CLA-02 RR:CR:VS 563285 NL
Jodi C. Latner
Livingston International Trade Services, Inc.
Gateway Executive Park
3556 Lakeshore Road, Suite 200
Buffalo, NY 14219
RE: HTSUS 9802.00.40; HTSUS 8511.40.0000; HTSUS 8511.50.0000 NAFTA Marking Rules; 19 CFR Part 102
Dear Ms. Latner:
This is in reply to your letter dated February 4, 2005, which was forwarded to this office with comments on May 20, 2005 by the National Commodity Specialist Division (NCSD). You request a binding ruling on behalf of Dixie Electric Ltd. (Dixie Electric), a Canadian company engaged in remanufacturing starters and alternators. Specifically, you ask for determinations on the tariff classification, country of origin marking and eligibility for special tariff treatment of rebuilt alternators and starters imported into the U.S. from Canada. Our ruling which follows is based on the facts presented and reflects the advice of the NCSD.
FACTS:
Unserviceable starters and alternators are shipped from customers in the U.S. to Dixie Electric in Canada for repair. The goods shipped from the U.S. to Canada have various countries of origin.
The processing consists of identifying the units by type followed by disassembly, cleaning and salvage of usable parts. Non-salvageable parts are discarded and replaced with what the submission calls “new” parts, which we understand to mean either rebuilt or newly manufactured parts. All the salvaged parts are commingled and held in readiness for use in repairing a unit of the same type or family. Starters and alternators rebuilt by Dixie Electric using salvaged and “new” parts are shipped to U.S. once the number of units specified in a customer’s order has been reached. The process from order to delivery may take from seven to sixty days depending on volume and component availability.
ISSUES:
What is the tariff classification of the starters and alternators?
Are the starters and alternators eligible for tariff treatment pursuant to subheading 9802.00.40, HTSUS?
What is the country of origin of the starters and alternators?
LAW & ANALYSIS:
1. Tariff Classification
The applicable tariff provision for the returned starters will be subheading
8511.40.0000, HTSUS, which provides for:
Electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines (for example, ignition magnetos, magneto-dynamos, ignition coils, spark plugs and glow plugs, starter motors); generators (for example, dynamos, alternators) and cut-outs of a kind used in conjunction with such engines;
* * * *
Starter motors and dual-purpose starter-generators.
The goods are dutiable at 2.5 percent ad valorem.
The returned alternators are classified under subheading 8511.50.0000, HTSUS, which provides for:
* * * *
Other generators
The goods are dutiable also at 2.5 percent ad valorem.
2. Eligibility for Tariff Treatment under subheading 9802.00.40, HTSUS
The tariff provision at issue allows for importation free of duty or a duty only upon the value of repairs or alterations for:
Articles returned to the United States after having been
exported to be advanced in value or improved in condition
by any process of manufacture or other means:
Articles exported for repairs or alterations:
9802.00.40 Repairs or alterations made pursuant to
a warranty . . . . . . . . . . . . . . . . . .
In the case of a good qualifying as a good originating in Canada, such good that has been exported from the U.S. for repairs or alterations may be imported duty-free.
For purposes of the duty allowance under subheading 9802.00.40, 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 9802.00.40 is that the repaired article being returned is the same as that which was exported. In this regard, CBP has 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 (HQ) 561209 (May 4, 1999).
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 9802.00.40, HTSUS, must be traced back to the export 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 HQ 554568, dated August 25, 1987, and HQ 559970, dated January 7, 1997, CBP 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 indicates that the starters and alternators are completely disassembled in Canada and the salvageable components are reconditioned and then commingled with other like parts from other units until needed for the reassembly operation. There is no indication that the components comprising the essential identity of the starters and alternators are maintained as matched sets throughout the reconditioning and reassembly operations. Thus, when the starters and alternators are reassembled with both new and used components, the resulting articles are not repaired or altered pursuant to subheading 9802.00.40, HTSUS. Rather, the described processing destroys the identity of the exported starters and alternators and results in new and different manufactured articles comprised of various new and reconditioned components. Accordingly, the instant starters and alternators remanufactured by Dixie Electric are not eligible for tariff treatment under subheading 9802.00.40 as goods returned after repair or alterations pursuant to a warranty. Nor would they be eligible for treatment under subheading 9802.00.50, which has the same conditions absent the warranty requirement. Insofar as the starters and alternators do not qualify for treatment under this tariff provision, the question of whether they also could be goods originating in Canada eligible for duty-free as opposed to partially exempt treatment does not present itself.
3. Country of Origin
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, CBP Regulations (19 CFR Part 134).
Section 134.1(b), CBP 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 starters and alternators 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". Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that the 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 starters and alternators 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 it appears from the description of the disassembly and remanufacturing operations that the classification of the worn or starters or alternators does not change as a result of the processing in Canada, section 102.11(a)(3) is not applicable. Moreover, section 102.17 specifies an applicable change of tariff classification is not considered to have occurred merely by reason of dismantling or disassembly operations. For these reasons, section 102.11(a)(3) will not determine the origin of these goods.
Accordingly, 19 CFR 102.11(b) of the hierarchical rules must next be applied. 19 CFR 102.11(b) 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 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.
Customs has previously found that the material that imparts the essential character to remanufactured automotive parts is the used core. HQ 561209 (May 4, 1999). Therefore, for purposes of section 102.11(b), the country of origin of the rebuilt starters or alternators imported into the U.S. is the country of origin of the worn or defective cores.
The submission does not indicate whether the goods as imported into Canada bear marks of origin. Whatever the case, as stated in HQ 561854, (December 15, 2000), a country of origin marking on the core may not necessarily reflect the country of origin of that part as it may indicate only the country of origin of a component of the core, or may otherwise not relate to its actual country of origin. Moreover, in HQ 561854, Customs acknowledged that remanufacturers may not be able to establish with any certainty whether cores sourced from their customers were taken from vehicles used in the U.S. or Canada. The instant submission states that the used components are of various origins, but states nothing about whether some or all of these components are actually marked. We find that 19 CFR 102.11(b) cannot be used to determine the origin of the imported parts, as there is insufficient information regarding the country of origin of the used cores to use an inventory management method of accounting as set forth under section 102.11(b)(2).
Section 102.11(c) is inapplicable by its terms, as the starters and alternators are neither sets, mixtures or composite goods within the meaning of the HTSUS.
Section 102.11(d) provides that where the country of origin cannot be determined under paragraph (a), (b) or (c), the country of origin of the good shall be determined as follows:
(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of origin of each material that merits equal consideration for determining the essential character of the good; (2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts; or (3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
In HQ 561854 CBP found that the production of the remanufactured automotive parts in Canada constituted more than a “minor processing” operation and exceeded a “simple assembly.” Similarly, in the instant case, we find that the remanufacturing operations are more than “minor processing” and “simple assembly.” See 19 CFR 102.1(m) and (o). Therefore, we must apply paragraph (3) to determine the country of origin of the good. Under this paragraph, the country of origin is Canada, the last country in which the worn or defective core underwent production.
Provided the ultimate purchasers will receive the reconditioned part in a properly marked sealed container, the article itself will be excepted from the country of origin marking requirements. See 19 CFR 134.32(d). The marking “Remanufactured Automotive Parts – PRODUCT OF CANADA” is an acceptable marking, provided it otherwise complies with the conspicuousness, legibility and permanency requirements of 19 U.S.C. 1304.
HOLDING: The rebuilt starters and alternators will be classified in HTSUS subheadings 8511.40.0000 and 8511.50.0000, respectively.
The rebuilt starters and alternators are not eligible for tariff treatment under HTSUS subheading 9802.00.40.
Based on the information provided, the country of origin for marking purposes of the rebuilt starters and alternators imported from Canada cannot be determined under 19 CFR 102.11(a), (b) or (c). Therefore, 19 CFR 102.11(d) must be applied to determine origin under the 19 CFR 102.11 hierarchy. As production of the reconditioned parts in Canada constitutes more than a “minor assembly” (see 19 CFR 102.11(m) and (o)), the country of origin of the good is Canada, the last country in which the worn or defective automotive cores underwent production.
The marking “Remanufactured Automotive Parts – Product of Canada” is an acceptable marking. The parts themselves may be excepted from country of origin marking provided that the container in which the parts reach the ultimate purchaser in the U.S. are appropriately marked. 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,
Monika R. Brenner, Chief,
Valuation & Special
Programs Branch