HQ 225552
DRA-4-CO:R:C:E 225552 CB
Mr. William J. LeClair
Trans-Border Customs Services Inc.
P. O. Box 800
Champlain, NY 12919
RE: Unused Merchandise Drawback; 19 U.S.C. 1313(j)(1);
NAFTA Implementation Act
Dear Mr. LeClair:
This is in response to your letter dated July 1, 1994,
wherein you requested a ruling on behalf of your client, Werner
Lueck, Inc. ("Werner"), regarding the availability of unused
merchandise drawback for certain machinery.
FACTS:
You state Werner imported several machines from Germany in
1993 for the purpose of making furniture. These machines were
set up and tested to assure that they functioned, however, no
production ever resulted through use of the machines. Due to
lack of orders and interest in the U.S. for the end product,
Werner will be disassembling the machines for return to Germany.
In response to our inquiry, your client states that the
machinery was installed by engineers from Luck Gmbh, a company
owned by two of the shareholders of Werner. the machinery was
designed for production of cushions in high volume. Afterwards,
Werner realized that the machinery had been installed in the
wrong location to service the North Carolina market which is
where all of the company's potential customers were situated.
Accordingly, no sales resulted and the equipment remained idle
from the time of installation. The installation was performed
between August 10, 1993, and August 25, 1993. According to
Werner, limited trial runs were performed during September and
October 1993. Samples were produced by hand using one sewing
machine and no use was ever made of the primary equipment since
there were no orders or sales. It is estimated that the
equipment was run for 10 hours or less only to test its
functionality.
ISSUE:
Whether the subject machinery is eligible for unused
merchandise drawback.
LAW AND ANALYSIS:
The applicable law is found in section 632, title VI -
Customs Modernization, Public Law 103-182, the North American
Free Trade Implementation Act (107 Stat. 2057), enacted December
8, 1993. Title VI of that Act amended 19 U.S.C. 1313(j).
Section 692 of the Act provides that Title Vi provisions take
effect on the date of enactment.
Section 632 of the new act changes same condition direct
identification drawback by providing that imported merchandise
for which duty was paid and is, before the close of the 3-year
period beginning on the date of importation, exported or
destroyed under custom supervision and is not used within the
United States before such exportation or destruction is eligible
for "unused merchandise drawback." The law no longer requires
that the merchandise be in the same condition as when imported.
A definition of the term "unused merchandise" was not
provided in the language of the new act. However, in Customs
Service Decision ("C.S.D.") 81-222 and C.S.D. 82-135 it was found
that an article is used when it is employed for the purpose for
which it was manufactured or intended. An article is also "used"
when it is used in the manufacture or production of another
article. See C.S.D. 81-179. The performance of certain
operations or combination of operations (such as testing,
cleaning, and inspecting) on the imported item, not amounting to
a manufacture or production, is not treated as a use of the
merchandise.
Rather, the law now provides that "[t]he performing of any
operation or combination of operations (including, but not
limited to, testing, cleaning, repacking, inspecting, sorting,
refurbishing, freezing, blending, repairing, reworking, cutting,
slitting, adjusting, replacing components, relabeling,
disassembling, and unpacking), not amounting to manufacture or
production for drawback purposes. . . shall not be treated as a
use of that merchandise for purposes of . . ." applying unused
merchandise drawback. See 19 U.S.C. 1313(j).
In the instant case, your client asserts that the machinery
was only subjected to limited trial runs which lasted 10 hours or
less. This would be considered an operation or combination of
operations not amounting to a manufacture or production which is
permissible under the statute. Therefore, the machinery would be
eligible for drawback under 19 U.S.C. 1313(j)(1).
HOLDING:
The machinery, which was merely tested, is eligible for
drawback under 19 U.S.C.
1313(j)(1) as amended by section 632, title VI - Customs
Modernization, of the North American Free Trade Implementation
Act, P. L. 103-182.
Sincerely,
John Durant, Director
Commercial Rulings Division