MX rate of
duty under subheading 8481.80.90, HTSUS, is free.

HOLDING:

The flapper assembly may enter the U.S. under
subheading 9802.00.80, HTSUS, with allowances in duty for
the cost or value of the components which are determined to
be of U.S. origin, provided the documentary requirements of
19 CFR 10.24 are satisfied.

The flapper assembly is also eligible for preferential
tariff treatment under the NAFTA.

A copy of this ruling letter should be attached to the
entry documents filed at the time this merchandise is
entered. If the documents have been filed without a copy,
this ruling should be brought to the attention of the
Customs officer handling the transaction.

Sincerely,

John Durant
Director
Tariff Classification Appeals
Division