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HQ 557350




August 12, 1993

CLA-2 CO:R:C:S 557350 WAW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80; 9801.00.10

John M. Peterson, Esq.
Neville, Peterson & Williams
39 Broadway
New York, N.Y. 10006

RE: Eligibility of thermal transfer products for the partial duty allowance under subheading 9802.00.80 and 9801.00.10

Dear Mr. Peterson:

This is in reference to your letter dated May 14, 1993, on behalf of Xerox Corporation, concerning whether certain thermal transfer products, when imported from Mexico, will qualify. for the partial duty exemption available under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS) or as . "American Goods Returned" under subheading 9801.00.10, HTSUS. A sample imaging cartridge was enclosed for our reference.

FACTS:

The merchandise in question consists of imported thermal transfer products used to print documents generated by facsimile machines. The merchandise will be imported into the U.S. in two forms:

(1) The merchandise will be imported in the form of imaging cartridges, which feature thermal transfer facsimile rolls assembled onto a plastic housing which is specially shaped and designed to be inserted into one or more particular model facsimile machines. The imaging cartridge is essential to the proper functioning of the facsimile machines for which it is designed. If the cartridge is removed, the facsimile cannot function properly; it cannot print out "hard copy" of documents received to memory, nor can it print confirmation slips or activity logs nor make photocopies. When the thermal transfer facsimile roll contained in each imaging cartridge is used up, the facsimile roll is removed from the facsimile machine and discarded. The frame of the cartridge may be recycled, at the facsimile owner's discretion.

(2) Xerox imports thermal transfer facsimile rolls which are packaged, two to a box, as "refill" rolls for facsimile machines. The facsimile rolls are manufactured in particular widths and lengths, which dedicate them to use with particular model facsimile machines.

The thermal transfer facsimile rolls used in each of these products are manufactured in Chicago by Sony Chemical Corporation of America, and are sold to Xerox Corporation in the U.S. Xerox exports these thermal transfer facsimile rolls to Mexico, where they are either (1) assembled with cartridge components, to make the facsimile imaging cartridges described above, or (2) simply packaged, two to a container, and re-imported as "replacement rolls" of the kind described above.

The manufacture in the U.S. of the thermal transfer facsimile rolls begins when Sony imports jumbo "supply rolls" of polyester film media from Japan. These "jumbo rolls" are composed of a man-made polyester film coated with a carbon-resin-wax formulated ink used for image printing. In their condition as imported, the jumbo rolls measure 920 millimeters wide by 1200 meters long (i.e., 1.2 kilometers). Due to their physical composition, the rolls are not capable of being used as thermal transfer rolls.

After importation, Sony subjects the jumbo rolls to the following production processes:

(1) The rolls are moved to a manufacturing floor whose atmospheric condition must be maintained at prescribed temperatures (within a range of 15 degrees Fahrenheit) and relative humidity (within a range of 5%);

(2) The jumbo rolls are placed on slitting machines which first place the roll under tension (which is microprocessor-controlled within very narrow ranges), and then slit the coated polyester film to specific widths and lengths;

(3) The slit and cut film is transferred from the jumbo roll core (which measures 6 inches in diameter) to a finished product roll core (which measures only 1/2 inch in diameter);

(4) A leader film is spliced onto the ends of the slit and cut media to serve as a protective cover;

(5) A silver stripe is "painted" onto the thermal transfer roll. This stripe will serve as an "optical trigger" for the facsimile machine which utilizes the roll, by shutting off the machine when the roll has been consumed, thereby preventing damage to the thermal print head;

(6) The converted roll is manually attached to a take-up core, and a holding band is applied to keep the roll and take-up core together. A plastic bag is then placed over the roll and core and heat-sealed to prevent the entry of dust. The rolls, finally, are packaged in specified boxes for delivery to Xerox.

You claim that the aforementioned processes convert the imported "jumbo rolls" of coated polyester media into a new and different article of commerce -- thermal print facsimile rolls which are specifically dedicated to use with particular models of facsimile devices.

Xerox purchases these thermal transfer rolls and exports them to its plant in Nogales, Mexico. In Mexico, certain of the rolls are assembled to plastic housing for imaging cartridges, by means of fasteners and force-fitting operations. The imaging cartridges are then packaged for retail sale and 'returned to the U.S. You state that the steps involved in the assembly are as follows:

(1) Plastic fastening spools are inserted into each open end of the thermal transfer facsimile roll core and the take-up core;

(2) Each spool is joined by force-fitting at the center, creating a single integrated spool used for winding and unwinding the thermal transfer facsimile roll;

(3) The spooled facsimile roll is then force-fitted into the housing (the ends of the spools are flanged to accommodate insertion into the housing) and pulled back on both sides until it fits securely into the housing;

(4) Tension springs are assembled to each side of the facsimile roll and imaging cartridge, to hold the roll in place, and to keep it under even tension during use; and

(5) The imaging cartridge is then wrapped in a plastic bag, plastic protective wedges and particle board protectors are applied, and the cartridge is boxed for exportation to the U.S.

Certain other thermal transfer rolls are merely packaged, two to a box, in Mexico, and are returned to the U.S., where they are sold as "replacement" facsimile rolls.

ISSUES:

(1) Whether the thermal transfer rolls constitute "products of" the U.S. for purposes of being eligible for a partial allowance in duty under subheading 9802.00.80, HTSUS.

(2) Whether the assembly of the thermal transfer rolls into machine-dedicated imaging cartridges in Mexico is considered a proper assembly operation and eligible for the partial duty exemption available under subheading 9802.00.80, HTSUS.

(3) Whether the facsimile rolls which are merely packaged abroad will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, upon importation into~the U.S.

LAW AND ANALYSIS:

I. Whether the thermal transfer rolls are "products of" the U.S. for purposes of being eligible for a partial allowance in duty under subheading 9802.00.80, HTSUS.

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 value of the imported assembled article, less the cost or value of such U.S. components, upon compliance with the documentary requirements of section 10.24, Custom 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), Custom 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).

You claim that the production operations performed in the U.S. by Sony Chemical Corporation of America effect a substantial transformation, thereby rendering the facsimile rolls "fabricated components of U.S. origin" for purposes of satisfying one of the requirements for eligibility under subheading 9802.00.80, HTSUS.

Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides generally that an article consisting wholly or partially of foreign components or materials, maybe a "product of the United States" if such components or materials are "substantially transformed" in the U.S. by a process of manufacture into a new and different article, or are merged into a new or different article. Section 10.14(b), Customs Regulations (19 CFR 10.14(b)), provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), 741 F.2d 1368 (1984).

Customs has previously held that cutting and trimming bulk tape into "pancakes", which are used in audio cassettes, and winding segments of the pancake onto the hub of a cassette is a process which effects a substantial transformation of the bulk tape. See Headquarters Ruling Letter (HRL) 733931 dated March 26, 1991. In HRL 733931, jumbo rolls of magnetic tape were imported into the U.S. where they were subjected to editing (cutting to length, adding leader/trailer tape; and recombining into jumbo rolls) and slitting (cutting each jumbo roll lengthwise into "pancakes" of much smaller width). This ruling expanded on an earlier determination which had considered only the cutting operations, and not the winding on the hub. HRL 063646 dated June 16, 1980. (U.S.-origin bulk tape which is cut into sections and trimmed, and then further cut into "pancakes" results in a substantial transformation). We are of the opinion that the processing operations performed in the U.S. to the Japanese-origin polyester film media is analogous to the processing found by Custom in HRL 733931 to effect a substantial transformation. Accordingly, the jumbo "supply rolls" of polyester film media imported by your client are substantially transformed into a "product of" the U.S., and may be eligible for the partial duty exemption available under subheading 9802.00.80, HTSUS.

However, two recent rulings concerning bulk photographic film indicate a different conclusion than that reached in HRL 733931. In HRL 732842 dated February 23, 1990, Custom held that bulk color print photographic film when cut to width and length and inserted into cassettes is not substantially transformed. In addition, in HRL 733106 dated March 19, 1990, Customs reached the same conclusion with regard to 35 mm film which was cut and placed in metal cassettes. We believe that these two cases are distinguishable from the instant case. The main difference is that the processing of the bulk polyester film media in the instant case is more extensive..than the processing of the film, extending beyond mere cutting to width and length to include splicing of leader and trailer tapes onto each cut facsimile roll, and the application of a photo-optical silver stripe along the length of the facsimile roll to permit detection by a sensor in the facsimile machine and in order to protect the thermal head of the machine from damage.

In sum, it is our opinion that the manufacturing operations performed in the U.S. by Sony Chemical Corporation of America, which consist of transforming jumbo rolls of polyester film into machine-dedicated thermal transfer rolls, constitute a substantial transformation of the foreign materials into "products of" the U.S. for purposes of subheading 9802.00.80, HTSUS.

II. Whether the assembly of the thermal transfer rolls into machine-dedicated imaging cartridges constitutes an acceptable assembly operation for purpose of subheading 9802.00.80, HTSUS

The next question presented is whether the assembly of certain of the U.S.-origin thermal transfer facsimile rolls in Mexico with housings, to produce imaging cartridges is an acceptable assembly operation for purposes of subheading 9802.00.80, HTSUS.

The force fitting of a component into another component by manual or pneumatic press is an acceptable assembly operation pursuant to section 10.16(a), Custom Regulations (19 CFR 10.16(a)). Custom has previously held that the assembly of components by means of force fitting and fastening constitutes acceptable assembly operations for purposes of subheading 9802.00.80, HTSUS. See e.g., HRL 555437 dated July 16, 1990. In the instant case the exported thermal transfer facsimile rolls are assembled with the frame of the imaging cartridge by means of force fitting, and by means of fasteners which are inserted through the cores of the facsimile rolls. Therefore, pursuant to 19 CFR 10.16(a) and HRL 555437, the joining of the facsimile rolls with the housing constitutes an acceptable assembly operation for purposes of subheading 9802.00.80, HTSUS.

III. Eligibility of the thermal transfer facsimile rolls exported to Mexico for packaging as "refills" for the duty exemption available under subheading 9801.00.10, HTSUS, upon return to the U.S.

Subheading 9801.00.10, HTSUS, provides for duty-free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad. Articles satisfying the above conditions of the statute will be afforded duty-free treatment, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met.

The packaging abroad of U.S.-made products will not preclude classification under this tariff provision when there is no improvement in condition or advancement in value of the products themselves, apart from their containers. See United States v. John v. Carr & Sons. Inc., 69 Cust. Ct. 78, C.D. 4377 (1972), aff'd, 61 CCPA 52, C.A.D. 1118 (1974), in which the court stated that absent some alteration or change in the item itself, the mere repackaging of the item, even for the purpose of resale to the ultimate consumer, is not sufficient to preclude the merchandise from being classified under item 800.00 Tariff Schedules of the United States (TSUS) (the precursor to subheading 9801.00.10, HTSUS). See HRL 55559 dated April 20, 1990 (contraceptive tablets repackaged in blister packages for retail sale).

In the present case, certain of the thermal transfer rolls will be exported in a finished condition to Mexico to be packaged into consumer size boxes and will not be subjected to any other operations prior to their return. The thermal transfer facsimile rolls, which are considered "products of" the U.S. pursuant to the discussion in Issue #1, will not be advanced in value or improved in condition while abroad. Accordingly, the thermal transfer facsimile rolls will qualify for the duty exemption available under subheading 9801.00.10, HTSUS.

With respect to the dutiability of the packing materials of U.S.-origin, General Rule of Interpretation 5(b), HTSUS, provides that:

[p]acking materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use.

Therefore, the value of non-reusable packing materials or containers normally used for packing such goods is considered a part of the value of its contents and is dutiable at the rate of its contents. However, we have held that U.S.-origin packaging materials which are not advanced in value or improved in condition while abroad are separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. The act of being filled with their contents is not considered to be an advancement in the condition of the container or materials. See HRL 731806 dated November 18, 1988. Thus, the U.S.-origin packaging materials will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, provided that they are products of the U.S., are returned after having been exported, without having been advanced in value or improved in condition while abroad, are unsuitable for repetitive use, and upon compliance with the documentation requirements of 19 CFR 10.1.

HOLDING:

Based on the foregoing analysis, it is our opinion that the production of the thermal transfer facsimile rolls in the U.S. from foreign materials results in a substantial transformation of the foreign material into "products of" the U.S. Moreover, the assembly of the thermal transfer facsimile rolls with fasteners, and their insertion by force-fitting into frees for imaging cartridges, constitutes an acceptable assembly operation pursuant to subheading 9802.00.80, HTSUS. Therefore, the imaging cartridges may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S. components incorporated therein, upon compliance with the documentary requirements of 19 CFR 10.24. In addition, the thermal transfer facsimile rolls and U.S.-origin packaging materials, which are exported from the U.S. to Mexico for packaging operations are entitled to the duty exemption available under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.

Sincerely,

John Durant, Director.
Commercial Rulings Division


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