CLA 02 RR:TC:SM 559968 KKV
Tariff No.: 9802.00.50
Mr. Frank Parker
Parker & Co.
P.O. Box 271
4964 Coffee Port Road
Brownsville, TX 78521
RE: Applicability of the partial duty exemption under
subheading 9802.00.50, HTSUS to certain front
wheel drive axle assemblies exported to Mexico for
repair; disassembly; essential identity; outer
constant velocity joint housing; HRL 554539; HRL
556609; welding, grinding; restoration; Ashdown,
U.S.A. v. United States; HRL 951072; HRL 559970;
NAFTA; Article 307, Article 509
Dear Mr. Parker:
This is in response to your letter dated June 28, 1996
(and subsequent facsimile dated March 31, 1997), on behalf
of GSR Industries, Ltd., which requests a ruling regarding
the country of origin marking requirements and eligibility
of certain front wheel drive axle assemblies for the partial
duty exemption provided under 9802.00.50, Harmonized Tariff
Schedule of the United States (HTSUS).
FACTS:
We are informed that GSR Industries, Ltd. (hereinafter
"GSR") has contracted with Import Products Co., Inc. (IPC)
for the supply of front wheel drive axles, on consignment,
which will be exported to Mexico for repair per IPC
specifications and then returned to the U.S. for
distribution to the auto parts distribution network for
repaired parts.
IPC collects, sorts and inspects worn out front wheel
drive axles, known as "cores," most, but not all of which
are manufactured in the United States. Prior to shipment to
GSR's Texas facility for export to Mexico, IPC inspects and
sorts the cores into work order batches by model number,
discarding any cores deemed by IPC to be unrepairable. Upon
receipt by GSR in Texas, the cores to be exported are
documented by model number and work order batch number and
invoiced for Customs purposes prior to exportation to GSR's
Mexican facility.
We are informed that the front wheel drive assembly
consists of the following components: CV joint boots (
rubber boots designed to seal lubricant into a constant
velocity joint), inner and outer constant velocity joints,
bearing balls (used in the constant velocity joints) a
bearing cage (a machined casting, either inner or outer, to
contain bearing ball and cage within the constant velocity
joint), grease (lubrication for the joint), retaining bands
(stainless steel bands for sealing the CV boots to the
constant velocity joints and drive shaft) and a drive shaft
(either passenger or driver side). It is stated that each
automobile contains two front wheel drive axles, one each
for the driver and passenger side. Generally, one axle will
be shorter than the other, depending upon the model of the
vehicle of which they are a part, so that the axles are not
interchangeable but have different part numbers and
characteristics.
You state that the outer constant velocity joint
housing is the "essential component" of the front wheel
drive axles, as it constitutes 75% of the value of the core.
Because new housings are not readily available on the open
market, the core is considered worthless unless the outer
housing is repairable. In the event that the outer housing
is not repairable, the center shaft and the inner constant
velocity joint become scrap material. The internal
components of the outer constant velocity joint, which you
indicate are minor components, consist of the bearing balls,
bearing cages and bearing races. Unlike the housings, these
components are easily replaceable and are always in
oversupply.
The cores are exported to Mexico where they undergo the
following repair processes:
1. The cores are received in lots, disassembled
by separating the outer and inner constant
velocity joints from the center shaft. The
constant velocity joints are removed and
discarded. All minor components are separated
into bins by part type within model number to
be reassembled with the outer constant
velocity joint housing at a later stage in the
process. Like minor components from different
components from different core units are
commingled in the bin.
2. All components are washed in a high
temperature washing machine to remove grease
and dirt.
3. All components are shot blasted to remove rust
and grime.
4. All components are inspected for reusability.
5. The outer constant velocity joint
housings are inspected for needed
repairs, resulting in one of four
alternative conclusions. Each housing is
either:
a) acceptable for use in its
current condition,
b) requires TIG welding and hand
grinding,
c) requires oversize grinding on
CVS grinding machines, or
d) is discarded as unusable.
TIG welding is used to restore the ball
track of the outer constant velocity
joint housing by filling the worn area
with material, which is then reground to
the original size by hand. In this case,
all reground housings are sent to final
inspection where the cages are replaced
with new ones and the outer constant
velocity joint is sent to final assembly
utilizing the used bearing race and
balls.
CVS grinding to oversize is used to
restore the ball track of the outer
constant velocity joint housing by
grinding the ball track to an oversize,
typically .010", and grinding the used
cage and bearing race to the same
oversize. The outer constant velocity
joint is then sent to final assembly
utilizing new oversized bearing balls.
After all usable constant velocity joints
have been assembled from the particular
model lots, these sub-assemblies are sent
to final assembly with the cleaned center
shaft and inner constant velocity joint.
6. The final assembly process includes
reassembly of the inner and outer
constant velocity joints onto the center
shaft, the installation of the two new
constant velocity joint boots and the
greasing of each joint. New stainless
steel clamps are applied to seal the
boots. The final assembly is washed to
remove excess (new) grease, is dipped in
rust inhibitor, dried, identified by
model and batch number and boxed.
7. The boxed axle is date coded and the
appropriate customer label is affixed to
the end of the box along with the
original country of origin label. The
boxed axles are then prepared in
containers for shipment back to the U.S.
for delivery to IPC.
ISSUE:
Whether the front wheel drive axle assemblies exported
to Mexico are advanced in value or improved in condition by
means of repairs or alterations, and therefore eligible for
the duty exemption provided by subheading 9802.00.50, HTSUS,
when returned to the United States.
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.50, HTSUS
Articles exported from and returned to the U.S., after
having been advanced in value or improved in condition by
repairs or alterations in Mexico, may qualify for a 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 commercially different
articles through a process of manufacture. See A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956),
aff'g C.D. 1752, 36 Cust. Ct. 46 (1956) and Guardian
Industries Corp. v. United States, 3 CIT 9 (1982). Articles
entitled to this duty exemption are subject to the
documentary requirements of section 181.64(c), Customs
Regulations (19 CFR 181.64(c)), are met.
Article 307 of the North American Free Trade Agreement
(NAFTA) and Annex 307.1 of the Agreement provide, that
articles exported from the U.S. to Mexico for "repairs or
alterations" may, upon their return, enter into the U.S.
free of duty.
The Customs regulations which implement NAFTA are
contained in title 19 CFR Part 181. Section 181.64(a)
defines "repairs or alterations" for purposes of NAFTA as
follows:
For purposes of this section, "repairs or
alterations" means restoration, addition,
renovation, redyeing, cleaning,
resterilizing, or other treatment which
does not destroy the
essential characteristics of, or create a
new or commercially different good from,
the good exported from the United States.
For purposes of the duty allowance under subheading
9802.00.50, HTSUS, the replacement and/or addition of parts
to restore products to their original condition may
constitute repair operations, provided that the particular
article does not lose its identity and the replacement
and/or additions are not so extensive as to create a new or
different article. Press Wireless, Inc. v. United States, 6
Cust. Ct. 102, C.D. 438 (1941). In Press Wireless, radio
tubes were sent abroad for repairs which involved the use of
heavier filament than that used in the original manufacture
of the tubes. Also, the markings on the articles were
erased, and new numbers were substituted to facilitate
matching the tubes for use in transmitters. The court held
that, as long as the article was not considered a new and
different article of commerce or its identity was destroyed,
the use of improved materials in the restoration was of no
consequence.
Thus, application of this tariff provision is
precluded where the foreign operation destroys the identity
of the exported article or creates a new or different
commercial article. In Headquarters Ruling Letter (HRL)
554539, dated August 25, 1987, we stated that:
So 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, as here, 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"
becomes relevant. This concept is employed in interpreting
this tariff provision 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 duty exemption under
subheading 9802.00.50, HTSUS. See Headquarters Ruling
Letter (HRL) 555443, dated November 30, 1990, and rulings
cited therein.
In support of your position that the returned front
wheel drive axles are eligible for duty-free treatment
provided by subheading 9802.00.50, HTSUS, you reference HRL
556609, dated July 23, 1992, in which Customs considered the
"essential component" of steering gear assemblies or "core"
units exported to Mexico for repair. In that case, the
housing of the assemblies, which constituted 80% of the
value of the assembly, was not interchangeable but was
specific to each model. Because new housings were not
readily available for purchase on the open market, the core
assembly was deemed worthless unless the housing was
repairable. Customs concluded that the housing was the
"essential component" of the cores, and held that,
notwithstanding the replacement of non-essential parts,
where the housing was not replaced in the repair process but
remained segregated from the components of other cores, the
steering gear assemblies were entitled to the duty exemption
under subheading 9802.00.50, HTSUS.
Unlike the facts presented in HRL 556609, supra, where
the finished article contained only one housing, the front
wheel drive axle assemblies under consideration consist of
two separate housings, connected by a center shaft, each of
which is an integral element in the functioning of the
finished article. The outer constant velocity joint
attached to the wheel must maintain a constant velocity
while rotating with the wheel and moving up and down with
the shock absorber or strut. The inner constant velocity
joint serves as a connector to the transmission, and must
also maintain a constant velocity as it rotates. While the
duality of movement of the outer constant velocity joint may
require a more complex assembly than that of the inner
housing and may result in a greater amount of wear than the
singular rotary function of the inner counter velocity
housing, this duality of movement does not render the outer
housing more essential to the identity of finished front
wheel drive axle assembly than its inner counterpart.
Therefore, we find that both housings create the essential
identity of the finished axle assemblies.
In a telephone conversation with a member of our office
you indicated circumstances which would render it physically
impossible to maintain the two housings together as a
matched set during the repair operations: 1) The nature of
the repair operations performed in Mexico (cleaning and
grinding) renders serialization ineffective as a means of
identification; 2) Placing both housings in a common
container could result in damage to the parts during the
washing and shot blasting operations. However, in your
ruling request you stated that the exported cores are
documented by model number and work order number before
shipment to Mexico for repairs. In consideration of the
total circumstances, we find that to the extent that it is,
as indicated above, practically infeasible to physically
maintain the two housings together during the repair process
as an individual matched set, evidence (presented to the
port director) that the inner and outer constant velocity
joint housings originated from the same work order or batch
number will substantiate that the essential identity of the
exported axle assemblies was maintained during the repair
process.
We also find that the operations performed on the
housings are considered genuine repairs within the meaning
of subheading 9802.00.50, HTSUS. The TIG welding process
and the CVS grinding to oversize operations described above
do not result in the creation of a new article, but serve to
restore the article to its original condition, purpose and
application. Accordingly, so long as the essential identity
of the front wheel drive axles assembly is maintained, the
use of other non-essential components which may be
commingled with other identical parts in storage bins or in
inventory until required for reassembly is permissible. See
HRL 556609, supra; See also HRL 554731, dated February 2,
1989.
Accordingly, provided the criteria set forth above are
met, the repaired front wheel drive axle assemblies are
entitled to duty-free treatment under subheading 9802.00.50,
HTSUS, upon importation into the U.S., provided that the
documentary requirements of 19 CFR 181.64(c) are satisfied.
II. Country of Origin Marking
Section 304 of the Tariff Act of 1930, as amended (19
U.S.C. 1304), provides that, unless excepted, every article
of foreign origin imported into the United States shall be
marked in a conspicuous place as legibly, indelibly, and
permanently as the nature of the article (or its container)
will permit, in such a manner as to indicate to the ultimate
purchaser in the United States the English name of the
country of origin of the article. By enacting 19 U.S.C.
1304, Congress intended to ensure that the ultimate
purchaser would be able to know by inspecting the marking on
the imported goods the country of which the goods are the
product. The evident purpose is to mark the goods so that
at the time of purchase the ultimate purchaser may, by
knowing where the goods were produced, be able to buy or
refuse to buy them, if such marking should influence his
will. United States v. Friedlaender & Co., 27 C.C.P.A. 297,
302 C.A.D. 104 (1940).
Part 134, Customs Regulations (19 CFR Part 134),
implements the country of origin marking requirements and
exceptions of 19 U.S.C. 1304. Section 134.44, Customs
Regulations (19 CFR 134.44), states that "any method of
marking at any location insuring that country of origin will
conspicuously appear on the article shall be acceptable."
Section 134.41(b), Customs Regulations (19 CFR 134.41(b)),
mandates that the ultimate purchaser in the United States
must be able to find the marking easily and read it without
strain.
The Court of International Trade held in Ashdown,
U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661
(1988), that a printing press, which was continually used in
West Germany for nine years and which was not intended at
the time of original sale to be exported to the U.S., became
a bona fide part of the commerce of West Germany and was
therefore, not an import from a Communist country. In HRL
951072, dated May 22, 1992, Customs determined that a
Russian-built MIG 21U that was disassembled and exported to
Egypt where it was reassembled and used in the Egyptian Air
Force for sixteen years and then stored for several years
was regarded as a product of Egypt for tariff purposes.
Ashdown supports the proposition that the connection to the
country where an article was built may be broken due to the
extended period of time that the article was in use in
another country.
The principles set forth in Ashdown have been applied
to other cases involving the eligibility of merchandise for
the duty exemption contained in subheading 9802.00.50,
HTSUS. In HRL 559970, dated November 26, 1996, Cutoms held
that defective power steering pumps exported to Mexico for
repair were deemed to be of U.S. origin where the pumps had
been incorporated into a vehicle in use in the U.S. and thus
had lost their connection to the country in which they were
originally manufactured.
Applying these principles to the facts in this
particular case, we find that a front wheel drive axle
assembly which has been incorporated into a vehicle in use
in the U.S. and which is later sent abroad for extensive
repair operations has lost its connection to the foreign
country in which the pump may have been originally built.
Under these circumstances, the axle assembly is considered
to be of U.S. origin and is excepted from country of origin
marking under 19 CFR 134.32(m) when returned after having
been repaired abroad. We note, however, that whether the
marking "Made in the U.S.A." may appear on the front wheel
drive axle assemblies is a matter within the jurisdiction of
the Federal Trade Commission. Therefore, you should contact
the FTC at the following address regarding the appropriate
use of this phrase: Federal Trade Commission, Division of
Enforcement, 6th and Pennsylvania Avenue, N.W., Washington,
D.C. 20508
HOLDING:
Based upon the information provided, where it is
demonstrated to the satisfaction of Customs that the inner
and outer constant velocity joint housings originated in the
same work order or batch number, the essential identity of
the exported front wheel drive axle assemblies is
maintained, and the the front wheel drive axle assemblies
exported for repair operations in Mexico as described above
will not become new and different articles. Accordingly,
the repaired front wheel drive axle assemblies are entitled
to duty-free treatment under subheading 9802.00.50, HTSUS,
upon importation into the U.S., provided that the
documentary requirements of 19 CFR 181.64(c) are met.
For country of origin marking purposes, the returned
axle assemblies are considered to be of U.S. origin and
excepted from marking under 19 CFR 134.32(m).
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.
Sincerely,
John Durant, Director
Tariff Classification
Appeals Division