CLA-2 RR:CR:SM 562548 MLR
S. Richard Shostak, Esq.
Stein, Shostak, Shostak & O’Hara
515 South Figueroa Street, Suite 1200
Los Angeles, CA 90071-3329
RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to
automobile transmissions; Article 509; NAFTA: 19 U.S.C. 1304; marking
Dear Mr. Shostak:
This is in reference to your letter of October 4, 2002, requesting a ruling on behalf of Hyundai Translead (“Hyundai”), concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to automobile transmissions repaired in Mexico. You also inquire as to the proper country of origin of the imported transmissions. Flow charts were submitted with your request.
FACTS:
Hyundai will offer its services of repairing (rebuilding) used and failed transmissions to Hyundai Motor America and Kia Motor America. The used transmissions bear no country of origin markings. The used and failed transmissions will be removed from vehicles in Canada and the U.S. and exported to Hyundai de Mexico for rebuilding.
It is stated that each used transmission core received in Mexico will bear the serial number placed thereon by its original foreign manufacturer. Additional identification is provided on receipt in Mexico when the transmission cores are given a bar code label to monitor the processing of the transmission in Mexico. In Mexico, the cores are disassembled, and all the housing and other parts, stated to total 85 percent of the value of the transmissions, will be kept together. Only the transaxle valve bodies, which represent less than 15 percent of the total value of the transmissions, will be removed from the cores. The transaxle valve bodies will be separately repaired after disassembly and stored together at the end of the assembly line for random installation into the rebuilt transmissions. The remaining 85 percent of the parts, which include the core housing and the remaining parts, will proceed down the repair assembly line as a unit. Failed items will be identified and replaced, as needed.
The diagrams submitted show drawings and the parts in the transaxle, the transaxle case, oil pump & tq/conv, transaxle clutch, transaxle brake, transaxle gear, transaxle valve body, and speedometer drive gear.
ISSUES:
Whether the repaired transmissions imported into the U.S. are eligible for
duty-free treatment under subheading 9802.00.50, HTSUS.
II. What is the country of origin of the transmissions imported into the U.S.?
LAW AND ANALYSIS:
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); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64), are satisfied.
“Repairs or alterations” are defined in 19 CFR 181.64 as the 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 U.S.
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, C.D. 438 (1941). In Press Wireless, the court found that radio tubes or valves replaced with heavier filaments, allowing heavier amperage, were "repaired" within the meaning of paragraph 1615, Tariff Act of 1930 (a precursor provision to subheading 9802.00.50, HTSUS). Additionally, the court found that the identical tubes were returned in a "condition of restoration to their original efficiency," and noted that an automobile repaired with materials of a heavier and superior quality than the worn-out parts would still be the same automobile, and that a fur coat relined with a superior material would still be the same coat. 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.
Therefore, 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. The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purpose 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.
In this case, it is claimed that when the process in Mexico is concluded, the same used and failed transmissions received in Mexico will have retained their identity throughout the process as the transaxle case and parts will be retained together and only the transaxle valve body will be separately repaired.
As support, Headquarters Ruling Letter (HRL) 555819 dated October 11, 1991, is cited where up to 17 parts were replaced in combination telephone answering machines, and Customs ruled that the replacement and/or addition of parts to restore products to their original condition were repair operations within the meaning of subheading 9802.00.50, HTSUS. In HRL 555819, Customs stated that where the foreign repair operations entail 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 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. Other rulings are cited which set forth Customs enunciation that when disassembly is involved, the essential identity parts must be maintained together. See HRL 560022 dated February 12, 1998 (used fuel pumps disassembled and repaired, qualified for subheading 9802.00.50, HTSUS, treatment, as the fuel pump housing, the largest component and representing the general profile of the finished article and essential identity of the article, remained with the finished article). See also HRL 559968 dated May 7, 1997, where Customs held that repaired front wheel drive axles were eligible for duty-free treatment under subheading 9802.00.50, HTSUS, provided the two housings connected by a center shaft were maintained.
In HRL 561989 dated April 18, 2001, worn brake shoes, originally manufactured in the U.S. or Canada, were exported to Canada for reconditioning. It was determined that the Mexican operations of disassembly, cleaning, testing, machining, honing, and reassembly, constituted "repairs" since these operations returned the used vehicle subassemblies to their original condition.
In HRL 558823 dated February 6, 1995, used vehicle air brake system compressors, air filters, and valves were exported to Mexico. These units were "trade-ins" from U.S. customers who purchased new or rebuilt units. The used units were originally made in the U.S., Mexico, or Canada. In Mexico, the used compressors, filters, and valves were sorted. The units were disassembled, and the parts were cleaned. The parts were then inspected and tested to identify those parts that were still usable. The reusable parts were sorted, and if required, were re-machined or honed to return them to their original condition. Unusable parts were scrapped. Some recovered parts, along with various new parts, were reassembled to produce complete rebuilt compressors, filters, and valves, identical to the original units exported to Mexico. The completed units were then shipped to the U.S. It was held that the completed units qualified for the full duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S., provided the essential components of the articles exported were retained and the documentary requirements of 19 CFR 181.64 were met. Basically, information had to be presented to enable Customs to verify that the articles returned were the same as the articles exported. For example, identification marks or numbers, such as serial numbers, for the units had to be provided in the repair declaration, when they were available.
Customs has also applied three factors in determining that an engine block represented the essential identity of used motor vehicle engines for purposes of subheading 9802.00.50, HTSUS; namely (1) the value, (2) the role in providing the structural support to the engine components, and (3) the fact that it determined the two main features of an automotive engine, the size and number of cylinders.
Regarding some of the various components of transmissions, we note that the transaxle oil pump produces hydraulic pressure to operate, lubricate, and cool the automatic transaxle, and its pressure activates the pistons and servos. www.tpub.com/basae/102.htm. The transaxle clutches and bands apply the planetary gears in the transaxle. The transaxle planetary gearsets provide different gear ratios and reverse in the automatic transaxle. The transaxle valve body controls the flow of the fluid to the pistons and servos in the transaxle and it contains hydraulic valves operated by the operators shift linkage and by engine speed and load-sensing components. The transaxle torque converter is a fluid-type clutch that slips at low speed but locks up and transfers engine power at a predetermined speed. The transaxle pistons and servos operate the clutches and bands when activated by fluid pressure from the valve body. We note that the repair of transmissions often involves replacing pistons, bearings and clutches, and that these repairs can be quite extensive.
It is stated that the transaxle valve body imparts less than15 percent of the value of the transmission. In addition, the transaxle valve body appears to serve a less important role in the functioning of the transmission than the transaxle torque converter. Therefore, it is our opinion that the replacement of the transaxle valve body will not destroy the identity of the transmissions. Furthermore, as in HRL 558823, we find that provided the other repairable components remain together and the transmissions are restored to their original condition, the returned transmissions will qualify for subheading 9802.00.50, HTSUS, treatment.
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).
It is claimed that the country of origin of the unmarked transmissions, which were used in the U.S. or Canada, is the U.S. or Canada. As support, HRL 732258 dated March 28, 1990; HRL 559968; and HRL 561642 dated January 9, 2002, are cited.
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 an East German-made 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.
HRL 732258 involved alternators of unknown origin which were removed from automobiles in the U.S. and shipped to Mexico for re-manufacturing operations and returned. Customs applied the principles of Ashdown and held that the repaired alternators were considered to be of U.S. origin for country of origin marking purposes. The rationale was that the parts were originally installed and used in automobiles in the U.S. and thus had lost their connection to the country in which they may have been originally manufactured. Similarly, HRL 559968 held that front wheel axle assemblies (originally made in various countries) taken from vehicles in use in the U.S. and exported to Mexico for repair and return, were all deemed to be of U.S. origin for marking purposes. Again, it was determined that each axle assembly had lost its connection to the country in which it was originally produced.
In the instant case, the transmissions are not marked when they are exported from the U.S. to Mexico for repair, and they are taken from automobiles used in the U.S. or Canada. Therefore, while it is stated that the transmissions were originally manufactured abroad, applying the principles of Ashdown, used transmissions taken from automobiles in use in the U.S. and not marked with a country of origin will be considered to be of U.S. origin, and may be excepted from country of origin marking pursuant to 19 CFR 134.32(m), as U.S. articles exported and returned. Used unmarked transmissions removed from vehicles in use in Canada and reconditioned in Mexico will be considered to be of Canadian origin, and must be marked accordingly when imported into the U.S.
HOLDING:
On the basis of the information provided, we find that the repaired transmissions are entitled to duty-free treatment under subheading 9802.00.50, HTSUS, provided the housing and other parts, as described above, are retained during the repair process and the documentary requirements of 19 CFR 181.64 are satisfied.
Used unmarked transmissions taken from automobiles in use in the U.S. and reconditioned in Mexico will be considered to be of U.S. origin, and may be excepted from country of origin marking pursuant to 19 CFR 134.32(m), as U.S. articles exported and returned. Used unmarked parts taken from vehicles in use in Canada and rebuilt in Mexico will be considered to be of Canadian origin, and must be marked accordingly when imported into the U.S.
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,
Myles Harmon, Acting Director
Commercial Rulings Division