CLA-2 RR:CR:SM 561465 RSD
TARIFF NO: 9802.00.50
Richard M. Belanger, Esq.
Susan M. Mathews, Esq.
Powell, Goldstein, Frazer & Murphy, LLP
1001 Pennsylvania Avenue, N.W.
Sixth Floor
Washington, D.C. 20004
Re: Applicability of the duty exemption under HTSUS subheading 9802.00.50, for remanufactured fuel nozzles; housings; essential identity; HRL 560022
Dear Mr. Belanger and Ms. Mathews:
This is in response to your letter dated August 2, 1999, on behalf of Caterpillar, Inc. (Caterpillar) requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonize Tariff Schedule of the United States (HTSUS), to fuel nozzles remanufactured in Mexico. Four fuel nozzle samples and certain components from the fuel nozzles were submitted for our consideration. We received a supplemental submission dated March 13, 2000. A meeting was held at Customs headquarters on February 3, 2000, to discuss to your ruling request.
FACTS:
Caterpillar plans to export used U.S. origin diesel fuel nozzle assemblies (also called fuel injectors) to Mexico for repair and/or remanufacture. After the fuel nozzle assemblies are repaired or remanufactured in Mexico, they will be imported into the United States through the port of Laredo. Following the importation of the assemblies into the United States, Caterpillar will either use them at its own engine manufacturing plant in the United States or sell them as parts to another manufacturer.
You indicate that your request covers four types of fuel nozzle assemblies: the 3500 “A” electronic unit injector (“EUI”), the 3406 EUI, the 3500 mechanical unit injector (MUI), and the 1.1L MUI.
In the repair process, Caterpillar will export to Mexico used intact fuel nozzle assemblies (referred to as “cores”). Upon receipt at Caterpillar’s wholly owned subsidiary in Mexico, the cores are subjected to an initial inspection to determine whether the goods meet a minimum standard of acceptance. After the initial inspection, the fuel nozzle assemblies will be disassembled into sub-assemblies or individual parts. The salvaged components are thoroughly cleaned using a variety of chemical and/or mechanical treatments and then inspected in detail. The disassembly, cleaning, and inspecting of the body or barrel occurs only so that the fuel nozzle assemblies can be repaired if possible. The disassembled components that are reusable may be used “as is” or may be subjected to machining or other processes such as welding, flame spraying, or heat treatment. Certain parts such as gaskets, seals stoppers, etc. are not reusable and are always replaced.
The recovered components, together with any new replacement parts will be used in the assembly of the rebuilt fuel injection nozzles. It is our understanding that after the inspection, the reusable parts are commingled with other identical parts in storage bins for later re-assembly, while the non-reusable parts are scrapped. Finally, the fuel nozzle assemblies will be assembled using both recovered and new parts.
It is stated that Caterpillar’s fuel nozzle assemblies at issue maintain their housing, referred to as the body or barrel assembly (depending on the model), throughout the remanufacture process. Although not all recovered parts are maintained as a set with the actual core from which they were recovered, the housings are maintained throughout the repair operations. For all models, the body or barrel assembly generally represents more than one-half of the material costs of the remanufactured fuel nozzles. In addition, each of these body or barrel assemblies provides the structural housing for the finished product, and determines the size and capacity of the finished fuel injectors.
ISSUE:
Whether the imported fuel nozzles described above will be entitled to entry under subheading 9802.00.50, HTSUS when they are imported into the U.S. after being remanufactured in Mexico.
LAW AND ANALYSIS:
Articles exported from and returned to the U.S., after having been advanced in value or improved in condition in Mexico 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 articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27 (1956) and Guardian Industries Corporation v. United States, 3 CIT 9 (CIT 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. See Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (1978). Goods repaired or altered in Mexico or Canada are subject to the documentary requirements set forth in section 181.64(c), Customs Regulations (19 CFR §181.64(c)).
Section 181.64(a), Customs Regulations (19 CFR §181.64(a)), provides that “repairs or alterations” mean 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.
For purposes of the duty allowance under subheading 9802.00.50, HTSUS, the replacement and/or addition of parts to restore products to their original condition may constitute repair operations, provided that the particular article does not lose its identity and the replacement and/or additions are not so extensive as to create a new or different article. See Press Wireless, Inc. v. United States, 6 Cust. Ct. 102 (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. The court noted that the radio tubes were “restored to a condition which prolonged the use for which they were originally designed...as far as the plaintiff’s use thereof was concerned there was no difference between the tubes as originally imported and the repaired articles.”
Where, as here, the foreign repair operation entails the complete disassembly of the exported article and a number of the component parts of the article may be replaced, the concept of “essential identity” becomes relevant. This concept is employed in interpreting this tariff provision 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. 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. See HRL 555443, dated November 30, 1990.
Thus, application of this tariff provision is precluded where the foreign operation destroys the identity of the exported article or creates a new or different commercial good. In Headquarters Ruling Letter (“HRL”) 554539, dated August 25, 1987, Customs stated that:
So long as the identity of [the exported unit] is maintained throughout the disassembly and repair process, and there is a genuine repair of parts carried out during the foreign process, these units may be entered under the repairs provision of item 806.20, Tariff Schedules of the United States (“TSUS”) [the predecessor tariff provision to subheading 9802.00.50, HTSUS].
In several prior rulings Customs has considered the eligibility of fuel injectors, which were exported abroad for repair and then returned to the U.S., for a duty exemption under subheading 9802.00.50, HTSUS. For example, in HRL 554408, dated April 22, 1987, diesel fuel injectors were exported to Mexico for repairs after which they were returned to the United States. Upon arrival in Mexico, the fuel injectors were sent to a facility referred to as “teardown” where the injectors were disassembled into their constituent parts. Parts such as orifice plugs, O-rings, gaskets, and screens, as well as all foreign-origin components were removed, scrapped, and replaced. The plungers/barrels were kept in matched sets during the disassembly. Upon inspection for damage, the set was separated, the damaged part scrapped, while the undamaged part continued in the process, to be matched with another plunger or barrel at a later time. Separated plungers/barrels were first sent to a match/fit station for matching after sizing the barrels to specific dimension for matching with plungers in inventory. We concluded that the remanufacturing process performed abroad constituted a conversion of the exported fuel injectors into new and different products and was beyond the scope of the term “repairs or alterations” under item 806.20, TSUS, (the predecessor to subheading 9802.00.50, HTSUS). However, we noted that if the plungers/barrels in the described matched sets were retained during the entire foreign processing so that the same plungers/barrels would be returned in the same sets as those that were exported, but in a repaired condition, the essence of the exported fuel injectors would be retained. Thus, the fuel injectors might be entered as repaired articles under item 806.20, TSUS.
In another ruling, HRL 554816 dated November 23, 1987, diesel fuel pumps were exported to Mexico for remanufacturing and return to the United States. In order to maintain the essence of the exported fuel pumps through the foreign processing, the housing, top cover and fuel pump drive gear were segregated from the other components. We stated that so long as the integrity of the three essential components were maintained in a matched set throughout the repair process, the essential identity of the exported pumps may be traced through the marked essential components and the repaired pumps may be returned under item 806.20, TSUS, without regard to the number of repaired pumps in the lot.
In HRL 554817, November 18, 1987, it was proposed that fuel injectors be exported to Mexico for remanufacturing and returned to the United States. The fuel injectors were first washed and cleaned, then disassembled into their constituent parts, listed as the body, spring, shims, intermediate plate, needle valve, and nozzle. Both the injector body and nozzle (or nozzle nut) were separated as a matched set from the remainder of the fuel injector components. It was proposed that the exported injectors would be identified by the body and nut from which they were disassembled. We noted that retaining the injector body and nozzle subassembly as a unit in a matched set was sufficient to retain the essence of the injectors from which they were disassembled. We noted that replacing either one or the other part of the unit would violate the uniqueness of each matched set, and thus result in a new article of commerce, contrary to item 806.20, TSUS.
More recently, in HRL 560022, dated February 12, 1998, fuel injection pumps reconditioned in Mexico were held to be eligible for a duty exemption under subheading 9802.00.50, HTSUS. Customs held that the housing component alone represented the essential identity of the exported article. Customs stated that:
…the operations performed on the fuel pump housing at issue in this ruling are considered repairs within the meaning of subheading 9802.00.50, HTSUS. The cleaning, inspecting, and machining of the housings so that they can be reused to produce reconditioned fuel pumps do not result in the creation of a new article, but serve to restore the article to its original condition, purpose and application. Accordingly, so long as the essential identity of the fuel pumps is maintained (e.g., the housing), the use of the other non-essential components which may be reused “as is,” reconditioned and then used, or replaced with new parts is
permissible and will not serve to disqualify the reconditioned fuel pumps from entering under subheading 9802.00.50, HTSUS…
We find that for the four models under consideration here, the body or barrel assembly (i.e., the housing) imparts the essential identity to the fuel nozzle assemblies. The housing consists of: the body, plunger and plug for model OR-3539; the body and plunger for model OR-4893; the barrel and plunger assembly for model OR-2921; and the barrel, plunger, and shield for model OR-8483. Consistent with the rulings cited above, if the body or the barrel assembly (as described above) remains throughout the remanufacturing process in Mexico, the remanufactured fuel nozzles will be eligible for duty-free treatment under subheading 9802.00.50, HTSUS, upon importation into the U.S., provided that the documentary requirements of 19 CFR 181.64(c) are satisfied.
HOLDING:
Based upon the information provided, the fuel nozzle assemblies exported to Mexico for remanufacture and repair as described above are eligible for duty-free treatment under 9802.00.50, HTSUS, upon importation into the U.S., provided that the documentary requirements of 19 CFR 181.64(c) are satisfied.
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