CLA-2 CO:R:C:S 556738 WAW
Mr. James E. Gill
H.P. Manufacturing Co.
16605 East Gale Avenue,
City of Industry, CA 91745
RE: Applicability of subheading 9802.00.50, HTSUS, to tools
which are resharpened abroad; sharpening; 555359; 555707
Dear Mr. Gill:
This is in response to your letter dated April 23, 1992,
addressed to the Area Director of Customs, New York Seaport,
requesting a ruling on the applicability of subheading 9802.00.50,
Harmonized Tariff Schedule of the United States (HTSUS), to tools
which are resharpened in Mexico and returned to the U.S. Samples
of the sharpened and unsharpened tools were provided for our
review.
FACTS:
H.P. Manufacturing, Co. manufactures and resharpens standard
and specialized tools for use in both the manufacture and
maintenance of aircraft. The following is a description of the
processes performed in Mexico:
(1) clean and sort tools according to sizes;
(2) resharpen the point;
(3) package and label the tool;
(4) ship the tool to the U.S.
You propose to ship used tools that have become dull from use and
have them sharpened in Mexico. You state that the tool is complete
at the time of exportation from the U.S and that the foreign
operation does not destroy the identity of the exported article,
nor create a new or different article of commerce. You also state
that no additional components will be assembled to the tool after
it is resharpened.
It is your contention that the sharpening of the tools in
Mexico is an acceptable repair or alteration and that the imported
merchandise, therefore, should be given the benefit of the partial
duty exemption under subheading 9802.00.50, HTSUS.
ISSUE:
Whether the sharpened tools will be entitled to the partial
duty exemption under subheading 9802.00.50, HTSUS, when imported
into the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides for the assessment of
duty on the value of repairs or alterations performed on articles
sent abroad for that purpose. However, the application of this
tariff provision is precluded in circumstances where the operations
performed abroad 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 (1956), aff'd, C.D. 1752, 36 Cust.
Ct. 46 (1956); Guardian Industries Corporation v. United States,
3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading
9802.00.50, HTSUS, treatment 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, 81, Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978),
aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).
The question in this case is whether the exported used tools
are "incomplete" or "unsuitable for their intended use" prior to
the foreign processing operation. See Guardian Industries, Id. at
13.
You state that you were advised by the District Director of
Customs, San Diego, that the operations which you propose to
perform in Mexico were previously considered in Headquarters Ruling
Letters (HRL's) 555359 dated May 14, 1990 and 555707 dated February
20, 1991 (reconsideration of HRL 555359). However, you claim that
these two rulings are distinguishable from the facts in your case.
In HRL 555359, we considered one scenario in which drill bits
manufactured in the U.S. which were rejected in-house by the
manufacturer after microscopic inspection, were shipped to Mexico
for reworking (resharpening) to bring them into tolerance in a
precision grinding machine, and in order to attach a plastic depth
gauge ring (plastic collar) onto the drill bit. We held that the
foreign sharpening operations constituted a continuation of the
manufacturing process begun in the U.S. and was a necessary step,
performed as a matter of course, in producing drill bits which meet
industry tolerance standards. In addition, we held that the fact
that the plastic collars were not assembled onto the drill bits
until after they were resharpened also indicated that the drill
bits were incomplete or unfinished articles as exported. Thus, we
determined that the drill bits were not eligible for the partial
duty exemption under subheading 9802.00.50, HTSUS.
In HRL 555707, we reconsidered the portion of HRL 555359
pertaining to the reworking/resharpening of the drill bits in
Mexico. In HRL 555707, we confirmed our earlier holding that the
out-of-tolerance drill bits exported to Mexico for
reworking/resharpening were not completed articles, and thus not
eligible for the partial duty exemption under subheading
9802.00.50, HTSUS. We stated that the fact that drill bits which
meet industry standards and those that do not are necessarily sold
in different commercial markets and at different prices was another
indication that they were recognized in the trade as different
articles of commerce. Even without the addition of the plastic
collars to the drill bits in HRL 555359, we found that the
sharpening of the drill bits in Mexico exceeded a repair or
alteration within the meaning of subheading 9802.00.50, HTSUS.
Therefore, under these circumstances, we affirmed HRL 555359 on
the basis that the foreign "resharpening" operation constituted a
continuation of the manufacturing process begun in the U.S. and
was a necessary step in the production of the drill bits.
In another ruling interpreting item 806.20, Tariff Schedules
of the United States (TSUS) (the precursor to subheading
9802.00.50, HTSUS), we held that unfinished carbide cutting tool
inserts, exported for grinding into a finished state, were not
entitled to entry under item 806.20, TSUS, as the grinding process
constituted more than a repair or alteration. See HRL dated August
17, 1966 (511.4), abstracted as T.D. 66-190(1), 101 Treas. Dec. 535
(1966).
It is our opinion that the instant case is distinguishable
from HRL's 555707, 555359 and T.D. 66-190. The tools in HRL 555359
and 555707 were found by Customs to be incomplete articles at the
time of their exportation from the U.S., in part, because the
foreign "resharpening" process was a necessary step in the initial
manufacture of drill bits which meet exacting industry tolerance
standards. The fact that plastic collars had to be attached to the
drill bits after they were "resharpened," so that they could be
used for their intended purpose, also supported our conclusion that
the bits were unfinished when exported. With regard to the facts
you have presented in this case, we find that the resharpening of
the tools in Mexico constitutes an acceptable repair or alteration
within the meaning of subheading 9802.00.50, HTSUS. These are
previously-manufactured tools which became dull from repeated use.
Thus, the tools are completed articles when they are exported to
Mexico to undergo resharpening, and do not need the addition of any
other item in order to function properly. Moreover, the foreign
process does not have the effect of creating a new or different
article of commerce. The resharpening operation merely renders
used tools sharp again, and does not change the character or use
of the article.
HOLDING:
On the basis of the described foreign operations and the
samples submitted, we are of the opinion that the resharpening
operations performed in Mexico on the exported used tools
constitute an acceptable "repair" or "alteration," within the
meaning of HTSUS subheading 9802.00.50. Therefore, upon return to
the U.S., the tools will be entitled to the partial duty exemption
available under this tariff provision, upon compliance with the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8).
Sincerely,
John Durant, Director
Commercial Rulings Division