During many of the customs compliance audits that I’ve conducted  of importers of maquila shipments I’ve noticed that the importer over paid customs duties and Merchandise Processing Fees (MPF) because it did not use preferential tariff provision 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS) when it imported articles into the U.S. 

    Before the implementation of  NAFTA, the overwhelming majority of articles assembled in Mexico entered the United States under preferential tariff provision 9802.00.80, HTSUS.   With the implementation of NAFTA, most importers of maquila shipments stopped using the preferential tariff provision because the imported goods satisfied the NAFTA Article 401 rules of origin and therefore were allowed to enter  duty free. However, not all goods produced by maquilas qualify as NAFTA originating goods and are therefore subject to customs duties.

      Importers should always consider using 9802.00.80 whenever they import articles into the United States that do not satisfy the NAFTA rules of origin. By using the preferential tariff provision they will significantly reduce the amount of customs duties and MPF assessed on the imported articles.

    9802.00.80, HTSUS, provides that articles 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, are subject to a duty upon the full value of the imported article, less the cost or, if no charge is made, the value of such products of the United States.

    The rate of duty which is assessed upon the dutiable portion of the imported article is that which is applicable to the imported article as a whole under the appropriate provision of the HTSUS, for such article.                Key phrases in the preceding paragraph:

    Fabricated component. Fabricated component means a manufactured article ready for assembly in the condition as exported except for operations incidental to the assembly.

    Product of the United States. A product of the United States is an article manufactured within the Customs territory of the United States and may consist wholly of United States components or materials, of United States and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process performed in the U.S. must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.

    Operations incidental to the assembly process. Operations incidental to the assembly process whether performed before, during, or after assembly, do not constitute further fabrication, and shall not preclude the application of the exemption. The following are examples of operations which are incidental to the assembly process:

    •Cleaning.

    •Removal of rust, grease, paint, or other preservative coating.

    •Application of preservative paint or coating, including preservative metallic coating, lubricants, or protective encapsulation.

    •Trimming, filing, or cutting off of small amounts of excess materials.

    •Adjustments in the shape or form of a component to the extent required by the assembly being performed abroad.

    •Cutting to length of wire, thread, tape, foil, and similar products exported in continuous length; separation by cutting of finished components, such as prestamped integrated circuit lead frames exported in multiple unit strips.

    •Final calibration, testing, marking, sorting, pressing, and folding of assembled articles.

    Operations not incidental to the assembly process. Any significant process, operation, or treatment other than assembly whose primary purpose is the fabrication, completion, physical or chemical improvement of a component, or which is not related to the assembly process, whether or not it affects a substantial transformation of the article, shall not be regarded as incidental to the assembly and shall preclude the application of the exemption to such article. The following are examples of operations not considered incidental to the assembly:

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

    •Cutting of garment parts according to pattern from exported material.

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

    •Chemical treatment of components or assembled articles to impart new characteristics, such as dying or bleaching of textiles.

    •Machining, polishing, burnishing, plating (other than plating incidental to the assembly), embossing, pressing, stamping, extruding, drawing, annealing, tempering, case hardening, and any other operation, treatment or process which imparts significant new characteristics or qualities to the article affected.

    9802.00.80 contains three parts, each of which must be satisfied before a component qualifies for duty-free treatment. The first part requires that the fabricated component be U.S.-made and exported in condition ready for assembly without further fabrication.   The second part requires that the fabricated component cannot lose its physical identity. The final part requires that the fabricated component not be advanced in value or improved in condition while abroad.

  The Bureau of Customs and Border Protection requires importers who enter goods under 9802.00.80 to:

    •Submit an Assembly Description Form to the import specialist team prior to the first importation.

    •Attach a Foreign Assembler’s Declaration to the U.S. commercial invoice.

    •Present to Customs, upon demand, manufacturer’s affidavits executed by the manufacturers of all components declared to be duty-exempt.

    •Use a special 9802.00.80 commercial invoice.

    •Actualize the estimated values presented to Customs, at the time of entry, at least once a year.

    The value of fabricated components to be subtracted from the full value of the assembled article is the cost of the components when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers, or, if no purchase was made, the value of the components at the time of their shipment for exportation, f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers.  As in the case of the appraisement of any other imported merchandise, the full value of assembled articles imported under subheading 9802.00.80, HTSUS,  as required by the Trade Agreements Act of 1979 must be reported to Customs.