DRA-4:RR:CR:DR
229486 RDJ
Mr. John Beck
Port of Los Angeles -Seaport
301 East Ocean Blvd.
Room 900
Long Beach, CA 90802
RE: Protest No. 2704-01-102391; Toyoda Machinery USA;
19 U.S.C. 1313(j)(1); NAFTA drawback claim;
19 CFR 181.44; 19 C.F.R. 181.45(b)(1).
Dear Mr. Beck:
This is in reference to Toyoda Machinery USA ("Toyoda"), Protest No. 2704-01-102391 dated August 20, 2001. Our decision follows.
FACTS:
This protest involves a denial of drawback entry # 846-0112005-2 dated April 23, 2001. The subject entry was liquidated by the Port of Los Angeles on June 29, 2001. It denied a drawback refund in the amount of $2X,XXX.XX The subject protest was submitted on August 20, 2001. On October 10, 2001, Toyoda submitted a letter with "additional information for block #15-Justification for Further Review.
The drawback entry pertained to a certain machine imported by Toyoda Machinery, USA ("Toyoda") from Toyoda Machine Works of Japan. According to Toyoda, the purpose of the importation was to display the unit at a show. The machine was described in the entry as a "Horizontal Spindle Machining Center model FA800-5AXIS with fanuc 16i control and standard and extra accessories Y-axis travel 1150 mm". The unit was classified under subheading 8457.10. HTSUS, at 4.2% ad valorem. The declared value was $5XX,XXX.XX. The machine was subsequently exported to Canada. Prior to exportation, the machine had to undergo certain repairs. Upon submission of the drawback entry on June 6, 2001, Toyoda requested a refund of duties in the amount of $2X,XXX.XX (99% of the duty paid) under 19 U.S.C. 1313(j)(1), direct identification drawback.
On June 7, 2001, Customs denied the refund request based on the NAFTA drawback limitation specified under 19 C.F.R. 181.44. Upon denial, Customs determined that, since the unit had undergone repairs while in the United States, its exportation to a NAFTA country was not in the same condition. According to Toyoda, the machine had presented an oil leak at a show and the unit had to be repairs prior to its exportation to Canada.
Toyoda submitted the subject protest on August 20, 2001 stating that the liquidation was incorrect because the repair did not constitute a "change in condition" of the merchandise. Toyoda stated that the provisions under 19 C.F.R. 181.44 did not apply and thus, it was entitled to 99% refund of total duties under 19 U.S.C. 1313(j)(1). In a letter dated March 13, 2001, Toyoda Machinery, USA certified that the machine was "not enhanced or modified in any way...the only repair that was performed was to fix the oil leak". A letter dated November 9, 2000 by Mr. Nick Nichols, NB Finishing, Inc. quotes the work requirements as specified by Mr. Bill Wright of Toyoda. An invoice for the costs made by NB Finishing was also submitted. The invoice stated that the machine was completed as per instructions made by Mr. Wright of Toyoda. The nature of the repairs was also described in a letter by Toyoda dated October 19, 2001 to the customsbroker handling the subject entry. It described the repair process done along with drawings, price quotation and invoices. It stated:
"...(T)he actions taken to repair this leak was to machine the
surface and replace parts accordingly to prevent the leaking.
Toyoda detached the wheel and had the wheel machined and grinded
to allow for a smooth finish surface...repair parts were then installed.
These parts included a seal ring, cap, gasket, o-ring's and v-ring..
..the original parts arts were disposed of...
The total cost of repair including Material and labor...costs for two
sets of materials and machining amounted to $6,520.00....Labor of two
people ...amounted to $5,040.00..
All materials were provided by Toyoda."1
On October 10, 2001, more than 90 days from the liquidation of the subject entry, Toyoda submitted a letter as "Additional Information for block #15 - Justification for Further Review". Toyoda presented new arguments to the protest, basically, that the oil leak resulted after a test was conducted on the machine. The letter stated: "Our importer tested the merchandise and when the product failed the test they restored the article to the condition as imported." When the machine developed an oil leak during testing, standard replacement seals were imported for replacement on the machine. There were not design or product enhancement completed in conjunction with this repair. In this submission, Toyoda added that CSD 82-7 and CSD 89-73 did not apply to the present case and concluded that the repair job was a result of a test conducted on the machine.
We proceed to review.
ISSUE: Whether a "repair" made in the United States on a certain imported machinery which is then exported to a NAFTA country such as Canada, remains in the "same condition" thus, not making it subject to the restrictions contained in 19 C.F.R. 181.44?
Law and Analysis:
We note initially that the refusal to pay a claim for drawback is a protestable issue under 19 U.S.C. 1514(a)(6). The drawback claim liquidated on June 29, 2001. Toyoda filed subject protest timely within 90 days of the liquidation date. The date of this protest is August 20, 2001.
It is the opinion of your office that the Protestant's Request for Further Review meets the requirements of 19 C.F.R. §174.24 and is therefore entitled to review by this office. However, the Protestant makes no argument to support its position that the protest is entitled to further review as required by Customs Regulations. The criteria for granting a request for further review are set forth in 19 C.F.R. §174.24 which states:
Further review of a protest which would otherwise be denied by the port director shall be accorded a party filing an application for further review which meets the requirements of §174.25 when the decision against which the protest was filed:
a) Is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise;
(b) Is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts;
(c) Involves matters previously ruled upon by the Commissioner of Customs or his designee or by the Customs courts but facts are alleged or legal arguments presented which were not considered
at the time of the original ruling; or
(d) Is alleged to involve questions which the Headquarters Office, United States Customs Service, refused to consider in the form of a request for internal advice pursuant to §177.11(b)(5) of this chapter.
Therefore, further review will be accorded to the party filing an application for further review that meets the requirements of §174.25 and at least one of the criterion in §174.24. In the subject protest, the Protestant alleges none of the conditions required in §174.24 of the decision protested. Consequently, we note at the outset that the criteria for further review as set out in 19 CFR §174.24 have not been met by the subject Application, and will treat this application as a request for internal advice per 19 C.F.R. §177.11.
Under 19 U.S.C. §1313(j)(1), if imported merchandise on which any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and it is not used in the United States before such exportation or destruction, then drawback may be claimed.
Toyoda filed the drawback claim pursuant to 19 U.S.C. 1313(j)(1). As the machine was exported to Canada, the transaction was subject to NAFTA. For purposes of drawback to NAFTA countries the regulations found in 19 CFR part 181, distinguish between same condition merchandise under 19 U.S.C. 1313(j)(1), and unused merchandise under 19 U.S.C. 1313(j)(1), which for all other countries of export has taken the place of same condition merchandise.
For exportations to Canada, section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public Law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. § 3333(a) (Section 203(a) of the NAFTA), such goods mean any good other than, among other things -
(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[.] . . .
Furthermore, this section provides that "[a] good exported to a NAFTA country in the same condition as when imported into the United States" is not a good subject to the NAFTA drawback limitation. This section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; 19 CFR § 181.41.
The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Under 19 CFR § 181.44(g), with regard to unused goods under 19 U.S.C. § 1313(j)(1) that have changed in condition,
An imported good that is unused in the United States under 19 U.S.C. § 1313(j)(1) and that is shipped to Canada or Mexico not in the same condition within the meaning of § 181.45(b)(1) may be eligible for drawback under this section, except when the shipment to Canada or Mexico does not constitute an exportation under 19 U.S.C. § 1313(j)(4).
Under 19 CFR § 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. § 1313(j)(1) without regard to the limitation on drawback provided for in 19 CFR § 181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 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.
After consideration of the applicable laws and regulations we make the following determinations. Toyoda Machinery, USA imported a certain machine from Japan. While in the United States, the machine underwent repairs as a consequence of an oil leak. The total cost for repairs amounted to approximately $11,XXX.XX. Once fixed, the machine was exported to Canada. On June 6, 2001, Toyoda filed a claim for drawback under 1313(j)(1). Since the exportation was to Canada, a NAFTA country, the provisions under 19 C.F.R. 181.44 applied. Being a NAFTA country, any claim for drawback under section 1313(j)(1) would be limited by 19 C.F.R. 181.44, unless excepted by section 181.45(b)(1).
Section 181.44(a) provides that, except in the case of goods specified in section 181.45, drawback of the duties previously paid on importation to the United States may only be granted upon presentation of a NAFTA drawback claim on the lesser amount the total duties paid or owed on the goods in the United States or the total amount of duties paid on the exported good upon subsequent importation into Canada (or Mexico). Section 181.44 (g) states that, an imported good that is unused in the United States under 19 U.S.C. 1313(j)(1) that is subsequently shipped to Canada (or Mexico), not in the same condition within the meaning of section 181.45(b)(1), may be eligible for drawback under section 181.44. Therefore, regulations are clear in that if, the merchandise does not fall within the exceptions provided under section 181.45, then the merchandise would be entitled to drawback only under the provisions established by section 181.44. Because the term "repaired" is not listed within the exceptions provided under section 181.45(b)(1), Toyoda's claim for drawback under 19 U.S.C. section 1313(j)(1), unused merchandise results in it being necessarily limited by section 181.44 of the NAFTA regulations.
We cannot consider the exported machine to be in the same condition as imported since the list of exceptions do not provide for "repairs". Toyoda has not provided any evidence of the condition of the unit at the time of importation. As such, we conclude that the machine does fall into the purview of section 181.44 (a) and (g) because it is a non-originating good that has changed in condition.
Other evidence that the machine was not exported in the same condition is the information in the file indicating that it may have been, not only repaired, but may have been also adjusted to "new specifications". The "price quotation" made by Mr. Nick Nichols of NB Finishing, Inc., dated November 9, 2000, and addressed to Mr. Bill Wright of Toyoda, states the following:
"We are pleased to have the opportunity to quote on your
requirements to machine the two cast iron parts ...
...Also to remachine the o-ring groove to the new spec as per
revised drawings."
The underlined words indicate that the condition of the machine upon exportation was not in the "same condition" as required by the regulations.
Finally, we discus the allegations submitted by Toyoda on October 10, 2001. This submission was presented more than 90 days from the liquidation of the subject entry. This letter was presented as "additional information for block #15 - Justification for Further Review. The focus of the letter is to inform Customs that "our importer tested the merchandise and when the product failed the test they restored the article to the condition as imported".
The regulations allow for the submission of additional grounds or arguments to the protest. There is no evidence of the condition of the machine at the time it was imported. Second, there is no explanation or description as to the type or purpose of the alleged "test" conducted. Third, the October 19, 2001 letter gives a detailed description of the repairs addressed to Mr. Robert Snyder, CHB. It does not indicate the existence of a "test" or how the alleged an "test" damaged the unit. The letter simply states that a process of repair was conducted on the machine as a result of a leaking oil. The word "test" is not found among any of the documents submitted prior to October 19, 2001, except for the following statement made on "Detail of block #7 of CF19". It reads: " (D)uring testing prior to export an oil leak was noticed and appropriate repairs were made". However, this sentence contradicts a statement made on an earlier letter dated March 13, 2001, which states that "(W)hile the machine was at the show, we noticed that oil was leaking". We find that this statement tends to be more veracious because it goes on to describe the result of the damage and subsequent repair ( "The table was binding up and losing its location (getting stuck)... Toyoda brought the unit....to repair this leak...the unit was not enhanced...(T)he only repair that was performed was to fix the oil leak.." As such, Customs finds that Toyoda has failed to provide sufficient evidence to support its allegation that while the machine was being tested it presented an oil leak.
Not only was the machine repaired, it may have been altered to additional standards. The price quotation statement made by Mr. Nick Nichols from NB Finishing to Mr. Bill Wright of Toyoda is indicative of the fact that the condition of the machine upon importation and exportation was "not in the same condition" as required by the regulations. It stated:
"We are pleased to have the opportunity to quote on your
requirements to machine the two cast iron parts ...
...Also to remachine the o-ring groove to the new spec as per
revised drawings."
The statement appears to indicate that the machine would be altered or adjusted to the new specifications as per revised drawing submitted by Toyoda. . If the machine was only going to be repaired, why is there a reference to the "new specifications as per revised drawings"? In C.S.D. 89-73, it involved the replacement of labels, cables, footswitches and fuses to render ultrasound units fit for use for European market. In C.S.D. 82-7, it was held that the adjustment of TV sets for use in Europe was more than an incidental operation. Involving "same condition", C.S.D. 89-73 cites C.S.D. 82-7 in that "The law specifically allows testing and inspecting. However, if such testing indicates the article as tested***is not capable of performing its intended function, there is nothing in the law to allow repair or adjustment in addition to testing to render the article functional " (see C.S.D. 89-73, dated February 23, 1989). According to the October 10, 2001, submission, Toyoda states that, unlike CSD 82-7 and CSD 98-73, the machine was "not worked or altered to another standard or for the requirements of another market". This statement contradicts Mr. Nichols's statement since it appears that the article was "remachined" to the "new specifications as per the revised drawings" submitted by Toyoda.
Toyoda alleged that the repairs were done as a result of "testing" conducted in the machine. This submission was unsupported by the documents in the file, including the contradictory statements noted above. It appears that the machine may have been altered in accordance to "new specifications as per revised drawings" set by Toyoda. As such, Toyoda has not provided sufficient evidence for Customs to conclude that the unit was exported to a NAFTA country in the "same condition" and entitled to the exemption set by 19 U.S.C. 333(a)(2).
HOLDING:
Protest is hereby DENIED. Upon exportation to Canada, a NAFTA country, the Toyoda machine was not exported in the same condition as imported. The claim to drawback under 1313(j)(1) is limited by section 181.44 because the exceptions under 181.45 do not apply to a "repairs".
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 3, 1993, Subject Revised Protest Directive, this decision should be mailed by your office with Customs Form#19, to the protestant no later than 60 days from the date of this letter.
If applicable, any reliquidation must be made prior to mailing this decision. Sixty days
From the date of the decision, the Office of Rulings and Regulations will take steps to make the decision available to Customs personnel via the Customs Ruling Module in ACS and the public via Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.
Sincerely,
Myles Harmon, Acting Director
Commercial Rulings Division
1 Tools for repairs were imported from Toyoda Machine Work, Ltd. Japan under TIB Entry
number 040-0068762-5.
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