Procedures For Claiming HTS Heading 9802.00.80/TSUS Item 807.00 Allowances
This Memorandum describes procedures to be followed by United States importers in claiming duty exemptions, pursuant to heading 9802.00.80 of the Harmonized Tariff Schedule of the United States, (HTS) in respect of goods assembled abroad from “fabricated components of United States origin”. As discussed below, procedures for claiming the exemption are relatively straightforward.
II. Relevant Statutes
Heading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTS) provides a duty exemption for:
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 accept by operations incidental to the assembly process such as cleaning, lubricating and painting.
Such goods are subject to:
A duty upon the full value of the imported article, less the cost or value of such products [components] of the United States….
In order for the heading 9802.00.80 exemption to be claimed, there must be an assembly operation performed abroad. Under the Customs Regulations [19 C.F.R. Section 10.16(a)], such assembly operations “may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, glueing, laminating, sewing, or the use of fasteners. . . .” Mixing or combining of liquid gases, chemicals, food ingredients and amorphous solids is not considered an assembly. Id. Furthermore, knitting and weaving operations are not considered “assembly” operations.
Further, the assembly operation must utilize “fabricated components of United States origin”, which components must be “exported in condition ready for assembly without further fabrication”. Each of these concepts deserves additional explanation.
A “fabricated component” is defined in the Customs Regulations [19 C.F.R. Section 10.12(d) as "a manufactured article ready for assembly in the condition as exported for operations incidental to the assembly." Goods in bulk form, such as fabrics in the piece, do not qualify as "fabricated components" for purposes of the statute. However cut garment parts, buttons, ribbons and thread do qualify. In addition, a "fabricated component" may be considered to have originated in the United States even if it contains foreign materials, so long as the component was "substantially transformed" in the United States. For example, the die-cutting of garment parts in the United States from foreign-origin piece goods results in "fabricated components of United States origin" which are eligible for the HTS heading 9802.00.80 exemption.
The fabricated components must be "exported in condition ready for assembly without further fabrication". As noted above, goods in bulk form do not qualify for the exemption. However, fabricated components will not lose their entitlement to the HTS heading 9802.00.80 exemption if, prior to, during or after assembly, they are subjected to minor operations which are "incidental to the assembly process", such as cleaning, removal of rust, grease, paint or other preservative coatings, application of preservative paint or coatings, trimming, filing or cutting off of small amounts of excess materials, minor adjustments in shape or form prior to assembly, cutting to length of certain narrow-width materials, and final calibration, testing, marking, sorting, pressing and folding of assembled articles. See, 19 C.F.R. Section 10.16(b). More significant operations, such as bending metal tubing to shape prior to assembly, may be considered "further fabrications" which will disqualify the components for the HTS heading 9802.00.80 allowance.
The Customs Regulations provide that certain narrow-width items exported from the United States in spools or in continuous lengths, and cut to length abroad, are nonetheless "fabricated components of United States origin", which are eligible for the item 9802.00.80 allowance. Products eligible for the exemption include thread, wire, tape, foil, ribbons, findings used in dress making and similar products, See, e.g., 19 C.F.R. Sections 10.14(a), 10.16(b)(6). Similarly, components of United States origin which are exported in perforated or "scribed" form, and which are broken or cut apart abroad prior to assembly, are eligible for the allowance.
III. Claiming and Documenting HTS Heading 9802.00.80 Allowances
Procedures for asserting and documenting HTS heading 9802.00.80 claims are straightforward. Generally, the importer will assert a claim to such treatment on the Customs Form 7501 Consumption Entry. This claim for the exemption must be supported by two documents:
(1) An Assembler's Declaration and
(2) An Importer's Endorsement.
The Assembler's Declaration must be in substantially the form shown in Section 10.24 of the Customs Regulations. Information provided on this form includes the identification marks or numbers on the imported merchandise, a description of the United States-origin fabricated components incorporated therein, the unit value of the time and place of exportation from the United States, the port and date of exportation from the United States, and the name and address of the foreign manufacturer/assembler.
In addition, this declaration should include, or be accompanied by, an Importer's Endorsement, attesting to the veracity and accuracy of information shown on the Assembler's Declaration.
At the discretion of the District Director of Customs, the declaration format and method of presentation can be varied, as required by the needs of a particular shipper.
Documents to support and HTS heading 807.00 claim can be submitted to Customs at any time before an entry becomes liquidated and final. Presentation of documents at the time of entry is obviously preferred.
IV. Calculation Of The HTS Heading 9802.00.80 Allowance
The "cost or value" of fabricated components which may be deducted from the dutiable value of merchandise under HTS heading 9802.00.80 is defined in U.S. Note 4(a) to HTS Chapter 98, Subchapter II, as:
(i) The cost of such products at the time of the last purchase; or
(ii) if no charge is made, the value of such products at the time of the shipment for exportation, as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, than the value of such products shall be determined in accordance with Section 402 of the Tariff Act of 1930, as amended.
Section 10.17 of the Customs Regulations more clearly states the value of exempted components as follows:
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 shipments 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. Thus, the amount of the exemption is effectively equal to the cost or value of acquiring or making the fabricated components, plus the cost of transporting these components to the United States port of exportation.
Two simple examples may help to illustrate this principal:
Example 1: Assume that Baby Fashions Company purchases buttons at a cost of $1 each in New York City, and ships them to Los Angeles, at a cost of $0.10 per button. The cost or value of the HTS item 9802.00.80 exemption is $1.10 per button.
Example 2: Assume that the Toddler Conglomerate purchases in the United States a roll of Japanese origin plastic sheeting at a cost of $5.00 per yard. The fabric is delivered to a United States cutting shop (at a transportation cost of $0.10 per yard), where it is die-cut into parts of stroller covers. Assume that 3 yards of fabric are required to cut the parts for one stroller cover. The cost of cutting is $1.00 per yard. The cut parts are then packed (cost: $0.20/yard) and transported to the port of Los Angeles for exportation, (transport cost: $0.20/yard). The value of the item 9802.00.80 exemption for each stroller cover would be as follows:
Plastic sheeting-3 yards x $5.00$15.00
Freight to cutter 3 x $0.10 x 3.00.30
Cutting costs (3 x $1.00)3.00
Export packing (3 x .20).60
Freight to port of export60
Total value of "fabricated components"$19.50/cover
How the item 9802.00.80 exemption is calculated will depend on whether the United States importer sells the fabricated components to the foreign manufacturer, or whether it furnishes them to the foreign manufacturer, free or at reduced cost, as an "assist".
Assume that in Example 2, above, the Toddler Conglomerate provides the cut stroller covers to the foreign manufacturer as an "assist". The value of the fabricated components for purposes of the item 9802.00 allowance would be $19.50. [Please note that the value of the dutiable "assist" (which would be added to CMT charges to arrive at dutiable "transaction value") would include all costs involved in delivering the fabricated components f.o.b. port of exportation, plus the cost of transporting those components to the foreign point or place of manufacture. Thus, if the cost of international freight from the port of export to the place of manufacture was $1.00 per stroller cover, the value of the dutiable "assist" would be $20.50, and the value of the 9802.00.80 allowance would be $19.50. The Toddler Conglomerate would effectively pay duty on the value of outbound international transportation.]
Alternatively, the Toddler Conglomerate could sell the fabricated components to the foreign assembler, on an f.o.b. port of export basis. Thus, in Example 2 above, while the cost to the Toddler Conglomerate of making the cut parts is $19.50 per stroller cover, the Toddler Conglomerate could sell the covers to a foreign assembler for $22.00 f.o.b. port of exportation. This would increase the allowable HTS heading 9802.00.80 benefit from $19.50 to $22.00 per stroller cover. The Customs Regulations allow Customs officers to adjust claimed allowances to avoid abuse, particularly in transactions involving related parties.
Fabricated components which have been exported with benefit of drawback are not eligible for the HTS heading 9802.00.80 allowance. Thus, if imported duty-paid fabric is manufactured into the United States into fabricated garment parts, the exporter/importer should consider whether it will realize the maximum duty return by claiming the HTS heading 9802.00 allowance or by claiming duty drawback.
Note: The information contained in this memorandum is for general information only, and is not intended as advice or counsel regarding any specific situation. If you have an issue relating to the subject matter discussed in this memorandum, you should consult with counsel or your customs advisers concerning the proper course of action to be followed in your case.
Entire contents copyright 1998 by Neville Peterson LLP.
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