CLA-2 CO:R:C:S 558956 WAS
Alex Romero, Jr.
A.F. Romero & Co., Inc.
P.O. Box 989
Calexico, CA 92231-0989
RE: Applicability of duty-free treatment under subheading 9802.00.50, HTSUS, to
surgical instruments from Mexico; NAFTA ; Article 509
Dear Mr. Romero:
This is in response to your letter dated December 7, 1994, on behalf of Tri State Hospital
Supplies Corporation, concerning the applicability of duty-free treatment under subheading
9802.00.50, HTSUS, to surgical instruments imported from Mexico.
FACTS:
You state that Tri-State Hospital Supplies Corporation has a maquiladora in Mexicali B.
Calif Mexico. The maquiladora, Tri-State De Mexico, provides assembly and packaging of
components for its U.S. parent. You state that your client is contemplating recycling stainless
steel surgical instruments for re-use in hospitals. You submit that the surgical instruments would
consist of stainless steel in all cases.
In the U.S., you state that after the sterilized surgical instruments are used, they are
discarded into a recycling bin. The used instruments will be purchased by your client from the
hospital and sterilized in their facility in Michigan. Once sterilized, the instruments will be shipped
to Mexicali, B. Calif Mexico to their maquiladora. In Mexico, the instruments will be inspected
and visually, cosmetically and functionally tested. The instruments will be straightened, if
required. They will be wire-brushed to restore their luster. Any corrosion or rust that appears
will be removed. The instruments will be cleaned, retested and shipped to the U.S. After the
instruments are returned to the U.S., they will be sterilized, and sold to hospitals.
You claim that the entire procedure is intended to restore the recycled instruments to their
'Original Equipment Manufacturer's' (OEM) quality.
You have indicated that the label on the package will state: "Instruments in this kit are
recycled."
You state that the surgical instruments will be packaged in Mexico either with other
hospital supplies, or by themselves. In both cases, however, you state that the label will indicate
"Instruments in this kit are recycled."
ISSUE:
Whether the surgical instruments will qualify for duty-free treatment under subheading
9802.00.50, HTSUS, when returned to the U.S.
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to Mexico be advanced in value
or improved in condition by repairs or alterations may qualify for duty-free treatment under
subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of
the exported articles or create new or commercially different articles through a process of
manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd C.D.
1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Accordingly, entitlement to this tariff treatment is precluded where the exported articles are
incomplete for their intended purpose prior to the foreign processing and the foreign processing
operation is a necessary step in the preparation or manufacture of finished articles. Dolliff &
Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir.
1979).
Section 181.64, Customs Regulations (19 CFR 181.64) defines "repairs or alterations" for
purposes of the North American Free Trade Agreement (NAFTA) as follows:
For purposes of this section, "repairs or alterations" means restoration, addition,
renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the
essential characteristics of, or create a new or commercially different good from, the good
exported from the United States.
Cleaning operations which restore exported articles to their original efficiency in order to
prolong their usefulness have long been considered "repairs" for purposes of subheading
9802.00.50, HTSUS, provided that 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 a precursor provision to
subheading 9802.00.50, HTSUS,); 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 Tariff Schedules of the United States
(TSUS) item 806.20 (the precursor to subheading 9802.00.50, HTSUS), as the processing abroad
was considered a repair or alteration); HRL 067432 dated October 6, 1981 (industrial work
gloves exported to Canada for cleaning were entitled to TSUS item 806.20 tariff treatment); HRL
555318 dated 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 subheading
9802.00.50, HTSUS, treatment); and HRL 555819 dated October 11, 1991 (buffing and polishing
operations which serve to remove surface scratches or blemishes and restore the units to their
original condition is considered a type of cleaning operation, and therefore a genuine repair within
the meaning of subheading 9802.00.50, HTSUS).
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).
We have held that the bending of metal exceeds an "alteration" and constitutes a
manufacturing process, as the bending of metal is generally regarded as a forming operation,
intended to cause permanent deformation of the material. See HRL 555417 dated January 22,
1990 (the bending of cut random length rebars does not constitutes an "alteration" for purposes of
subheading 9802.00.50, HTSUS). However, we have held that repair operations which involve
straightening an article will not preclude eligibility under this provision. See HRL 956746 dated
January 3, 1995 (the foreign operations which include straightening, sanding, priming, painting,
and packaging do not destroy the identity of the automobile and light truck bumpers, nor do these
operations create a new or different commercial article for purposes of subheading 9802.00.50,
HTSUS).
In the instant case, we are of the opinion that the articles that will be returned -- surgical
instruments -- are the same as the articles that will be exported for repairs. Although the surgical
instruments will undergo various foreign operations which include inspecting, testing,
straightening, cleaning, and packaging in Mexico, consistent with 19 CFR 181.64 and the above-cited cases, these operations do not destroy the identity of the article, or create new or different
commercial articles through a process of manufacture. Accordingly, it is our position that the
operations performed in Mexico to the surgical instruments are considered proper "repairs" within
the meaning of subheading 9802.00.50, HTSUS, and therefore, the returned surgical instruments
will be entitled to duty-free treatment under this provision.
In the case where the surgical instruments will be packaged with other hospital supplies,
before being imported into the U.S., you have asked us to advise whether this will affect the
applicability of subheading 9802.00.50, HTSUS, to the surgical instruments. 19 CFR 181.64(c),
provides that there shall be filed, in connection with an entry, (1) a repair declaration from the
person who performed the repairs or alteration, and (2) a declaration by the owner, importer,
consignee, or agent having knowledge of the pertinent facts that the repair declaration is true and
correct, and that the articles entered in their repaired or altered condition are the same articles
covered by the declaration. The information sought by the documentary requirements of 19 CFR
181.64(c) is designed to enable Customs to verify that the articles returned are the same as the
articles exported and that they were repaired/altered within the meaning of subheading
9802.00.50, HTSUS. Thus, even if the surgical instruments are packaged with other hospital
supplied, provided that the district director is satisfied that the documentary requirements of
subheading 9802.00.50, HTSUS, are satisfied and Customs is able to verify that the articles
returned are the same as the articles exported and that they were repaired within the meaning of
subheading 9802.00.50, HTSUS, the surgical instruments will be entitled to duty-free treatment
under this provision.
HOLDING:
Based on the information provided, we are of the opinion that the operations performed in
Mexico are acceptable repair operations, within the meaning of subheading 9802.00.50, HTSUS.
Therefore, the returned surgical instruments will
be entitled to duty-free treatment under this provision, upon compliance with the documentation requirements of 19 CFR 181.64. A copy of this ruling letter should be attached to
the entry documents filed at the time this merchandise is entered. If the documents have been
filed without a copy, this ruling should be brought to the attention of the Customs officer handling
the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division