CON-9-04-RR:IT:EC 226904 GOB
Jack Rafferty
Manager, Consulting Services Department
PBB Group
P.O. Box 950
434 Delaware Avenue
Buffalo, New York 14202
RE: Temporary importation bond; subheading 9813.00.05, HTSUS;
Repair; Alteration; Processing; 19 CFR 10.31(g), 181.43-.45, 181.53(b)(5); Unused merchandise drawback; 19 U.S.C.
1313(j)(1) and (3), 3333; NAFTA drawback
Dear Mr. Rafferty:
This is in response to your letter of March 26, 1996 on
behalf of Husky Injection Molding Systems Ltd. ("Husky").
By facsimile transmission of April 19, 1996, you withdrew
your request for confidentiality.
FACTS:
In your letter of March 26, 1996, you state as follows:
For some time, we have been filing temporary importation
bonds (T.I.B.'s) for certain parts which Husky ships from
Canada to one of its U.S. suppliers...[who] assembles these
parts into a sub-assembly consisting as well of parts
sourced/produced in the U.S. and third countries.
...
In the U.S. [the supplier] does the following with the parts
that are supplied by Husky from (not manufactured in) Canada
and which, until January 1, 1996, were routinely entered
under T.I.B.:
Spherical Bearing - is inserted onto the front end of
the spline shaft in the motor housing casting.
Tapered Roller Bearing - is inserted into the rear end
of the spline shaft and then into the motor housing
casting.
Hydraulic Motor - is attached to the spline shaft and
then bolted to the motor housing casting.
Slides and Rails - are bolted to the motor and drive
castings.
The "Extruder Drive Units" are then exported to Canada and
entered there free of duty.
...
In the situation described above, none of the components
supplied by Husky in Canada to [the supplier] are further
processed, i.e., none of those components is advanced in
value or improved in condition by any process of manufacture
while in the U.S. Neither are those same components
repaired. We believe that the components are "altered"
inasmuch as their identity is now lost in and subservient to
the identity of the greater sub-assembly.
...
As a separate item for your consideration, could the filing
of "unused merchandise drawback" on the same Canadian
supplied components on export of the "Extruding Drive Units"
be an alternative to the filing of T.I.B.'s on entry into
the U.S. of the Canadian supplied components?
ISSUES:
1. May the parts be entered under subheading 9813.00.05,
HTSUS?
2. Is 19 CFR 181.53(b)(5) applicable to the factual
situation described supra?
3. Are the exported articles (the extruding drive units)
eligible for drawback pursuant to 19 U.S.C. 1313(j)(1)?
4. May you file NDDP-exempt temporary importation bond
entries for consumption entries filed since January 1, 1996.
LAW AND ANALYSIS:
Issue One
Pursuant to General Note 1, Harmonized Tariff Schedule of
the United States ("HTSUS"), all merchandise imported into the
United States is subject to duty unless specifically exempted
therefrom.
Subheading 9813.00.05, HTSUS, provides for the temporary
duty-free entry of:
Articles to be repaired, altered, or processed (including
processes which result in articles manufactured or produced
in the United States.)
Pursuant to U.S. Notes 1(a) and (c) of Subchapter XIII of
Chapter 98, HTSUS, which contains subheading 9813.00.05:
The articles described in the provisions of this subchapter,
when not imported for sale or for sale on approval, may be
admitted into the United States without the payment of duty,
under bond for their exportation within 1 year from the date
of importation, which period, in the discretion of the
Secretary of the Treasury, may be extended, upon
application, for one or more further periods which, when
added to the initial 1 year, shall not exceed a total of 3
years ...
...
For purposes of this subchapter, if an article imported into
the United States under heading 9813.00.05 is withdrawn for
exportation to the territory of Canada or Mexico, the duty
assessed shall be waived or reduced in an amount that does
not exceed the lesser of the total amount of duty payable on
the article that would have been payable on importation
under chapters 1 through 97, inclusive, of the Harmonized
Tariff Schedule of the United States or the total amount of
customs duties paid to Canada or to Mexico on the exported
article, unless such article is covered by section 203(a)(1)
through 203(a)(8), inclusive, of the NAFTA Implementation
Act. The amount of duties or refunds calculated on such
articles pursuant to this note shall be adjusted to take
into account any subsequent claim for preferential tariff
treatment made to another NAFTA country. This note shall
apply to shipments to Canada on or after January 1, 1996,
and to Mexico on or after January 1, 2001.
19 CFR 181.53(b)(5), promulgated by Treasury Decision 96-14
(published in the Customs Bulletin and Decisions on February 14,
1996 at p.6), provides:
(5) Temporary importation under bond. Except in the case of
a good imported from Canada or Mexico for repair or
alteration, where a good, regardless of its origin, was
imported temporarily free of duty for repair, alteration or
processing (subheading 9813.00.05, Harmonized Tariff
Schedule of the United States) and is subsequently exported
to Canada or Mexico, duty shall be assessed on the good on
the basis of its condition at the time of its importation
into the United States. Such duty shall be paid no later
than 60 calendar days after either the date of exportation
or the date of entry into a duty-deferral program of Canada
or Mexico, except that, upon filing of a proper claim under
paragraph (a)(3) of this section, the duty shall be waived
or reduced in an amount that does not exceed the lesser of
the total amount of duty payable on the good under this
section or the total amount of customs duties paid to Canada
or Mexico.
At issue are the applicability of subheading 9813.00.05,
HTSUS, and 19 CFR 181.53(b)(5) to the factual situation described
by the ruling requester on behalf of Husky.
We determine that the parts described, supra, i.e.,
spherical bearings, tapered roller bearings, hydraulic motors,
slides and rails, may be entered under subheading 9813.00.05
because they are processed within the meaning of subheading
9813.00.05.
In Ruling 224211 dated October 20, 1992, we stated:
In this instance, certain speaker parts will be imported
through the port of San Juan and assembled with domestic
parts into a complete speaker unit. After assembly, the
speaker unit will be exported to Japan, Canada and South
Africa. This type of assembly would appear to be a
"processing" within the meaning of subheading 9813.00.05,
HTSUS. We have previously ruled that component parts
imported for the purpose of assembly with other parts into a
finished article constitute a "processing." HQ 221572
(08/02/89) and HQ 219823 (11/03/87). Accordingly, the
subject speaker parts are entitled to temporary duty-free
entry, under bond, as articles to be processed.
Similarly, in Ruling 221488 dated May 15, 1991, we held that
roller bearings are "processed" within the meaning of subheading
9813.00.05, HTS, when they are "installed ... into the various
parts of the Fuller Loesche Mill and the Fuller HRC Roll
Crusher."
Please note U.S. Note 2(b) of Subchapter XIII of Chapter 98,
HTSUS, which states:
2. Merchandise may be admitted into the United States under
heading 9813.00.50 only on condition that:
* * * * *
(b) If any processing of such merchandise results in an
article (other than an article described in (a) of this U.S.
Note) manufactured or produced in the United States:
(i) A complete accounting will be made to the Customs
Service for all articles, wastes and irrecoverable losses
resulting from such processing; and
(ii) All articles and valuable wastes resulting from such
processing will be exported or destroyed under customs
supervision within the bonded period; except that in lieu of
the exportation or destruction of valuable waste, duties may
be tendered on such wastes at rates of duties in effect for
such wastes at the time of importation.
Issue Two
A different question is presented with respect to the
applicability of 19 CFR 181.53(b)(5). In particular, in addition
to being a "processing," is the subject operation a "repair or
alteration," such that the "except" clause at the beginning of
section 181.53(b)(5) would apply to take the operation out of
section 181.53(b)(5)?
Webster's Third New International Dictionary (unabridged,
1966) defines "repair" as follows, in pertinent part:
repair ... 1 a: to restore by replacing a part or putting
together what is torn or broken: fix, mend ... b: to restore
to a sound or healthy state: renew, revivify...
It is clear that the work performed is not a repair of the
parts at issue. There is no restoration, replacement, renewal,
or the like to the parts.
Webster's Third New International Dictionary (unabridged,
1966) defines "alteration" and "alter" as follows, in pertinent
part:
alteration ... 1 a: the act or action of altering b: the
quality or state of being altered 2: the result of
altering...
alter ... 1: to cause to become different in some particular
characteristic (as measure, dimension, course, arrangement,
or inclination) without changing into something else ... syn
see change
The Random House Dictionary of the English Language (The
Unabridged Edition, 1973) defines "alteration" and "alter" as
follows, in pertinent part:
alteration ... 1. the act or state of altering: or the state
of being altered ... 2. a change; modification ...
alter ... 1. to make different in some particular, as size,
style, course, or the like; modify ... 3. to change; become
different or modified.
19 CFR 181.64(a) provides in pertinent part as follows:
181.64 Goods re-entered after repair or alteration in
Canada or Mexico.
(a) General. This section sets forth the rules which apply
for purposes of obtaining duty-free or reduced-duty
treatment on goods returned after repair or alteration in
Canada or Mexico as provided for in subheadings 9802.00.40
and 9802.00.50, HTSUS...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 United
States.
The matter at issue here does not involve subheadings
9802.00.40 or 9802.00.50, and thus the definition in section
181.63(a) is not controlling here. Nevertheless, we believe that
the above definition is instructive. The work performed in this
case would not fall within the definition of "repairs or
alterations" in 19 CFR 181.64(a).
In U.S. v. Oakville Company, 402 F. 2d 1016, 56 CCPA 1,8,
C.A.D. 943 (1968), a case which involved Paragraph 1615, Tariff
Act of 1930, as amended by the Customs Administrative Act of
1938, T.D. 49646, and as further amended by the Customs
Simplification Act of 1954, T.D. 53599, with respect to articles
exported for repairs or alterations, the court stated, in
pertinent part:
In our view, paragraph 1615(g)(1) does not apply because the
paper tape was not exported "for repairs or alterations."
Like the pins, the paper tape was sent to Canada to become a
component or element of pins-in-rolls, a new commercial
entity manufactured in Canada by De Long Hook & Eye Company.
The tape was clearly not "repaired" and we do not think it
was exported "for" alterations, notwithstanding it was
somewhat altered in having the pins stuck into ribs formed
in it. Paragraph 1615(g)(1) refers to an "article" which is
exported, that same "article" being returned after being
repaired or after having had alterations made in it and then
further makes reference to "the article itself in its
repaired or altered condition." We think that this
contemplates that the article returned is still recognizable
as an article in the same category as the article exported
and does not contemplate such a situation as that here where
the paper tape - the "article" exported - comes back as a
mere component of an entirely different article, namely,
pins-in-rolls. The pins-in-rolls is an article consisting
of several components: a wood core, two cardboard discs held
thereto by staples to for a spool, a formed paper ribbon
made from the exported tape into which pins have been
inserted at regular intervals, the pin-carrying ribbon being
wound on the spool. This is a far cry from the exported
tape. It is in no sense the article exported. (emphasis in
original.)
In Guardian Industries Corporation v. U.S., 3 C.I.T. 9, 14
(1982), which involved item 806.20, Tariff Schedules of the
United States, the predecessor to subheading 9802.00.50, HTSUS,
the court stated, in pertinent part:
Beyond these considerations, it is to be noted that for
tariff purposes a process which converts one article into a
new article is not an "alteration." A.F. Burstrom v. United
States, 44 CCPA 27, C.A.D. 631 (1957); C.J. Tower & Sons of
Niagara, Inc. v. United States, 45 Cust. Ct. 111, C.D. 2208
(1960). In Burstrom, steel ingots were exported into Canada
and ramparted after having been converted into steel slabs.
The chemical composition of the steel had not changed in the
course of the slabbing operations. The imported articles
were known as ingots and the exported articles were known as
slabs and they were bought and sold commercially as
different products. Furthermore the court noted that the
ingots and slabs were separately specified in paragraph 304
of the Tariff Act of 1930, as modified. The court concluded
that slabs "are clearly not the same articles as ingots" (44
CCPA at 29) and the processing of the ingots into slabs was
therefore held not to be an alteration within the purview of
paragraph 1615(g) of the Tariff Act of 1930. [footnote
omitted.] In short, Burstrom holds that when a foreign
processing creates a new article of commerce, the processing
is not an alteration.
The court in Guardian Industries notes, in a footnote at the
end of the excerpted language, that "[t]he decision in Burstrom
was cited by the Court of Customs and Patent Appeals with
approval in Dolliff, 66 CCPA at 81, 83-84, 599 F. 2d at 1020."
On the basis of the authorities noted supra, we conclude
that the work described in this case is not an "alteration." The
parts at issue are assembled into extruder drive units, an
article of commerce different from the parts themselves.
Accordingly, we determine that the work is not a "repair or
alteration," as these words are used in 19 CFR 181.53(b)(5).
Thus, the except clause at the beginning of 19 CFR
181.53(b)(5) is not applicable, and 19 CFR 181.53(b)(5) applies
to the factual situation at issue here.
Issue Three
Pertinent statutory and regulatory provisions are as
follows.
19 U.S.C. 1313(j)(1) and (3) provide as follows:
(j) Unused merchandise drawback
(1) If imported merchandise, on which was paid any duty,
tax, or fee imposed under Federal law because of its
importation-
(A) is, before the close of the 3-year period beginning
on the date of importation-
(i) exported, or
(ii) destroyed under customs supervision; and
(B) is not used within the United States before such
exportation or destruction; then upon such
exportation or destruction 99 percent of the amount of
each duty, tax, or fee so paid shall be refunded as drawback. The exporter (or destroyer) has the right to claim
drawback under this paragraph, but may endorse such
right to the importer or any intermediate party.
* * * * *
(3) The performing of any operation or combination of
operations (including, but not limited to, testing, cleaning,
repacking, inspecting, sorting, refurbishing, freezing,
blending, repairing, reworking, cutting, slitting, adjusting,
replacing components, relabeling, disassembling, and
unpacking), not amounting to manufacture or production for
drawback purposes under the preceding provisions of this
section on-
(A) the imported merchandise itself in cases to which
paragraph (1) applies, or
(B) the commercially interchangeable merchandise in
cases to which paragraph (2) applies,
shall not be treated as a use of that merchandise for
purposes of applying paragraph (1)(B) or (2)(C).
With respect to exportations to Canada and Mexico, section
203 of the North American Free Trade Agreement (NAFTA)
Implementation Act (Public Law 103-182; 107 Stat. 2057, 2086; 19
U.S.C. 3333), provides for the treatment of goods subject to
NAFTA drawback. Section 203(a) provides in pertinent part as
follows:
(a) Definition of a Good Subject to NAFTA Drawback - For
purposes of this Act and the amendments made by subsection
(b), the term "good subject to NAFTA drawback" means any
imported good other than the following:
(1) A good entered under bond for transportation and
exportation to a NAFTA country.
(2) A good exported to a NAFTA country in the same
condition as when imported into the United States. For
purposes of this paragraph-
(A) processes such as testing, cleaning,
repacking, or inspecting a good, or preserving it in
its same condition, shall not be considered to change
the condition of the good, and
* * * * *
The Customs Regulations issued under the authority of the
NAFTA Implementation Act specifically provide for the
availability of drawback on the exportation of merchandise to a
NAFTA country.
19 CFR 181.43 provides:
181.43 Eligible goods subject to drawback.
Except as otherwise provided in this subpart, drawback is
authorized for an imported good that is entered for consumption
and is:
(a) Subsequently exported to Canada or Mexico (see 19 U.S.C.
1313(j)(1));
(b) Used as a material in the production of another good
that is subsequently exported to Canada or Mexico (see 19
U.S.C. 1313(a)); or
(c) Substituted by a good of the same kind and quality as
defined in 181.44(c) of this subpart and used as a material
in the production of another good that is subsequently
exported to Canada or Mexico (see 19 U.S.C. 1313(b)).
19 CFR 181.44(a) provides:
181.44 Calculation of drawback.
(a) General. Except in the case of goods specified in
181.45 of this part, drawback of the duties previously paid
upon importation of a good into the United States may be
granted by the United States, upon presentation of a NAFTA
drawback claim under this subpart, on the lower amount of:
(1) The total duties paid or owed on the good in the
United States; or
(2) The total amount of duties paid on the exported
good upon subsequent importation into Canada or Mexico.
19 CFR 181.44(g), promulgated by Treasury Decision 95-68 and
published in the Customs Bulletin on September 20, 1995,
provides:
(g) Unused goods under 19 U.S.C. 1313(j)(1) that have
changed in condition. An imported good that is unused in the
United States under 19 U.S.C. 1313(j)(1) and that is shipped
to Canada or Mexico not in the same condition within the meaning of 181.45(b)(1) may be eligible for drawback under this
section, except when the shipment to Canada or Mexico does not
constitute an exportation under 19 U.S.C. 1313(j)(4).
19 CFR 181.45 provides in pertinent part:
181.45 Goods eligible for full drawback.
(a) Goods originating in Canada or Mexico. A Canadian or
Mexican originating good that is dutiable and is imported
into the United States is eligible for drawback without
regard to the limitation on drawback set forth in 181.44 of this
part if that originating good is:
(1) Subsequently exported to Canada or Mexico;
(2) Used as a material in the production of another good
that is subsequently exported to Canada or Mexico; or
(3) Substituted by a good of the same kind and quality and
used as a material in the production of another good that is
subsequently exported to Canada or Mexico.
...
(b) Claims under 19 U.S.C. 1313(j)(1) for goods in same
condition. A good imported into the United States and
subsequently exported to Canada or Mexico in the same
condition is eligible for drawback under 19 U.S.C. 1313(j)(1)
without regard to the limitation on drawback set forth in
181.44 of this part.
...
(1) Same condition defined. For purposes of this subpart, a
reference to a good in the "same condition" includes a good
that has been subjected to any of the following operations
provided that no such operation materially alters the characteristics of the good:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint
or other coatings;
(iii) Application of preservative, including
lubricants, protective encapsulation, or preservation
paint;
(iv) Trimming, filing, slitting, or cutting;
(v) Putting up in measured doses, or packing,
repacking, packaging, or repackaging; or
(vi) Testing, marking, labelling, sorting or grading.
The exported articles, the extruder drive units, are goods
subject to NAFTA drawback, as that term is used in 19 U.S.C.
3333(a). It does not appear that any of the exceptions stated in
19 U.S.C. 3333(a)(1) through (a)(8) apply. We believe that the
exception in 19 U.S.C. 3333(a)(1) for "a good entered under bond
for transportation and exportation to a NAFTA country" would not
apply since drawback would not be pertinent for Husky if it
imported the parts under a duty-free provision such as subheading
9813.00.05. Husky makes this drawback inquiry as a possible
alternative to a temporary importation under bond.
The assembly operation involved here is beyond the scope of
the operations described in 19 U.S.C. 1313(j)(3). Thus, 19
U.S.C. 1313(j)(3) is not applicable.
With respect to the "unused" requirement of 19 U.S.C.
1313(j)(1), we stated in Ruling 225552:
A definition of the term "unused merchandise" was not
provided in the language of the new act [section 632, title
VI - Customs Modernization, Public Law 103-182, the North
American Free Trade Implementation Act (107 Stat. 2057),
enacted December 8, 1993]. However, in Customs Service
Decision ("C.S.D.") 81-222 and 82-135 it was found that an
article is used when it is employed for the purpose for
which it was manufactured or intended. See C.S.D. 81-179.
In C.S.D. 81-222, we stated in pertinent part, with respect
to the use requirement of the former 19 U.S.C. 1313(j):
In its primary meaning, "use" as a noun may signify the act
of employing anything, the act of using or applying an
object to one's service. Further, the verb "to use" means
to employ in some manner appropriate to the object to
accomplish an end, which, without the use of the object,
would not be accomplished. (Turner v. Smith, 269 Ky. 880,
108 S.W. 2d 1019, at 1020 (S.Ct. Ky. 1937)).
The boxes, bottles, cans, etc. to be imported in this case
are to be employed or used for their intended purpose, i.e.
to act as containers for the transportation and ultimate
sale of merchandise. Nothing per se is being done to these
containers: they are being put to use in their primary
function, which clearly excludes them for eligibility for
drawback under 19 U.S.C. 1313(j). See also McJimsey v. City
of Des Moines, et al., 231 Iowa 693, 2 N.W. 2nd 65 (S. Ct.
Iowa 1942), Cypress Lawn Cemetery Ass'n v. City and County
of San Francisco, 284 P. 506 (1930), and Panhandle Gravel
Co. v. Wilson, 248 S.W. 2d 779 (1952).
Based on the above authorities, and based on the fact that
the parts at issue are assembled and are used in the production
of the extruder drive units, we determine that the imported
articles are not "unused merchandise" within the meaning of 19
U.S.C. 1313(j)(1) and/or (j)(3).
Thus, drawback is not payable under 19 U.S.C. 1313(j)(1)
upon the exportation of the extruder drive units.
Drawback may be payable under 19 U.S.C. 1313(a). See 19 CFR
181.43(b) and 181.44, supra.
Issue Four
In your letter of March 26, 1996, you state:
Our request for NDDP-exempt T.I.B. substitutions for
consumption entries (filed since January 1, 1996 due to the
confusion of the NDDP and "alteration") will be approved.
You have not presented us with enough information to rule
here. However, we call you attention to 19 CFR 10.31(g), which
states in pertinent part:
(g) Claim for free entry under Chapter 98, Subchapter XIII,
HTSUS may be made for articles of any character described
therein which have been previously entered under any other
provision of law and the entry amended accordingly upon
compliance with the requirements of this section, provided
the articles have not been released from Customs custody, or
even though released from Customs custody if it is
established that the original entry was made on the basis of
a clerical error, mistake of fact, or other inadvertence
within the meaning of section 520(c)(1), Tariff Act of 1930,
as amended, and was brought to the attention of the Customs
Service within the time limits of that section.
Under 19 U.S.C. 1520(c)(1), an entry may be reliquidated to
correct a clerical error, mistake of fact, or other inadvertence
not amounting to an error in the construction of the law. The
statute provides that the error must be manifest from the record
or established by documentary evidence and brought to the
attention of the appropriate Customs officer within one year from
the date of liquidation.
No allegation has been made with respect to the
applicability of 19 U.S.C. 1520(c)(1), nor has any documentary
evidence been submitted with respect to such a potential claim.
HOLDINGS:
1. The parts may be entered under subheading 9813.00.5,
HTSUS.
2. The work at issue is not a "repair or alteration," as
these words are used in 19 CFR 181.53(b)(5). Thus, the except
clause at the beginning of 19 CFR 181.53(b)(5) is not applicable,
and 19 CFR 181.53(b)(5) applies to the factual situation at issue
here.
3. The imported articles are not "unused merchandise"
within the meaning of 19 U.S.C. 1313(j)(1) because they are
assembled into new articles, the extruder drive units. Thus,
drawback is not payable under 19 U.S.C. 1313(j)(1) upon the
exportation of the extruder drive units.
4. We are unable to issue a ruling with respect to this
issue. Please note the applicability and requirements of 19 CFR
10.31(g) and 19 U.S.C. 1520(c)(1).
Sincerely,
Director,
International Trade Compliance
Division
cc: Director, U.S. Customs Service NAFTA Center
P.O. Box 610088
Dallas, TX 75261