Customs Informed Compliance

Subchapter II, Chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS) contains several provisions that provide preferential tariff treatment for qualifying articles that have been exported, advanced or improved abroad and subsequently returned to the United States. This publication from the U.S. Customs Service discusses portions of the partial duty exemption provided by subheading 9802.00.80, which is applicable to imported articles that have been assembled abroad from fabricated components that are a product of the United States.

General provisions

All merchandise imported into the customs territory of the United States is subject to duty on its full value unless specifically excepted. However, with the exception of certain special programs described below for products assembled in sub-Saharan African or Caribbean Basin which grant duty-free treatment when the special terms are met, subheading 9802.00.80 provisions permit a reduction in duty (duty allowance) for the value of the components manufactured in the U.S. and assembled abroad. Therefore, 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 the U.S. components.

As with other provisions of Chapter 98, subheading 9802.00.80 is conditional in nature, and an importer must comply with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24), to receive the benefit of this provision. Subheading 9802.00.80 involves a deduction from total duties due, not a different rate of duty – the same basic tariff classification and rate of duty applies whether or not an article is eligible for subheading 9802.00.80 treatment. Therefore, to establish the appropriate amount of the duty allowance, complete and detailed data must be submitted regarding the imported article together with sufficient information to establish to Customs the value and origin of the U.S.-manufactured components.

No one format for the submission of data is mandated; it may vary with the type of merchandise, the type of assembly operation involved, and the accounting procedure and capabilities of the importer. Importers may contact the port of entry to consult with the Customs import specialist who is responsible for the classification and appraisement of the merchandise in question to develop a format that is within the practical capability of the importer and provides all the information required by Customs. Failure to furnish the necessary data or failure to establish the origin of the U.S.-manufactured components and the exact nature of the assembly operation may result in an inability to obtain the permissible allowance under subheading 9802.00.80.

Applicability of subheading 9802.00.80

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:

*Were exported in condition ready for assembly without further fabrication.

*Have not lost their physical identity in such articles by change in form, shape or otherwise.

*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 fabricated component may receive a duty allowance.

Fabricated components

Materials undefined in final dimension and shape, which are cut into specific shapes or patterns abroad, are not considered fabricated components. For example, materials such as lumber, leather, sheet metal and plastic sheeting which are exported in basic shapes and forms and subsequently cut to a pattern to be fabricated into components for assembly are not eligible for treatment as "fabricated" components.

Likewise, uncut textile fabric exported in bolts and cut to pattern (other than length) does not qualify as a "fabricated" component. Articles identifiable in their exported condition as components or parts of the article into which they will be assembled, such as transistors, diodes, integrated circuits, machinery parts, or precut parts of wearing apparel, are regarded as fabricated components. Other illustrations of types of articles that constitute "fabricated" components can be found in the Customs regulations at 19 CFR 10.14.

Country of origin requirement

Only fabricated components that are the product of the United States may qualify for the duty allowance. Foreign made articles or materials imported into the United States may qualify only where they subsequently undergo a process of manufacture in the United States that results in a substantial transformation of the imported product into a new and different product, with a new name, character and use which is different from that possessed by the article or material before the manufacturing process. The mere finishing or modification of a partially or nearly complete foreign product will not result in a substantial transformation, and such materials will retain their foreign origin. Therefore, articles previously imported and duty paid, which do not undergo substantial transformation in the United States and subsequently exported for assembly abroad, are fully dutiable upon return to the U.S. The payment of U.S. duty does not make foreign merchandise a product of the United States for purposes of subheading 9802.00.80.

Once the U.S. fabricated components have been exported for assembly, there is no restriction against using some foreign-made components and material in combination with the U.S. fabricated components in the assembly process. However, upon return to the United States, only those U.S. components that meet all the requirements of subheading 9802.00.80 are eligible for the duty allowance provided by this provision.

Excluded components

Moreover, the duty allowance of 9802.00.80 is not applicable to any fabricated component exported from the Customs territory of the U.S.:

•From continuous customs custody with remission, abatement, or refund of Duty.

•With benefit of drawback.

•To comply with any law of the United States, or regulation of any Federal agency requiring exportation.

•After manufacture or production in the U.S. under subheading 9813.00.05, HTSUS (i.e., articles admitted temporarily under bond for repair, alteration or processing, including processes which result in articles manufactured or produced in the United States).

Acceptable assembly operations

It is of paramount importance that the assembly operations performed abroad that involves the U.S. fabricated components do not exceed the strict criteria provided by subheading 9802.00.80, HTSUS. If these criteria are exceeded, and the U.S. fabricated components are subject to processes that exceed acceptable assembly operations, other than incidental operations, the fabricated components are not eligible for subheading 9802.00.80 treatment. Acceptable assembly operations may consist of any method used to join or fit together solid components: e.g., welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners. The mixing or combining of liquids, gases, chemicals, food ingredients, and amorphous solids, either with each other or with solid components, is not regarded as an assembly process. Other illustrations of acceptable operations can be found in the Customs regulations at 19 CFR 10.16(a).

However, operations incidental to the foreign assembly process, whether performed before, during, or after assembly, are allowed. Examples of such operations are described in the Customs regulations at 19 CFR 10.16(b) and include:

•Cleaning.

•The removal of rust, grease, paint or preservative coating.

•The application of preservative paint, coating or lubricant; trimming, filing or removing of small amounts of excess material.

•The final calibration, testing, marking, sorting, and pressing of assembled articles.

•Cutting materials into specific shapes and patterns abroad is not permissible; however, the cutting to length of materials exported in a continuous length (i.e., bolts of fabric, wire, thread, tape, foil, and similar products) is permissible as an operation incidental to the assembly process, as is trimming.

While operations "incidental" to the assembly process are permissible, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a U.S. fabricated component will preclude the application of the duty exemption provided by 9802.00.80. Examples of such operations are described in the Customs regulations in 19 CFR 10.16(c) and include:

•The melting of exported ingots and pouring of the metal into molds to produce cast metal parts.

•Cutting garment parts according to pattern from exported material.

•Painting which is primarily intended to enhance the appearance of an article or to impart distinctive features or characteristics.

•The chemical treatment of components or assembled articles that imparts new characteristics, such as showerproofing, permapressing, sanforizing, dyeing or bleaching of textiles.

•Machining, polishing, burnishing, peening, plating (other than plating incidental to assembly), embossing, pressing, stamping, extruding, drawing, annealing, tempering, case hardening.

•Any other operation, treatment or process which imparts significant new characteristics or qualities to the article affected.

Lawrence Hanson is a partner with the law firm of Sandler, Travis and Rosenberg, P.A in its Houston, Texas office. Hanson is also adjunct professor of law at the University of Houston Law Center in the areas of U.S. Import Regulation and U.S. Export Regulation. He can be reached at Sandler, Travis and Rosenberg, 440 Louisiana, Ste. 900, Houston, Texas 77002; (713) 236 7715 and lhanson@strtrade.com.