MAR-2-05 RR:TC:SM 559749 KR
Robert Noell, Vice President
Cain Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. box 150
Hidalgo, TX 78557
RE: Used Compressors Exported to Mexico from the U.S. and
Disassembled for Salvage and Repair and Returned to the U.S.
as Parts for Reassembly; Article 509.
Dear Mr. Cain:
This is in response to your letter dated March 13, 1996, on
behalf of Emerson Electric Co. - Copeland Corporation Division
("Copeland"), requesting a ruling regarding whether used
compressors exported to Mexico from the U.S. and disassembled for
salvage and repair and returned to the U.S. as parts for
reassembly are eligible for duty free treatment under subheading
9802.00.50, Harmonized Tariff Schedule of the United States
("HTSUS").
FACTS:
Copeland intends to export U.S.-origin compressors that are
used and non-functioning to Mexico. In Mexico the compressors
are disassembled and parts are removed for scrap or salvage and
repair. After the salvageable parts are repaired, they are
returned to the U.S. for reassembly as rebuilt compressors. The
parts removed for scrap are also returned to the U.S. The parts
are not reassembled prior to importation. The components are
shipped back to the U.S. in bulk with other identical parts.
Copeland states that the compressors are of U.S. origin.
Copeland wishes to bring back the parts pursuant to subheading
9802.00.50, HTSUS.
The processing performed in Mexico involves the complete
disassembly of the compressors. Minor, incidental operations are
performed on the salvaged parts, such as removing dents,
cleaning, testing, the application of rust inhibitor, grinding
and polishing. The salvageable and unsalvageable parts are then
returned to the U.S.
ISSUE:
Whether the disassembled compressor components returned to
the U.S. from Mexico are entitled to a duty exemption under
subheading 9802.00.50, HTSUS.
LAW AND ANALYSIS:
Annex 307 of the North American Free Trade Agreement
(NAFTA) and Annex 307.1 of the Agreement provide that articles
exported from the U.S. to Mexico for "repairs or alterations"
may, upon their return, enter into the U.S. free of duty.
Subheading 9802.00.50, HTSUS, provides a partial or complete
duty exemption for articles exported from and returned to the
U.S. after having been advanced in value or improved in condition
by repairs or alterations, provided the documentary requirements
of section 181.64, Customs Regulations (19 CFR 181.64), are
satisfied. Section 181.64, which implements Article 307 of
NAFTA, provides that goods returned after having been repaired or
altered in Mexico are eligible for duty-free treatment, provided
that the requirements of this section are met. However,
entitlement to this tariff treatment is precluded in
circumstances where the operations performed abroad destroy the
identity of the exported articles or create new or commercially
different articles through a process of manufacture. See A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g
C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries
Corporation v. United States, 3 CIT 9 (1982).
"Repairs or alterations" for purposes of 19 CFR 181.64 are
defined as:
... restoration, addition, renovation, redying,
cleaning, resterilization, 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 United States.
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. Press
Wireless, Inc. V. United States, 6 Cust. Ct. 102, C.D. 438
(1941). In Press Wireless, radio tubes were sent abroad for
repairs which involved the use of heavier filament than that used
in the original manufacture of the tubes. Also, the markings on
the articles were erased, and new numbers were submitted to
facilitate matching the tubes for use in transmitters. The court
held that, as long as the article was not considered a new and
different article of commerce or its identity was destroyed, the
use of improved materials in the restoration was of no
consequence.
In HQ 554539 (August 25, (1987)), we stated that:
So long as the identity of the [exported unit] is
maintained throughout the disassembly and repair
process, and there is a genuine repair of parts carried
out during the foreign process, these units may be
entered under the repairs provision of item 806.20,
Tariff Schedules of the United States (TSUS) [the
predecessor to subheading 9802.00.50, HTSUS].
In HQ 555819, dated October 11, 1991, up to 17 parts were
replaced in combination telephone answering machines. Customs
stated that the replacement and/or addition of parts to restore
products to their original condition may constitute repair
operations for purposes 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. Furthermore, Customs stated that where
the foreign repair operations entail the complete disassembly of
the exported article and numerous component parts of the article
are replaced, the concept of essential identity may come into
play. This concept is employed to insure that the article
imported is the same as the article exported, and operates by
identifying certain component parts of an exported article as
embracing the essential identity of the particular article
exported. Component parts so identified are to be maintained
together throughout the repair operation as a matched set. It
was held in HQ 555819, that under the circumstances of that case,
the foreign operations constituted "repairs" within the meaning
of subheading 9802.00.50, HTSUS. Reassembly was also a factor in
granting treatment under subheading 9802.00.50, HTSUS, in HQ
558987 (May 17, 1995). See also HQ 559012 (May 9, 1995).
In the instant case, the compressors after exportation are
disassembled. These components do not remain together as a
matched set. Further, the components are not reassembled prior
to importation. The components are imported in bulk to the U.S.
with other identical components. After importation the
components will be assembled with the other imported components
which were also shipped in bulk with identical components. There
will be no means to determine which components originally were
matched together. Under these circumstances, as the essential
identity of the exported used compressors is not maintained
during the disassembly and other operations performed abroad, we
find that the imported salvageable compressor parts will not
qualify for a duty preference under subheading 9802.00.50, HTSUS.
HOLDING:
Based on the information provided, we find that the returned
salvageable compressor parts will not qualify for a duty
preference under subheading 9802.00.50, HTSUS.
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,
Tariff Classification Appeals
Division