CLA-2 CO:R:C:S 950878 RAH
Mr. Steve Workman
Shipping Manager
TransFRESH, Inc.
The Engineering Department
120-A Albright Way
Los Gatos, CA 95030
RE: Eligibility of a U.S.-origin controlled atmosphere system
for a complete or partial duty exemption; Programming;
Alteration
Dear Mr. Workman:
This is in response to your correspondence of December 6,
1991, and March 31, 1992, concerning an atmosphere monitor
controller system.
FACTS:
The controlled atmosphere system helps deliver fresh
perishables to distant markets around the world. The controlled
atmosphere system maintains the ideal atmosphere in equilibrium
with the product's respiration rate. The atmosphere balance is
maintained by replacing consumed oxygen through a unique air
exchange system. A slide valve inside the controller allows
precise amounts of pressurized air generated from the reefer fan
to be pushed out through the air exchange outlet port. Fresh air
is drawn into the low pressure side of the fan through the air
exchange inlet port, replacing consumed oxygen.
The controller unit comprises one part of an atmosphere
monitor/controller system which is used in refrigerated sea-
freight containers and removed on arrival at its destination for
subsequent reuse. Each system is wholly manufactured in the
United States for TransFRESH Corporation.
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You state that the product is shipped in two parts. The
first is a one-time installation kit that is added to the
container. The second is a removable pre-programmed environment
controller. The controller will be shipped to a foreign country
and "plugged" into a freight container full of produce destined
for a foreign port. It then will be programmed for the type of
produce and length of the trip. After the trip is completed, the
controller is removed and sent back to the United States where
the information is down-loaded and the controller memory is
cleared and recharged. It is then shipped back out. This cycle
usually takes a month; the product never stays in the country
longer than a year.
You further state that the product is leased, not sold. A
contract with local shipping lines is negotiated whereby profits
from the produce shipments are shared. Therefore, prices on the
commercial invoice are for customs purposes only, and do not
reflect actual sale prices. You ask whether the product
qualifies for temporary status or some other means of reducing
high duties.
On June 8, 1992, a member of my staff called you to obtain
additional information. At that time, you informed us that the
controller unit is programmed in the country where the shipment
of produce originates. However, the controller unit is always
down-loaded in the United States.
ISSUE:
(1) Whether a programmed controller unit will be entitled
to either free entry under subheading 9801.00.10, Harmonized
Tariff Schedule of the United States (HTSUS), or a partial duty
allowance under subheading 9802.00.50, HTSUS, when returned to
the United States to be down-loaded.
(2) Whether a programmed controller unit which will be
returned to the United States to be down-loaded, recharged and
later exported within one year, may be imported free of duty
under the transportation in bond (T.I.B.) provisions in Chapter
98, Subchapter XIII, HTSUS.
LAW AND ANALYSIS:
Chapter 98, subchapter II, Note 2(a), HTSUS, provides in
part that any product of the United States which is returned
after having been advanced in value or improved in condition
abroad, or assembled abroad, shall be a foreign article for
purposes of the Tariff Act of 1930, as amended.
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Subheading 9801.00.10, HTSUS, provides for the free entry of
U.S.-made products that are exported and returned without having
been advanced in value or improved in condition by any process of
manufacture or other means while abroad, provided the documentary
requirements of section 10.1, Customs Regulations (19 CFR 10.1),
are met. Under the facts presented, we find that programming the
controller unit advances its value and/or improves its condition.
The unit must be individually programmed for each shipment of
produce in order to maintain the ideal atmosphere for that
shipment and to insure that it does not perish before delivery.
Without the programming, the controller unit would not serve the
function for which it is marketed. Accordingly, if the
controller unit is programmed abroad it is not entitled to duty-
free treatment under subheading 9801.00.10, HTSUS. However, in
instances where the controller unit is programmed in the United
States and subsequently returned to be down-loaded, it would be
entitled to duty-free treatment under that subheading.
The next question presented is whether the controller unit
is entitled to a duty allowance under subheading 9802.00.50,
HTSUS. Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the United States after having
been exported to be advanced in value or improved in condition by
means of repairs or alterations. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied.
However, entitlement to this tariff treatment is precluded
in circumstances where the operations performed abroad destroy
the identity of the articles or create new or commercially
different articles. See A.F. Burstrom v. United States, 44 CCPA
27, C.A.D. 631 (1956); Guardian Industries Corp. v. United
States, 3 CIT 9 (1982). Tariff treatment under subheading
9802.00.50, HTSUS, is also precluded where the exported articles
are incomplete for their intended use prior to the foreign
processing. Guardian; Dolliff & Company, Inc. v. United States,
81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66
CCPA 77, C.A.D. 1225, 82, 599 F.2d 1015, 119 (1979). In the
instant case, when the controller unit is exported to a foreign
country to be programmed and installed in a container, it is
clearly not suited for its intended use (to maintain ideal
atmosphere in equilibrium with the product's respiratory rate)
without such programming. Therefore, entitlement to this tariff
treatment is precluded as programming the controller unit exceeds
an alteration.
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With regard to the second issue, subheading 9813.00.05,
HTSUS, provides for the temporary duty-free entry of:
Articles to be repaired, altered or processed (including
processes which result in articles manufactured or produced in
the United States).
Pursuant to U.S. Note 1(a) of subchapter XIII, HTSUS, which
contains subheading 9813.00.05:
The articles described in the provisions of this subchapter,
when not imported for sale or for sale on approval, may be
admitted into the United States without the payment of duty,
under bond for their exportation within 1 year from the date of
importation, which period, in the discretion of the Secretary of
the Treasury, may be extended, upon application, for one or more
further periods which, when added to the initial 1 year, shall
not exceed a total of 3 years ....
Under the facts presented, the programmed controller unit is
imported into the United States for processing (down-loading,
clearing and recharging). Furthermore, it is not imported for
sale and it will be exported within one year from the date of
importation. Accordingly, it may be imported free of duty under
bond pursuant to subheading 9813.00.05, HTSUS.
HOLDING:
Programming a controller unit in a foreign country to
maintain the ideal atmosphere for perishable products advances
the value and/or improves its condition for purposes of
subheading 9801.00.10, HTSUS. Accordingly, the controller unit
programmed outside of the United States will not be entitled to
duty-free treatment under that subheading when returned to the
United States. Moreover, the controller unit will not be
entitled to a duty allowance under subheading 9802.00.50, HTSUS,
because it is incomplete for its intended use without the foreign
processing/programming. However, it may be imported free of duty
under the transportation in bond (T.I.B.) provisions in Chapter
98, Subchapter XIII, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division