HQ 561152

March 8, 1999

CLA‑02: RR:CR:SM 561152 MFC

CATEGORY: Classification

Mr. Richard G. Seley

Director Regulatory Matters

Rudolph Miles & Sons, Inc.

P.O. Box 11057

El Paso, Texas 79993

RE: NAFTA Preference; country of origin marking; eligibility of steel
angles and H sections for partial duty exemption under subheading
9802.00.80, HTSUS; classification; Article 509

Dear Mr. Seley:

This is in reference to your letter dated September 17, 1998 requesting
a ruling concerning the classification, country of origin, North
American Free Trade Agreement ("NAFTA") eligibility, and eligibility for
a partial duty exemption under subheading 9802.00.8065 of the Harmonized
Tariff Schedule of the United States ("HTSUS") of steel angles and H
sections assembled in Mexico and imported into the U.S. by your client,
SME Industries, Inc. ("SME"). The request included a drawing of the
assembled article.

FACTS:

The subject merchandise is described as a section of U.S. origin
non-alloy steel H beam to which U.S. origin non-alloy steel angles have
been welded in Mexico. The assembled article is depicted in drawing
number 40. You state that the finished article will be used in a
specific location in a cement kiln pre-heater building constructed for
the Rinker Cement Plant in Miami, Florida. As specified in drawing
number 40, the H section is W30x132 (wide flange shape, 30 inches deep,
132 lbs./ft) that is made of ASTM A572gr50 carbon steel. The section is
27\' 2 11/16\" long. SME orders the steel section from the mill rolled
to a length that allows for trimming. For purposes of this ruling, we
assume that the sections and angles are of U.S. origin, as you have
asserted in your letter. The H section and a stock length of angle will
be sent to Mexico.

In Mexico, the H section is sawed to the exact length required and is
drilled with twenty-four holes, size 13/16.\" The stock length of angle
will be punched with 13/16\" holes every three inches along the length
and four pieces will be sheared to a length of 1\' 11 1/2\" each to
create what are known as "Clip Angles." The holes in the clip angles
will facilitate the article's installation after importation by matching
these holes with holes in a beam or column at the job site. You state
that one hole in each angle is needed to position the clip angle to the
beam prior to welding. Also in Mexico, the four end connection angles
(clip angles) are assembled to the beam by welding them to the ends.

Finally, the assembled article will be cleaned (by sandblasting) and
spray painted for corrosion protection in Mexico. The finished articles
are then exported to the United States.

ISSUES:

1\) What is the tariff classification of the assembled steel article?

> 2\) Whether the assembled article is eligible for preferential duty
> treatment under the NAFTA.
>
> 3\) What is the country of origin of the assembled article for country
> of origin marking purposes?
>
> 4\) Whether the subject merchandise is eligible for the partial duty
> exemption under subheading 9802.00.80, HTSUS, upon importation into
> the U.S.

LAW AND ANALYSIS

A. Classification

The imported assembled article is classifiable in subheading
7308.90.3000, HTSUS, which provides for "Structures\... and parts of
structures\...of iron or steel\...: Other: Columns, pillars, posts,
beams, girders, and similar structural units: Not in part of alloy
steel."

You have stated that you believe the classification of the H section to
be in subheading 7216.33.00, HTSUS, which provides for "Angles, shapes
and sections of iron or nonalloy steel: U, I, or H sections, not further
worked than hot-rolled, hot-drawn or extruded, of a height of 80 mm or
more: H sections", and that the angle is also classified within heading
7216. We concur.

B. NAFTA Preference

Article 401 of the NAFTA is incorporated into General Note ("GN") 12 of
the Harmonized Tariff Schedule of the United States ("HTSUS") which
provides, in pertinent part, as follows:

> (a)(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 set forth in regulations
> issued by the Secretary of the Treasury (whether or not the goods are
> marked), when such goods are imported into the customs territory of
> the United States 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, in accordance with
> section 201 of the North American Free Trade Implementation Act.
>
> \(b\) 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 \[de minimis
> provision\], each of the non‑originating materials 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\....
>
> \(iii\) they are goods produced entirely in the territory of Canada,
> Mexico and/or the United States exclusively from originating
> materials\....

Thus, by operation of GN 12, the eligibility of an article for NAFTA
preferential treatment is predicated upon a finding that the goods are
originating in the territory of a NAFTA party under GN 12(b) and that
they are goods of Canada or Mexico under the NAFTA Marking Rules.

You have asserted that the angles and section are of U.S. origin and,
therefore, we will assume for purposes of this ruling that they qualify
as NAFTA originating materials when they leave the U.S. Since the angles
and section qualify as NAFTA originating materials when they leave the
U.S., the finished good when imported into the U.S. after assembly in
Mexico is an originating good pursuant to GN 12(b)(iii), HTSUS.

C. Country of Origin Marking

The marking statute, section 304 of the Tariff Act of 1930, as amended
(19 U.S.C. §1304), provides that, unless excepted, every article of
foreign origin (or its container) imported into the United States shall
be marked in a conspicuous place as legibly, indelibly, and permanently
as the nature of the article will permit, in such a manner as to
indicate to the ultimate purchaser in the United States the English name
of the country of origin of the article. Part 134, Customs Regulations
(19 CFR Part 134), implements the country of origin marking requirements
and exceptions of 19 U.S.C. §1304.

The country of origin marking requirements for a "good of a NAFTA
country" are determined in accordance with Annex 311 of the NAFTA, as
implemented by section 207 of the North American Free Trade Agreement
Implementation Act (Pub. L. 103‑182, 107 Stat. 2057) (December 8, 1993)
and the regulations set forth in 19 CFR Parts 102 and 134.

Section 134.1(b) (19 CFR §134.1(b)) of the regulations defines "country
of origin" as the country of manufacture, production, or growth. In
order to change the country of origin, further work or material added to
the article in another country must effect a substantial transformation.
However, for a good of a NAFTA country, the NAFTA Marking Rules will
determine the country of origin. 19 CFR §134.4(b). A "good of a NAFTA
country" is an article for which the country of origin is Canada, Mexico
or the United States as determined under the NAFTA Marking Rules. 19 CFR
§134.1(g).

Part 102 of the regulations (19 CFR Part 102), contains the "NAFTA
Marking Rules" for purposes of determining whether a good is a good of a
NAFTA country. Section 102.11 of the regulations (19 CFR §102.11) sets
forth the required hierarchy for determining country of origin for
marking purposes. Section 102.11(a) provides that:

"\[t\]he 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 requirements of these rules are satisfied."

\"Foreign Material\" is defined in section 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.\"

Because the H section and angles are of U.S. origin, the subject
merchandise is neither wholly obtained or produced, nor produced
exclusively from domestic materials. Accordingly, we must attempt to
determine the country of origin pursuant to section 102.11(a)(3). We
look at the foreign materials to determine if such materials have
undergone the required tariff shift pursuant to this rule. Both the H
section and the angles are of foreign (non-Mexican) origin.

We are now directed to 19 CFR §102.20 to determine whether the required
tariff shift has occurred. As discussed above, the sections and angles
are both classified separately in heading 7216, HTSUS, while the
assembled merchandise is classifiable in subheading 7308.90.3000, HTSUS.
Section 102.20(n) states that the rule for a good classifiable under
heading 7308 is

> "\[a\] change to heading 7308 from any other heading, except for
> changes resulting from the following processes performed on angles,
> shapes, or sections classified in heading 7216:
>
> \(a\) drilling, punching, notching, cutting, cambering, or sweeping,
> whether performed individually or in combination;
>
> \(b\) adding attachments or weldments for composite construction;
>
> \(c\) adding attachments for handling purposes;
>
> \(d\) adding weldments, connectors, or attachments to H-sections or
> I-sections; provided that the maximum dimension of the weldments,
> connectors, or attachments is not greater than the dimension between
> the inner surfaces of the flanges of the H-sections or I-sections;
>
> \(e\) painting, galvanizing, or otherwise coating;
>
> \(f\) adding a simple base plate without stiffening elements,
> individually or in combination with drilling, punching, notching, or
> cutting, to create an article suitable as a column."

Because the change from heading 7216 to heading 7308 in this case
clearly results from certain of the processes described above, the
applicable tariff shift rule is not satisfied.

Section 102.11(b) provides a country of origin determination for goods
that cannot be classified under paragraph (a), and states that the
country of origin of the good is the country or countries of origin of
the single material that imparts the essential character of the good. 19
CFR §102.11(b)(1).

The general rules of interpretation in section 102.18(b)(1) (19 CFR
§102.18(b)(1)) state that:

> \(b\) (1) For purposes of identifying the material that imparts the
> essential character to a good under §102.11, the only materials that
> shall be taken into consideration are those domestic or foreign
> materials that are classified in a tariff provision from which a
> change in tariff classification is not allowed under the §102.20
> specific rule or other requirements applicable to the good.

\* \* \*

> \(2\) For purposes of determining which one or two or more materials
> described in paragraph (b)(1) of this section imparts the essential
> character to a good under §102.11, various factors may be examined
> depending upon the type of good involved. These factors include, but
> are not limited to, the following:
>
> \(i\) The nature of each material, such as its bulk, quantity, weight
> or value; and
>
> \(ii\) The role of each material in relation to the use of the good.

Applying section 102.18(b)(2) to the facts of this case, we note that
the subject merchandise is comprised of an H section to which four clip
angles are attached. Based on the facts presented and weighing the above
factors, we find that the H section clearly manifests the essential
character of the subject merchandise. Therefore, pursuant to section
102.11(b)(2), the country of origin of the subject merchandise is the
U.S. The marking statute only requires articles of foreign origin to be
marked with their country of origin (19 U.S.C. §1304). Since the country
of origin for marking purposes of the subject merchandise imported into
the U.S. will be the U.S., it will be excepted from country of origin
marking requirements.

However, for duty purposes, 19 CFR §102.19(b) provides that the subject
merchandise will be treated as a product of Mexico. Section 102.19(b)
states that:

> If, under any other provision of this part, the country of origin of a
> good which is originating within the meaning of §181(q) of this
> chapter is determined to be the United States and that good has been
> exported from, and returned to, the United States after having been
> advanced in value or improved in condition in another NAFTA country,
> the country of origin of such good for Customs duty purposes is the
> last NAFTA country in which that good was advanced in value or
> improved in condition before its return to the United States.

Thus, the subject merchandise will be subject to the NAFTA "MX"
preferential duty rate since it was last advanced in value or improved
in condition in Mexico before its return to the U.S. Section 102.19(b)
"is intended to facilitate the application of the appropriate NAFTA
preferential duty rate under General Note 12(a), HTSUS, in the case of
originating goods the origin of which is determined to be the United
States under the Part 102 provisions." 60 Fed. Reg. 22312, 22318 (May 5,
1995) (Notice of Proposed Rulemaking, Final Rule published 61 Fed. Reg.
28932 (June 6, 1996)).

D. 9802.00.80

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).

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 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. 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. See, 19 CFR §10.16(c).

While the welding operation performed abroad in this case clearly is an
acceptable assembly operation, it is necessary to determine whether the
drilling and hole-punching operations are considered incidental to the
foreign assembly process. When a particular operation is employed that
is not specifically enumerated in the regulation, application of the
criteria specified by the court in [United States v. Mast
Industries]{.underline}, 515 F. Supp. 43, 1 CIT 188, aff'd, 668 F.2d
501, 69 CCPA 47 (1981), is appropriate. The [Mast]{.underline} court, in
examining the legislative history of the phrase "incidental to the
assembly process," stated that Congress intended a balancing of all
relevant factors to ascertain whether an operation of a "minor nature"
was incidental to the assembly process. The court stated that relevant
factors included:

> \(1\) whether the relative cost of the operation and time required by
> the operation were 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.

With regard to the first [Mast]{.underline} criterion, you supplied
information that the cost of the H section is estimated to be \$760.00,
while the cost to drill the holes in the H section is estimated to be
\$4.10 (0.5% of the cost of the H section). The cost of the angle is
estimated to be \$17.00, while the cost to punch holes in the angle is
estimated at \$2.50 (14.7% of the cost of the angle). The above cost
comparisons tend to support your contention that the drilling and
hole-punching operations are incidental to assembly.

Regarding the time comparison part of the first [Mast]{.underline}
criterion, you estimate that the time to drill and punch the holes in
the section and angles is 40 minutes, while you estimate that the total
assembly time is 80 minutes. Thus, approximately 50% of the total time
needed to perform the foreign processing is necessary to complete the
drilling and hole-punching operations. This time comparison supports a
finding that the drilling and hole-punching operations are not
incidental to the assembly of the subject merchandise.

Whether the drilling and hole-punching operations are necessary to the
assembly process is the second [Mast]{.underline} criteria. In [Rudolph
Miles v. United States]{.underline}, 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),
the issue was 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 abroad, constituted a
further fabrication of the beams. The court held that the burning of the
holes and slots was concomitant with the foreign assembly process and
was not substantial enough to preclude the application of the precursor
provision to subheading 9802.00.80, HTSUS. 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 and is necessary for the assembly process. See Headquarters
Ruling Letter ("HRL") 560599 (March 13, 1998) (holes cross-drilled in an
insulator are a necessary prerequisite to subsequent assembly and are
incidental operations); HRL 555671 (March 15, 1991) (punching holes into
wooden venetian blinds which will later be used in a subsequent assembly
operation abroad is incidental to the assembly); HRL 555394 (August 15,
1989) (punching a hole into a vertical blind strip, which allowed for
the subsequent attachment of a plastic hook, was considered an
incidental operation).

By contrast, in certain cases, we have denied application of subheading
9802.00.80 where the drilling or punching of holes was unnecessary to
the assembly process. See HRL 558813 (February 1, 1995) (drilling bleed
holes in a piston to allow gas or liquid to flow or drain was a
significant operation); HRL 555474 (September 5, 1990) (drilling holes
into water mattress inserts to allow air and water to flow or drain is a
further fabrication). With the exception of one hole in each clip angle
(needed to align the angle to the beam abroad), the holes in the subject
merchandise are not necessary for the foreign assembly but are created
for use in the erection of the final product at job sites in the U.S. As
you have acknowledged, this factor weighs against finding the drilling
and hole-punching operations to be incidental to assembly.

Regarding the third and fourth [Mast]{.underline} factors, you have
presented information which indicates that, due to the difficulty of
handling such heavy materials (you stated that the subject merchandise
weighs 3,649 pounds), it is more efficient and economical to drill and
punch the holes during the assembly process. You note that one hole in
each angle is needed to position the clip angle prior to welding and,
therefore, the cost to drill and punch the additional holes is greatly
minimized by making them during the processing in Mexico. We are
satisfied by the information submitted that the drilling and
hole-punching operations are sufficiently related to assembly that they
are logically performed during the assembly process (the third
[Mast]{.underline} criterion). However, we are not persuaded that
"economic or other practical considerations **dictate** that the
operation be performed concurrently with assembly \[emphasis added\]"
(the fourth [Mast]{.underline} factor).

In consideration of all of the [Mast]{.underline} factors discussed, it
is our opinion that, on balance, the drilling and hole-punching
operations performed on the H-beams and angles are not minor operations
incidental to the assembly process. Consequently, the returned assembled
articles will not be entitled to a duty allowance under subheading
9802.00.80, HTSUS.

HOLDING:

Based on the information provided, we find as follows:

The classification of the subject assembled merchandise is subheading
7308.90.3000, HTSUS.

The subject merchandise is eligible for preferential duty treatment
under the NAFTA because it is comprised of NAFTA originating materials,
the H section and angles.

The subject merchandise is exempt from country of origin marking
requirements under 19 U.S.C. §1304 as the U.S. is its country of origin.

The subject merchandise is not eligible for a duty allowance under
subheading 9802.00.8065, HTSUS, as the drilling and hole-punching
operations performed in Mexico are not considered operations incidental
to assembly.

A copy of this ruling 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

Commercial Rulings Division