CLA-2 RR:TC:SM 559970 DEC
TARIFF NO: 9802.00.50
Mr. John Landay
Plews/Edelmann
165 Arlington Heights Road
Buffalo Grove, Illinois
RE: NAFTA; Article 307; Subheading 9802.00.50, HTSUS;
Repair/Alteration;
19 CFR 181.64; HRL 554539; Guardian Industries, Inc. v. U.S., 3
C.I.T. 9 (1982); Dolliff & Company, Inc. v. U.S., 455 F. Supp.
618 (C.I.T. 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979); Press
Wireless, Inc. v. U.S., C.D. 4386, 6 Cust. Ct. 102 (1941); HRL
555443; HRL 554568; HRL 555741; HRL 559197; 19 U.S.C. 1304;
19 CFR Part 102
Dear Mr. Landay:
This is in response to your letter dated July 11, 1996, in
which you seek a determination of the eligibility of certain
power steering pumps which are remanufactured in Mexico for duty
free treatment pursuant to Article 307 of the North American Free
Trade Agreement (NAFTA).
FACTS:
Plews/Edelmann Division of Stant Corporation
(Plews/Edelmann) intends to import power steering pumps to be
used in the repair of automobiles. You state that Plews/Edelmann
purchases defective power steering pumps in the U.S. and then
sends those pumps to their wholly owned subsidiary in Mexico for
processing into remanufactured power steering pumps. The
operations will include the use of exported, defective power
steering pumps and certain new parts of U.S. origin. The
defective power steering pumps are obtained from customers or
used parts brokers. The defective power steering pumps are
collected in Plews/Edelmann's Chula Vista, California warehouse
where they are sorted by brand name and type. The power steering
pumps with obvious irreparable defects are discarded. The other
power steering pumps are shipped to the Plews/Edelmann subsidiary
in Mexico. In addition, new parts consisting of O-rings,
gaskets, and seals are also shipped to the Mexican plant.
In Mexico, the defective power steering pumps are inspected,
sorted, and then stored until needed. The defective power
steering pumps are then taken from stock, disassembled, cleaned,
and inspected. During the remanufacturing process, the
components of each individual defective power steering pump will
be kept together and reassembled in the same unit except for the
worn or defective parts which are replaced. Replacement parts
will include new and used parts. You note that all O-rings,
gaskets, and seals are replaced with new parts. You state that
the repaired units are identical to the units exported from the
U.S. except for the cleaning and possible reconditioning or
replacement of the defective or worn parts that will occur in the
repair process. You state that reconditioning processes may
include the machining of shafts to insure that they are within
tolerances and the removal of dents in reservoirs.
After reassembly, the units will be tested to see if the
remanufactured unit meets the applicable standards. Acceptable
units will be painted and labeled "Remanufactured in Mexico."
Each unit is then packed and shipped to the Plews/Edelmann Chula
Vista facility for distribution.
You received Headquarters Ruling Letter (HRL) 554539, dated
August 25, 1987. That ruling involved the complete disassembly
of defective power steering pumps into constituent parts and the
subsequent reassembly of power pumps -- two to three defective
units were needed to produce one remanufactured unit. Customs
determined that, under these facts, the remanufacture did not
qualify as a repair or alteration because the identity of the
individual units was not maintained throughout the
remanufacturing operation.
ISSUE:
Whether the power steering pumps as described above that are
subjected to remanufacturing operations in Mexico 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).
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 to create a new or different
article. Press Wireless, Inc. v. U.S., C.D. 438, 6 Cust. Ct. 102
(1941). 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 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 partial duty
exemption under subheading 9802.00.50, HTSUS. See Headquarters
Ruling Letter (HRL) 555443, dated November 30, 1990, and rulings
cited therein. In HRL 554568, dated August 25, 1987, Customs
stated that:
In view of the many court cases and established
precedents holding
that the returned article must be merely a changed
version of the
exported product but in a repaired or altered condition
and the
change must not destroy the identity, it would be
difficult to regard
the total breakdown of the exported starters and
alternators into their
multiple parts, with random indiscriminate reassembly
into new,
remanufactured units, as a mere repair of the exported
articles.
The result is not a repaired version of exported units
but a collection
of new, remanufactured units that are sold in the
automotive after-market.
The information provided to us in this case, however,
indicates that the exported defective power steering pumps are
completely disassembled in Mexico and reassembled with parts that
are kept together in the same unit with salvageable
components which are reconditioned and other parts that are
replaced (O-rings, gaskets, and seals).
We agree that the cases you have cited to in your submission
are applicable to the operations at issue in this case. See HRL
555741, dated February 25, 1991, where Customs held that certain
consumer electronic products completely disassembled, tested, and
subjected to repair operations, consisting of the replacement of
malfunctioning component parts and/or the addition of missing
parts were entitled to the partial duty exemption under
subheading 9802.00.50, HTSUS, if the essential identity of the
article exported was retained, and HRL 559197, dated September 1,
1995, where Customs determined that electronic appliances
disassembled and reassembled with salvageable parts were eligible
for entry under subheading 9802.00.50, HTSUS. Accordingly, the
articles at issue are eligible for duty-free treatment under
subheading 9802.00.50, HTSUS, provided the documentary
requirements in section 181.64, Customs Regulations (19 CFR
181.64), are satisfied.
You indicated that you intend to mark the power steering
pumps to be imported into the U.S. as "Remanufactured in Mexico."
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), requires that, unless excepted, every article of foreign
origin (or its container) imported into the U.S. 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
manner as to indicate to the ultimate purchaser the English name
of the country of origin of the article. The regulations
implementing the requirements and exceptions to 19 U.S.C. 1304
are set forth in Part 134, Customs Regulations (19 CFR Part 134).
The country of origin marking requirements for goods of a
NAFTA country are determined in accordance with Annex 311 of the
North American Free Trade Agreement, as implemented under the
North American Free Trade Agreement Implementation Act ("NAFTA")
(Pub. L. 103-182, 107 Stat. 437 (December 8, 1993)). The rules
used for determining whether a good is a good of a NAFTA country
("NAFTA Marking Rules") are contained in regulations set forth in
19 CFR Part 102. The marking requirements for these goods are
set forth in various provisions of Part 134, Customs Regulations.
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)),
defines "country of origin" as:
The country of manufacture, production, or growth of
any article of foreign origin entering the U.S.
Further work or material added to an article in another
country must effect a substantial transformation in
order to render such other country the "country of
origin" within this part; however, for a good of a
NAFTA country, the NAFTA Marking Rules will determine
the country of origin.
Section 134.1(j) provides that the "NAFTA Marking Rules" are
the rules promulgated for purposes of determining whether a good
is a good of a NAFTA country. Section 134.1(g) defines a "good
of a NAFTA country" as an article for which the country of origin
is Canada, Mexico or the United States as determined under the
NAFTA Marking Rules.
Consistent with the foregoing, the country of origin of the
remanufactured power steering pumps that will be sent from the
U.S. to Mexico for processing and returned will be determined
pursuant to the NAFTA Marking Rules. If pursuant to the NAFTA
Marking Rules, the pumps are determined to be goods of the U.S.,
they will not be subject to the country of origin marking
requirements, and Customs will have no objection to marking the
returned pumps, "Remanufactured in Mexico." On the other hand,
if the returned pumps are determined under the NAFTA Marking
Rules to be of Mexican origin or a product of another foreign
country, they must be marked clearly to indicate that country of
origin.
HOLDING:
The power steering pumps that are exported for disassembly,
reconditioned, and subjected to various replacement and repair
operations in Mexico as described above will not become new and
different articles and are entitled to duty-free treatment under
subheading 9802.00.50, HTSUS, and 19 CFR 181.64 when returned to
the United States.
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