CLA-2 CO:R:C:V 555078 DBI
Mr. C. Daniel Ford
Border Enterprises, Inc.
660 Plaza Drive, Suite 2350
Detroit, Michigan 48226
RE: Applicability of subheading 9802.00.50, HTSUS, to certain
clamp lower brackets exported to Canada for cleaning,
coating, rinsing, heating and painting; eligibility of
these brackets for duty-free treatment under the Automotive
Products Trade Act of 1965, as amended (APTA).
Dear Mr. Ford:
This is in response to your letters of June 21, and July 1,
1988, to the Area Director, New York Seaport, on behalf of your
clients, Riverside Fabricating Limited and D.W. Gregg and
Associates. You request a ruling concerning the applicability of
item 806.20, Tariff Schedules of the United States (TSUS), and
the Automotive Products Trade Act of 1965, as amended (APTA), to
certain clamp lower brackets which will be exported to Canada for
cleaning, coating, rinsing, heating and painting and reimported
by your client. The case has been forwarded to this office for a
determination.
FACTS:
You advise that raw metal automobile parts will be exported
to Canada where the following processes will be performed:
1. Cleaning with alkaline cleaner to remove all traces of
oil or drawing compounds.
2. Spraying with a zinc phosphate solution to produce a
coating.
3. Chrome rinsing.
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4. Drying in an oven for 10 minutes at 250 degrees
Fahrenheit.
5. Three different coating methods:
a) Dipping the part in enamel and drying it in a 300-
425 degree oven with approximately 1 milliliter of
enamel finish deposited on the part.
b) Electrostatically charging and spraying the part
with the powder coating. Baking it in a 300-425
degree oven, cooling and packing it with
approximately 1 milliliter of coating.
c) Electrically charging the part and electrically
depositing the coating on it. Rinsing the residue
and drying the part in an oven with 1 milliliter
of coating.
You note that only one type of coating is used on each part and
without one of the above processes, the life span of the part
would be reduced by more than 75 percent and remain unacceptable
for installation on the finished automobile. You also state that
the coating process is a necessary part of the manufacture of the
automobile assembly and that the appearance of the part is
secondary to the required protection from the elements.
ISSUE:
1) Whether the described clamp lower bracket automobile
parts, when returned to the U.S., will be eligible for the
partial exemption from duty in subheadings 9802.00.40 or
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS) (806.20, TSUS).
2) Whether the described automobile parts are eligible for
free entry under the Automotive Products Trade Act of 1965, as
amended (APTA).
LAW AND ANALYSIS:
As you may be aware, the HTSUS replaced the TSUS, effective
January 1, 1989. Item 806.20, TSUS, has been carried over into
the HTSUS as subheadings 9802.00.40 and 9802.00.50. Subheading
9802.00.40, HTSUS, provides for the assessment of duty on the
value of warranty repairs or alterations performed on articles
that have been exported for that purpose. Subheading 9802.00.50
provides for the assessment of duty on the value of nonwarranty
repairs or alterations performed on articles exported for that
purpose. However, the application of these tariff provisions is
precluded in circumstances where the operations performed abroad
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destroy the identity of the articles or create new or
commercially different articles. See A.F. Burstrom v. United
States, 44 CCPA 27, C.A.D. 631 (1957); Guardian Industries
Corporation v. United States, 3 CIT 9, Slip Op. 82-4 (Jan. 5,
1982). Treatment under subheadings 9802.00.40 and 9802.00.50,
HTSUS, 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. Dolliff & Company, Inc. v. United States,
66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).
In the present case, the coating processes are admittedly a
necessary part of the manufacture of the finished article.
According to the reasoning in Dolliff, the coating processes
would clearly exceed the meaning of the term alteration under
subheading 9802.00.50, HTSUS (the applicable provision here since
warranties are not involved). Therefore, the clamp lower
brackets would not be entitled to the partial exemption from duty
under this tariff provision.
As you correctly point out in your letter, we have held in
previous rulings dated January 23, 1978 (HQ 054202), and July 2,
1987 (HQ 554642), that similar operations exceeded the scope of
item 806.20, TSUS. In ruling 054202, we held that automobile
bumpers that were shipped to Canada to be washed, rinsed, coated
with zinc phosphate, rinsed again, dipped in a chromic acid bath,
rinsed with dionized water, oven-dried, and finally painted with
a baked-on prime coat and a finish color coat, constituted a
series of finishing operations which were a part of the total
manufacture of the bumpers. However, you erroneously conclude in
your letter that this ruling held that the process in question
caused the article to obtain characteristics resulting in a new
or commercially different article of Canadian origin.
You express a similar conclusion regarding ruling 554642.
In that case, plastic automobile window guides were shipped to
Canada where special functional paint was sprayed on the parts.
We held that item 806.20, TSUS, applied only to finished articles
which have been merely altered abroad and that the foreign
painting of the unfinished articles was too extensive an
operation to be considered an alteration under item 806.20, TSUS.
You incorrectly state that this ruling held that the window
guides had become products of Canada.
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Finally, you state that if the application of a coating in
ruling 054202 was not acceptable due to the fact that the process
performed in Canada was too extensive an operation to afford item
806.20, TSUS, treatment to the returned bumpers, then it was
clear that the articles had been so altered that they no longer
retained the characteristics of a U.S. article, but were
considered to be of Canadian origin. Based on this reasoning,
you conclude that rulings 054202 and 554642 can be cited to
support the argument that the processing of the articles in
Canada in the instant case would substantially transform them
into Canadian articles, thereby qualifying them for for duty-free
treatment under the APTA.
In order for the clamp lower brackets in the present case
to be eligible for duty-free entry under the APTA, they must fall
within the General Note 3(c)(iii), HTSUS, definition of "original
motor-vehicle equipment." This term is defined, in part, as a
Canadian article obtained from a supplier in Canada under or
pursuant to an order, contract, or letter of intent of a bona-
fide motor-vehicle manufacturer in the U.S. The term "Canadian
article" is defined in General Note 3(c)(iii), HTSUS, as a
product of Canada, produced either with Canadian or U.S. material
without limit, or with material imported into Canada from any
third country, with certain limitations.
Before the clamp lower brackets may be considered products
of Canada, they must undergo a substantial transformation in
Canada. The test for determining whether a substantial
transformation has occurred is whether an article emerges from a
process with a new name, character or use, different from that
possessed by the article prior to processing. See Texas
Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982). The coating process does not substantially transform the
clamp lower brackets into new and different articles of commerce.
They remain essentially the same clamp lower brackets as they
were prior to coating, albeit unfinished.
We wish to make it clear that a process which is more than
a repair or an alteration under subheading 9802.00.50, HTSUS,
does not necessarily result in the substantial transformation of
the product into a new and different article of commerce of the
country where the processing was performed. It can be seen from
the circumstances of the instant case that it is entirely
possible for a process, namely the coating, to be more than an
alteration or repair, yet not constitute a substantial
transformation.
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It appears that the clamp lower brackets may be entitled to
reduced duty under the U.S.-Canada Free-Trade Agreement (CFTA),
which became effective January 1, 1989. However, without
additional information on the U.S. manufacturing process we are
not in a position to rule at this time. The U.S. Customs Service
provides a help number at (202) 566-6232, which you can call in
order to find out more general information about the CFTA. You
may call Matt Rohde of my staff at 566-8181 to obtain specific
information on what will be needed to obtain a ruling on CFTA
applicability.
HOLDING:
Based on the information submitted, it is our opinion that
the coating process to be performed abroad is not considered an
alteration as that term is used in subheading 9802.00.50, HTSUS,
and, therefore, the clamp lower brackets will not be entitled to
the partial duty exemption under this tariff provision.
Additionally, the coating process will not substantially
transform the brackets into products of Canada and, therefore,
the brackets will not be entitled to duty-free treatment under
the APTA.
Sincerely,
John Durant
Director, Commercial
Rulings Division