HQ 555474

September 5, 1990

CLA-2 CO:R:C:V 555474 KAC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

District Director of Customs

880 Front Street, Suite 5S9

San Diego, California 92188

RE: Internal Advice Request #IA 44/89 concerning the

applicability of subheading 9802.00.80, HTSUS, to water

mattress inserts.Fabrication;incidental operations;

drilling;Mast;Miles;Surgikos;061429;555394

Dear Sir:

This is in response to your memorandum of July 14, 1989,

forwarding a request for internal advice, initiated by Stein

Shostak Shostak & O\'Hara on behalf of Advanced Sleep Products, on

the applicability of subheading 9802.00.80, Harmonized Tariff

Schedule of the United States (HTSUS), to water mattress inserts.

We regret the delay in responding to your request.

FACTS:

Advanced Sleep Products ships U.S.-origin polyethylene foam

sheets, polyester fiber sheets, polyethylene bags, and

polyethylene primex black film to Mexico for certain operations.

From these components, Advanced Sleep manufactures thirty-three

different insert units for water mattresses. The 1/2 inch or 1/8

inch sheet of polyethylene foam is the principal component to

which the polyethylene bag is heat sealed and the polyester fiber

sheets and urethane foam sheets are riveted. This whole

structure floats inside the water mattress to achieve the

necessary wave reduction properties. The operations performed in

Mexico are:

\(1\) cutting and trimming the sheets;

\(2\) drilling holes into the sheets;

\(3\) heat sealing the polyethylene bags to the \"float

sheet\";

\(4\) riveting the polyester fiber sheets to the \"float

sheet\";

\(5\) riveting the urethane foam sheet to the \"float sheet\";

and

\(6\) packing the insert.

In the drilling operation, sixty to seventy of the sheets

are placed in a special wooden box which contains a lid with

guide holes. A drill operator follows the pattern on the lid,

drilling from twelve to forty-two holes in the sheets, which

allow air and water to flow through the insert. After removing

the lid, the operator runs a hand-held air drill with a door-knob

drill bit through the sheets to make a three inch drain hole.

After the sheets are assembled with other components to

create the mattress inserts, some of the inserts are assembled

into mattresses in Mexico while others are returned to the U.S.

The time required for the drilling operation is .04 seconds per

sheet which is .0075 percent of the time required to complete the

entire insert. When the inserts are assembled into the

mattresses abroad the cost for the drilling of the inserts

represents .00049 percent of the total labor cost of the

mattress.

ISSUE:

Whether the sheets incorporated into the water mattress

inserts are eligible for the duty exemption available under

subheading 9802.00.80, HTSUS, when imported into the U.S.

LAW AND ANALYSIS:

HTSUS subheading 9802.00.80 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, lubrication, and painting.

All three requirements of HTSUS subheading 9802.00.80 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 loose 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,

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. 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 HTSUS subheading

9802.00.80 to that component. See, 19 CFR 10.16(c).

In United States v. Mast Industries, Inc., 515 F.Supp. 43,

1 CIT 188, aff\'d, 69 CCPA 47, 668 F.2d 501 (1988), the court, in

examining the legislative history of the meaning of \"incidental

to the assembly process,\" stated that:

\[t\]he apparent legislative intent was to not preclude

operations that provide an \"independent utility\" or that are

not essential to the assembly process; rather, Congress

intended a balancing of all relevant factors to ascertain

whether an operation of a \"minor nature\" is incidental to

the assembly process.

The court then indicated that relevant factors included:

\(1\) whether the relative cost and time of the operation

are such that the operation may be considered minor;

\(2\) whether the operation is necessary to the assembly

process;

\(3\) whether the operation is so related to the assembly

that it is logically performed during assembly; and

\(4\) whether economic or other practical considerations

dictate that the operation be performed concurrently

with assembly.

The question presented is whether the drilling operation

performed in Mexico is part of or incidental to the assembly of

the water mattress inserts. Rudolph Miles v. United States,

C.A.D. 1202, 65 CCPA 32, 567 F.2d 979 (1978), rev\'g, C.D. 4689,

78 Cust.Ct. 35, 427 F.Supp. 417 (1977), concerned whether the

burning of slots and holes into Z-beams in Mexico, so that wear

and support plates and other components could be attached prior

to the beams\' joinder to boxcars, constituted a further

fabrication of the beams. The court held that the burning of the

holes and slots was concomitant with the assembly process and was

not substantial enough to preclude the application of the

precursor provision to HTSUS subheading 9802.00.80. We have

previously ruled on several occasions that drilling or punching

holes in various components is an operation incidental to

assembly where the operation is not substantial. See,

Headquarters Ruling Letter (HRL) 061429 dated March 28, 1980

(holes drilled and punched through plastic cabinet, wood decal,

and oscillator shield to accommodate locks and coil were deemed

to be incidental to assembly, as they were not substantial); and

HRL 555394 dated August 15, 1989 (punching a hole into a vertical

blind strip, which allows for the subsequent attachment of a

plastic hook, is considered an incidental operation).

However, it is our opinion that the drilling operation in

this case does not qualify as an assembly operation or operation

incidental to assembly under subheading 9802.00.80, HTSUS. The

drilling operation in question is distinguishable from Miles and

the above-described cases, for in the latter situations the

holes made by burning, drilling or punching were subsequently

used in the assembly process. However, the holes drilled by

Advanced Sleep are not used in the subsequent assembly of the

water mattress inserts, but, rather, are created to allow air and

water to flow or drain through the insert. The unique pattern

design of the holes is an essential feature of the insert and

distinguishes Advanced Sleep\'s water mattresses from those of its

competitors. In our opinion, the drilling operation is a

significant process whose primary purpose is the fabrication of

the sheet component which later will be assembled into the water

mattress insert. See HRL 554920 dated January 3, 1989 (punching

a hole in one end of a fabric vane for receipt of a removable

plastic hanger insert was not incidental to assembly as the

attachment of the hanger did not constitute an assembly

operation).

Moreover, an analysis of the Mast criteria supports the

conclusion that the drilling operation is not an incidental

operation. In applying the Mast criteria, the court in Surgikos,

Inc. v. United States, 12 CIT , Slip Op. 88-35 (1988), found

that fenestration and finishing folding operations performed

after assembly operations were not incidental to the assembly

process, as the operations comprised over one-fourth of the cost

and one-third of the time involved to assemble the article, they

were not necessary prerequisites to the assembly of the article,

they were not related directly to the assembly process, and

practical considerations did not \"dictate\" that the article be

produced in the exact manner performed.

Although we recognize that the time and cost of the drilling

operation in the instant case is minor compared to the time and

cost of the total foreign operations, the drilling operation,

nevertheless, is a significant step in the manufacture of the

water mattress inserts for the reasons discussed above. Drilling

the holes clearly is not a necessary prerequisite to the

subsequent assembly of the insert, and the operation is not

related directly to the assembly process. Additionally, we are

not persuaded from the information presented that economic or

other practical considerations mandate that the drilling

operation be performed in Mexico immediately before the assembly.

Weighing the above factors, we conclude that the drilling

operation is not an incidental operation within the meaning of

subheading 9802.00.80, HTSUS, but rather evidences that the sheet

components are not exported in condition ready for assembly

without further fabrication.

HOLDING:

On the basis of the information presented, it is our opinion

that the drilling operation is not an operation incidental to the

assembly process, but rather is a further fabrication of the

sheet components. Therefore, these components are not entitled

to allowances in duty under subheading 9802.00.80, HTSUS.

Sincerely,

John Durant, Director

Commercial Rulings Division