CLA-2 CO:R:C:V 555409 GRV
TARIFF NOS.: 9801.00.25, 9802.00.50, 9802.00.80
District Director of Customs
Laredo, Texas 78044-3130
RE: Internal Advice Request No. 30/89; Tariff Status of
Capacitors Previously Entered under HTSUS subheading
9802.00.80 when Reimported
Dear Sir:
This is in response to your memorandum of May 30, 1989,
forwarding a request for internal advice dated May 18, 1989,
from counsel for Kemet Electronics Corp. (importer), regarding
the dutiability of certain tantalum and ceramic capacitors
imported from Mexico between April 1, 1986, and March 31, 1989.
The issues presented concern whether capacitors which previously
had been assembled in Mexico of U.S. components and properly
entered under item 807.00, Tariff Schedules of the United States
(TSUS), or its successor provision, subheading 9802.00.80,
Harmonized Tariff Schedule of the United States (HTSUS)), are
entitled to a partial or complete duty exemption upon a
subsequent importation. Counsel forwarded an additional
submission dated December 11, 1989, directly to this office.
By memorandum dated September 29, 1989, the Regional
Director, Regulatory Audit Division, Southwest Region, also
requested our opinion on these issues. We understand that these
transactions are the subject of an ongoing audit by that office.
FACTS:
For the past 20 years, the importer has been engaged in the
production of tantalum and ceramic capacitors at its assembly
facility in Matamoros, Mexico. U.S. components, consisting of
metal can materials, i.e., sheathing, epoxy, lead wire, solder
and packaging materials (tape and cartons), were exported by the
importer to its Mexican facility and assembled, by soldering
(welding) and gluing operations, into a variety of capacitors.
Once assembled, the capacitors were individually packaged and
returned to the U.S. and entered under the provisions of TSUS
item 807.00 or HTSUS subheading 9802.00.80.
Once in the U.S., the capacitors were shipped by the
importer to various U.S. (and a few foreign) customers. If a
customer determined that certain capacitors either failed to
meet its specifications or were defective, they were shipped to
the importer's warehouse in Brownsville, Texas, from which they
were then exported back to the Mexican assembly facility. In
Mexico, the non-defective capacitors (comprising the bulk of the
returned articles) were placed in finished goods inventory along
with capacitors assembled from current production, while the
defective capacitors were either scrapped or subjected to a
"reworking" process. The "reworked" capacitors were also placed
in inventory. Once they were in inventory, the importer had no
means of identifying which capacitors had been reworked, merely
returned for inventory, or assembled from current production.
To fill outstanding sales orders, the importer withdrew the
required quantity of capacitors from its finished goods inventory
and shipped them to the U.S. where all were entered under TSUS
item 807.00 or HTSUS subheading 9802.00.80, including those that
had been reworked or merely returned to Mexico for inventory.
Counsel for the importer advises that, of the total number of
capacitors shipped to the U.S. between April of 1987 and June of
1988, 1.6% represented capacitors that had been returned to
Mexico.
On January 24, 1989, your office advised the importer
of its position that TSUS item 807.00 "may only be claimed once
on an imported item and that it is dutiable at its full value if
exported and reimported to the U.S."
Counsel asserts that there is nothing in the language of
TSUS item 807.00 to indicate that an item cannot be subject to
this duty treatment more than once. Citing the statutory
requirements for treatment under this tariff provision, it is
claimed that the articles exported met these requirements "both
the first and second time that they were exported to Mexico."
Counsel states that the only restrictive conditions for applica-
tion of TSUS item 807.00 are found in Headnotes 1 and 4, subpart
B, part 1, Schedule 8, TSUS (U.S. Notes 1 and 5, subchapter II,
Chapter 98, HTSUS), and that neither note prohibits successive
importations of a product under TSUS item 807.00. Regarding
Headnote 1, part 1, Schedule 8, TSUS (U.S. Note 1, Chapter 98,
HTSUS), which was cited in your January 24, 1989, letter to the
importer as authority for denying TSUS item 807.00 treatment for
the second importation, counsel asserts that Customs is incor-
rectly interpreting the plain meaning of this note. According to
counsel, the note ("...the tariff status of an article is not
affected by the fact that it was previously imported..."), means
that each importation is looked at as a new event to be judged on
its face, regardless of whether the article was previously
accorded a duty exemption.
Accordingly, counsel maintains that the fact that TSUS item
807.00 was previously claimed in no way affects the tariff status
of the item upon a second importation in terms of making it
eligible for this tariff treatment again, so long as the article
meets the literal requirements of the statute. Counsel further
asserts that when the articles were returned to Mexico, it was
not necessary for the importer either to intend to have the
capacitors assembled abroad the second time or, in fact, to have
actually had them assembled abroad to satisfy the statutory
requirements.
In the alternative, counsel argues that if the reimported
capacitors are ineligible for TSUS item 807.00 treatment, then
they should be eligible for partial or complete duty-free
treatment under TSUS item 801.10 or 806.20 (HTSUS subheading
9801.00.25 or 9802.00.50). Since the documentary requirements
for these tariff provisions have not been satisfied, counsel
requests that Customs waive production of the required forms.
In his December 11, 1989, letter, counsel briefly addresses
the effect that the commingling abroad of returned capacitors
and newly assembled capacitors may have on the dutiability of the
reimported capacitors. In counsel's opinion, the fact that the
capacitors may have been commingled in Mexico should not be a
bar to granting TSUS item 807.00 benefits to those articles that
were imported into the U.S. a second time. Our attention is
directed to ruling 067123 dated May 21, 1981, which involved the
commingling abroad of U.S. components with identical parts of
foreign origin prior to the assembly of semiconductors, which
were then entered into the U.S. under TSUS item 807.00. The
ruling concluded that:
...so long as the importer can determine and prove the total
quantity of foreign-made components purchased during a fixed
accounting period and pays the full duty on the semiconduc-
tors imported during that period, item 807.00, TSUS, need
not be denied to the remaining components of U.S. origin
contained in semiconductors imported during the same period
of time. Once the foreign parts are accounted for and
selected out and duty is paid on the imported semiconduc-
tors during the period, the remaining semiconductors are
presumed to contain domestic parts for which item 807.00,
TSUS, will obtain.
Counsel contends that the situation in 067123 "actually presented
a worse fact scenario than the one in our case, since there was
no commingling between U.S. components and foreign components in
our case." According to counsel, Customs can allow TSUS item
807.00 benefits on the second importation, even though there may
have been some commingling, by using a "first in first out
accounting method or some other procedure to determine the
percentage of exports that are entitled to" such treatment.
ISSUES:
1. Where an imported article has received a duty exemption
under HTSUS subheading 9802.00.80 for the cost or value
of the U.S. components assembled therein, are those
components entitled to the exemption again when the
article is subsequently reimported?
2. Where an article which had been entered under HTSUS
subheading 9802.00.80 is exported and merely placed in
inventory, is it entitled to duty-free treatment under
HTSUS subheading 9801.00.25 when reimported?
3. Where an article which had been entered under HTSUS
subheading 9802.00.80 is exported for reworking, is it
entitled to the partial duty exemption under HTSUS
subheading 9802.00.50 when reimported?
4. Where articles which otherwise satisfy the requirements
of HTSUS subheading 9802.00.80 are imported together
with identical articles which fail to meet those
requirements, are any of the articles entitled to entry
under this tariff provision?
LAW AND ANALYSIS:
Shipments of the subject capacitors were entered both before
and after the effective date of the HTSUS (January 1, 1989).
Although the following analysis addresses the HTSUS only, the
conclusions reached are considered equally applicable to the TSUS
since the TSUS provisions pertinent to this discussion were
carried over into the HTSUS virtually without change.
Applicability of HTSUS subheading 9802.00.80 to the Reimported
Capacitors
HTSUS subheading 9802.00.80 provides a partial duty exemp-
tion for:
[a]rticles assembled abroad in whole or in part of fab-
ricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form,
shape, or otherwise, and (c) have not been advanced in
value or improved in condition abroad except by being
assembled and except by operations incidental to the
assembly process such as cleaning, lubricating and
painting.
All three requirements of HTSUS subheading 9802.00.80 must be
satisfied before a component may receive a duty allowance. An
article entered under HTSUS subheading 9802.00.80 is subject to a
duty upon the full value of the imported article, less the cost
or value of the U.S. components assembled therein, provided there
has been compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).
General Rule of Interpretation (GRI) 1, HTSUS, provides, in
part, that:
...for legal purposes, classification shall be deter-
mined according to the terms of the headings and any
relative section or chapter notes....
Of the Chapter 98 Notes bearing on the applicability of
HTSUS subheading 9802.00.80, we believe that U.S. Note 2,
subchapter II, Chapter 98, HTSUS, is the most instructive
regarding the issues under consideration here. This Note
provides, in relevant part, that:
...any imported article which has been assembled
abroad in whole or in part of products of the United
States, shall be treated for the purposes of this Act
as a foreign article, and, if subject to a duty which
is wholly or partly ad valorem, shall be dutiable,
except as otherwise prescribed in this part, on its
full value determined in accordance with section 402 of
the Tariff Act of 1930, as amended. (Emphasis
supplied).
It is clear from a reading of this U.S. Note that when an
article assembled abroad in whole or in part of U.S. fabricated
components is entered under HTSUS subheading 9802.00.80, it is
considered a "foreign article" for tariff purposes. Thus, unless
the article is subjected to processing in the U.S. which trans-
forms it into a product of the U.S. before it is subsequently
exported, it is not considered a "product of the U.S.," as
required by HTSUS subheading 9802.00.80. Where an article
originally entered under HTSUS subheading 9802.00.80 is exported
for further assembly operations abroad with U.S. components, then
those components exported for further assembly are entitled to
allowances in duty under this tariff provision upon return of the
article. However, those components that were afforded duty
allowances when the article was initially imported are not
entitled to the duty exemption a second time since, in their
condition as exported for further assembly, they are not U.S.
fabricated components "ready for assembly", but an already-
assembled foreign article.
In the instant case, the capacitors were granted the duty
benefit under HTSUS subheading 9802.00.80 on the value of the
U.S. components assembled therein when initially imported after
foreign assembly. At that point, the capacitors were considered
as foreign articles pursuant to the above-quoted U.S. Note.
Therefore, as the capacitors were not transformed into products
of the U.S. while in the U.S., and were not then further assem-
bled abroad, the plain meaning of HTSUS subheading 9802.00.80 and
the U.S. Note compels the conclusion that the capacitors were not
again entitled to the duty exemption when reimported. In our
opinion, the adoption of counsel's argument that "[o]nce an
article has met the Item 807 eligibility requirements..., it is
then and always remains an Item 807 article" would essentially
render meaningless the previously-quoted portion of U.S. Note 2,
subchapter II, HTSUS.
This conclusion, and the rationale supporting it, are
consistent with previous Customs rulings concerning the multiple
applicability of HTSUS subheading 9802.00.80. In C.S.D. 79-438,
13 Cust.Bull. 1667 (December 18, 1978 (058598)), we stated that
the "components in question must be assembled on the particular
exportation which is to be considered, and not on a previous
exportation and subsequent importation." We further stated that:
...an article of merchandise must be assembled abroad before
an importation upon which the provisions of item 807.00,
TSUS, is claimed, and a similar claim upon a second
importation of an already assembled article is not
allowable.
See also, Headquarters Ruling Letter 063183 dated September 10,
1979.
Consistent with the foregoing, we find that the reimported
capacitors are ineligible for the partial duty exemption avail-
able under HTSUS subheading 9802.00.80.
Applicability of HTSUS subheading 9801.00.25 to capacitors
returned to Mexico for restocking and then reimported
HTSUS subheading 9801.00.25 (formerly TSUS item 801.10)
provides for the duty-free entry of:
[a]rticles, previously imported, with respect to which
the duty was paid upon such previous importation if (1)
exported within three years after the date of such
previous importation, (2) reimported without having
been advanced in value or improved in condition by any
process of manufacture or other means while abroad, (3)
reimported for the reason that such articles do not
conform to sample or specifications, and (4) reimported
by or for the account of the person who imported them
into, and exported them from, the United States.
Articles satisfying each of the above requirements are entitled
to duty-free treatment, assuming compliance with the documentary
requirements of section 10.8a, Customs Regulations (19 CFR
10.8a).
Although the information available to us indicates that
certain of the previously imported capacitors may have been
returned to Mexico for the reason that they did not conform to
U.S. customer specifications, no evidence has been presented to
indicate that they were subsequently reimported because they
failed to conform to sample or specifications abroad, as required
by clause (3) of this tariff provision. Consequently, we find
that the capacitors which were returned to Mexico for restocking
and then reimported are ineligible for duty-free entry under
HTSUS 9801.00.25. Therefore, these articles are dutiable on
their full value.
Applicability of HTSUS subheading 9802.00.50 to capacitors
returned to Mexico for reworking and then reimported
HTSUS subheading 9802.00.50 provides a partial duty exemp-
tion for articles returned to the U.S. after having been exported
to be advanced in value or improved in condition by means of
repairs or alterations. Articles entitled to classification
under this tariff provision are subject to duty only upon the
value of the foreign repairs or alterations, provided the
documentary requirements of section 10.8, Customs Regulations (19
CFR 10.8), are met.
Repairs are operations aimed at restoring articles to their
original condition, but cannot be so extensive as to destroy the
identity of the exported article or create a new and different
article. Press Wireless, Inc. v. United States, C.D. 438, 6
Cust.Ct. 102 (1941).
Counsel states that the "reworking" process performed on
certain of the capacitors returned to Mexico involved, "in some
instances, ...the removal of the outside sleeve or jacket on the
capacitor, which is discarded, replacing it with a new sleeve,
and placing new calibration numbers on the capacitor. Without
more detailed information concerning the "reworking" process
performed abroad, we are unable to determine whether this process
constitutes a "repair" within the meaning of HTSUS subheading
9802.00.50.
However, counsel concedes that the importer failed to comply
with the documentation requirements of 19 CFR 10.8, which include
the requirement that the exporter file a certificate of registra-
tion (top portion of CF 4455) with Customs prior to the exporta-
tion of the goods "to permit the district director to examine the
articles before they are exported." In this regard, counsel
notes that 19 CFR 10.8(k) permits the district director to waive
production of the CF 4455 if he is satisfied that the returned
article is entitled to HTSUS subheading 9802.00.50 treatment.
With respect to counsel's request for a waiver of the
certificate of registration, we should point out that this tariff
provision is applicable only to imported goods which can be
readily identified as being the same goods, though repaired or
altered, as were exported. See, 19 CFR 10.8(f) and HQ 055844,
dated December 29, 1980. The information available to us in this
case indicates that the importer is unable to specifically
identify, on an entry-by-entry basis, which of the imported
capacitors were "reworked" in Mexico. We also understand that
your office has not waived production of the CF 4455 for the
"reworked" articles. Under these circumstances, and in the
absence of such a waiver, it is our opinion that the reimported
capacitors which were "reworked" abroad are not entitled to the
partial duty exemption under HTSUS subheading 9802.00.50, but are
dutiable on their full value.
The commingling abroad of articles otherwise eligible for HTSUS
subheading 9802.00.80 treatment with identical articles
ineligible for such treatment
We have determined, as a result of our analysis of the first
three issues in this case, that those imported capacitors which
were returned to Mexico for restocking or "reworking" are duti-
able on their full value as foreign articles when they are subse-
quently reimported. The fact that these capacitors, estimated by
counsel to represent between less than 1% and 1.6%, of the total
number of capacitors imported (for 1987 and 1988), were comming-
led abroad with newly-assembled, identical capacitors raises the
issue of whether the commingling precludes HTSUS subheading
9802.00.80 treatment for the newly-assembled capacitors imported
for the first time.
Counsel indicates that, based on the rationale of HQ 067123
dated May 21, 1981, those capacitors which were reimported can be
distinguished from the identical capacitors imported for the
first time by using a "first-in/first-out accounting method" or
some other similar procedure. Regarding HQ 067123, to the extent
that it authorizes the use of an accounting procedure, such as
the aggregate-quantity method or the cost-ratio method, to
support a claim for HTSUS subheading treatment, the ruling is
inconsistent with this agency's current position on this issue.
In C.S.D 82-43, 16 Cust.Bull. 748 (October 23, 1981 (067525)), we
reconsidered a previous decision (HQ 068013, dated April 6, 1981)
which allowed the application of TSUS item 807.00 on an aggre-
gated basis, and determined that that decision was contrary to
the applicable regulations and, therefore, void.
Since the issuance of C.S.D. 82-43, this office has consis-
tently taken the position that under 19 CFR 10.24, an allowance
under TSUS item 807.00 or HTSUS subheading 9802.00.80 may be
granted only if the importer can demonstrate, on an entry-by-
entry basis, that those components claimed to be products of the
U.S. are, in fact, products of the U.S. 19 CFR 10.24 requires
that the importer and assembler establish reliable controls,
including the strict physical segregation of U.S. and foreign
components and the maintenance of any other records pertaining to
the U.S. components, so that the district director can identify,
by audit if necessary, the specific components of U.S. origin in
particular shipments which are entitled to the duty allowance.
Thus, we have taken the position that various accounting proce-
dures, such as the aggregate-quantity method or the cost-ratio
method, could not be used to support a claim under this tariff
provision under circumstances in which U.S. and foreign compo-
nents had been commingled in the foreign assembly operation in
such a way that the precise quantity and value of the U.S. compo-
nents in a given shipment could not be substantiated. See, for
example, Headquarters Ruling Letter 071136 (December 27, 1983).
We believe that the position expressed above regarding the
commingling of U.S. and foreign components abroad is equally
applicable to a situation, such as exists in this case, where
articles which would otherwise qualify for HTSUS subheading
9802.00.80 treatment are commingled with articles which are not
entitled to such treatment. In both situations, the importer
presumably is unable to substantiate for each and every entry
the precise quantity and identity of the U.S. components entitled
to the HTSUS subheading 9802.00.80 duty exemption.
However, with respect to the facts in this case, we also
recognize that the number of reimported capacitors apparently is
very small in comparison to the total number of capacitors
imported during the period in question. 19 CFR 10.24(e) provides
that:
[w]hen the district director is satisfied that unusual
circumstances make the production of either or both of the
documents specified in paragraph (a) of this section, or of
any of the information set forth therein [e.g., the specific
identification of U.S. components], impractical and is
further satisfied that the requirements of subheading
9802.00.80, HTSUS, and related legal notes have been met, he
may waive the production of such document(s) or information.
It is clear that the decision to grant such a waiver rests solely
with the district director. Therefore, as the audit of the
transactions in question is continuing, we defer to your
judgment regarding whether a waiver is warranted in this case.
HOLDING:
For the reasons stated above, we conclude that the
reimported capacitors are not entitled to a duty exemption under
either HTSUS subheading 9802.00.80 or 9801.00.25 (TSUS item
807.00 or 801.10). Moreover, if no waiver of the documentary
requirements of 19 CFR 10.8 is granted by your office, entry of
the "reworked" capacitors under 9802.00.50 (TSUS item 806.20)
also is precluded. Regarding the commingling of capacitors which
were returned to Mexico with capacitors assembled from current
production, the decision to waive production of certain of the
information required by 19 CFR 10.24, so as to permit HTSUS
subheading 9802.00.80 treatment for the newly-assembled
capacitors, is within your discretion.
Sincerely,
John Durant, Director
Commercial Rulings Division