[Federal Register: June 12, 2008 (Volume 73, Number 114)]
[Rules and Regulations]
[Page 33299-33301]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jn08-10]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Part 10
[CBP Dec. 08-21]
RIN 1505-AB90
Articles Assembled Abroad: Operations Incidental to the Assembly
Process
AGENCIES: Customs and Border Protection, Department of Homeland
Security; Department of the Treasury.
ACTION: Final rule.
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SUMMARY: This document amends the Customs and Border Protection
(``CBP'') Regulations in title 19 of the Code of Federal Regulations
(19 CFR) in order to remove a provision that draws a distinction
between preservative and decorative painting for purposes of the
partial duty exemption under subheading 9802.00.80, Harmonized Tariff
Schedule of the United States (``HTSUS''). The change is made to
conform the CBP Regulations with the holding of a court decision in
which the regulatory distinction between preservative and decorative
painting was found to be invalid.
DATES: Final rule effective July 14, 2008.
FOR FURTHER INFORMATION CONTACT: Gerry O'Brien, Regulations and
Rulings, Office of International Trade, (202) 572-8792.
SUPPLEMENTARY INFORMATION:
Background
Subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (``HTSUS''), 19 U.S.C. 1202, provides a partial duty exemption
for articles assembled abroad in whole or in part of fabricated
components, the products 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. The regulations implementing subheading
9802.00.80, HTSUS, are found within Sec. Sec. 10.11 through 10.26 of
title 19 of the Code of Federal Regulations (19 CFR 10.11-10.26).
Section 10.13 of title 19 of the CFR (19 CFR 10.13) provides that
articles that satisfy the requirements of subheading 9802.00.80, HTSUS,
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 in the
United States. The rate of duty that is assessed on an imported article
eligible for the partial duty exemption under subheading 9802.00.80,
HTSUS, is that which is applicable to the imported article as a whole
under the appropriate HTSUS provision for such article.
Section 10.16 of title 19 of the CFR (19 CFR 10.16) concerns the
assembly operations for purposes of subheading 9802.00.80, HTSUS.
Section 10.16(b) sets forth general information regarding operations
considered incidental to the assembly process. Under Sec. 10.16(b),
operations incidental to the assembly process whether performed before,
during, or after assembly, do not constitute further fabrication, and
will not preclude the application of the exemption. Examples of
operations considered incidental to the assembly process are provided
under
[[Page 33300]]
Sec. Sec. 10.16(b)(1)-(7). The application of preservative paint or
coating, including preservative metallic coating, lubricants, or
protective encapsulation is currently considered an operation
incidental to the assembly process under Sec. 10.16(b)(3).
Section 10.16(c) sets forth general information regarding
operations that are not considered incidental to the assembly process.
Under Sec. 10.16(c), 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 effects a
substantial transformation of the article, will not be regarded as
incidental to the assembly process and will preclude the application of
the duty exemption to the article. Examples of operations that are not
considered incidental to the assembly process are set forth under
Sec. Sec. 10.16(c)(1)-(5). Pursuant to Sec. 10.16(c)(3), painting
primarily intended to enhance the appearance of an article or to impart
distinctive features or characteristics is not currently considered an
operation incidental to the assembly process.
As indicated, Sec. 10.16 currently draws a distinction between
preservative and decorative painting for purposes of the partial duty
exemption under subheading 9802.00.80, HTSUS: Painting operations
performed abroad that are deemed to be ``preservative'' in nature are
considered incidental to the assembly process under Sec. 10.16(b)(3)
and will not preclude application of the partial duty exemption under
subheading 9802.00.80, HTSUS; and, painting operations performed abroad
that are deemed to be ``decorative'' in nature are not considered
incidental to the assembly process under Sec. 10.16(c)(3) and will
preclude application of the partial duty exemption under subheading
9802.00.80, HTSUS.
Explanation of Amendments
In DaimlerChrysler Corporation v. United States, 361 F.3d 1378
(Fed. Cir. 2004), the United States Court of Appeals for the Federal
Circuit considered the issue of whether Sec. 10.16 was valid to the
extent that the regulation draws this distinction between preservative
and decorative painting for purposes of the partial duty exemption
under subheading 9802.00.80, HTSUS. In that case, DaimlerChrysler
Corporation assembled trucks in Mexico with sheet metal components from
the United States. The sheet metal components were initially treated
with primer coats designed to prevent corrosion. After heat treatment,
color coats and clear coats, referred to as ``top coats'', were applied
to the sheet metal components.
Customs and Border Protection (``CBP'') considered the primer coats
to be preservative in nature and, consequently, determined that the
application of the primer coats was an operation incidental to the
assembly process under Sec. 10.16(b)(3). However, CBP considered the
top coats to be decorative in nature because they were intended
primarily to enhance the appearance of the trucks. Because CBP did not
consider application of the top coats to be an operation incidental to
the assembly process pursuant to Sec. 10.16(c)(3), these operations
were not eligible for a partial duty exemption under subheading
9802.00.80, HTSUS.
Upon considering this particular issue on appeal, the U.S. Court of
Appeals for the Federal Circuit held that subheading 9802.00.80, HTSUS,
unambiguously provides that painting is an operation incidental to the
assembly process. Therefore, the court determined that the distinction
between preservative and decorative painting set forth in Sec. 10.16
is invalid.
In order to implement the court's interpretation of subheading
9802.00.80, HTSUS, CBP is amending Sec. 10.16 so as to eliminate the
distinction in the regulation between preservative and decorative
painting. Section 10.16(b)(3) is amended to provide that applying paint
or preservative coating, including preservative metallic coating,
lubricants, or protective encapsulation, constitutes an operation
incidental to the assembly process for purposes of subheading
9802.00.80, HTSUS. In addition, this document removes from the
regulations Sec. 10.16(c)(3), which currently provides that painting
primarily intended to enhance the appearance of an article, or to
impart distinctive features or characteristics, is not considered an
operation incidental to the assembly process. Sections 10.16(c)(4) and
(c)(5) are redesignated as Sec. Sec. 10.16(c)(3) and (c)(4),
respectively.
The amendments conform the regulations to reflect the decision
issued by the United States Court of Appeals for the Federal Circuit in
DaimlerChrysler Corporation v. United States by removing from Sec.
10.16 the distinction between preservative and decorative painting.
Under the amendments, for example, the application of primer coats and
top coats will both be considered incidental to the assembly process
for purposes of the partial duty exemption under subheading 9802.00.20,
HTSUS. Finally, this document amends Sec. Sec. 10.16(b) and (c) by
removing the word ``shall'' each place it appears and adding, in its
place, the word ``will''.
Inapplicability of Prior Public Notice
This document deletes from the regulations a provision determined
to be invalid by the United States Court of Appeals for the Federal
Circuit and benefits the public by expanding the scope of painting
operations that will be considered incidental to the assembly process
and thus eligible for a partial duty exemption under subheading
9802.00.80, HTSUS. For these reasons, CBP has determined, pursuant to
the provisions of 5 U.S.C. 553(b)(B), that prior public notice and
comment procedures on this regulation are unnecessary and contrary to
the public interest.
Regulatory Flexibility Act
Because no notice of proposed rulemaking is required, this document
is not subject to the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.).
Signing Authority
This document is being issued in accordance with Sec. 0.1(a)(1) of
the CBP regulations (19 CFR 0.1(a)(1)) pertaining to the authority of
the Secretary of the Treasury (or his/her delegate) to approve
regulations related to certain customs revenue functions.
List of Subjects in 19 CFR Part 10
Assembly, Customs duties and inspection, Imports, Preference
programs, Reporting and recordkeeping requirements, Trade agreements.
Amendments to the CBP Regulations
0
For the reasons set forth above, part 10 of title 19 of the Code of
Federal Regulations (19 CFR part 10) is amended as follows:
PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,
ETC.
0
1. The general authority citation for part 10 continues to read in part
as follows:
Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484,
1498, 1508, 1623, 1624, 3314;
* * * * *
0
2. In Sec. 10.16:
0
a. In paragraph (b), the introductory paragraph and paragraph (b)(3)
are revised;
0
b. In paragraph (c), the introductory text is amended by removing the
word ``shall'' each place it appears in the first
[[Page 33301]]
sentence and adding, in its place, the word ``will'';
0
c. Paragraph (c)(3) is removed; and
0
d. Paragraphs (c)(4) and (c)(5) are redesignated as paragraphs (c)(3)
and (c)(4), respectively.
The revisions read as follows:
Sec. 10.16 Assembly abroad.
* * * * *
(b) 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 will not
preclude the application of the exemption. The following are examples
of operations which are incidental to the assembly process:
* * * * *
(3) Application of paint or preservative coating, including
preservative metallic coating, lubricants, or protective encapsulation;
* * * * *
Approved: June 6, 2008.
Jayson P. Ahern,
Acting Commissioner, U.S. Customs and Border Protection.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. E8-13203 Filed 6-11-08; 8:45 am]
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