MAR-05 RR:CR:SM 561209 BLS
TARIFF NO. : 9802.00.50
Ms. Karen MacGillvray
Tower Group International, Inc.
128 Dearborn Street
Buffalo, New York 14207-3198
RE: Country of origin marking of rebuilt automotive parts; subheading 9802.00.50;
Article 509; NAFTA
Dear Ms. MacGillvray:
This is in reference to your letter dated October 30, 1999, on behalf of Fenwick Automotive Products ("Fenwick"), requesting a ruling in connection with the country of origin of rebuilt automotive parts, and eligibility of the parts for the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
You state the following:
Fenwick is in the business of remanufacturing automotive parts (e.g., master cylinders, brake cylinders, cv joints) in Canada that are in an unusable condition. These parts are sent to Fenwick from automotive brokers and auto part stores located in the U.S. and Canada. Some of the used parts are marked with the country of origin but most of the parts are not so marked.
For the most part, unusable parts ("cores") are received by Fenwick in the same cartons in which their remanufactured parts are packaged and sold. Fenwick requires their vendors to pay a deposit for the original carton and its contents. The deposit is refundable when the original carton containing the unusable parts is returned to Fenwick. If the parts are sold at the retail level, the deposit charge is passed on to the purchaser. The deposit is refunded when the customer returns the unusable part in the original carton. The cartons have a bar code label that enables Fenwick to track them and refund/credit the appropriate vendor. Used cores that are received in these
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cartons at Fenwick’s plant are first scanned into their computer to read the bar code label and refund/credit the appropriate vendor. Fenwick can document the number of cartons containing used cores received from the U.S.
The used cores which are received by Fenwick from U.S. and Canadian vendors are then sorted either by computerized assembly line process or by hand into their respective bins by the type of part involved. The cores received from Canada and the U.S. are commingled during this process. As confirmed by telephonic communication with this office, Fenwick estimates that approximately 15 to 25 percent of the cores are received from Canadian vendors. The articles are disassembled, cleaned, baked with a rust preventive, the core item is tested to identify defective and worn parts, quality checked and inspected. Unusable articles are scrapped. At this point, new parts such as o-rings, seals, bearings or facing for the clutch disks may be added. The reconditioned parts are then re-inspected, tested and then packaged for export and retail sale in the U.S.
Throughout the repair process, the parts of each item are kept together and are reassembled in the same unit, except for worn or defective parts which are repaired or replaced. Replacement of parts takes place during disassembly and may include new or used parts. The component parts are kept together throughout the repair process in order to maintain the integrity of the items and thereby make it likely that the result will be a viable unit. The repaired item will be identical to the unusable article, except for cleaning and possible reconditioning or replacement of defective or worn parts that occur in the repair process.
Under its current system, Fenwick does not segregate parts received from U.S. vendors from parts received from Canadian vendors and therefore the remanufactured automotive parts imported into the U.S. may not match the exported articles. Fenwick proposes to use a fungible methodology (LIFO) to support the fact that a specified number of usable parts were exported from the U.S. to their facility in Canada. Fenwick could provide proof of the number of parts returned from their vendors located in the U.S. by virtue of the number of deposits they refund/credit these vendors for the returned containers and their respective parts. Copies of the foreign entry documents could be provided upon request.
For those cores that are unmarked as to their country of origin, Fenwick states that it cannot ascertain the actual country of origin. Further, Fenwick asserts that any attempt to etch or die sink any markings on the part at this stage would affect the integrity of the
articles. As a result, Fenwick proposes to mark the cartons "Remanufactured in Canada" in lieu of marking the actual articles.
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ISSUES:
1) Whether the remanufactured automotive parts imported from Canada are eligible for the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).
2) What are the country of origin marking requirements for the remanufactured auto
parts imported into the U.S.?
LAW AND ANALYSIS:
1) Articles Exported for Repair or Alteration
Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial or complete duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), 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'd C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Section 181.64, Customs Regulations (19 CFR 181.64), which implements Article 307 of the North American Free Trade Agreement (NAFTA), provides that goods returned after having been repaired or altered in Canada pursuant to a warranty, are eligible for duty free treatment, provided that the requirements of this section are met. Goods returned after having been repaired or altered in Canada other than pursuant to a warranty are subject to duty upon the value of the repairs or alterations using the applicable duty rate under the United States Canada Free Trade Agreement, provided that the documentation and other requirements of this section are satisfied.
Section 181.64(a) defines "repairs or alterations" for purposes of the 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.
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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. See Press Wireless, Inc. v. United States, 6 Cust. Ct. 102 (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. The court noted that the radio tubes were “restored to a condition which prolonged the use for which they were originally designed...as far as the plaintiff’s use thereof was concerned
there was no difference between the tubes as originally imported and the repaired articles.” The court held that the use of improved materials in the restoration was immaterial, as long as the article was not considered a new and different article of commerce or its identity was destroyed.
Thus, one of the basic requirements for eligibility under HTSUS subheading 9802.00.50 is that the repaired article being returned is the same as that which was exported. In this regard, we have held that non-essential components of the exported article may be commingled, but the essential components must be retained, as such components constitute the item being repaired abroad. See Headquarters Ruling Letter (HRL) 555117 (December 22, 1988).
Section 181.64(c)(1) of the regulations (19 CFR 181.64(c)(1)) requires the filing of a declaration from the person who performed the repairs or alterations and includes the "marks and numbers" relating to the articles as well as a description of the articles. The declaration also requires a statement "in substantially the following form" that "[t]he goods herein specified are the goods which, in the condition in which they were exported from the United States, were received by me (us) on ________, 19__, from ____________ (Name and address of owner or exporter in the United States).... ; and that no substitution whatsoever has been made to replace any of the goods originally received by me (us) from the owner or exporter...."
The regulation also requires the importer, owner, consignee, or agent having knowledge of the facts to file with Customs a declaration that the goods entered in their repaired or altered condition are the same goods that were exported on the date shown and identified in the declaration of the person who performed the repairs or alterations.
In accord with the principle set forth in Press Wireless, the documentation
requirements under 19 CFR 181.64(c)(1) establish that articles returned to the U.S. and entered under subheading 9802.00.50, HTSUS, must be traced back to the export
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shipment covering those specific imported articles. These requirements are designed to prevent, to the extent possible, the substitution of new or otherwise different articles for the articles that were exported from the U.S. for repairs or alterations. In the instant case, as a result of the commingling of parts received from Canada and the U.S., the documentary requirements of 19 CFR 181.64(c)(1) would not be satisfied, as the repaired articles being returned may not be the same articles exported from the U.S.
The use of LIFO (or other accounting methodology) to "reconcile" the parts exported and the parts imported does not satisfy the importer's responsibility, as set forth under the above documentary requirements, to establish that the goods entered in their repaired or altered condition are the same goods that were exported on a specific date and that are identified in the declaration of the person who performed the repairs or alterations. Accordingly, we find that the reconditioned automotive parts imported into the U.S. under these facts are not eligible for reduced duty treatment under subheading 9802.00.50, HTSUS.
2) Country of Origin Marking
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).
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
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Rules. Consistent with the foregoing, the country of origin of the remanufactured
automotive parts imported into the U.S. will be determined pursuant to the NAFTA Marking Rules.
Part 102 of the regulations sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that "[t]he country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an
applicable change in tariff classification set out in section 102.20 and
satisfies any other applicable requirements of that section, and all
other requirements of these rules are satisfied.
The imported remanufactured parts are neither “wholly obtained or produced,” or “produced exclusively from domestic (Canadian) materials.” Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable
change in tariff classification set out in section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good. As the remanufacturing process in Canada does not result in a change in classification of the exported used parts, section 102.11(a)(3) is not applicable. Furthermore, we also note that with regard to the proposed disassembly operations, 19 CFR 102.17(b) provides in pertinent part that: "A foreign material shall not be considered to have undergone the applicable change in tariff classification set out in section 102.20 or section 102.21 or to have met any other applicable requirements of those sections merely by reason of dismantling or disassembly."
Accordingly, 19 CFR 102.11(b) of the hierarchal rules must next be applied, which provides as follows:
Except for a good that is specifically described in the Harmonized Tariff
Schedule as a set, or is classified as a set pursuant to General Rule of
Interpretation 2, where the country of origin cannot be determined under
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paragraph (a), the country of origin of the good:
(1) Is the country or countries of origin of the
single material that imparts the essential
character of the good, or
(2) If the material that imparts the essential
character of the good is fungible, has been
commingled, and direct physical identification of
the origin of the commingled material is not
practical, the country or countries of origin may
be determined on the basis of an inventory
management method provided under the appendix to
part 181 of this chapter.
("Fungible" goods or materials are defined as "goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical.") See section 102.1(f), Customs Regulations (19 CFR 102.1(f)).
Pursuant to section 102.18(b)(2):
for purposes of applying section 102.11, only domestic and foreign materials (including self produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in section 102.20 shall be taken into consideration in determining the parts or materials that determine the essential character of the good.
Applying 19 CFR 102.18(b), we find that the material that imparts the essential character to the imported parts in each case is the used core, i.e., the used brake caliper, master cylinder, water pump, clutch, clutch plate, cv joint, rack and pinion, steering gear box and power steering pump. Therefore, the country of origin of the
reconditioned parts imported into the U.S. is the country of origin of the used cores. We must now determine the country of origin of these used parts which are reconditioned in Canada.
In Ashdown, U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661 (1988), the Court of International Trade held 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
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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. In HRL 559968 dated May 7, 1997, Customs applied the principles of Ashdown and held that front wheel axle assemblies exported to Mexico for repair were deemed to be of U.S. origin where the parts had been incorporated in a vehicle in use in the U.S. and thus had lost their connection to the country in which they were originally manufactured.
In HRL 732258 dated March 28, 1990, also involving used automotive parts installed in vehicles used in the U.S., we stated the following:
There is no indication of any intent to transship alternators through the U.S. and it is not possible to determine where each and every alternator was originally made. Therefore, the used alternators which are not already marked with a foreign country of origin and for which it is impossible to trace the original country of manufacture are considered to be of U.S. origin. Those alternators which are already marked with a foreign country of origin are properly marked pursuant to 19 CFR 134.1(b) and require no further marking.
Customs has applied the principles of Ashdown primarily in instances where the country of origin of used articles cannot be determined. Accordingly, we believe that the approach taken in HRL 732258 to articles already marked with their country of origin is appropriate. Thus, the country of origin of such articles is the country as marked on the article prior to the reconditioning process.
Applying these principles to the facts in this particular case, we find that the used parts incorporated in vehicles in use in the U.S. and not marked with a country of origin are considered to be of U.S. origin and thus, when returned to the U.S. after reconditioning in Canada, will be excepted from country of origin marking pursuant to 19 CFR 134.32(m) as U.S. articles exported and returned. We also find, based on the principles of Ashdown, that the used parts taken from vehicles in use in Canada are considered to be of Canadian origin. Therefore, when imported into the U.S. after reconditioning in Canada, they must be marked to indicate their Canadian origin. With respect to those used parts that are already marked with their country of origin, no further marking is required after they are reconditioned in Canada and exported to the
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U.S., provided such marking is in accordance with 19 U.S.C. 1304.
In this case, as used parts of U.S. origin have been commingled with used parts of Canadian origin, and these parts are fungible, pursuant to 19 CFR 102.11(b)(2) the country of origin (of the unmarked parts) may be determined on the basis of an inventory management method provided under the Appendix to Part 181 of the Customs Regulations. See Schedule X, Part II, "Fungible Goods." LIFO (Last In, Last Out) is an acceptable method which may be used to determine the country of origin of the reconditioned imported parts. (See also 19 CFR 102.12.)
An exception to the marking requirements is provided under 19 CFR 134.32(d) for articles for which the marking of the containers will reasonably indicate the origin of the articles. Accordingly, the exception will be applicable provided the reconditioned parts will reach the ultimate purchaser in these properly marked containers.
As stated above, articles determined to be of U.S. origin are excepted from the marking requirements pursuant to 19 CFR 134.32(m). However, Customs has no objection if such articles are marked "Remanufactured in Canada," as this marking generally describes the processing performed in Canada.
Those articles deemed to be of Canadian origin must be marked "Made in Canada," "Canada," or a similar marking denoting origin. "Remanufactured in Canada" is not an acceptable marking, as it does not necessarily reflect that Canada is the country of origin. As noted, no further marking is required for articles that are already properly marked with their country of origin.
HOLDING:
1) Reconditioned automotive parts are not eligible for reduced duty treatment under subheading 9802.00.50, HTSUS, where such parts are sourced from the U.S. and Canada, are commingled in Canada, and thus, when imported into the U.S., cannot be identified as the same parts that were exported from the U.S. for repair.
2) Used parts taken from in vehicles in use in the U.S. and not marked with a country of origin are considered to be of U.S. origin. See Ashdown v. United States, supra. Thus, when returned to the U.S. from Canada after reconditioning, such parts are excepted from country of origin marking under 19 CFR 134.32(m), as U.S. articles exported and returned. Used unmarked parts taken from vehicles in use in Canada are considered to be of Canadian origin, and therefore, when imported into the U.S. after reconditioning in Canada, they must be marked accordingly. With respect to those
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used parts that are already marked with their country of origin, no further marking is required after they are reconditioned in Canada and exported to the U.S., provided such marking is in accordance with 19 U.S.C. 1304.
3) As used parts of U.S. origin have been commingled with used parts of Canadian origin, and these parts are fungible, pursuant to 19 CFR 102.11(b)(2) the country of origin (of the unmarked parts) may be determined on the basis of an inventory management method proved under the Appendix to Part 181 of the Customs Regulations.
4) An exception to the marking requirements is provided under 19 CFR 134.32(d) for articles for which the marking of the containers will reasonably indicate the origin of the articles. Accordingly, the exception will be applicable provided the reconditioned parts will reach the ultimate purchaser in these properly marked containers.
5) Articles determined to be of U.S.-origin are excepted from the marking requirements pursuant to 19 CFR 134.32(m). However, Customs has no objection if such articles are marked "Remanufactured in Canada," as this marking generally describes the processing performed in Canada. Those articles deemed to be of Canadian origin must be marked with words denoting origin, such as "Made in Canada," "Produced in Canada," or "Canada." The marking "Remanufactured in Canada" is not acceptable, as it may not convey to the ultimate purchaser that Canada is the country of origin. As noted, no further marking is required for articles that are already properly marked with their country of origin.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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