CLA-2 RR:CR:SM 561989 KSG

Tamara Grills
Traffic Manager
Altec/Carlisle
Division of Carlisle Corporation of Canada
84 Easton Road
Brantford, Ontario N3P 1J5
Canada

RE: Subheading 9802.00.50, HTSUS; reconditioned brake shoe kits; 102.11 Dear Ms. Grills:

This is in response to your letter of December 1, 2000, asking for a binding ruling concerning the eligibility of imported reconditioned brake shoe kits for a duty exemption under subheading 9802.00.50 of the Harmonized Tariff Schedule of the United States (“HTSUS”). You also asked about the country of origin marking requirements under 19 U.S.C. 1304.

FACTS:

Your company reconditions heavy duty brake shoes in Canada. You obtain brake shoes from original equipment manufacturers, warehouse distributors and truck repair facilities in the U.S. All the brake shoes were originally manufactured in the U.S. or Canada.

In Canada, the used brake shoes are delined to remove spent lining, washed to remove grease, dirt and debris, shot blasted to restore the original metal, pressed to restore the original round shape, and inspected to determine if they are salvageable. If necessary, the brake shoes are drilled, punched, and/ or notched to convert to newer style shoe types. The brake shoes are then painted, relined and either bulk shipped or boxed in a kit and returned to the original supplier.

Some of the brake shoes are packaged for retail sale in a kit which consists of two brake shoes and a hardware kit manufactured in the U.S. or Canada. The hardware kit consists of springs and rollers which are necessary for the installation of the brake shoe on a vehicle. You ask if the marking “Assembled in Canada with U.S. and/or Canadian components” is acceptable.

ISSUES:

Whether the reconditioned brake shoe kits are eligible for a duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S.

What is the proper country of origin marking of the imported brake shoe kits?

LAW AND ANALYSIS:

Articles exported from and returned to the U.S., after having been advanced in value or improved in condition by repairs or alterations, may qualify for a duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27 (1956) and Guardian Industries Corporation v. United States, 3 CIT 9 (CIT 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. See Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (1978). Goods repaired or altered in Mexico or Canada are subject to the documentary requirements set forth in section 181.64(c), Customs Regulations (19 CFR 181.64(c)).

Section 181.64(a), Customs Regulations (19 CFR 181.64(a)), provides that: For purposes of this section, “repairs or alterations” means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the U.S.

For purposes of the duty allowance under subheading 9802.00.50, HTSUS, the replacement and/or addition of parts to restore products to their original condition may constitute repair operations, provided that the particular article does not lose its identity and the replacement and/or additions are not so extensive as to create a new or different article. See Press Wireless, Inc. v. United States, 6 Cust. Ct. 102 (1941). In Press Wireless, the court found that radio tubes or valves replaced with heavier filaments, allowing heavier amperage, were "repaired" within the meaning of paragraph 1615,Taroff Act of 1930 ( a precursor provision of subheading 9802.00.50, HTSUS). Additionally, the court found that the identical tubes were returned in a "condition of restoration to their original efficiency," and noted that an automobile repaired with materials of a heavier and superior quality than the worn-out parts would still be the same automobile, and that a fur coat relined with a superior material would still be the same coat. The court held that the use of improved materials in the restoration was immaterial, as long as the article was not considered a new and different article of commerce or its identity was destroyed.

Thus, application of this tariff provision is precluded where the foreign operation destroys the identity of the exported article or creates a new or different commercial article. The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purpose of subheading 9802.00.50, HTSUS, if the particular article does not lose its identity and the replacements and/or additions are not so extensive as to create a new or different article.

In Amity Fabrics, Inc. v. United States, 43 Cust.Ct. 64, 305 F.Supp. 4 (1959), unfashionable "pumpkin" colored cotton twill-back velveteen was exported to be redyed black, which was more marketable. The court found that the merchandise was advanced in value and improved in condition commercially by the dying operation and that such change constituted an alteration under paragraph 1615(g) of the Tariff Act of 1930 ( a precursor provision of subheading 9802.00.50, HTSUS). The court further found that "the identity of the goods was not lost or destroyed by the dying process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color."

In Headquarters Ruling Letter ("HRL") 554952, dated March 14, 1989, Customs held that used casting molds re-formed by an "explosive forming" process which consisted of removing the chrome surface, grinding away defects, fitting a mandrel into the used mold, wrapping a plastic explosive around the casting, immersing the unit into water, and detonating the explosive merely restored the exported casting molds to their original condition, and therefore, constituted a repair for purposes of TSUS item 806.20 (the precursor to subheadings 9802.00.40 and 9802.00.50, HTSUS).

In HRL 957375, dated April 19, 1995, Customs considered wax pattern dies (aluminum molds used for the production of patterns made of wax) which were exported to England for repair by reworking/resharpening of the edges. The wax pattern dies were previously manufactured articles which became worn out from repeated use. Customs determined that the used dies were completed articles in their condition as exported, and did not require the addition of any other component or attachment in order to function properly. Customs concluded that the foreign resharpening operation, which restored the dies to their original condition, did not create a new or commercially different article, nor change the character or use of the wax pattern die and held that the reworking/resharpening operation constituted a repair for purposes of subheading 9802.00.50, HTSUS. Like the casting molds in HRL 554952 and the wax pattern dies in HRL 957375, the used brake shoes are previously manufactured articles which have become worn out from repeated use. The brake shoes are completed articles in their condition as exported to Canada prior to undergoing reconditioning. The reconditioning operation returns the brake shoes to their original efficiency and does not create a new or commercially different article.

Accordingly, the reconditioned brake shoe kits are eligible for a duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S., provided the documentary requirements of 19 CFR 181.64(c) are satisfied. Pursuant to U.S. Note 3(d), Subchapter II, Chapter 98, HTSUS, goods returned after having been repaired or altered in Canada, other than pursuant to a warranty, are subject to duty upon the value of the repairs or alterations using the applicable NAFTA “CA” rate for the article. The "CA" rate under subheading 8708.31, HTSUS, is "free."

2. Country of origin under NAFTA rules

Section 304 of the Tariff Act of 1930 (19 U.S.C. 1304), as amended, provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements of 19 U.S.C. 1304. The NAFTA Marking Rules are set forth at 19 CFR Part 102. Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining the country of origin under the Marking Rules. Paragraph (a) of this section states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced;

(2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the brake shoes are of U.S. and Canadian origin. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3). Section 102.11(a)(3) provides that the country of origin is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20 and satisfies any other applicable requirements of that section....”

Each foreign material must be separately analyzed under 19 CFR 102.11(a)(3). With respect to the classification of the brake shoe kits, it appears that the kits qualify as “goods put up in sets for retail sale” under General Rule of Interpretation 3(b), HTSUS, and that the lined brake shoes impart the essential character of the set. The lined brake shoes that are not returned in kits would be classified in the same provision. Therefore, it appears that the brake shoe kits and the lined brake shoes returned in bulk are classified in subheading 8708.31, HTSUS, which provides for: “Brakes and servo-brakes and parts thereof: mounted brake linings.” The applicable tariff shift rule found in section 102.20(p) provides as follows:

HTSUS Tariff Shift and/or other requirements

8708.31 .....A change to subheading 8708.31 from any other heading, except to mounted brake linings and pads of 8708.31 from subheading 6813.10. Since neither the lined brake shoes or the brake shoe kits undergo a change in tariff subheading, the tariff shift rule is not satisfied. With regard to the brake shoes returned in bulk, 19 CFR 102.11(b)(1) is applicable. Section 102.11(b)(1) provides:

(b) Except for a good that is specifically described in the Harmonized Tariff System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:

(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good,…

The single material that imparts the essential character of the reconditioned brake shoes is the brake shoe itself. Therefore, with regard to the brake shoes returned in bulk, the country of origin is the country where the brake shoes were originally manufactured.

Where the country of origin cannot be determined under 19 CFR 102.11(a) or (b), and the article is specifically described in the Harmonized System as a set or mixture, or classified as a set, mixture, or composite good pursuant to GRI 3(b), 19 CFR 102.11(c) is the rule which must then be applied. This provision would apply to the imported brake shoe kits. Under 19 CFR 102.11(c), the country of origin is the country or countries of origin of all materials that merit equal consideration for determining the essential character of the good. All of the materials of the set or mixture, foreign and domestic, which merit equal consideration, must be considered. In Treasury Decision (“T.D.”) 94-4, dated December 17, 1993, Customs gave an example of a determination of origin pursuant to section 102.11(c).

For example, the countries of origin of a cutlery and dinnerware packaged set from Mexico, which includes 12 knives from Mexico, 12 forks from Korea, 12 spoons from Taiwan, and a plastic case from Japan would be as follows: Mexico, Taiwan and Korea. The plastic case from Japan did not merit equal consideration in determining the essential character of the set.

With regard to the brake shoe kits, the hardware (springs and rollers) do not merit equal consideration for determining the essential character of the good. Therefore, the materials that merit equal consideration for determining the essential character are the used cores, i.e. the brake shoes. Therefore, it is the original country of manufacture of the brake shoes that determines the country of origin of these reconditioned articles under the NAFTA Marking Rules. If the kit contains two brake shoes originally manufactured in Canada, the country of origin of the kit is Canada. Any kit that contains one Canadian-origin and one U.S.-origin brake shoe is considered a product of Canada and the U.S. An acceptable marking for these kits would be "Made in Canada and the U.S." Kits containing only Canadian origin brake shoes and Canadian origin brake shoes imported in bulk may be marked "Made in Canada."

If the kit contains two U.S.-origin brake shoes, the country of origin of the kit is the U.S. Goods made in the U.S. are excepted from country of origin marking under 19 CFR 134.32(m).

HOLDING:

The reconditioned brake shoes and the brake shoe kits are eligible for a duty exemption under subheading 9802.00.50, HTSUS, upon importation into the U.S., provided the documentary requirements of 19 CFR 181.64(c) are satisfied.

The country of origin of the reconditioned brake shoes and the brake shoe kits is determined by the original country of manufacture of the reconditioned brake shoes. Any kit that contains one Canadian brake shoe and one U.S. brake shoe is considered a product of Canada and the U.S. and may be marked "Made in Canada and the U.S." If the kit contains two Canadian brake shoes, the country of origin is Canada and the marking must indicate that. Reconditioned brake shoes originally made in the U.S. are still considered of U.S. origin and are excepted from country of origin marking requirements under 19 CFR 134.32(m). A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director
Commercial Rulings Division