CLA-2 CO:R:C:S 555758 GRV
Mr. W.L. Kelly
Director, Export/Import Control
Raytheon Company
141 Spring Street
Lexington, MA 02173
RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.50 to upgraded missile guidance group
modules. Alterations/repairs; Baylis Brothers Company;
C.S.D. 84-8; 071306; J.D. Richardson Company; Guardian
Industries Corporation; A. Cohen Sons Corp.; 555634;
Gilbert W. Greene; Press Wireless, Inc.
Dear Mr. Kelly:
This is in response to your letters of October 2, 1990, and
January 24, and 31, 1991, requesting a ruling on the applicability
of subheading 9802.00.50, Harmonized Tariff Schedule of the United
States (HTSUS), to upgraded missile guidance group modules imported
from Europe. Photos of the modules and other data were enclosed
with your letters.
FACTS:
Raytheon originally manufactured to existing U.S. Army
specifications improved Hawk missile guidance groups (MGGs). The
MGGs are composed of electronic subassemblies, which contain printed
circuit board modules. Following the production run, a number of
the MGGs were retained as "library missiles" to serve as reference
units for investigations associated with field problems. In
cooperation with a NATO Hawk M3 co-production program established in
Europe, you seek to upgrade the NATO Hawk missiles to combat
recently developed countermeasures and to replace items that
deteriorate with time. You state that this foreign upgrading
operation serves to preserve the viability of the NATO Hawk air
defense system by bringing the MGGs into compliance with current
U.S. Army specifications. The co-production program entails
exporting certain component modules of the library missiles' MGG to
industries of NATO Hawk M3 participating countries for the purpose
of performing designated M3 program modifications.
The modifications include replacing old gaskets, painting
covers, replacing components, and adding new component parts. All
of the changes entail using components of foreign manufacture. In
most instances, the components modified will have new part numbers
assigned to them. The upgraded MGG modules are then returned to the
U.S. for final assembly and testing.
Concerning the modifications made to the printed circuit
boards, you stated in a telephone conversation with a member of my
staff that no reprogramming of computer circuits occurs.
Further, you state that the upgraded NATO Hawk missiles will have
the same role/function against a current threat.
ISSUE:
Whether the upgraded missile guidance group modules are
altered/repaired abroad, for purposes of HTSUS subheading
9802.00.50, and, thus, eligible for the partial duty exemption under
this tariff provision when returned to the U.S.
LAW AND ANALYSIS:
Articles returned to the U.S., after having been exported to be
advanced in value or improved in condition by repairs or alterations
abroad, may qualify for the partial duty exemption under HTSUS
subheading 9802.00.50, provided the foreign operation does not
destroy the identity of the exported articles or create new or
different articles. See, Baylis Brothers Company v. United States,
C.D. 3987, 64 Cust.Ct. 256 (1970), aff'd on other grounds, C.A.D.
1026, 59 CCPA 9, 451 F.2d 643 (1971). Articles entitled to this
partial duty exemption are dutiable only upon the cost or value of
the foreign repairs or alterations when returned to the U.S.,
provided the documentary requirements of section 10.8, Customs
Regulations (19 CFR 10.8), are satisfied.
In determining whether the upgraded MGGs are entitled to HTSUS
subheading 9802.00.50 treatment, two considerations are readily
apparent: whether the exported MMGs are completed products as
exported, given that military specifications are applicable to the
returned merchandise; and, whether the operations performed abroad
are within the meaning of "repairs" or "alterations" for purposes of
this tariff provision.
Regarding the applicability of military specifications to the
returned merchandise, we note that, under certain circumstances, the
foreign processing of exported articles to conform to product
specifications and regulations has been cited by the courts as a
factor in finding that the returned merchandise constitutes a new
and different article from that which was exported. See, United
States v. The J.D. Richardson Company, C.A.D. 390, 36 CCPA 15 (1948)
rev'g, C.D. 1053, 18 Cust.Ct. 109 (1947), cert. denied, 336 U.S.
936, 69 S.Ct. 746, 93 L.Ed. 1095 (1948) (unflanged tank idler wheel
rims, exported for the purpose of having the rims "flanged," in
accordance with the specifications and requirements of the U.S.
Army, were not completed parts, but, on the contrary, required the
manufacturing processes in order to complete them for their intended
use, and Congress did not intend by the term "alterations" to mean
that uncompleted articles could avail themselves of this tariff
treatment); and, Guardian Industries Corp. v. United States, 3 CIT 9
(1982) (annealed glass lites, exported to be tempered because a
regulation required that glass used for sliding glass patio doors be
tempered into safety glass as a prerequisite to its being marketed
in the U.S., were entirely unsuitable for their intended use in
patio doors, and the tempered glass produced abroad was a separate
and different commercial article from the glass from which it was
produced).
However, we believe the facts in this case are distinguish-
able from those in the above-cited cases. In this case, the Hawk
MGGs initially were manufactured to meet existing military
specifications. For various reasons, including the need to combat
recently developed countermeasures, the specifications have changed.
After their initial manufacture, the Hawk MMGs were suitable for
their intended use, and, after the foreign upgrading, the imported
Hawk MGGs will perform the same function. Thus, the facts presented
here do not compel a finding that new and different articles are
imported after the foreign upgrading operation.
Regarding the foreign upgrading operation, we note that no
reprogramming of the printed circuit board modules occurs abroad,
and, therefore, the holdings in C.S.D. 84-8, 18 Cust.Bull. 844
(1984) and Headquarters Ruling Letter (HRL) 071306 dated April 2,
1984, are inapplicable. The replacement of old component parts and
the addition of new ones are acceptable operations under HTSUS
subheading 9802.00.50, so long as the identity of the articles
remains the same. See, A. Cohen Sons Corp., Abstract 40598, 5
Cust.Ct. 276 (1940) (replacement of broken stoppers in bottles
constituted a repair), but cf., HRL 555634 dated November 13, 1990
(replacement of essential identity components does not constitute a
repair); and see, Gilbert W. Greene, Abstract 49676, 13 Cust.Ct. 273
(1944) (the supplying of new parts can constitute an alteration so
that an article is made different from that exported in some
particular so long as it has not been converted into something
else). Further, the redenomination of the serial numbers does not
preclude the merchandise from receiving the partial duty exemption
under this tariff provision, so long as Customs is satisfied that
the returned goods are the same as those that were exported. See,
Press Wireless, Inc. v. United States, C.D. 438, 6 Cust.Ct. 102
(1941) (although worn-out radio tubes had a certain serial number
when exported and a different serial number when returned, as the
merchandise was exported under Customs supervision and the returned
tubes were the same in construction, operation, performance and use,
the duty exemption was allowed).
We wish to note that the MGGs to be exported must comply with
all required export licenses and applicable International Traffic in
Arms Regulations (ITARs, 22 CFR 120-130).
HOLDING:
On the basis of the information presented, it is our opinion
that the upgraded Hawk missile guidance group (MGG) modules are
completed products when exported and that the foreign upgrading
operation does not result in new and different articles.
Accordingly, the upgraded MGGs are deemed repaired and/or altered
abroad within the meaning of HTSUS subheading 9802.00.50 and are
entitled to the partial duty exemption available under this tariff
provision when imported into the U.S., provided the documentary
requirements of 19 CFR 10.8 are satisfied.
Sincerely,
John Durant, Director