CLA-2 CO:R:C:S 556763 RAH
Mr. Nolan Wilson, Jr.
Foreign Assembly Administrator
Philips Components
5900 Australian Avenue
West Palm Beach, Florida 33407
RE: U.S. Note 2(b), subchapter II, Chapter 98, HTSUS;
Reimportation; Tantalum Capacitors
Dear Mr. Wilson:
This is in response to your letter of May 11, 1992,
regarding tantalum capacitors assembled in the Dominican Republic
from U.S.-fabricated components.
FACTS:
You state that Philips Components assembles tantalum
capacitors in the Dominican Republic at its offshore facility.
Philips imports the product duty free under the "CBI II." There
are certain occasions when Philips has to return an article to
the offshore facility in the Dominican Republic for "rework"
because the product does not meet specification. You state that
under those circumstances the company is assessed 10 percent duty
on the labor which is added to make the product meet specifica-
tion. You ask why duties are assessed on rework if the original
product itself is duty free.
ISSUE:
Whether merchandise which is originally entered from the
Dominican Republic duty-free under U.S. Note 2(b), subchapter II,
Chapter 98 ("Note 2(b)"), Harmonized Tariff Schedule of the
United States (HTSUS), and then exported back to the same country
for repair, is dutiable upon re-entry into the United States.
LAW AND ANALYSIS:
In the absence of a specific provision to the contrary, the
tariff status of an article is not affected by the fact that it
was previously imported into the customs territory of the United
States and cleared through customs whether or not duty was paid
upon such previous importation. U.S. Note 2, subchapter I,
Chapter 98, HTSUS.
Section 222 of the Customs and Trade Act of 1990 (Public Law
101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS,
to provide for the duty-free treatment of articles (other than
textile and apparel articles, petroleum and petroleum products)
assembled or processed in a Caribbean Basin Economic Recovery Act
(CBERA) beneficiary country (BC) wholly of fabricated components
or ingredients (except water) of U.S. origin. This amendment was
effective with respect to goods entered on or after October 1,
1990.
Note 2(b) specifically provides as follows:
(b) No article (except a textile article, apparel
article, or petroleum, or any product derived from
petroleum, provided for in heading 2709 or 2710) may be
treated as a foreign article, or as subject to duty,
if--
(i) the article is--
(A) assembled or processed in whole of
fabricated components that are a product of the
United States, or
(B) processed in whole of ingredients (other
than water) that are a product of the United
States, in a beneficiary country; and
(ii) neither the fabricated components, materials
or ingredients, after exportation from the United
States, nor the article itself, before importation into
the United States, enters the commerce of any foreign
country other than a beneficiary country.
As stated in this paragraph, the term "beneficiary country"
(BC) means a country listed in General Note 3(c)(v)(A), HTSUS.
Pursuant to General Note 3(c)(v)(A), HTSUS, the Dominican
Republic has been designated as a BC for CBERA purposes.
Under the facts presented, the capacitors qualify for duty-
free treatment under Note 2(b) when initially entered into the
United States from the Dominican Republic. Since Note 2(b)
provides that eligible articles are not to be treated as
"foreign," it necessarily follows that when the capacitors are
returned to the Dominican Republic for repair because they do not
meet specification, they are considered U.S. products.
Therefore, when the repaired articles are returned to the United
States, they again qualify for duty-free treatment under Note
2(b), as they are processed (reworked) in whole of U.S.-
fabricated components. Accordingly, they will be duty-free under
Note 2(b) upon reimportation into the U.S., assuming compliance
with the direct shipment and documentation requirements.
HOLDING:
Merchandise which is originally entered duty-free under Note
2(b), exported back to the BC for repair, and then reimported
into the U.S. will be duty-free under Note 2(b) upon the
subsequent importation, provided all the components or materials
incorporated in the capacitors during the foreign repair
operation also are of U.S. origin, and the direct shipment and
documentation requirements are satisfied.
Sincerely,
John Durant, Director
Commercial Rulings Division