CON-9-04-CO:R:C:E 224617 JRS
Mr. Frank M. Murphy
Corporate Technical Advisor
John V. Carr & Son, Inc.
P.O. Box 33479
Detroit, Michigan 48232-5479
RE: Temporary Importation Under Bond (TIB); Inspection and
Quality Check on Imported New Automobiles to Reveal Any Damage or
Defects and possible correction/adjustment; Subheading
9813.00.5040, HTSUS; Payment of Duty Prior to Shipment to Canada
under the United States-Canada Free Trade Agreement (CFTA);
Article 404 of the CFTA
Dear Mr. Murphy:
This is in response to your request for a ruling dated
March 29, 1992, on behalf of your client, on the applicability of
the TIB provision, subheading 9813.00.05, HTSUS, for an
inspection (quality check) and, if necessary, repair or
adjustment of imported merchandise.
FACTS:
Your client, an importer and distributor of automobiles and
automotive parts, is proposing to establish a quality assurance
program for their imported vehicles at the point of discharge in
the United States. All vehicles would be inspected and any
damage or defects would be corrected prior to removal from the
port area. Under this arrangement, the U.S. destined vehicles
would be entered for consumption and the vehicles destined for
Canada under a TIB.
It is the intent of the importer to enter all vehicles for
the Canadian market under subheading 9813.00.0540, HTSUS.
However, it is not known at the time of entry if the vehicles
have sustained any intransit damage or will require any
corrections. Each vehicle will undergo a thorough examination,
and if repairs or adjustments are necessary, they will be
accomplished, such as replacing broken or missing parts, touch-
up painting, etc. Although each vehicle will undergo a quality
check, it is anticipated that not every vehicle will require
adjustment.
ISSUE:
(1) Whether imported motor vehicles may qualify under the
temporary import provision of subheading 9813.00.05, HTSUS,
"articles to be repaired, altered or processed in the United
States," when at the time of entry it is unknown whether the
vehicles have sustained any intransit damage or contain defects
requiring repair or adjustment.
(2) Whether the January 1, 1994, implementation of Article
404 of the United States-Canada Free Trade Agreement will require
the payment of any U.S. duty prior to exportation to Canada.
LAW AND ANALYSIS:
Subheading 9813.00.05, HTSUS, provides for temporary duty-
free entry, under bond (except under the CFTA), for merchandise
imported into the United States for the purpose of repair,
alteration or processing, including processes which result in
articles manufactured or produced in the United States. This
provision requires that the imported merchandise be exported or
destroyed within one year of the date of importation. See
Subchapter XIII, U.S. Note 1(a).
It is your position that since each vehicle will undergo an
inspection and quality check with the intent to identify and
correct deficiencies, that subheading 9813.00.0540, HTSUS, would
be applicable. We disagree. In order to enter articles under
subheading 9813.00.05, HTSUS, as an article to be repaired, there
must be an intention at the time of entry that all the articles
will actually be repaired. In this case, the automobiles are not
entered with the intention of having repair work done but rather
with the intention of inspecting the workmanship, and repairing
only if after inspection, it is found necessary. Likewise,
Customs has previously ruled that the multi-laser printers did
not qualify for temporary duty-free treatment under subheading
9813.00.05, HTSUS, because at the time of entry the printer
cartridges which may be in need of repair, if any, could not be
determined until after inspection. See HQ 223827, dated May 19,
1992.
U.S. Note 1(c) to Subchapter XIII, Chapter 98, HTSUS,
provides, in pertinent part, that the shipment to Canada of an
article entered into the United States under heading 9813.00.05,
HTSUS, shall not constitute an exportation, unless the article is
a drawback eligible good [which in this case it is not] under
section 204(a) of the United States-Canada Free Trade Agreement
Implementation Act of 1988. See Subchapter XIII, U.S. Note 1(c).
We reject your argument that U.S. Note 1(c) to Subchapter
XIII, Chapter 98, HTSUS, is only operative at statistical level
9813.00.0520 which covers articles to be processed into articles
manufactured or produced in the United States. You do not
believe that the goods entered under subheading 9813.00.0540 are
intended to fall within the scope of the goods imported in bond
as contained in Article 404(1), and as such, third country goods
imported under bond for repair or alteration and exportation to
Canada would be subject to the tariff of Canada and would avoid
the payment of duties into the United States. It is our opinion
that regardless of the statistical level breakout (e.g., .20 or
.40 of the heading), goods entered under this heading would be
subject to the tariff of the United States as defined in Article
404(1).
Assuming arguendo that your client did qualify for treatment
under subheading 9813.00.05, HTSUS, the automobiles would be
shipped to Canada and entered into the United States under the
above heading. As this shipment destined for Canada does not
qualify as an "exportation" pursuant to U.S. Note 1(c), then the
automobiles are not eligible for treatment under subheading
9813.00.05, HTSUS, inasmuch as they cannot be considered exported
to Canada. A failure to export or destroy the automobiles would
result in a breach of the TIB, and a demand under the bond for
the payment of liquidated damages equal to double the estimated
duties would have to be paid. 19 CFR 10.39(d)(1).
There are two possible alternatives to the TIB procedure
which would accomplish your client's objective of inspecting and,
if necessary, repairing defects or damage. One is to make an
entry into a Customs bonded manipulation warehouse (19 U.S.C.
1562). In a Class 8 warehouse, merchandise may be manipulated
(such as cleaning, sorting, repacking or otherwise changing the
condition of the merchandise) so long as it does not amount to a
manufacture. Your attention is also invited to 19 U.S.C. 81c,
which provides in relevant part that foreign and domestic
merchandise of every description, except where prohibited by law,
may without being subject to the Customs laws of the United
States, be brought into a foreign trade zone and may be stored,
sold, exhibited, broken up, repacked, assembled, distributed,
sorted, graded, cleaned, mixed with foreign or domestic
merchandise, or otherwise manipulated, or be manufactured.
Of course, if the CFTA goes into effect as scheduled on
January 1, 1994, upon the withdrawal from a foreign trade zone or
a bonded warehouse on a shipment to Canada, U.S. Customs duties
will have to be paid, as if the automobiles were imported for
domestic consumption. See Article 404(1) and (3) of the CFTA.
We are not in a position to rule on the effect of North
American Free Trade Agreement until after Congress enacts the
implementing legislation of the Agreement. However, under the
Agreement, it appears that a repair or alteration performed under
a TIB would be treated as part of a duty-deferral program.
Therefore, duties would have to be paid to the United States
within 60 days after its exportation to Canada but the amount may
be waived if the amount assessed on importation into Canada
(i.e., duty-free under the Automotive Products Trade Act) is the
lesser amount than would have been paid to the United States. If
you would resubmit your request at the appropriate time in the
future, we would be happy to consider it.
HOLDING:
Newly manufactured motor vehicles are not entitled to entry
under subheading 9813.00.05, HTSUS, when they are imported to
undergo an inspection and quality check with the intention, if
necessary, to repair or adjust as described in the FACTS section.
Assuming the applicability of subheading 9813.00.05, HTSUS,
to an operation, Article 404(1) of the CFTA would require the
payment of U.S. customs duties applicable to those goods entered
for consumption prior to their export to Canada.
Sincerely,
John Durant, Director