Among the most commonly asked questions by importers who purchase products assembled abroad from U.S. components is whether Customs allows a duty reduction based on the value of the U.S. components. The good news is that importers may utilize a separate tariff classification, ''9802.00.80,'' to accomplish this type of duty reduction. The catch is that the import must not only meet the stringent criteria of 9802, but must be entered with a complete set of supporting documentation which at first glance seems formidable.
The classification under 9802.00.80 applies to U.S. goods which are:1. exported in a condition ready for assembly without needing further fabrication;
2. do not in themselves change form or substance when incorporated into the finished item; and
3. are not in themselves advanced in value, except by the assembly operation or certain incidental processes such as cleaning, lubricating, etc.
WHOLE, AND SOME COMPONENTS, NEED PROPER EVALUATION
Assuming the U.S. component meets these qualifications, two separate value calculations must be made: the value of the finished, imported article as a whole, and the value of the exported U.S. components. The value of the U.S. components is then subtracted from the value of the finished imported article, leaving the value against which a duty rate applicable to that item (if any) is paid.
If the importer is using the transaction value method to appraise merchandise, the U.S. components sent abroad for assembly are normally considered ''assists.'' They are valued at the cost of the component when last purchased (or in some cases their production cost) plus the cost of transporting them to the place of foreign assembly from the U.S. port of exportation.
Among the pieces of documentation importers are expected to provide the Customs Service are the following:
1. Manufacturer's affidavits attesting to the U.S. origin of the components. Importers often find it useful to obtain a form acceptable to the Customs Service and provide it to the component vendor so as to avoid any confusion;
2. Purchase invoices of the U.S. components;
3. Where the importer sells the components to the foreign assembler (rather than consigning them), sales invoices reflecting that sales price;
4. An Assembler's Declaration attesting to the use of the components;
5. An 9802 worksheet correlating the value/duty reductions to the documentation at hand. In addition to any other necessary export documentation such as a Shippers Export Declaration, the export invoice for the outbound components should include a statement indicating that the goods are being shipped pursuant to a 9802 classification, and that any invoice is only reflects the value of that particular component.
NO ONE-SIZE-FITS-ALL TO PRODUCT DEFINITION OR ITS VALUE
Since assembly processes vary enormously depending on the type of product involved, what is considered an ''unchanged'' component or one ''not advanced in value'' (beyond the assembly itself) for purposes of one 9802 application may not be the same in another application. A component or textile, for example, may have to undergo a chemical washing process or trimming process prior to assembly.
Does this preclude 9820 treatment? In some cases the answer would be yes; in others, no. Would, for instance, a component of foreign origin which undergoes a ''substantial transformation'' in the U.S. then qualify as a U.S. item for purposes of 9802? Again, there is no general answer.
BEWARE OF AMBIGUITY, GET IT IN A LETTER
Therefore, importers using this type of duty reduction should make no assumptions about qualification where there is any ambiguity, and may wish to seek a letter ruling from the Customs Service in advance of the U.S. import.
Importers are also advised to communicate fully with their customs brokers to ensure complete and timely documentation of the transaction. While it is cleaner to provide the documentation upon entry of the imported merchandise, late documentation may be provided on an entry where estimated duties have been paid and the goods released to the importer, but which has not liquidated (Customs' final duty calculation).
Nafta incorporates the 9802 program for goods traded in the Nafta zone, as a further means by which to reduce the value against which a Nafta preferential tariff rate is applied.
Importers should also consider other similar duty reduction classifications where applicable. For instance, tariff classification 9801.00.25 allows duty free treatment of articles previously imported, exported and then reimported - subject to several qualifications. The article must have been: exported within three years after the date of the previous importation; reimported without having been advanced in value or improved in condition by any process of manufacture abroad; reimported because the article did not conform to sample or specification; and reimported by or for the account of the person who originally imported and exported them from the United States.
As is the case with the 9802 program, 9801 also requires stringent adherence to its criteria and its own set of documentary support. Nevertheless, the duty savings may be worth the effort in a business which typically involves reimportation of defective, previously imported merchandise.