United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 560811 - HQ 561018 > HQ 560820

Previous Ruling Next Ruling
HQ 560820





JULY 20, 1998

CLA-2 RR:CR:SM 560820 RSD

CATEGORY: CLASSIFICATION

TARIFF NO. 9802.00.80

Port Director
United States Customs Service
511 N.W. Broadway
Portland, Oregon 97209

RE: Application for Further Review of Protest Number 2904-97-100202 concerning the applicability of the duty exemption under HTSUS subheading 9802.00.80 to optical fiber tubes

Dear Director:

This is in response to the Application for Further Review of Protest Number 2904-97-100202 timely filed on behalf of Alcatel Submarine Networks, Inc. (Alcatel) by its counsel. Specifically, Alcatel protests the denial of the partial duty exemption under subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTSUS) on entries of optical fiber tubes. Counsel subsequently furnished samples of the optical fibers and optical fiber tubes. In an additional submission, counsel also presented photographs showing the different machines used during the various stages of the assembly process.

FACTS:

Alcatel imported 8- and 24-optical fiber tubes into the U.S. from France. The optical fiber tubes were designed to be used for under-water transmissions. To make the optical fiber tubes, Alcatel purchased U.S. origin optical fibers from Corning, Inc. and exported them to its factory located in Calais, France. At the French factory, the U.S. origin optical fibers were assembled with foreign made components and materials into the optical fiber tubes. After the assembly operations were completed, the finished optical fiber tubes were imported into the United States.

According to information provided by the protestant, in the first processing step done in France, the optical fibers were fed through a die assembly which individually color-coded them using a heat-cure solvent-based ink resin. The ink resin was then oven-dried and the fibers were re-wound onto separate spools. Also according to counsel, the color-coding of the optical fibers only colored the acrylic exterior, and did not in any way affect or penetrate their glass interior. The fibers were individually color-coded to identify or mark them so that, after assembly, they could more easily be connected or joined together with corresponding fibers.

Further, we are advised that after being color-coded and dried, the individual fibers were fed off of their separate spools and guided by pulleys and rollers through an entry die which bundled them together. The fibers were then simultaneously inserted together with a protective sealant into an open stainless steel tube. Although the sealant fills the tube's inner cavities and holds the fibers in place, it does not affect or alter their physical identity in any way. Together, the tube and the sealant provided encapsulation for the fibers from hydrogen, water, and mechanical collapse. The tube containing the individual fibers was then laser-welded shut. The outer tube was then reduced in a rolling reducing mill to an appropriate diameter, typically 2.3 mm. The extent of the tube reduction depended on the customer's demand regarding desired tube diameter. The reduction in the tube's size had the effect of increasing the overall speed of the assembly, but again did not affect or alter the fibers in any way.

The assembled optical fiber tube was then rewound and placed on a drum for shipping. Counsel further claims that the entire assembly process did not change the shape or form of the fibers. Alcatel is claiming a duty exemption under subheading 9802.00.80, HTSUS, only for the U.S. made fibers and not for any of the foreign made components or materials such as the tubes, protective sealant, or ink resin.

In support of its claim, Alcatel has presented two affidavits, one from Mr. Ted Bookwalter, a manger of manufacturing engineering at Alcatel, and the second from James Davis, the Material and Project Manager for Alcatel. Mr. Bookwalter's affidavit contains basically the same information that was presented in counsel's memorandum in support of Alcatel's Protest and Application for Further Review. Like counsel's submission, Mr. Bookwalter also indicates that, throughout the assembly process, the individual fibers were not changed in form, shape or otherwise, and that the singular purpose of the assembly process was to protect the physical identity of the fibers in order to ensure that the fibers were not bent, abraded or altered and that their original transmission capabilities were not eroded.

Mr. Davis states in his affidavit that although he does not have access to the cost information regarding the French assembly operation, Alcatel is currently in the process of ordering and installing the equipment necessary for a similar assembly operation at its factory in Portland, Oregon, and as Material and Project Manager, he is personally familiar with the costs involved in the assembly process. He provided the overall equipment and installation costs for the optical fiber tube assembly operation. The equipment can assemble optical fiber tubes containing four to twenty-four fibers, depending on customer demand and or system requirements. Mr. Davis also provided the material costs for optical fiber tubes containing 12 non-dispersion shifted fibers, which is a common fiber count. According to Mr. Davis, the color-coding process of the fibers, before the insertion into the tubes, proceeded at an average line speed of 200 meters per minute. The tubing process, by which fibers were inserted into the tubes proceeds at an average rate of 15 meters per minute.

Mr Davis prepared a second affidavit in response to several questions our office raised regarding the processing of the optical fibers. In the second affidavit, Mr. Davis explained that the coloring of the optical fibers was performed in Calais, France rather than in the U.S. because the individual customer demand and system requirements determined the number of fibers that were used in an optical fiber system, and therefore, the variety of colors needed in a given case was completely determined by the number of fibers required by a specific customer order. Thus he submits that it would have been difficult to always have a sufficient inventory of the different fiber colors available to meet a particular customer order. Inventory problems could have resulted in work stoppages and delays. In addition, Mr. Davis points out that Alcatel's factory was located on the west coast in Portland, Oregon, while Corning's factory, which produced the optical fibers, was located on the east coast in Wilmington, North Carolina. Shipping the optical fibers across the United States before shipping to France would have greatly increased Alcatel's freight and related costs and would have been time consuming. Mr. Davis further states in his affidavit that Corning was also able to wind fibers tightly and efficiently onto plastic spools in a way that eliminated "trap turns" i.e., instances in which a length of fiber becomes caught, bent or abraded, thereby damaging in the fiber roll. In contrast, Alcatel's technical capabilities did not allow it to wind fibers onto plastic spools without the production trap turns. As a result, if Alcatel were to have color-coded the fibers in the United States prior to delivery to Calais, it would have been forced to ship the fibers on aluminum spools which were larger, heavier, and therefore, more expensive and difficult to transport than the plastic spools.

Mr. Davis also explained why it was necessary to color the entire optical fiber rather than just the ends. According to Mr. Davis, the color-coding operation completely colored the acrylic exterior of the fibers for the purpose of identifying or marking them so that, subsequent to the assembly process in Calais, they could be more easily connected or joined together end-to-end with corresponding fibers from other spools, to achieve the necessary length. Coloring only the ends would not have been sufficient because if a fiber broke or was otherwise damaged at a different point along its length, it would have been very difficult to be properly identify the corresponding fiber for repair, reconnection or replacement unless the entire length of the fiber was colored. This was especially true for subsequent to installations on the ocean floor where the downtime for a repair could be extremely expensive due to system traffic lost and cable ship costs.

Another reason offered for coloring the fibers along their entire length relates to the testing procedures which occurred following the assembly process in Calais and the delivery of the optical fiber tubes to Alcatel's factory in Portland. At the Portland factory, the assembled optical fiber tubes from separate spools were connected to achieve a desired cable length by means of "joints" or "repeaters." At the point where the tubes were connected, a small portion of the tubing was peeled back mechanically and each individual color-coded fiber was joined to its specific counterpart by means of special splicing machines which "arc-welded" or spliced the ends of the optical fibers together. The joints or repeaters were then used to encapsulate the ends of the tubes and protect the partially exposed fibers. The tubes also received further encapsulation to form the finished optical fiber cable. At the conclusion of each stage of this connection and further encapsulation process in Portland, the transmission quality of the fibers was tested. Mr. Davis notes that a small portion, approximately two meters in length, was removed from the end of each fiber tube for each test. Consequently, the fibers needed to be colored along their entire length so that the new ends could be connected or if, as a result of the test, a new joint had to be added at the point where a fiber defect was detected.

ISSUE:

Whether the U.S. components in the imported optical fiber tubes are entitled to a duty exemption under HTSUS subheading 9802.00.80.

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).

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, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 CFR ?10.16(a). 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).

Specifically, 19 CFR ?10.16(b)(3) provides that the "application of preservative paint or coating, including preservative metallic coating lubricants, or protective encapsulation"are examples of operations which are considered incidental to the assembly process. In contrast, 19 CFR enhance the appearance of an article or to impart distinctive features or characteristics" are examples of operations that would not be considered incidental to the assembly process as provided under subheading 9802.00.80, HTSUS.

In Headquarters Ruling Letter (HRL) 555544 dated May 1, 1990, Customs considered whether U.S. origin optical fiber and coated corrugated steel tape which were assembled abroad with certain foreign components were eligible for the duty exemption under subheading 9802.00.80 HTSUS. Some of the operations performed in that case included cutting the optical fiber to length, covering the optical fibers with a silicon and nylon sheath, twisting the optical fibers and wires around a central strength rod in a stranding operation, wrapping the optic fibers with various tape, and encasing the optic fiber and core stranding with a thermoplastic jacket. Customs determined that sheathing and encasing optical fibers and fiber optic cable with thermoplastic and silicon and nylon casings were acceptable operations incidental to the assembly process pursuant to 19 CFR coating, including protective encapsulation. It was also determined that cutting the optical fibers to length was considered an acceptable operation incidental to assembly pursuant to 19 CFR ?10.16(b)(6), which states that cutting to length wire, thread, tape, foil, or similar products exported in continuous lengths is an acceptable incidental operation. Accordingly, HRL 555544 held that optical fibers and corrugated steel tape did not lose their physical identify in the assembly operation, and were not advanced in value or improved in condition except by assembly operations and operations incidental thereto.

More recently, in HRL 560378 dated June 11, 1997, a large spool of optical fiber stated to be of U.S. origin was sent to England, where the fiber was cut into lengths of about 4 meters. Two lengths of U.S.-origin fiber were placed next to each other on metal substrate and the ends of the fiber were secured in monitoring equipment. The fibers were then fused together in the middle by a high temperature torch, which took about 1-2 minutes. The fused area about 3 mm long was then "exposed" onto a glass substrate. The substrate was then placed into a stainless steel tube, measuring 55 x 3 mm, with two 1 meter fiber pigtails on the ends of the tube. We determined that, while the fusing of the fibers makes it easier to transmit light from one optical fiber to the other, the fibers exported from the U.S. were in condition ready for assembly as the fusing only brought them closer together. We also found that surrounding the fused area in a glass substrate which is then placed into a stainless steel tube is incidental to assembly as it is similar to encapsulating optical fibers which was determined to be protective in nature in HRL 555544.

In the present case, separate optical fibers of U.S. origin were bundled together and then inserted with a protective sealant into an open stainless steel tube abroad. This combining and insertion process is basically designed to protect the optic fibers. In HRL 556878, dated March 18, 1993, steel inserts in a "C" shape were sent to Mexico where they were placed on a diecast mold with a wire cable. The steel insert and the cable were encapsulated in lead. Although the insert and the cable were never in physical contact with one another, we determined that the operation was a permanent joinder of the lead, steel insert, and cable. Therefore, we found that the encapsulation of the steel insert was an acceptable assembly of the steel insert to the other two components within the purview of subheading 9802.00.80, HTSUS. Thus, completely and securely enclosing certain components within other components is considered an acceptable assembly operation. See also HRL 554920 dated January 3, 1989 (completely enclosing a metal weight in the bottom hem of vertical blinds is an acceptable assembly process). Here, the bundling of the optical fibers and their insertion into the steel tubes securely encloses the optical fibers within the steel tubes. Accordingly we find that the insertion of the optical fibers into the steel tubes constitutes an acceptable assembly operation pursuant 19 CFR 10.16(a).

The next matter to be considered is whether the other operations performed during the assembly process are operations incidental to the assembly. Counsel indicates that there are three additional operations, all of which he believes qualify as incidental to assembly. They are: color-coding the fibers, adding a protective sealant to the tube interior, and winding the assembled tubes onto drums for shipping. With regard to the color-coding of the fibers, it is our understanding that the fibers were color-coded so that they could more easily be connected with corresponding fibers after the assembly. In C.S.D. 79-314, 13 Cust. Bull. 1468 (1979), Customs addressed whether foreign operations such as marking, coding or certain types of printing, when performed on the components abroad, are regarded as incidental to assembly rather than as fabricating steps. We indicated that foreign stamping, marking, coding, or printing, when serving the purpose of origin markings, trademark, polarity, color-coding, part number identification, or instruction are incidental to assembly and would not preclude tariff treatment under item 807.00, Tariff Schedules of the United States (TSUS), (the predecessor of subchapter 9802.00.80, HTSUS). We pointed out that these, as well as similar markings, are not considered substantial or material in nature, generally cannot be provided for in advance, and reasonably appear to be commercially and functionally related to the overall assembly process and the assembled article itself.

In HRL 557410, dated October 20, 1993, we relied on C.S.D. 79-314, to determine that imprinting a message on a pen through silk screening was an incidental operation. We also pointed out that the cost of the silk-screening was minor compared to the cost of assembling the pens and the information imprinted on the pens was similar to those categories enumerated in C.S.D. 79-314. Here, the color-coding did not change the shape, form or function of the fibers and was performed merely to identify the fibers for easier connections with corresponding fibers after the assembly. It was not performed for the purpose of enhancing the appearance of the fibers. The operation of the fibers was not improved by color-coding in that both before and after the color-coding, the fibers perform in the exact same manner. The color-coding only colored the acrylic exterior of the fibers and did not in any way affect or penetrate the glass interior.

We also conclude that it was impractical to perform the color coding prior to the assembly because of the difficulty in maintaining a sufficient quantity of inventory of all the various fiber colors that were necessary to meet different customers orders. Accordingly, the fibers were color coded on site in conjunction with insertion into the tubes so that there was always enough fibers of a needed color on hand to satisfy a particular order. In addition, as explained in Mr. Davis' affidavit, it was more economical to ship the optical fibers directly from Corning's factory in the U.S. to Alcatel's facility in France for the coloring because Alcatel did not have the capability to wind the optical fibers tightly onto the lighter plastic spools, which made the optical fibers cheaper to ship. We also are satisfied that the entire length of the optical fibers had to be color coded so that the fibers could more easily be repaired and reattached if they broke or were damaged after installation. For the above reasons, we find that the color-coding of the optical fibers was an operation incidental to assembly.

In regard to the use of a protective sealant inside the tube, since the purpose of applying the sealant was to protect the fibers from hydrogen, water, and mechanical collapse, we believe that it is equivalent to "the application of... lubricant or protective encapsulation" under 19 CFR 10.16(b)(3). Therefore, we conclude that applying the protective sealant is an operation incidental to the assembly process.

The concluding operation involves the winding the tubes and placing them onto drums for shipping. 19 CFR 10.16(f) states that:

...assembled articles which otherwise qualify for the exemption and which are packaged abroad following their assembly will not be disqualified from the exemption by reason of their having been so packaged whether for retail or for bulk shipment.

The winding of the optical fiber tubes onto drums for shipment is a necessary packing operation. Accordingly, this operation will not preclude the tubes from receiving subheading 9802.00.80, HTSUS, treatment. Consequently, the fiber optical tubes which were assembled in France are entitled to a duty allowance under subheading 9802.00.80, HTSUS, for the cost or value of the U.S. origin optical fibers.
HOLDING:

Based on the information provided, since the processing abroad constitutes an acceptable assembly operation or operations incidental to assembly, an allowance in duty should be made under to subheading 9802.00.80, HTSUS, for the cost or value of the U.S. origin optical fibers used in the assembly of the optical fiber tubes. Therefore, you are directed to grant the protest in full in accordance with the foregoing. A copy of this decision should be attached to the Form 19 to be sent to the protestant.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Services, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: