CLA-2 CO:R:C:S 558869 DEC
Ms. Mary E. Gill
AT&T Corporation
Law Department
Guilford Center 1-3A10
5420 Millstream Road
Greensboro, North Carolina 27420
RE: NAFTA; Article 307; Digital voice terminals;
Repair/Alteration; HRL 556992;
HRL 557024; 19 C.F.R. 181.64
Dear Ms. Gill:
This is in response to your letter dated October 6, 1994, in
which you seek a determination on the eligibility of certain
repair and alteration activities to be performed in Mexico for
duty free treatment.
FACTS:
According to a telephone conversation on March 7, 1995, with
an attorney of my staff, we were informed that the AT&T
Corporation's (AT&T) digital voice terminals at issue (AT&T 7400
Plus product line) were originally manufactured in the United
States for sale in the United Kingdom. The digital voice
terminals were programmed to meet the United Kingdom's
specifications. The digital voice terminals that were suitable
for the United Kingdom, but never sold, will be sent from the
United States to Pentex Mexicana in Juarez, Mexico. Pentex
Mexicana is a contract repair facility at which the micro-controller chip, which is programmed to meet the United Kingdom
specifications, will be replaced with a chip programmed for use
in the United States.
Additionally, after the micro-controller chip is replaced,
each digital voice terminal will be checked for upgrades that
apply to all digital voice terminals and these
upgrades will be performed if needed. The units will be assigned
a new comcode
number (an internal AT&T coding system) when the operation is
completed. Finally, all
digital voice terminals will be tested, packed, and shipped for
sale and use in the United States.
ISSUE:
Whether the exported digital voice terminals (AT&T 7400 Plus
model) that are exported to Mexico and subjected to various
replacement operations in Mexico, as described above, are
entitled to duty-free treatment under subheading 9802.00.50,
Harmonized Tariff Schedule of the United States (HTSUS), when
returned to the United States.
LAW AND ANALYSIS:
Articles returned to the United States after having been
exported to Mexico to be advanced in value or improved in
condition by repairs or alterations may qualify for duty-free
treatment under subheading 9802.00.50, HTSUS, provided that the
foreign operation does not destroy the identity of the exported
articles or create new or different articles. Entitlement to
this tariff treatment is also precluded where the exported
articles are incomplete for their intended use prior to the
foreign processing, Guardian Industries, Inc. v. U.S., 3 C.I.T. 9
(1982), or where the foreign operation constitutes an
intermediate processing operation, which is performed as a matter
of course in the preparation or the manufacture of the finished
articles. Dolliff & Company, Inc. v. U.S., 455 F. Supp. 618
(C.I.T. 1978), aff'd, 599 F.2d 1015, (Fed. Cir. 1979).
In Headquarters Ruling Letter (HRL) 556992, dated May 7,
1993, Customs considered whether notebook computers with a
monochrome video display that were to be sent abroad to have the
monochrome display replaced with a color display feature would be
eligible for subheading 9802.00.50, HTSUS, treatment. The
upgraded unit would retain all of the original capabilities of
the exported unit, i.e., the ability to store programs, to be
freely programmed, to perform computations, and to execute a
program requiring logical decision. In that case, we found that
the computer in its exported condition was complete for its
intended use as an "automatic data processing machine." It could
be used for this purpose without exercising the option to upgrade
the unit. There was no change in the identity of the computer as
a result of the upgrade and no new article was created.
Accordingly, we found that the upgrade was an alteration within
the meaning of subheading 9802.00.50, HTSUS. (See also Royal
Bead Novelty v. United States, 324 F. Supp. 1394 (1972), where a
lustrous coating given to glass beads also marketed in that
condition was found to constitute an alteration.)
In HRL 557024, dated June 30, 1993, Customs determined that
a U.S.-origin host computer sent to Canada to be modified by the
addition of a Canadian-produced board set was an alteration.
This alteration increased the data processing speed of the
computer to enable it to handle the complex software.
As in HRL 556992 and in HRL 557024, we find that the digital
voice terminals in its exported condition is complete for its
intended use as a telephone, and that the processing abroad does
not serve to change the identity or the character of the exported
article. No new and different article of commerce is created as
a result of the processing abroad. Rather, the exported digital
voice terminal is merely undergoes an operation to equip it with
the ability to function as a telephone in accordance with the
U.S. specifications. Accordingly, we find that the modifications
performed abroad constitute an alteration within the meaning of
subheading 9802.00.50, HTSUS.
Based on your submission, it is apparent that AT&T intends
to alter the digital voice terminals and introduce them for sale
to the United States market as the same items that were
previously manufactured for the United Kingdom's market.
Consequently, when the merchandise that is shipped from the
United States is returned from Mexico after having been altered,
it will be entitled to duty-free treatment, assuming compliance
with the documentation requirements under section 181.64(c),
Customs Regulations (19 CFR 181.64(c)).
HOLDING:
The exported digital voice terminals that are subjected to
various alteration operations in Mexico are entitled to duty-free
treatment under subheading 9802.00.50, HTSUS, when returned to
the United States provided the documentary requirements of
section 181.64 are satisfied.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this
ruling should be brought to the attention of the Customs officer
handling the transaction.
Sincerely,
John Durant
Director, Commercial Rulings Division