CLA-2 RR:TC:SM 560245 MLR
John W. Bryant, Esq.
Eames Wilcox
1400 Buhl Building
Detroit, MI 48226-3602
RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.50 to trucks with mobile satellite
communications systems; Canada; Article 509; 19 CFR
181.64(c)
Dear Mr. Bryant:
This is in reference to your letter dated November 12,
1996, January 8, 1996, to U.S. Customs in New York,
requesting a ruling on behalf of TNT Expedited Services,
Inc. ("TNT"), concerning the applicability of subheading
9802.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), to mobile satellite communications systems
installed into trucks and vans in Canada.
FACTS:
It is stated that certain satellite communications
systems are installed in freight vans or trucks operated by
TNT. TNT conducts operations as a motor carrier in the U.S.
and parallel operations are conducted by TNT divisions of a
Canadian corporation, TNT Canada Inc., in Canada, which is a
corporate parent of TNT. The two entities conduct a
combined operation known as TNT Expedited Services.
It is stated that approximately 100 of TNT's vehicles
are titled and based in the U.S., and perform domestic
trucking service between points in the U.S. and
international service between the U.S. and Canada. The
vehicles themselves are stated to be exempt from entry on
return to the U.S. under 19 CFR 123.16. TNT is leasing
mobile satellite communications systems to be installed in
all of its vehicles. The systems leased are Omnitracs
Mobile Communications Systems manufactured by Qualcomm Inc.,
San Diego, California. The units consist of three main
components: a communications unit, an outdoor antenna unit,
and a display unit. The system is an interactive
communications tool that links vehicles to a dispatch center
so that messages and positioning information of the vehicle
may be sent and received through a network management
center.
The party arranging for the leasing of these systems is
Cancom located in Canada. Cancom receives the systems from the
U.S. and ships them from its facility in Canada to TNT's
facility in Windsor, Ontario. It is stated that each system
arrives in Windsor as a completely integrated unit contained
in a single box. As U.S. vehicles pass through to Canada in
the course of moving freight to or from Canada, the systems
are installed onto the vehicles. It is claimed that the
systems shipped from the U.S. to Canada are entered duty-free
into Canada under the North American Free Trade Agreement
(NAFTA). NAFTA certificates of origin prepared by Qualcom
have been submitted. TNT only wishes to enter the
communications system, and not the vehicles, when the articles
are returned to the U.S.
ISSUE:
Whether the installation of the Omnitracs systems into
U.S. vehicles constitutes a repair or alteration within the
meaning of subheading 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS), thereby qualifying the
returned vehicles for the partial or total duty exemption
under this tariff provision.
LAW AND ANALYSIS:
Title 19, United States Code, section 1322(a), as
amended {19 U.S.C. 1322(a)}, provides, in pertinent part:
Vehicles and other instruments of international traffic,
of any class specified by the Secretary of the Treasury,
shall be excepted from the application of the customs
laws to such extent and subject to such terms and
conditions as may be prescribed in regulations or
instructions of the Secretary of the Treasury....
The relevant implementing regulations promulgated under
statutory authority appear in Parts 10 and 123 of the
Customs Regulations (19 CFR Parts 10 and 123), and regulate
the use and movement of designated instruments within the
U.S. It is claimed that the vehicles at issue are vehicles
covered by 19 CFR 123.16, and that according to Article 307,
NAFTA, vehicles repaired or altered in Canada are not
subject to duty.
However, reference must also be made to Annex 307.1,
NAFTA, which makes goods exported from the U.S. to Canada
for repair or alteration dutiable on the value of the repair
or alteration of such goods at the customs duty incorporated
into Annex 302.2, NAFTA. Furthermore, section 123.17(b),
Customs Regulations {19 CFR 123.17(b)}, provides, in
pertinent part:
A report of the first arrival in the United States of
domestic trucks...and their equipment after repairs have
been made in a foreign country, other than those
required to restore such vehicle or equipment to the
condition in which it last left the United States
("running repairs"), shall be made by the driver or
person in charge of the vehicle promptly, in writing, to
the Customs officer at the port of reentry. The report
shall state the time and place of arrival and the nature
and value of the repairs. Each such vehicle or its
equipment when withdrawn from international traffic
shall be subject to duty upon the value of the repairs
(other than "running repairs") made abroad at the rate
at which the repaired article would be dutiable if
imported.
Customs interprets this regulation to mean that reports
need be made only with respect to other than running
repairs, and that no duty is assessed upon the value of
running repairs. Further, repair receipts should be
retained for presentation to U.S. Customs at such time that
a vehicle is withdrawn from international traffic. It is
our opinion that the installation of the Omnitracs systems
is not a running repair.
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 partial
or total 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(c), Customs Regulations (19
CFR 181.64), are satisfied.
"Repairs or alterations" are defined in 19 CFR 181.64 as
the 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
U.S.
In Headquarters Ruling Letter (HRL) 556574 dated May 12,
1992, Customs considered tractors and passenger trailers.
In Mexico, certain wiring was installed into the tractors to
enable the tractor driver to operate all functions of the
passenger trailer, such as opening and closing doors in the
passenger module, etc. Additionally, a particulate trap was
installed which served to filter and clean the diesel
exhaust, and monitors and an intercom system were installed
to allow driver/passenger communication. The tractor and
passenger trailer modules were then connected to ensure
proper functioning of all features, after which they were
disconnected to allow separate importation into the U.S. In
HRL 556574, it was held that the operations performed to the
tractor exceeded an alteration within the meaning of
subheading 9802.00.50, HTSUS, as the installation of
monitors, an intercom system, a particulate trap, and wiring
harnesses were operations necessary to adapt the tractor for
use with the passenger trailer. Until these operations were
performed, the tractor was incomplete for its intended
specialized use.
In this case, we find that the function of the vans and
trucks remains the same before and after the installation of
the Omnitracs systems, that is for the transportation of
articles. We also find that the installation of the
Omnitracs systems does not change the identity of the vans
or trucks; it merely enables the vans and trucks to be
located while they are on the road. Therefore, we find that
the vans and trucks may be entered under subheading
9802.00.50, HTSUS, with duty payable upon the value of the
alterations made in Canada.
HOLDING:
On the basis of the information submitted, it is our
opinion that the installation of Omnitracs systems into the
vans and/or trucks at issue is an alteration. Therefore,
the vans and trucks may be entered under subheading
9802.00.50, HTSUS, with duty payable upon the value of the
alterations made in Canada. 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
Tariff Classification Appeals
Division