CLA-2 CO:R:C:S 559012 MLR
Mary E. Gill, Esq.
AT&T
Guilford Center 1-3A10
5420 Millstream Road
Greensboro, N.C. 27420
RE: Applicability of duty exemption under HTSUS subheading
9802.00.50 to AT&T Partner voice terminal systems;
disassemble; replace parts; upgrade; repair; flex circuits
Dear Ms. Gill:
This is in response to your letter of December 22, 1994,
requesting a ruling regarding the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), to voice terminals imported from Mexico.
FACTS:
At issue are digital voice terminals -- the AT&T Partner (MLS-6), Partner Plus (MLS-12), and Partner II (MLS-12D). Partner model
voice terminals accommodate from 2 to 16 telephone lines and 42
telephone sets. The differences between these models are their
line capacity, whether they have an LCD display, and the number and
type of button functions available.
AT&T plans to ship the voice terminals to Elamex, a contract
repair facility in Juarez, Mexico, where the terminals will be
upgraded to overcome a reliability problem. The reliability
problem stems from the expansion of the flex circuit's electrical
paths when subjected to high heat and humidity. The voice
terminals will be upgraded to incorporate a new, double-sided flex
circuit design which alleviates this problem.
The flex circuit is a sheet of mylar plastic with conductive
circuit paths etched into the mylar. The edge of this sheet of
plastic forms a tail which concentrates the circuit path into a set
of contact fingers. This tail bends around and plugs into the
mating connector on the main printed wiring board (PWB). The flex
circuit has no intelligence and serves two functions: (1) it
provides the electrical contacts for the dial pad on the voice
terminal, and (2) it contains the red and green LED lamps which
signal call appearance. The redesigned flex circuit is identical
in appearance, and all switch contacts, LEDs, and connector tails
are in identical locations. The electrical signals which pass
through the switches or light the LED lamps are generated and
received on the PWB. It is stated that the PWB is the motherboard
for the voice terminal and organizes and directs the functions of
the terminal.
In Mexico, the voice terminals will be received with the
handset separated from the voice terminal housing. The units will
be tested for functional problem or upgrading. The units are then
disassembled, damaged parts are replaced, and three circuits are
upgraded with new functional design circuits. A functionality test
is performed, and if the unit fails, it goes to a troubleshooting
center which determines the type of repair needed. The unit is
then reassembled, the unit's surface is cleaned, the handset is
replaced, further quality control is performed, and the unit is
repackaged.
It is stated that no parts are commingled with like parts from
other units. Furthermore, the PWB remains inside the plastic
housing unless the housing itself is broken. If the housing must
be replaced, the serial number is removed from the broken housing
and reaffixed to the replacement housing. Upgraded Partner
terminals will be assigned a new comcode number (an internal AT&T
coding system) which references the presence of an upgraded flex
circuit in the terminal.
ISSUE:
Whether the operations performed to the Partner voice
terminals constitute repairs or alterations within the meaning of
subheading 9802.00.50, Harmonized Tariff Schedule of the United
States (HTSUS), thereby qualifying the returned voice terminals for
the duty exemption under this tariff provision.
LAW AND ANALYSIS:
Articles exported from and returned to the U.S., after having
been advanced in value or improved in condition by repairs or
alterations in Mexico, may qualify for a duty exemption under HTSUS
subheading 9802.00.50, 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'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp.
v. United States, 3 CIT 9 (1982). Articles are entitled to this
duty exemption provided the documentary requirements of section
181.64 of the North American Free Trade Agreement (NAFTA), Interim
Rules (19 CFR 181.64) 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 to create a new and different
article. Press Wireless, Inc. v. United States, 6 Cust. Ct. 102,
C.D. 438 (1941). In Press Wireless, radio tubes were sent abroad
for repairs which involved the use of heavier filament than that
used in the original manufacture of the tubes. Also, the markings
on the articles were erased, and new numbers were substituted to
facilitate matching the tubes for use in transmitters. The court
held that the use of improved materials in the restoration was
immaterial, as long as the article was not considered a new and
different article of commerce or its identity was destroyed.
You cite Headquarters Ruling Letter (HRL) 555819 dated October
11, 1991, where up to 17 parts were replaced in combination
telephone answering machines. Customs stated that the replacement
and/or addition of parts to restore products to their original
condition may constitute repair operations for purposes of
subheading 9802.00.50, HTSUS, if the particular article does not
lose its identity and the replacements and/or additions are not so
extensive as to create a new or different article. Furthermore,
Customs stated that where the foreign repair operations entail the
complete disassembly of the exported article and numerous component
parts of the article are replaced, the concept of essential
identity may come into play. This concept is employed to insure
that the article imported is the same as the article exported, and
operates by identifying certain component parts of an exported
article as embracing the essential identity of the particular
article exported. Component parts so identified are to be
maintained together throughout the repair operation as a matched
set. It was held in HRL 555819, that under the circumstances of
that case, the foreign operations constituted "repairs" within the
meaning of subheading 9802.00.50, HTSUS.
You also cite HRL 555758 dated June 10, 1991, where Customs
considered modifications to NATO Hawk missiles, which included
replacing old gaskets, painting covers, replacing and adding
components, and modifying the printed circuit boards which did not
include reprogramming. One of the purposes of these operations was
to upgrade the missiles to combat recently developed
countermeasures. Customs held that the processes qualified as
alterations under subheading 9802.00.50, HTSUS, because the
missiles were altered to comply with changed specifications, and
performed the same function after the alterations were performed.
It is claimed that since the essential identity of the Partner
voice terminals is imparted by the main PWB which will not be
replaced, and the flex circuit, replaced with a newly designed flex
circuit to allow the terminals to function better, has no
intelligence, the returned voice terminals should qualify for
subheading 9802.00.50, HTSUS, treatment, because the function of
the voice terminals will remain the same.
We agree. We find that the operations performed in Mexico,
consisting of testing, disassembly, the replacement of damaged
parts, the upgrade of the flex circuit, and reassembly, constitute
repairs or alterations since the voice terminals will have the same
function and their essential identity is imparted by the PWB which
is not replaced. Therefore, consistent with the rulings cited
above, the completed units qualify for the full duty exemption
under subheading 9802.00.50, HTSUS, when returned to the U.S.,
provided the documentary requirements of 19 CFR 181.64 are met.
Basically, information must be presented in the
required documents which enables Customs to verify that the
articles returned are the same as the articles exported. For
example, identification marks or numbers, such as serial numbers,
for the units must be stated in the repair declaration, when they
are available.
HOLDING:
On the basis of the information submitted, it is our opinion
that the Mexican operations enumerated above constitute repairs or
alterations since the essential identity of the voice terminals is
retained. Therefore, the voice terminals will qualify for the full
duty exemption under subheading 9802.00.50, HTSUS, provided the
documentary requirements of section 181.64 are satisfied.
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are 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