[Federal Register Volume 73, Number 114 (Thursday, June 12, 2008)]
[Rules and Regulations]
[Pages 33299-33301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-13203]


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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]
BILLING CODE 9111-14-P