LIQ-9-01
CON-9
OT:RR:CTF:ER H048944 DCC
Port Director
U.S. Customs and Border Protection
4341 International Parkway, Suite 600
Atlanta, GA 30354
Attn: Daniel C. Gladden
Re: Protest and Application for Further Review 1704-08-100020
Dear Port Director:
This letter is in response to the Application for Further Review (“AFR”) of Protest Number 1704-08-100020, filed on behalf of MTU Maintenance Hannover GmbH (Protestant or “MTU”). MTU protests the liquidation of nine entries of aircraft engine bearings imported into the United States for inspection and repair. Our decision follows.
FACTS:
Between December 20, 2006, and April 2, 2007, MTU filed nine entries for aircraft engine bearings. The bearings were classified under subheadings 8482.50.00 and 8482.10.50, Harmonized Tariff Schedule of the United States (“HTSUS”), and were entered as merchandise subject to antidumping duties pursuant to Antidumping Order A-588-201-009.
Originally, the bearings were produced in France or Japan and were subsequently imported into the United States where they were used to build aircraft engines that were incorporated into finished civil aircraft. After a period of use in commercial aircraft, the engines were removed from the aircraft and shipped to MTU’s facility in Germany for inspection. As part of this process, MTU disassembles and inspects aircraft engines and parts. The bearings are removed from the aircraft engines and shipped to the United States pursuant to an agreement with a U.S. independent repair facility approved by the Federal Aviation Administration (“FAA”) for inspection and repair. Under this agreement, ownership of the bearings is retained by the aircraft owners while they are in the United States.
At the U.S. repair facility the bearings are inspected for wear. Bearings that pass the inspection are reconditioned and returned to MTU’s facility in Germany for reuse. During the reconditioning process the bearings undergo cleaning, testing, polishing, surface machining, grinding, and refinishing. According to MTU, more than half of the imported bearings have signs of wear and do not pass inspection. These failing bearings are destroyed as required by FAA regulations and the mutilated bearings are subsequently sold for scrap in the United States.
The Port of Atlanta, Customs and Border Protection (“CBP”), determined that the bearings that were returned to the United States for testing and reconditioning were classified under heading 8482, HTSUS, which provides for roller and ball bearings, and are therefore subject to antidumping duties. The port liquidated the entries accordingly between November 2, 2007, and January 3, 2008. The port determined the entered value based on the value reported in the delivery note issued by MTU to the U.S. repair facilities.
On February 15, 2008, MTU filed its protest and application for further review challenging the assessment of antidumping duties. In its protest, MTU makes the following arguments: 1) the bearings qualify as U.S. goods returned; 2) the bearings are properly classified as waste and scrap; 3) the customs value of bearings should be determined according to the fallback method of valuation; and 4) the original consumption entry may be replaced with a temporary importation under bond (“TIB”) entry. On June 4, 2008, the port forwarded the protest to Regulations and Rulings, Office of International Trade for further review.
ISSUES:
Whether the bearings are eligible for duty-free treatment under 9801.00.10, HTSUS, as U.S. goods returned.
Whether the used bearings are properly classified under subheadings 8482.50.00 and 8482.10.50, HTSUS.
Whether the customs value of used bearings may be determined under the “fallback” method of valuation.
Whether MTU may substitute a TIB entry for the original antidumping entry for consumption pursuant to 10 C.F.R. § 10.31(g).
LAW AND ANALYSIS:
Initially, we note that the protest was timely because it was filed within 180 days of the dates of liquidation. CBP liquidated the subject entries between November 2, 2007, and January 4, 2008, and MTU subsequently filed its protest on February 15, 2008.
Bearings Qualify as U.S. Goods Returned
Subheading 9801.00.10, HTSUS, provides that products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad can be entered duty free provided the documentary requirements of 19 C.F.R. § 10.1 are satisfied.
Counsel points out that CBP has previously ruled in Headquarters Ruling Letter (“HQ”) 563353, dated December 1, 2005, that parts removed from aircraft engines that were returned to the United States for repair or replacement were eligible for duty-free treatment under subheading 9801.00.10, HTSUS. In that ruling, CBP determined that imported aircraft engine parts were not advanced in value or improved in condition abroad when they were disassembled. Because the aircraft engines had been assembled in the United States, the parts were considered to be of U.S.-origin and eligible for duty-free treatment pursuant to subheading 9801.00.10, HTSUS, assuming that the documentary requirements of 19 C.F.R. § 10.1 were satisfied.
We note that the use of the bearings in the manufacture of engines in the United States would constitute a substantial transformation of the bearings, such that they may be considered a product of the United States. As in HQ 563353, the disassembly of the bearings in Germany would not change their origin, such that the used bearings (disassembled from U.S.-origin civil aircraft in Germany) are eligible for duty-free treatment pursuant to subheading 9801.00.10, HTSUS, provided the documentation requirements were satisfied. We note that the protest file did not contain the documentation required by 19 C.F.R. § 10.1(g), including CBP Form 3311 and entry documentation required by 19 C.F.R. § 142.3. Assuming compliance with the documentation requirements of 19 C.F.R. § 10.1, the aircraft parts are eligible for subheading 9801.00.10, HTSUS treatment.
Finally, we note that a determination of the country of origin for CBP purposes is not be determinative of whether an imported article is within the scope of an antidumping duty order issued by the U.S. Department of Commerce (“Commerce”). See, e.g., Headquarter Ruling Letter H132675 (Nov. 16, 2010).
Therefore, we will require the payment of antidumping duties if the merchandise falls within the scope of the order, regardless of whether the country of origin is determined to be the United States for duty purposes. If a party wishes to challenge whether its merchandise is within the scope of an antidumping order, it may request a ruling from the Commerce. See 19 C.F.R. § 351.225.
Bearings are Classified under Subheadings 8482.50.00 and 8482.10.50, HTSUS
MTU conducts its engine repairs at a facility in Hannover, Germany. At issue in this case, are aircraft engine bearings (specifically, roller and ball bearings) that were disassembled from a civil aircraft engine as part of the repair process and sent to an FAA approved facility in the United States for inspection and potential repair. MTU indicates that approximately two-thirds of the bearings it imports is deemed to be irreparable due to wear and are therefore destroyed pursuant to FAA Advisory Circular 21-38, dated July 5, 1994.
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The 2006 and 2007 HTSUS headings under consideration are:
7204 Ferrous waste and scrap; remelting scrap ingots of iron or steel:
8482 Ball or roller bearings, and parts thereof:
Note 1(f) to Section XV (which includes heading 7204), HTSUS, provides that the Section does not cover articles of Section XVI (machinery, mechanical appliances and electrical goods (including goods of heading 8482, HTSUS)). Further, note 8(a) to Section XV, HTSUS provides:
Waste and scrap
Metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons.
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the system. CBP believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).
The EN to heading 72.04 provides that the phrase “waste and scrap” as it is defined in Note 8(a) to Section XV describes “[a]rticles of iron or steel, definitively not usable as such because of breakage, cutting up, wear or other reasons . . . .” This EN also provides that “the heading excludes articles which, with or without repair or renovation can be re used for their former purposes or can be adapted for other uses . . . .”
Heading 8482, HTSUS, describes the subject roller and ball bearings merchandise by name. The only issue is whether at the time of importation they were no longer fit for use as bearings and must be classified as iron waste or scrap in heading 7204, HTSUS.
MTU contends that FAA regulations and an FAA Advisory require that bearings, which cannot be repaired because of wear, must be destroyed. According to MTU, those bearings are classified as metal scrap in subheading 7204.49.00, HTSUS. However, the imported bearings are not “waste or scrap” according to note 8(a) to Section XV, HTSUS because they can still be used as bearings—just not for aviation purposes. Neither the FAA’s Advisory Circular regarding the “Disposition of Unsalvageable Aircraft Parts and Materials,” dated July 5, 1994, nor its replacement, Advisory Circular 21-43, dated October 16, 2009, require that MTU destroy the bearings that do not meet FAA standards. In fact, in both documents, the FAA indicates that aircraft parts that are deemed unserviceable or ineligible for installation on an aircraft may be released for legitimate non-flight uses provided they are indelibly marked as “Not for Aviation Use.” FAA Advisory Circular 21-38, dated July 5, 1994, also provides:
Persons disposing of unsalvageable aircraft parts and materials may choose to release those parts for legitimate non-flight uses, such as for training and education, research and development, or for non-aviation applications. In such instances, mutilation may not be appropriate. The following methods should be used to prevent misrepresentation:
(1) Permanently marking or stamping the parts, subparts, and material as “Not Serviceable.” (Ink stamping is not an acceptable method)…
The FAA Advisory Circular 21-43, dated October 16, 2009, Appendix E, states, in pertinent part:
Manufacturers disposing of scrap products and articles may choose to release them for legitimate non-flight use. This non-flight use may include training, education, research and development, tool set up, or non-aviation applications. In such instances, mutilation may not be appropriate. The following methods may be used to prevent future misrepresentation:
a. Permanently and clearly mark the products and articles as “Not for Aviation Use” and “Not Servicable.” Ink stamping is not normally considered an acceptable method unless indelible ink is used and the products and articles are checked to ensure the ink cannot be removed.
Therefore, because the FAA does not require the destruction of bearings not suitable for aviation use, and the importer has not provided any evidence that the subject bearings can no longer be used as bearings, we find that the merchandise does not satisfy the definition of “waste or scrap,” provided in note 8(a) to Section XV, HTSUS. As such, the bearings are precluded from classification under heading 7204, HTSUS.
Finally, MTU contends that Headquarters Ruling Letter (“HQ”) 952994, dated January 6, 1993, is persuasive and should apply to this protest. However, the telephone component at issue in HQ 952994 was described as “irreparable” and could only be used for “reclamation purposes.” In this instance, the protestant has not demonstrated that the bearings can no longer be used as bearings. Therefore, based on all of the foregoing, we conclude that the bearings are properly classified in heading 8482, HTSUS. The bearings’ subheading classification will depend on the various types of bearings that are the subject of the protest.
Bearings are Properly Valued under the Fallback Method
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the
United States” plus amounts for five enumerated statutory additions. 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. Transaction value is not available as a method of appraisement in this case because there is no bona fide sale between MTU and the U.S. inspection facilities.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); the deductive value (19 U.S.C. § 1401a(d)); the computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. § 1401a(c). As stated above, since there is no sale, this basis of appraisement is not available.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the United States in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. See 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. See 19 U.S.C. § 1401a(d)(3). In this case, because the imported bearings that are not able to be repaired are not being resold in the United States to the scrap dealers in the condition as imported (imported as bearings but sold as scrap metal), they cannot be appraised under the deductive value method. However, a sale to a scrap dealer or payment to a disposal company of the used bearings, if made within 90-180 days of importation, could be the basis for a superdeductive value.
The next method of appraisement is the computed value method. Under this method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. § 1401a(e)(1). Due to the lack of original cost and sales records related to the returned used goods, there is insufficient information available to appraise the merchandise pursuant to the computed value method.
When merchandise cannot be appraised under the methods set forth in
19 U.S.C. § 1401a(b)-(e), its value is determined in accordance with the “fallback” method set forth in section 402(f) of the TAA (codified at 19 U.S.C. 1401a(f)). The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. See 19 U.S.C. § 1401a(f) and 19 C.F.R. § 152.107. There are certain prohibited bases of appraisement under section 402(f), including the selling price of merchandise produced in the United States, minimum values and arbitrary or fictitious values. 19 U.S.C. § 1401a(f)(2).
Under section 500 of the Tariff Act of 1930, as amended and codified at 19 U.S.C. § 1500, which sets forth CBP’s general appraisement authority, the appraising officer may:
[F]ix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding. . . .
19 U.S.C. § 1500(a). In this regard, the Statement of Administrative Action, which forms part of the legislative history of the Trade Agreements Act of 1979, provides in pertinent part:
Section 500 allows Customs to consider the best evidence available in appraising merchandise. . . . It authorize (sic) the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
Statement of Administrative Action, H.R. Doc. No. 153, 96th Cong., 1st Sess., pt. 2, reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981) at 67.
In HRL H019073, dated November 2, 2007, imported contaminated soil was valued under the fallback method based on the disposal fee paid to the importer. In this case, if the superdeductive value were not available as a basis of appraisement, valuation of the used bearings under the fallback method, using the value of the sale as scrap metal or the disposal fee, would be the best evidence available in appraisement of the merchandise and would be acceptable.
Bearings Are Not Eligible for TIB Entry
As discussed above, the imported bearings may qualify for duty-free importation as U.S. goods returned pursuant to subheading 9801.00.10, HTSUS, provided the requirements of 19 C.F.R. § 10.1(g) are satisfied. Assuming the bearings do not meet the requirements for importation as U.S. goods returned, we consider whether MTU may substitute a Temporary Importation under Bond (“TIB”) entry for the ADD consumption entry pursuant to 19 C.F.R. § 10.31(g).
Although it originally entered the bearings under antidumping consumption entries (entry type 03), MTU claims that the bearings are eligible for entry under a TIB in subheading 9813.00.05, HTSUS. Subheading 9813.00.05, HTSUS, provides for the temporary, duty-free entry, under a TIB, of merchandise imported into the United States “. . . to be repaired, altered or processed.” U.S. Note 1(a) to Chapter 98, Subchapter XIII, HTSUS, provides in pertinent part:
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. . . . For purposes of this note, an aircraft engine or propeller, or any part or accessory of either, imported under heading 9813.00.05, which is removed physically from the United States as part of an aircraft departing from the United States in international traffic shall be treated as exported.
U.S. Note 1(a), Chapter 98, Subchapter XIII, HTSUS.
Because MTU did not enter the bearings as TIB entries, MTU seeks to substitute the ADD consumption entries filed at the time of entry with TIB entries. MTU argues that such substitution is allowed under 19 C.F.R. § 10.31(g), which authorizes the substitution of a consumption entry with a TIB entry after the release of merchandise. That regulation provides as follows:
Claim for free entry under Chapter 98, Subchapter XIII, HTSUS may be made for articles of any character described therein which have been previously entered under any other provision of law and the entry amended accordingly upon compliance with the requirements of this section, . . . , or even though released from Customs custody if it is established that the original entry was made on the basis of a clerical error, mistake of fact, or other inadvertence within the meaning of section 520(c)(1), Tariff Act of 1930, as amended, and was brought to the attention of the Customs Service within the time limits of that section. If an entry is so amended, the period of time during which the merchandise may remain in the Customs territory of the United States under bond shall be computed from the date of importation.
19 C.F.R. § 10.31(g) (2009) (emphasis added).
We note that 19 C.F.R § 10.31(g) (2009) references a statute, section 520(c) of the Tariff Act of 1930 (the “1930 Act”), which was repealed by Congress in 2004. In 2010, however, CBP amended 19 C.F.R § 10.31(g) to reflect changes made by the Miscellaneous Trade and Technical Corrections Act of 2004 (the “2004 Act”) and authorize substitution of entry types under 19 C.F.R. § 10.31(g) in the event of a mistake within the meaning of 19 U.S.C. § 1514(a). In the 2004 Act, Congress repealed section 520(c)(1) of the 1930 Act, codified at 19 U.S.C. § 1520(c). See 2004 Act, Pub. L. 108-429, § 2105, 118 Stat. 2598 (2004). Although section 520(c)(1) of the 1930 Act was repealed, the 2004 Act amended the customs protest statute to allow importers to file protests to correct “any clerical error, mistake of fact, or other inadvertence.” Pub. L. 108-429, § 2103, 118 Stat. 2597.
MTU argues that the effect of the changes under the 2004 Act, i.e., amendment of 19 U.S.C. § 1514(a) and repeal of 19 U.S.C. § 1520(c), was to allow substitution of a consumption entry with a TIB entry under 19 C.F.R. § 10.31(g) up to 180 days after the date of liquidation. In addition, MTU argues that, as amended, a TIB entry substitution is allowed regardless of whether the filing of the consumption entry was the result of inadvertence.
We disagree that, as amended by the 2004 Act, 19 U.S.C. § 1514(a) authorizes CBP to reliquidate under 19 C.F.R. § 10.31(g) to substitute a consumption entry with a TIB entry regardless of whether there was a clerical error, mistake of fact, or other inadvertence that caused the importer to enter the merchandise under a consumption entry. As amended, the protest statute, 19 U.S.C. § 1514(a), provides as follows:
(a) Finality of decisions; return of papers
Except as provided in subsection (b) of this section, . . . , any clerical error, mistake of fact, or other inadvertence, whether or not resulting from or contained in an electronic transmission, adverse to the importer, in any entry, liquidation, or reliquidation, and, decisions of the Customs Service, including the legality of all orders and findings entering into the same, . . .
19 U.S.C. § 1514(a)(2004) (emphasis added). Based on the plain language of the amendment contained in section 2103 of the 2004 Act, clerical errors and mistakes of fact may be the subject of a protest. Congress retained, however, the requirement that in order to be eligible for relief there must in fact be a “clerical error, mistake of fact, or other inadvertence.” Moreover, even as revised in 2010, 19 C.F.R. § 10.31(g) continues to require that there be a “clerical error, mistake of fact, or other inadvertence” in order for CBP to allow an importer to substitute a consumption entry with a TIB entry. See 19 C.F.R. § 10.31(g) (2010). In this case, MTU does not assert that the company’s failure to enter the bearings under a TIB entry was the result of any inadvertence, error or mistake. In the absence of such an error, mistake or inadvertence, CBP has no authority to allow substitution of a consumption entry with a TIB entry under 19 C.F.R. § 10.31(g). We therefore determine that MTU’s liquidated consumption entries may not be converted to TIB entries under 19 C.F.R. § 10.31(g).
HOLDING:
Consistent with the decision set forth above, you are hereby directed to GRANT in part and DENY in part the protest as set forth above and refund any overpayment of duties.
You are to mail this decision to counsel for the inquirer no later than 60 days from the date of this letter. On that date, the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division