HQ 0220833 - Same condition drawback; 19 U.S.C. 1313(j); ultrasound units; modifications more than incidental but less than a manufacture - United States International Trade Commision Rulings

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HQ 220833

February 23, 1989

DRA-4-CO:R:C:E 220833 GG

CATEGORY: DRAWBACK

Regional Commissioner
North Central Region
U.S. Customs Service
55 East Monroe Street
Suite 1501
Chicago, Illinois 60603-5790

RE: Same condition drawback; 19 U.S.C. 1313(j); ultrasound units; modifications more than incidental but less than a manufacture

Dear Sir:

This is in response to your request for a legal opinion dated August 31, 1988 concerning drawback claims made by General Electric Medical Systems (GEMS) of Milwaukee, Wisconsin.

GEMS imports ultrasound units from Japan and then exports some of the units to Europe. Prior to their exportation, certain procedures are performed on the units to bring them into compliance with European regulatory (IEC) requirements: 1) All external input/output connection and warning labels are replaced with German labels; 2) various labels are installed inside the units; 3) a safety agency compliance label is attached; 4) an internal wiring harness, the external power cord, and the supplied footswitch are exchanged with IEC compliant cables and footswitches of equivalent value; and 5) various fuses are replaced with IEC approved fuses.

GEMS is claiming drawback on the exported ultrasound units and has sought guidance from the U.S. Customs Service on what type of drawback to file for. The issue is whether the procedures described above are incidental operations or a manufacture for drawback purposes.

The first issue to be addressed is whether the described operations are merely incidental, thus enabling GEMS to file for drawback under 19 U.S.C. 1313(j). That drawback provision allows a refund of duties when merchandise is exported in the same condition as when imported. Use of the imported merchandise generally renders it ineligible for same condition drawback; incidental operations (including, but not limited to, testing, cleaning, repacking, and inspecting) are not, however, considered a use.

The Customs Service has ruled on a similar factual situation in Customs Service Decision (C.S.D.) 82-7, when the adjustment of TV sets for use in Europe was held to be more than an incidental operation. Specifically, the adjustment consisted of unpacking the TV's, switching the voltage from 220 to 110 for reworking, setting the vertical and horizontal hold controls, turning the voltage indicator back to 220v, and repackaging the TV's for export. This ruling states in pertinent part that

The law specifically allows testing and inspecting. However, if such testing indicates the article as tested . . . is not capable of performing its intended function, there is nothing in the law which allows repair or adjustment in addition to testing to render the article functional. It is clear in this case that as imported, the TV sets could not be used in the area of intended sale, or if used there, would give unsatisfactory reception. The operations performed in the United States rendered the sets functional for the sales market. In short, the sets to be exported are not in the same condition as when imported.

GEMS' procedures, which involve exchanging or adding labels, exchanging various cables and footswitches, and replacing fuses to render the ultrasonic units fit for use in European markets, closely resemble the adjustments outlined above. The units are adjusted so that they can be sold overseas; following these procedures they can no longer be used in the United States and are no longer in the same condition as when imported. GEMS cannot claim drawback under 19 U.S.C. 1313(j).

If the modifications done to the ultrasound units were more then incidental, were they a manufacture for drawback purposes? The procedures performed by GEMS can be characterized as a reworking or reconditioning of the merchandise in question. Such operations have been held by Customs not to constitute a manufacture or production for drawback purposes. See, e.g., T.D. 55248(1) and information letter DRA-1-CO:R:CD:D, 219277 RB, dated July 7, 1987. A manufacture requires a transformation; a new and different article must emerge, having a different name, character or use. Anheuser - Busch Brewing Association v. United States, 207 U.S. 556 (1907). The ultrasound units, although destined for a different market, are still ultrasound units after being brought into compliance with IEC requirements; their name, basic character and use remain the same therefore they are not manufactured for drawback purposes.

In light of the foregoing discussion, you are directed to deny GEMS' same condition or direct identification drawback claims with respect to this merchandise.

Sincerely,

John Durant
Director, Commercial

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