CLA-2 CO:R:C:V 555634 KCC
District Director of Customs
Laredo, Texas 78044-3130
RE: Application for Further Review of Protest No. 2302-83-
000013, concerning denial of TSUS item 806.20 treatment to
electric switches cleaned, tested, and packaged in
Mexico.Repair; 071055; 071296; 071390; Hallauer; T.D.
56516(1); 067432; 555318; 055153; 058662; 063112
Dear Sir:
The above-referenced protest contests your denial of the
partial duty exemption under item 806.20, Tariff Schedules of the
United States (TSUS) (the precursor to subheading 9802.00.50,
Tariff Schedule of the United States (HTSUS)), to electric
switches imported from Mexico following cleaning, repair and
packaging operations.
FACTS:
The record reflects that General Electric (GE) contacted an
Import Specialist at the San Antonio Port of Entry, in June of
1981, regarding the entry of electrical switches after a proposed
repackaging operation in Mexico. After ascertaining the
operations to be performed, and the applicable rulings and
decisions in existence, the Import Specialist concluded that only
the switches actually repaired by replacing defective components
(GE estimated that approximately 20 percent of the switches would
need repair) would qualify for item 806.20, TSUS, consideration.
GE then proceeded with their Mexican operation and, upon
importing the switches into the U.S., claimed item 806.20, TSUS,
tariff treatment for the entire shipment. The Import Specialist
qualified 15-20 percent of the shipment for item 806.20, TSUS,
treatment.
Thereafter, on September 24, 1982, GE submitted a request
for a binding ruling to the Regional Commissioner, New York
Region, on a "proposed" repackaging operation to be performed in
Mexico. The operation entailed accumulating in the U.S.
electrical switches from U.S. and Mexican production facilities
(however, as of the filing of this Protest, only foreign articles
had been reentered into the U.S.) which required repackaging, and
exporting them to Mexico for the following operations:
(1) unpacking switches from display cards;
(2) visual inspection for physical defects;
(3) cleaning/wiping off dust and dirt;
(4) testing;
(5) replacing defective components detected during
testing (approximately 20 percent of the switches);
(6) retesting switches; and
(7) repackaging switches for sale.
GE sought to have the switches returned under item 806.20, TSUS,
which would result in the assessment of duty only on the cost or
value of the repairs performed in Mexico.
In response to GE's September 24, 1982, ruling request,
Headquarters Ruling Letter (HRL) 071055 dated December 7, 1982,
was issued which held that exporting the carded wiring devices
for inspecting, testing, replacing defective parts and
repackaging were operations that constituted genuine repairs or
alterations within the meaning of item 806.20, TSUS.
The Import Specialist requested reconsideration of HRL
071055 on December 27, 1982. He explained that GE did not inform
Headquarters that their operation had already begun, despite his
prior opinion that only switches which were actually repaired
would qualify for item 806.20, TSUS, treatment. The Import
Specialist stated that he did not believe that the "cleaning"
operation should qualify the switches for the duty exemption
under this tariff provision, because of the simplicity of the
operation (merely wiping off dust). The Import Specialist also
contended that repackaging, testing, and/or sorting would not
qualify the switches for tariff treatment under this provision,
citing HRL 055153 dated August 17, 1978 (components which are
inspected for defects and then returned to the U.S. are not
eligible for item 800.00 or item 806.20, TSUS, treatment) and
other ruling letters.
On February 23, 1983, GE responded to a request for further
information regarding the cleaning operation performed in
Mexico. GE stated that the switches entered into Mexico were
either mounted on a card, and in some cases blister sealed, or
bulk packaged. All the switches which were bulk packaged and
those switches mounted on a torn or punctured card were subjected
to the cleaning operation. The cleaning process was a manual
operation accomplished by wiping the switches with a cloth to
remove dust and dirt. The estimated time required to clean the
switches was 5-10 percent of the time required to complete the
entire foreign operation. GE estimated that 25-35 percent of the
switches would require cleaning. GE further stated that after
the cleaning and testing operations were completed, 5-8 percent
of the bulk packaged switches would be repackaged by mounting
them onto cards.
HRL 071296 dated April 27, 1983, affirmed HRL 071055. The
ruling stated that mere testing and separation of articles is not
sufficient to qualify them for treatment under item 806.20, TSUS.
However, the switches were additionally sorted, cleaned and
repackaged which are sufficient to qualify them for the duty
exemption available under this tariff provision, and cited to
Wilbur G. Hallauer v. United States, 40 CCPA 197, C.A.D. 518
(1953). The reconsideration decision stated that there is no
requirement that the intended processing be substantial so long
as it is not merely superficial and serves a real purpose.
Additionally, HRL 071296 stated that recent judicial decisions
which enlarged the scope of item 800.00, TSUS, to include certain
operations, such as aggregation and sorting of American goods,
does not necessarily deprive such operations from being
considered as alterations under item 806.20, TSUS.
On May 5, 1983, the Import Specialist once again requested
reconsideration of HRL's 071055 and 071296, stating that these
holdings would overrule prior court decisions and administrative
rulings. In this second request for reconsideration, the Import
Specialist summarized the decisions and rulings which he stated
supported his opinion that those articles not repaired (by
replacing defective components) would fail to qualify for
treatment under item 806.20, TSUS. The Import Specialist also
stated that he could find no legal precedent for the theory that
it is the intent at the time of export which governs whether an
article qualifies for the duty exemption available under item
806.20, TSUS.
HRL 071390 dated June 28, 1983, responded to the second
request for reconsideration, and stated that the initial
prospective ruling written to GE, looking toward GE's future
action, was correct in holding that unpacking, wiping, and
repackaging of electrical articles would advance in value or
improve in condition the switches in support of the claim for
entry under the repair or alteration provision of item 806.20,
TSUS. Further, HRL 071390 stated that noncompliance with the
factual situation found in the request for a binding ruling can
be detrimental to the importer, and that, ultimately, it is up to
the district or area director to determine whether the claim for
item 806.20, TSUS, relief is justified. HRL 071390 concluded
that the only exception to compliance in this regard occurs
whenever there exists a bona fide intent on the part of the
exporter to have an article repaired or altered abroad, but due
to some intervening circumstance which interrupts compliance with
the tariff provision, the article is not repaired or altered.
See, CIE 268/55 dated March 11, 1955. However, HRL 071390 stated
that this exception does not apply to the circumstances of this
case.
On September 2, 1983, the entries were liquidated, and 20
percent of the returned articles were classified under item
806.20, TSUS, while the remainder were classified under item
685.90, TSUS, dutiable at 7.3 percent ad valorem.
GE contends that those electric switches which are cleaned
abroad (but not repaired by replacing defective components)
should receive item 806.20, TSUS, treatment, citing Wilbur G.
Hallauer v. United States, 40 CCPA 197. GE further contends that
those switches which are merely tested and repackaged (but not
cleaned) should also be classified under item 806.20, TSUS,
because there was a bona fide intent to have them repaired,
citing CIE 268/55.
ISSUE:
Whether the returned electric switches are entitled to the
partial duty exemption available under item 806.20, TSUS.
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to
be advanced in value or improved in condition by repairs or
alterations may qualify for the partial duty exemption under item
806.20, TSUS, provided the operations do not destroy the identity
of the exported articles or create new or different articles.
Articles entitled to this partial duty exemption are dutiable
only on the cost or value of the foreign repairs or alterations,
provided the documentary requirements of section 10.8, Customs
Regulations (19 CFR 10.8), are satisfied.
Cleaning operations which restore exported articles to
their original efficiency in order to prolong their usefulness
have long been considered "repairs" for purposes of item 806.20,
TSUS, and its subsequent provision, HTSUS subheading 9802.00.50,
so long as the identity of the articles exported was not
destroyed, nor a new or different article created. See, Wilbur
G. Hallauer v. United States, 40 CCPA 197, (wiping, polishing,
grading, wrapping and packaging of American-grown apples in boxes
of Canadian origin entitled the apples to the duty exemption
available under Paragraph 1615(g)(1), Customs Administrative Act
of 1938 (the precursor to TSUS item 806.20)); T.D. 56516(1), 100
Treas.Dec. 693 (1965) (cloth "scoured" in England by passing it
through a solvent of boiling trichloroethylene to remove waxes
and fatty material, and further processed to remove remaining
trichloroethylene and any water-soluble materials, was entitled
to partial exemption from duty under TSUS item 806.20, as the
processing abroad was considered a repair or alteration); HRL
067432 (October 6, 1981) (industrial work gloves exported to
Canada for cleaning were entitled to TSUS item 806.20 tariff
treatment); and HRL 555318 (September 20, 1989) (textile articles
soiled in the U.S. and sent to Mexico for laundering, which
included washing, drying and pressing, were eligible for HTSUS
subheading 9802.00.50 treatment).
Mere testing abroad will not qualify articles for item
806.20, TSUS, treatment. See, HRL 055153 dated August 17, 1978,
(electronic components which are visually inspected for defects
and then returned to the U.S. are not eligible for item 800.00 or
806.20, TSUS, consideration.) However, when testing is
performed in connection with a cleaning or other repair
operation, the articles returned to the U.S. will be eligible for
the duty exemption available under item 806.20, TSUS. See, HRL
055153 (cleaning and testing of electronic components is
permissible under item 806.20, TSUS); HRL 058662 dated December
29, 1978, (testing and replacement of parts qualifies the parts
for item 806.20, TSUS, treatment); and HRL 063112 dated July 31,
1979, (visual and electronic testing and repair of defective
parts renders the parts eligible for the partial duty exemption
available under item 806.20, TSUS).
It is our final opinion that the electrical switches of
foreign origin exported to Mexico for cleaning, testing, and
repacking operations are eligible for the duty exemption
available under item 806.20, TSUS. The electrical switches are
cleaned to remove dust and dirt, which restores each switch to
its original condition, thereby advancing it in value and
improving it in condition. This cleaning process does not
destroy the identity of the switch, nor does it create a new or
different article of commerce. Each switch is then electrically
tested to ensure it is in working order. If the switch does not
pass the test, it is repaired and then tested once more. The
above described operations performed in Mexico will not preclude
the electrical switches from receiving item 806.20, TSUS,
treatment upon their importation into the U.S.
However, the electrical switches which are merely tested
and repackaged have not been advanced in value or improved in
condition by a repair or alteration. In our opinion, the holding
in CIE 268/55 is inapplicable to these switches since GE was
aware at the time of the articles' exportation that not all of
the switches would be repaired abroad. Therefore, these
electrical switches are not entitled to the partial duty
exemption available under item 806.20, TSUS, but are fully
dutiable.
CONCLUSION:
On the basis of the record presented, it is our opinion that
the foreign operations of cleaning, testing, and repackaging
restored the exported electric switches to their original
condition, and therefore, constituted repairs within the meaning
of item 806.20, TSUS. Moreover, as your office recognizes, those
switches which were repaired abroad by replacing defective
components also are entitled to item 806.20, TSUS, treatment.
However, those switches which are merely tested and repackaged
are not entitled to the partial duty exemption. Our holding in
regard to those articles determined to be entitled to item
806.20, TSUS, treatment presumes compliance with the documentary
requirements of 19 CFR 10.8. A copy of this decision should be
attached to the Form 19, to be sent to the protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division