• HQ H230497
• Jun 26, 2014

• Type : • HTSUS :
•  Related:   229800; 224617; 223212; 226858; 214437; 216531; 228619; 230166   

CON-9-04
OT:RR:CTF:ER
H230497 MES


Allan Goggins
Barnes, Richardson & Colburn
475 Park Avenue South
New York, NY 10016

Re: Request for a Ruling on the Importation of Gas Turbine Parts under a Temporary Importation Under Bond.

Dear Mr. Goggins

This is in response to your request dated July 31, 2012, on behalf of Alstom Power, Inc., (“Alstom”) as to whether regarding certain new and used blades may be imported under a temporary importation under bond (TIB). In your letter, you noted that on May 2, 2012, Alstom had imported used blades to be reconditioned under subheading 9813.00.05, Harmonized Tariff Schedule of the United States (HTSUS). Accordingly, you asked that this issue be treated under the internal advice procedures. We have been in touch with the port of Buffalo and are in agreement. Additionally, we note that your letter contained questions related to value. We addressed these questions in HQ 229800, dated July 16, 2013. FACTS: Alstom is a supplier of combustion gas turbines, which are used in the power plant industry. In your letter, you state that blades used in these gas turbines have a certain useful operating life after which a blade is either able to be reconditioned or it must be scrapped. You state that all of the used blades will be imported from Canada or Mexico and inspected by Alstom upon arrival in the United States to determine if reconditioning is possible or if the parts must be scrapped. The inspection criteria will consider such factors as erosion, surface conditions, and dimensional stability. Blades that cannot be reconditioned back to usability would be scrapped under CBP supervision, which you estimate at approximately 10%. The reconditioning process will be determined by the results of the inspection and will lead to the blade’s undergoing one of the reconditioning processes described in your letter. While the reconditioning processes will vary, they generally include some combination of cleaning, welding, recontouring, reshaping, and performance testing. After undergoing one of the reconditioning processes, the reconditioned blades will be exported to either Canada or Mexico to be installed in gas turbines. Because not all used blades will be able to be reconditioned, Alstom intends to import new blades from locations outside North America that will ultimately be installed with the reconditioned blades in gas turbines in Canada and Mexico after exportation. However, before the new blades can be installed in the gas turbines, they must first be “moment weighed.” You state that under this procedure, the complete set of blades (consisting of new and reconditioned blades) is weighed in a specialized device that measures specifics regarding mass, rotation, and distance. The data for each blade is collected and processed to calculate the optimum distribution to reduce vibration. In your letter, you state that the moment weighing is critical to ensuring that the blades are properly arranged for weight distribution and balance to minimize vibration when the rotor is operating. You state that out of balance blades could lead to rotor failure, come apart entirely, and create a dangerous situation. ISSUES: 1. Whether subjecting the used blades to the described reconditioning qualifies them for duty-free treatment under a TIB under subheading 9813.00.05, HTSUS.

2. Whether subjecting the new blades to the described moment weighing qualifies them for duty-free treatment under a TIB under subheading 9813.00.30, HTSUS.

LAW & ANALYSIS:

1. Whether subjecting the used blades to the described reconditioning qualifies them for duty-free treatment under a TIB under subheading 9813.00.05, HTSUS.

Pursuant to General Note 1, Harmonized Tariff Schedule of the United States (HTSUS), all merchandise imported into the United States is subject to duty unless specifically exempted. Subheading 9813.00.05, HTSUS, provides that articles to be repaired, altered or processed (including processes that result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under a TIB for exportation within one year from the date of importation. This period may be extended for additional periods, which when added to the initial period do not exceed three years. See U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify under this provision, the merchandise imported may not be imported for the purpose of sale or sale on approval. Additionally, in order to satisfy the requirements for the TIB, the imported article must be timely exported.

Because these blades will be exported to Canada or Mexico, we must also consider the North American Free Trade Agreement. Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act, Pub. L. 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333, provides in essence that all goods imported into the United States which are exported to Canada or Mexico are subject to the NAFTA drawback restrictions, i.e., the lesser of duty rule, unless a specific exception applies. The lesser of duty rule, in the specific context of subheading 9813.00.05, is contained in U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS (as amended by Presidential Proclamation 6780, 60 FR 15,845, 15,843 (Mar. 27, 1995). If this rule were applicable, this would normally mean that a consumption entry would be filed and duty would be collected.

However, Article 307(2) of NAFTA provides that "[n]otwithstanding Article 303, no Party may apply a customs duty to a good, regardless of its origin, imported temporarily from the territory of another Party for repair or alteration." Section 181.53(b)(5), CBP Regulations (19 CFR § 181.53(b)(5)), implements the requirements of NAFTA Article 307(2). Specifically, 19 CFR § 181.53(b)(5) provides: Except in the case of a good imported from Canada or Mexico for repair or alteration, where a good, regardless of its origin, was imported temporarily free of duty for repair, alteration or processing (subheading 9813.00.05, Harmonized Tariff Schedule of the United States) and is subsequently exported to Canada or Mexico, duty shall be assessed on the good on the basis of its condition at the time of its importation into the United States.

(Emphasis added). You stated that all used blades are imported from Canada or Mexico. Therefore, if the reconditioning of the used blades qualifies as a repair or alteration, the used blades would be eligible for TIB treatment and would qualify under the exemption from the lesser of rule provided for in 19 CFR § 181.53(b)(5).

CBP has addressed the scope of the term “repair” in previous rulings. In HQ 224617, dated August 16, 1993, we held that newly manufactured motor vehicles are not entitled to TIB entry when they are imported to undergo an inspection and quality check with the intention, only if necessary, to repair or adjust as required. In that case, although each vehicle would undergo a quality check, it was anticipated that not every vehicle would require adjustment. Moreover, because they were newly manufactured motor vehicles, it was unlikely that a significant portion of the vehicles would require repair. The TIB was not appropriate because repair was not the primary intention of bringing the newly manufactured vehicles into the United States, even though some small percentage of the motor vehicles may have needed adjustments. Similarly, in HQ 223212, dated September 3, 1991, we held that liferafts that are unpacked, inflated, inspected, and repaired if necessary cannot be entered under subheading 9813.00.05, HTSUS, as articles to be repaired, altered, or processed because the intent to repair was not there at the time of entry due to the fact that they are repaired only if necessary and it was unlikely to be required in most cases. In that case, we stated the following:

In order to enter articles under subheading 9813.00.05, HTSUSA, there must be an intention at the time of entry that the articles will actually be repaired, altered, or processed. If, as appears to be true in this case, the lifeboats must be inspected after entry before your client will know if they will need to be repaired or otherwise altered or processed, the requisite intent does not exist at the time of entry (see C.S.D. 80-81, referred to above). Therefore, the liferafts under consideration may not be entered under any of the T.I.B.

Id. Therefore, CBP has held that, in addition to the activities described constituting repair, the expectation of conducting repairs is required at the time of importation. As noted above, in this case, unlike the situations noted in the prior rulings, Alstom’s purpose in importing the used blades is to recondition them for further use. It is estimated that 90 percent of the blades will be suitable for that process. Therefore, Alstom has the requisite intent to repair the used blades. Accordingly, we must now determine if the reconditioning process as described constitutes repair.

In HQ 226858, dated July 12, 1996, we stated that repair means to “restore by replacing a part or putting together what is torn or broken; fix, mend… to restore to a sound or healthy state; renew, revivify…” See Webster’s Third New International Dictionary (unabridged, 1966). In this case, the reconditioning process as described, consisting of some combination of cleaning, welding, recontouring, and reshaping, is designed to make the blades useable for another life cycle (i.e., restore the blades to a sound or healthy state). Therefore, the activities described constitute “repair” for the purposes of importation under a TIB under subheading 9813.00.05, HTSUS. Assuming that all other requirements for TIB are met, the facts of the operation as you set forth in your request would satisfy the requirements for entry under a TIB under subheading 9813.00.05, HTSUS. As discussed above, because the reconditioning (i.e., “restoration”) constitutes a repair for TIB purposes and the used blades will be imported from Canada or Mexico, the imported used blades also qualify for the exemption from the lesser of duty rule provided for in 19 CFR § 181.53(b)(5).

2. Whether subjecting the new blades to the described moment-weighing qualifies them for duty-free treatment under a TIB under subheading 9813.00.30, HTSUS.

Alstom also intends to import new blades that must be “moment weighed” before exportation and subsequent installation. In order to import goods under a TIB under subheading 9813.00.30, HTSUS, the importer must show that the articles are intended to be imported solely for testing, experimental or review purposes. Subheading 9813.00.30, HTSUS, provides for entry under a TIB for "articles intended solely for testing, experimental or review purposes…” Articles may be entered under subheading 9813.00.30, HTSUS, when there is an intention to test the article itself, or when the imported articles or merchandise are imported to be used as the raw material in testing another domestic or imported article. Consequently, we must examine whether the moment weighing of the imported new gas turbine parts qualifies as testing within the meaning of subheading 9813.00.30, HTSUS.

CBP has addressed the scope of the term “testing” in previous rulings. In HQ 214437, dated January 11, 1983, we stated that for purposes of entry under TIB, the statute is “not limited to the performance of ritualized testing operations upon imported equipment, but also extends to cover less rigorous procedures so long as they are designed to yield information about the imported articles which was not known prior to completion of the procedures." In that case, we ruled that gathering (i.e., sorting) was not a “testing” but held that cold staging (i.e., unpacking component parts for visual inspection and comparison with the particular customer configuration) and hot staging (i.e., a process with multiple staging cycles such as an out of box audit, component tests, and a long duration simulation test) did qualify as “testing” for TIB purposes. Further, in addition to the described operation constituting testing, the testing must be the primary purpose of the importation to qualify under subheading 9813.00.30, HTSUS. In HQ 216531, dated December 28, 1983, we permitted entry under a TIB under subheading 9813.00.30, HTSUS, for testing Canadian locomotives in the United States to yield previously unknown information. The testing equipment and facilities of the railway company were located in the United States, were not available in Canada, and the testing was the primary purpose of the importation. Subheading 9813.00.30, HTSUS, states that articles must be entered “solely for testing.” “Solely” is not to be interpreted as “exclusively.” Therefore, subjecting articles being tested to other uses is not prohibited as long as such uses are necessary or can reasonably be calculated to assist in the testing. However, in HQ 228619, dated September 12, 2001, we held that imported racecar engines consisting of prototype engines imported for track testing and development engines used in races did not qualify for entry under subheading 9813.00.30, HTSUS. This was because testing was not the primary purpose of the entry of the engines. Our analysis found that, despite testing and extensive analysis being performed, the primary purpose of the importation of the engines was to use them in races, whether as the actual race car engines, in qualifying races, or as spares. Therefore, CBP has held that, in addition to the procedures described constituting testing, i.e., providing information on the imported articles that was not known prior to the completion of the procedures described, the testing must be the primary purpose for importation.

In your letter, you explain that moment weighing produces a calculation that will allow the blades to be assembled into the rotor of the gas turbine to minimize vibration during use. Further, you explain how critical this calculation is to ensuring that the blades are balanced properly to prevent rotor failure. You state that the complete set of blades (consisting of new and reconditioned blades) is moment weighed in a specialized device that measures specifics regarding mass, rotation, and distance. The data for each blade is collected and processed to calculate the optimum distribution to reduce vibration. Therefore, moment weighing provides information that was unknown prior to the completion of the procedure and as such constitutes “testing” for TIB purposes.

Further, we note that there is no indication that any adjustment would be made to the new blades, only that moment weighing would occur and then the blades would be repackaged and exported. As such, the testing (i.e., moment weighing) is the primary reason for the importation. Assuming that all other requirements for a TIB are met, the facts of the operation as you set forth in your ruling request would satisfy the requirements for entry under a TIB under subheading 9813.00.30, HTSUS.

However, because the new blades will be imported under a TIB under subheading 9813.00.30, HTSUS, from countries outside of NAFTA and exported to Canada or Mexico, the lesser of duty rule must be considered. CBP’s regulation, 19 CFR §181.53(a)(2)(i)(A), provides the following:

Where a good is imported into the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico or is used as a material in the production of another good that is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico, and provided that the good is a "good subject to NAFTA drawback" within the meaning of 19 U.S.C. 3333 and is not described in § 181.45 of this part, the documentation required to be filed under this section in connection with the exportation of the good shall, for purposes of this chapter, constitute an entry or withdrawal for consumption and the exported good shall be subject to duty which shall be assessed in accordance with paragraph (b) of this section.”

(Emphasis added). Thus, if the new blades are goods “subject to NAFTA drawback”, an entry is required and duties are owed unless an exception applies. Under 19 U.S.C. § 3333(a)(2), an exception to the lesser of duty rule applies to:

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph— (A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good, . . . 19 U.S.C. § 3333(a)(2).

(Emphasis added). Subsection(b)(1) of § 181.45 of CBP’s regulations, provides that for purposes of this subpart:

. . . a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:  (i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading.

(Emphasis added).

CBP has previously considered the question of whether certain operations materially alter the characteristics of a good for purposes of § 181.45(b)(1). In HQ 230166, dated January 29, 2004, CBP determined that repackaging dried fruits and dried vegetables from industrial-sized bulk packages to smaller packages did not constitute a material alteration. In that ruling we also determined that the adding of a desiccant (i.e., silicon dioxide) to dried fruits and vegetables materially altered the imported merchandise because the additive absorbed moisture and prevented powdered food from clumping.  This resulted in increased pourability. The increase in pourability was a material alteration of the character of the imported powder resulting in a product that was not in the same condition as the imported product, and therefore not within the scope of section 181.45(b). Therefore, CBP has held that an article is exported in the same condition when there has been no material alteration of the character of the imported good and that repackaging an article is not a material alteration. Alstom explained in its ruling request that it is bringing new blades into the United States to undergo moment weighing. Further, Alstom states that after moment weighing occurs, the new blades will be repackaged and shipped to Canada or Mexico for installation. As stated above, moment weighing constitutes testing. Testing is specifically enumerated as a type of operation that would not materially alter the characteristic of the good. Further, after undergoing the moment weighing, the blades are repackaged, which, as stated above, is also not a material alteration. Therefore, the characteristics of the new blades are unchanged after moment weighing and repackaging. As such, the new blades would be excepted from the lesser of duty rule because the blades are exported to Canada or Mexico in the same condition as when entering the United States. Consequently, a consumption entry would not have to be filed and duties would not be owed when the goods are exported to Canada or Mexico after having been imported into the United States under a TIB. HOLDING:

Subjecting the used blades to the described reconditioning qualifies them for duty-free treatment under a TIB under subheading 9813.00.05, HTSUS.

Subjecting the new blades to the described moment-weighing qualifies them for duty-free treatment under a TIB under subheading 9813.00.30, HTSUS. Please note that 19 CFR § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.”

Sincerely,

Carrie L. Owens, Chief Entry Process & Duty Refunds Branch