CLA-2 CO:R:C:S 555819 LS
Armando S. Trevino
A & A Customs Brokerage Services, Inc.
415 So. International Blvd.
P.O. Box AA
Hidalgo, Texas 78557
RE: Applicability of subheading 9802.00.50, HTSUS, to
telephones; answering machines, and combination
telephone/answering machines. Repairs. Cleaning; testing;
replacement of parts; adjustments; sorting; repackaging.
055153; 063112; 071296; 555413
Dear Mr. Trevino:
This is in response to your letter of December 26, 1990,
requesting a ruling, on behalf of Cobra Electronics Group,
Dynascan Corporation, on the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), to cordless telephones, answering machines, and
combination telephone/answering machines returned to the U.S.
after undergoing certain repair operations in Mexico. You also
request a ruling on the tariff classification of the combination
telephone/answering machines. In addition, you have asked us to
rule on whether certain start up expenses of the Mexican
operation are included in the value of the repairs when the
products are returned to the U.S. Your question regarding the
value of the repairs will be the subject of a separate letter.
You have submitted only photographs of the products, with
descriptions of their features.
FACTS:
The following facts are based upon your letter of December
26, 1990, a letter from Cobra Electronics Group ("Cobra")
containing additional information, and several telephone
conversations between a member of my staff and representatives of
Cobra.
Cobra has been shipping cordless telephones, answering
machines, and combination cordless telephone/answering machines
to Mexico for necessary repair operations. These are units which
were previously entered into the U.S., sold to customers, and
returned or exchanged by the customers to Cobra for various
reasons. The repair operations described below restore the units
to their original condition so that they can be redistributed
when returned to the U.S.
Based upon telephone conversations with a member of my
staff, you have limited your request regarding the applicability
of subheading 9802.00.50, HTSUS, to basically two categories of
repair operations for all three products: "minor repairs" and
"major repairs." The "major repairs" category includes the same
steps as the "minor repairs" category, along with additional
advanced steps.
The steps in the "minor repairs" category are as follows:
1. Charging those units, such as cordless telephones, which
need to be charged before testing;
2. Functional screening testing to determine the extent of
necessary repairs;
3. "Categorizing" the units, which involves sorting them
according to the problems discovered during testing;
4. Removing the covers or plastic housings in order to
perform the remaining steps;
5. Making two types of adjustments to the following
components when the testing reveals that they are outside the
proper range of specification:
a. poteniometer, a component which controls voltage.
The adjustment is made with a type of screwdriver,
and further testing is done to verify the proper
specification.
b. tuning tank, which controls the frequency response
of the circuit. The adjustment is made with a
tool similar to that used with the poteniometer.
6. Tightening and reconnecting loose wires;
7. Cleaning off dust;
8. Replacing the covers;
9. Other cleaning;
10. Buffing to remove surface scratches or blemishes; and
11. Repacking.
The steps in the "major repairs" category are as follows:
1. Steps 1-4 from the "minor repairs" category are the
same;
2. Replace or repair worn, broken, or other parts found
defective;
3. Tighten or adjust parts, where necessary. When the
poteniometer and tuning tank are replaced, they may sometimes
need adjustments, as described in Step 5 of the "minor repairs"
category;
4. In instances where a belt on the tape deck of the
combination telephone/answering machine is replaced, certain
moving parts are lubricated with silicon.
5. Further quality control testing is performed which is
more sophisticated than the functional screening testing;
6. Clean and remove dirt or dust;
7. Replace covers;
8. Buffing and polishing, both done by machine to remove
surface scratches;
9. Repacking.
The main difference between the "minor repairs" and "major
repairs" is that the "minor repairs" involve adjustments or
alignments, whereas the "major repairs" involve the replacement
of one or two defective functional parts. In your letter of May
23, 1991, you list 17 parts which are among those replaced when
found to be defective. The following 10 parts are either
contained on printed circuit boards (PCBs) or connected to them:
resistors; capacitors; diodes; transistors; crystals; switches;
integrated circuits; potentiometers; speakers; and microphones.
The remaining 7 parts, which include such items as batteries,
antennas, and cords, are not contained on PCBs. You state that
all units or products have between one and three PCBs. A
typical product may contain 30 resistors, 2-3 potentiometers, 12
capacitors, and 3-4 integrated circuits, among other components.
The number of parts varies between units. You have stated that
in replacing these parts, the integrity of each unit is
maintained, i.e., there is no commingling of disassembled parts
with other like parts from other units.
Pursuant to a telephone conversation with a member of my
staff, you have withdrawn from your ruling request the category
of repairs termed "other major alterations." This refers to
replacement of a complete PCB or other subassembly that is found
to be defective. You have stated that in instances where a
complete PCB needs to be replaced because it is physically broken
or water damaged, the entire telphone, answering machine, or
combination telephone/answering machine will be discarded because
it is not cost effective to replace an entire PCB. For this
reason, the PCBs are considered to be non-replaceable.
You state that those units which fail the functional
screening testing, which constitute approximately 60 percent of
the total units shipped to Mexico for repair, are disassembled
only to the minimum extent necessary to make a repair. The units
which undergo "minor repairs" usually only require removal of the
cover or housing. The majority of units which fall within the
category of "major repairs" usually require disassembly to the
extent of 30 percent of the entire unit. You state that
approximately 25 percent of the units in this category only
require replacement of batteries. A small number of units in
this category may require more disassembly, but in those cases
not more than approximately 65 percent of the entire unit is
disassembled. You state that only approximately 2.5 percent of
the total units shipped to Mexico undergo the greatest amount of
disassembly (i.e., 65 percent or higher of the entire unit
disassembled), and all of these are discarded in Mexico because
it is not cost effective to replace the defective parts.
The remaining 40 percent of the total units shipped to
Mexico which pass the functional screening testing undergo only
cosmetic repairs and/or cleaning operations. These repairs
include replacement of such parts as defective cassette tapes or
number windows for cosmetic or appearance reasons. These units
do not require any disassembly, other than replacement of the
defective part.
ISSUES:
(1) How is the combination telephone/answering machine
classified under the HTSUS?
(2) Whether the three products will be eligible for the
partial duty exemption under subheading 9802.00.50, HTSUS, when
returned to the U.S.
LAW AND ANALYSIS:
I. Tariff Classification Under the HTSUS
Classification of products under the HTSUS is governed by
the General Rules of Interpretation (GRI's). GRI 1 provides that
classification is determined according to the terms of the
headings and any relevant section or chapter notes.
You have requested a classification ruling regarding the
cordless telephone/answering machine system. Cordless
telephones, imported separately, are classifiable pursuant to GRI
3(c) under subheading 8525.20.80, HTSUS, which provides for:
"[t]ransmission apparatus for radiotelephony, ...: [t]ransmission
apparatus incorporating reception apparatus: [o]ther: [c]ordless
handset telephones." Telephone answering machines are
classifiable in subheading 8520.20.00, HTSUS, which provides
for: "[m]agnetic tape recorders and other sound recording
apparatus, whether or not incorporating a sound reproducing
device: [t]elephone answering machines." Again, pursuant to GRI
3(c), this composite machine, made up of different components, is
classifiable "under the heading which occurs last in numerical
order among those which equally merit consideration," i.e.,
subheading 8525.20.50, HTSUS.
II. Eligibility for Partial Duty Exemption under Subheading
9802.00.50, HTSUS
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value or improved in condition by
means of repairs or alterations. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied.
Repairs are operations aimed at restoring articles to their
original condition, but cannot be so extensive as to destroy the
identity of the exported article or create a new or different
article. Press Wireless, Inc. v. United States, 6 Cust. Ct. 102,
C.D. 438 (1941). In Headquarters Ruling Letter 554539 dated
August 25, 1987, we stated that:
[s]o long as the identity of [the exported unit] is
maintained throughout the disassembly and repair
process, and there is a genuine repair of parts carried
out during the foreign process, these units may be
entered under the repairs provision of item 806.20,
Tariff Schedules of the United States (TSUS) [the
predecessor tariff provision to subheading 9802.00.50,
HTSUS].
The replacement and/or addition of parts to restore products
to their original condition may constitute repair operations for
purposes of subheading 9802.00.50, HTSUS, if the particular
article does not lose its identity and the replacements and/or
additions are not so extensive as to create a new or different
article. Where the foreign repair operation entails the complete
disassembly of the exported article and numerous component parts
of the article are replaced, the concept of essential identity
may come into play. This concept is employed under these tariff
provisions to insure that the article imported is the same as the
article exported, and operates by identifying certain component
parts of an exported article as embracing the essential identity
of the particular article exported. Component parts so
identified are to be maintained together throughout the repair
operation as a matched set. Thus, replacing any one of these
essential components would violate the uniqueness of the matched
set and result in a new article of commerce, thereby precluding
eligibility for the partial duty exemption under subheading
9802.00.50, HTSUS. See HRL 555443 dated November 30, 1990 and
rulings cited therein.
Since the units involved in your ruling request do not
undergo complete disassembly, the concept of essential identity
does not apply. With respect to the small percentage of units
(approximately 2.5 percent) which require disassembly to the
extent of approximately 65 percent or more, you have stated that
you will discard them in Mexico because it is not cost effective
to replace the defective parts. Thus, you will not be claiming
eligibility for tariff treatment under subheading 9802.00.50,
HTSUS, for that small percentage of units. Of the remaining
97.5 percent of units for which subheading 9802.00.50, HTSUS, is
claimed, those units which undergo major repairs will require the
replacement of a few worn parts. These minimal replacements fall
within the parameters of genuine repair operations.
All of the other steps outlined in the "minor repairs" and
"major repairs" categories also constitute acceptable repairs
within the meaning of subheading 9802.00.50, HTSUS. Mere testing
abroad will not qualify articles for the partial duty exemption
under subheading 9802.00.50, HTSUS. See HRL 055153 dated August
17, 1978 (electronic components which are visually inspected for
defects and then returned to the U.S. are not eligible for
treatment under subheading 9802.00.50, HTSUS). However, when
testing operations, such as the functional screening testing, the
electrical charging of units, and quality control testing, are
performed in connection with a cleaning or other repair
operation, the articles returned to the U.S. will be eligible for
the exemption under this tariff provision. See HRL 055153
(cleaning and testing of electronic components is permissible
under subheading 9802.00.50, HTSUS); HRL 058662 dated December
29, 1978 (testing and replacement of parts qualifies the parts
for treatment under subheading 9802.00.50, HTSUS); and HRL
063112 dated July 31, 1979 (visual and electronic testing and
repair of defective parts render the parts eligible for the
partial duty exemption under subheading 9802.00.50, HTSUS).
The buffing and polishing operations which serve to remove
surface scratches or blemishes and restore the units to their
original condition is considered a type of cleaning operation,
and therefore a genuine repair within the meaning of subheading
9802.00.50, HTSUS.
The sorting or categorizing operation which occurs in both
the minor and major repair categories is a permissible repair
under subheading 9802.00.50, HTSUS. See HRL 071296 dated April
27, 1983 (the cumulative effect of sorting, cleaning, packaging,
and testing is sufficient to qualify merchandise for tariff
treatment under subheading 9802.00.50, TSUS); Hallauer v. United
States, C.A.D. 518, 40 CCPA 197 (1953). The adjustments
described in steps 5 and 6 of the minor repair category and step
3 of the major repair category, and the lubrication of replaced
or adjusted parts also constitute acceptable repairs since they
are aimed at restoring the parts involved to their original
condition. Repackaging operations alone do not constitute
genuine repairs. However, when repackaging occurs along with
both cleaning and testing, as in the instant case, then the
cumulative processes render the units eligible for treatment
under subheading 9802.00.50, HTSUS. See HRL 555634 dated
November 13, 1990.
Thus, the approximately 97.5 percent of units which are
returned to the U.S. and undergo limited disassembly in Mexico
for purpose of these repair operations (i.e., where approximately
30 to 65 percent of the unit is disassembled) are entitled to
the partial duty exemption under subheading 9802.00.50, HTSUS,
provided the documentary requirements of 19 CFR 10.8 are met.
We are enclosing a copy of HRL 555413 dated September 5, 1990,
which discusses the identity of articles exported and returned to
the U.S. within the context of these documentary requirements.
As explained in that ruling and in 19 CFR 10.8, information must
be presented in the required documents which enables Customs to
verify that the articles returned are the same as the articles
exported. For example, identification marks or numbers, such as
serial numbers, for the units must be stated in the repair
declaration, when they are available.
HOLDING:
The combination cordless telephone/answering machine is
classifiable for duty rate purposes in subheading 8525.20.50,
HTSUS.
All of the operations described in the major and minor
repair categories are considered "repairs" within the meaning of
subheading 9802.00.50, HTSUS. The approximately 97.5 percent of
units which are returned to the U.S. and undergo limited
disassembly in Mexico for purpose of these repair operations
(i.e., where approximately 30 to 65 percent of the unit is
disassembled) are entitled to the partial duty exemption under
subheading 9802.00.50, HTSUS, provided the documentary
requirements of 19 CFR 10.8 are met.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure