DRA-4-CO:R:C:E 220833 GG
Regional Commissioner
North Central Region
U.S. Customs Service
55 East Monroe Street
Suite 1501
Chicago, Illinois 60603-5790
RE: Same condition drawback; 19 U.S.C. 1313(j); ultrasound
units; modifications more than incidental but less than a
manufacture
Dear Sir:
This is in response to your request for a legal opinion dated
August 31, 1988 concerning drawback claims made by General
Electric Medical Systems (GEMS) of Milwaukee, Wisconsin.
GEMS imports ultrasound units from Japan and then exports
some of the units to Europe. Prior to their exportation, certain
procedures are performed on the units to bring them into
compliance with European regulatory (IEC) requirements: 1) All
external input/output connection and warning labels are replaced
with German labels; 2) various labels are installed inside the
units; 3) a safety agency compliance label is attached; 4) an
internal wiring harness, the external power cord, and the
supplied footswitch are exchanged with IEC compliant cables and
footswitches of equivalent value; and 5) various fuses are
replaced with IEC approved fuses.
GEMS is claiming drawback on the exported ultrasound units
and has sought guidance from the U.S. Customs Service on what
type of drawback to file for. The issue is whether the
procedures described above are incidental operations or a
manufacture for drawback purposes.
The first issue to be addressed is whether the described
operations are merely incidental, thus enabling GEMS to file for
drawback under 19 U.S.C. 1313(j). That drawback provision allows
a refund of duties when merchandise is exported in the same
condition as when imported. Use of the imported merchandise
generally renders it ineligible for same condition drawback;
incidental operations (including, but not limited to, testing,
cleaning, repacking, and inspecting) are not, however,
considered a use.
The Customs Service has ruled on a similar factual situation
in Customs Service Decision (C.S.D.) 82-7, when the adjustment of
TV sets for use in Europe was held to be more than an incidental
operation. Specifically, the adjustment consisted of unpacking
the TV's, switching the voltage from 220 to 110 for reworking,
setting the vertical and horizontal hold controls, turning the
voltage indicator back to 220v, and repackaging the TV's for
export. This ruling states in pertinent part that
The law specifically allows testing and
inspecting. However, if such testing indicates
the article as tested . . . is not capable of
performing its intended function, there is
nothing in the law which allows repair or
adjustment in addition to testing to render
the article functional. It is clear in this
case that as imported, the TV sets could not
be used in the area of intended sale, or if
used there, would give unsatisfactory
reception. The operations performed in the
United States rendered the sets functional
for the sales market. In short, the sets
to be exported are not in the same condition
as when imported.
GEMS' procedures, which involve exchanging or adding labels,
exchanging various cables and footswitches, and replacing fuses
to render the ultrasonic units fit for use in European markets,
closely resemble the adjustments outlined above. The units are
adjusted so that they can be sold overseas; following these
procedures they can no longer be used in the United States and
are no longer in the same condition as when imported. GEMS
cannot claim drawback under 19 U.S.C. 1313(j).
If the modifications done to the ultrasound units were more
then incidental, were they a manufacture for drawback purposes?
The procedures performed by GEMS can be characterized as a
reworking or reconditioning of the merchandise in question. Such
operations have been held by Customs not to constitute a
manufacture or production for drawback purposes. See, e.g., T.D.
55248(1) and information letter DRA-1-CO:R:CD:D, 219277 RB,
dated July 7, 1987. A manufacture requires a transformation; a
new and different article must emerge, having a different name,
character or use. Anheuser - Busch Brewing Association v. United
States, 207 U.S. 556 (1907). The ultrasound units, although
destined for a different market, are still ultrasound units after
being brought into compliance with IEC requirements; their name,
basic character and use remain the same therefore they are not
manufactured for drawback purposes.
In light of the foregoing discussion, you are directed to
deny GEMS' same condition or direct identification drawback
claims with respect to this merchandise.
Sincerely,
John Durant
Director, Commercial
Rulings Division