CLA-2 R:C:S MLR
Mr. Robert M. Barr
United Rebuilders, Inc.
450 East Sandford Blvd.
Mount Vernon, N.Y. 10550-4729
RE: New York Ruling Letter 807803 dated April 7, 1995; NAFTA;
Article 509; remanufactured cast iron air
conditioning/refrigeration compressors; scrap; waste
Dear Mr. Barr:
This is to inform you that we are modifying New York Ruling
Letter (NYRL) 807803 issued to you on April 7, 1995, which
responded to your letter to the Area New York Seaport dated
February 10, 1995.
FACTS:
In NYRL 807803, it was stated that used or defective air
conditioning/refrigeration cast iron air compressors will be
shipped to Mexico for rebuilding and that these compressors are
considered scrap, with no functional commercial value. The
procedure in Mexico involves tearing down the compressor to its
core, testing and checking for wear and damage, reboring the case,
cleaning, and rebuilding the compressor to new condition with parts
originating from U.S. sources.
In NYRL 807803, it was found that the recovered parts used in
the production of the rebuilt compressors would be considered waste
or scrap, as defined in General Note 12(n)(ix), Harmonized Tariff
Schedule of the United States (HTSUS). Accordingly, NYRL 807803
found that the air conditioning/refrigeration compressors, being
made entirely in the territory of Mexico using materials which
themselves were originating (i.e., the recovered parts which NYRL
807803 considered waste or scrap) would satisfy the requirements of
General Note 12(b)(iii), HTSUS.
You have also received another ruling from New York, NYRL
866611 dated September 19, 1991, issued in response to your letter
dated August 23, 1991, which concerned the same merchandise and
determined that the remanufactured air conditioning/refrigeration
cast iron air compressors would be eligible for duty free treatment
under the Generalized System of Preferences (GSP), upon compliance
with the applicable regulations. In your letter, you named several
corporations which originally manufactured the compressors prior to
their shipment to Mexico.
ISSUES:
I. Whether the rebuilt compressors returned to the U.S. qualify
for the duty preference under the North American Free Trade
Agreement (NAFTA).
II. Whether the rebuilt compressors are eligible for subheading
9802.00.50, HTSUS, treatment when returned to the U.S.
LAW AND ANALYSIS:
I. NAFTA
To be eligible for tariff preferences under the NAFTA, goods
must be "originating goods" within the rules of origin set forth in
General Note 12(b), HTSUS. There are two methods by which goods
imported into the United States may be goods originating in the
territory of a NAFTA party. The first method is that "they are
goods wholly obtained or produced entirely in the territory of
Canada, Mexico and/or the United States. See General Note
12(b)(I), HTSUS. The second method is that they have been
"transformed in the territory of Canada, Mexico and/or the United
States" pursuant to General Note 12(b)(ii)(A), HTSUS, which states:
except as provided in subdivision (f) of this note, each of
the non-originating materials used in the production of such
goods undergoes a change in tariff classification described
in subdivisions (r), (s) and (t) of this note or the rules
set forth therein . . . .
Therefore, in order for the individual components returned to
the U.S. to be "originating" under the NAFTA, they must be wholly
obtained or produced in the territory of a NAFTA country or be
produced exclusively from originating materials transformed in the
U.S. as prescribed under General Note 12(b). Under the NAFTA, an
originating good can consist of "waste and scrap derived from ...
used goods collected in the territory of one or more of the NAFTA
parties, provided such goods are fit only for the recovery of raw
materials." See General Note 12(n)(ix)(B).
Based on this definition, NYRL 807803 determined that the
recovered parts used in the production of the rebuilt compressors
would be considered waste or scrap. However, in Headquarters
Ruling Letter (HRL) 558823 dated February 6, 1995, Customs
considered used vehicle air brake system compressors, air filters,
and valves shipped to Mexico, where they were disassembled,
cleaned, and the reusable parts were re-machined or honed to their
original condition, and along with new parts, were reassembled to
produce complete rebuilt compressors, filters, and valves,
identical to the original units exported to Mexico. In particular,
in HRL 558823, it was held that the individual components shipped
to Mexico were not considered "scrap" as defined in the NAFTA since
although they were used goods collected in the U.S., they could be
repaired, and, therefore, were not fit only for the recovery of raw
materials. Accordingly, it was ruled that to the extent that the
components were not otherwise wholly obtained or produced in the
territory of a NAFTA country, or produced exclusively from
originating materials transformed in the U.S. as prescribed under
General Note 12(b), HTSUS, the rebuilt compressors, filters, and
valves would be ineligible for preferential duty treatment under
the NAFTA.
Similarly, in your case, the recovered parts shipped to Mexico
for use in the production of remanufactured cast iron air
conditioning/refrigeration compressors, are not considered "scrap"
within the meaning of General Note 12(n)(ix), since the recovered
parts may be repaired. Therefore, the remanufactured cast iron air
conditioning/refrigeration compressors will only be eligible for
preferential duty treatment under the NAFTA if the recovered parts
are wholly obtained or produced in the territory of a NAFTA
country, or produced exclusively from originating materials
transformed in the U.S. as prescribed under General Note 12(b),
HTSUS.
II. Subheading 9802.00.50, HTSUS
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, interim regulations (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.
Hence, one of the basic requirements for eligibility under HTSUS
subheading 9802.00.50 is that the repaired article being returned
be the same as that which was exported. Therefore, in situations
involving the complete disassembly of units to be repaired, the
component parts representing the essential identity of each unit
must be maintained as a matched set throughout the repair
operation.
In HRL 555741 dated February 25, 1991, Customs held that
certain consumer electronic products completely disassembled,
tested, and subjected to repair operations, consisting of the
replacement of malfunctioning component parts and/or the addition
of missing parts were entitled to the partial duty exemption under
subheading 9802.00.50, HTSUS, if the essential identity of the
article exported was retained. In HRL 555741, it was stated that:
This concept (essential identity) is employed under
[subheading 9802.00.50, HTSUSA] to insure that the article
imported is the same as the article exported, and operates by
identifying certain components 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. Thus, replacing any
one of these essential components would violate the uniqueness
of the matched set and result in a new article of commerce,
thereby precluding eligibility for the partial duty exemption
under subheading 9802.00.50, HTSUS.
In this case, it is indicated that the compressors will be
torn down to their core. Accordingly, in order for the returned
rebuilt compressors to qualify for subheading 9802.00.50, HTSUS,
treatment, the essential parts of the compressor must remain
together and may not be replaced. Therefore, provided the
essential components of the compressors are retained and the
documentary requirements of 19 CFR 181.64, interim regulations,
are met, the rebuilt air compressors will qualify for a full duty
exemption under subheading 9802.00.50, HTSUS, as the testing,
reboring, and cleaning operations constitute repairs within the
meaning of this tariff provision. 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, we find that the
recovered parts shipped to Mexico are not considered "waste" or
"scrap" within the meaning of General Note 12(n)(ix), HTSUS.
Accordingly, NYRL 807803 is hereby modified. Therefore, only to
the extent that you are able to show that the components were
wholly obtained or produced in the territory of the U.S. or
produced exclusively from originating materials transformed in the
U.S. as prescribed under General Note 12(b), will the refurbished
air conditioning compressors be eligible for NAFTA preferential
duty treatment.
In the alternative, it is our opinion that the Mexican
operations of tearing down the compressors, testing, reboring, and
cleaning constitute "repairs" since these operations return the
used compressors to their original condition. Therefore, the
rebuilt compressors may qualify for the full duty exemption under
subheading 9802.00.50, HTSUS, provided the essential components of
the exported articles are retained throughout the repair process
and the documentary requirements of 19 CFR 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