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HQ 555724


December 17, 1990

CLA-2 CO:R:C:V 555724 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, D.C. 20036-2395

RE: Applicability of duty exemption available under HTSUS subheading 9802.00.50 to airbag sensors re-labeled and tested.Alteration; 055053; 058662; 063112; 200136; T.D. 56320(1); 071159; 554996

Dear Mr. Glick:

This is in response to your letter dated August 21, 1990, on behalf of PEBAC, S.A. de C.V., Breed Automatic Corporation, and Parker and Company, requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to airbag sensors imported from Mexico.

FACTS:

Breed Automatic imports airbag sensors into the U.S., which are electro-mechanical crash sensors designed to activate an airbag in a crash situation. Breed sometimes returns the airbag sensors to Mexico for a re-labeling process. The re-labeling is done, at the request of customers, to conform the label to actual specifications of the product (e.g., a label may not have the correct automobile reference marking), engineering changes or for identification. Occasionally, customers find a defective airbag sensor in a batch and request that the entire batch be returned for re-labeling and testing. If a sensor is found to be defective, it is disposed of and not re-exported into the U.S.

When the re-labeling process occurs, industry requirements mandate that a testing operation also take place. The re- labeling process consists of:

1. scanning the old and new label;
2. testing for electrical continuity in the circuits; and 3. scanning the old and new label again;
4. re-labeling with the new label; and
5. entering the new label number into the tracing system.

Upon completion of the re-labeling and testing processes, the airbag sensors are returned to the U.S.

ISSUE:

Whether the airbag sensors will be eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations preformed 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), aff'd, C.D. 1752, 36 Cust.Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 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. 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, 599 F.2d 1015 (1979).

Mere testing abroad will not qualify the articles for subheading 9802.00.50, HTSUS, treatment. See, Headquarters Ruling Letter (HRL) 055153 dated August 17, 1978, (electronic components which are visually inspected for defects and then returned to the U.S. are not eligible for treatment under item 800.00 or 806.20, Tariff Schedules of the United States (TSUS) (the precursor provisions to subheadings 9801.00.10 and 9802.00.50, HTSUS, respectively)). However, when testing is performed in connection with another operation, such as a cleaning or repair operation, the articles returned to the U.S. will be eligible for the duty exemption available under item 806.20, TSUS. See, HRL 055153 (cleaning and testing of electronic components is permissible under item 806.20, TSUS); HRL 058662 dated December 29, 1978, (testing and replacement of parts qualifies as a repair under item 806.20, TSUS); and HRL 063112 dated July 31, 1979, (visual and electronic testing and repair of defective parts qualifies the returned articles for the duty exemption available under item 806.20, TSUS).

We have previously ruled that marking or affixing a label to a product constitutes an alteration. See, T.D. 56320(1) dated September 17, 1964 (electrical diodes exported to Mexico for inspection, evaluation, and stamping of their electrical diode characteristics were entitled to treatment under 806.20, TSUS); HRL 071159 dated March 2, 1983 (zener diodes exported to Mexico for marking and packaging operations were entitled to treatment under item 806.20, TSUS, as the printing operation has no more significance that a label for identification purposes); and HRL 554996 dated June 30, 1988 (sunglasses exported for inspection, adjustment, and retagging were eligible for entry under item 806.20, TSUS).

Based on our prior rulings, testing, by itself, does not constitute an alteration. However, testing accompanied by re- labeling of the airbag sensors is considered an alteration under subheading 9802.00.50, HTSUS. In the present case, the airbag sensors are complete articles when returned to Mexico for the re- labeling process. The re-labeling and testing are not part of the original manufacturing operation, but are merely performed to conform the airbag sensors to the actual specifications of the product into which the airbag sensors will be installed. The airbag sensors can be used even if improperly labeled. The re- labeling and testing operations will not destroy the identity of the airbag sensors, nor create a new or commercially different article.

HOLDING:

On the basis of the information submitted, it is our opinion that the re-labeling and testing operations performed abroad are considered an alteration. Therefore, the imported airbag sensors may be entered under subheading 9802.00.50, HTSUS, with duty only on the value of the foreign processing, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8).

Sincerely,

John Durant, Director
Commercial Rulings Division

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