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HQ 225969

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June 16, 1995

DRA-1-09-R:C:E 225969 JRS

CATEGORY: DRAWBACK

Regional Director, Commercial Operations Division U.S. Customs Service
Northeast Region
10 Causeway Street, Room 801
Boston, MA 02222-1056

RE: 19 U.S.C. 1313(a); manufacture or production; T.D. 81-234

Dear Sir:

This is in response to your request for Internal Advice, dated January 31, 1995 (FILE: DRA-1-O:CO:L DJG), concerning the applicability of T.D. 81-234 on Stow Manufacturing Company's proposal. Our advice follows.

FACTS:

Stow Manufacturing Company has applied to your office to utilize the general manufacturing drawback contract, T.D. 81-234, for direct identification under 19 U.S.C. 1313(a). The company imports light construction tools and equipment typically from Japan under subheadings 8430.81 and 8429.40, HTSUS. This merchandise is in a substantially complete state or is entirely complete. The company states that these articles are either imported with non-electric engines incorporated in them, or, in some cases, imported without engines.

Stow Manufacturing proposes that when the imported article is complete with an engine, the engine will be removed and replaced with a domestically produced engine, and if lacking an engine at the time of importation, a domestic engine will be assembled into the unit prior to export.

The details of the operation are set forth as follows:

After importation and receipt at the facility, the articles undergo testing and evaluation; removal of attached non-electric engine (if imported with motor) and replacement with a domestic engine; assembly with additional components; and adjustments to performance to meet required specifications. In cases where the article is imported without an engine, a domestic engine is assembled into the article; assembly with additional components; and adjustments to performance to meet required specifications. In all cases, some assembly/manufacture is performed on the articles in question prior to export.

The company proposes that where articles are imported without engines, and one is assembled thereto, its drawback claim will be for 99% of the duties paid on the imported article. However, in the cases where imported motors are replaced with domestic engines, the removed foreign engine can be considered a valuable waste. The company proposes in the cases where the imported engines are removed/replaced, the domestic value (the company's purchase price for identical imported engines) will be deducted from the value of the imported article prior to the calculation of duty drawback claimed. The example given is: If a vibratory tamper valued at $2000 is imported under subheading 8430.81, HTSUS, dutiable at 2.5%, and the imported engine is removed (domestic price for an identical engine is $200), and replaced with an domestic engine, the company's drawback claim would be for 99% of $1800 x 2.5%, or $45 x 99%.

ISSUE:

Whether the proposed operation is a "manufacture" for drawback purposes under 19 U.S.C. 1313(a). And, if so, whether the removed imported engine may be treated as "valuable waste" and its value calculated in the manner proposed.

LAW AND ANALYSIS:

Under title 19, United States Code, section 1313(a), drawback is authorized "[u]pon the exportation of articles manufactured or produced in the United States with the use of imported merchandise", upon compliance with the provisions in 19 U.S.C. 1313 and the Customs Regulations issued thereunder (19 CFR Part 191). Generally, in determining whether there has been a manufacture or production for drawback purposes, Customs has long used the criteria in the case of Anheuser-Busch v. United States, 207 U.S. 556 (1908). Under that case, a manufacture or production is considered to have occurred when the merchandise under consideration is changed or transformed into a new and different article having a distinctive name, character or use. Since then, in the case of United States v. International Paint Co., 35 CCPA 87, C.A.D. 376 (1948), it has been held that the fact that an exported product does not have a distinctive name different from that of the imported product does not preclude there being a manufacture or production for drawback purposes.

The described operation performed on the construction equipment which is imported without an engine is an assembly operation when an engine is incorporated into it. It is well-established that assembly operations that result in a new and different product with a distinctive name, character or use constitute a manufacture or production for drawback purposes under 19 U.S.C. 1313. See C.J. Holt & Co., Inc. v. United States, 27 Cust. Ct. 88 (1951). Thus, incorporating an engine into an article which is lacking one is a manufacture which is eligible for drawback under 19 U.S.C. 1313(a).

However, the equipment which is imported in an entirely complete condition, that is, imported with engines, would not qualify for drawback when the non-electric engines are replaced with domestically produced engines. The operation is merely a replacement of one engine for another engine, which is simply an alteration of a complete article; no new or different article has resulted. Alterations and repairs performed on already complete articles are not considered a manufacture or production for drawback purposes. See T.D. 40793(G); T.D. 55091(3).

Unless the company will only claim drawback against the entries of engineless construction tools and equipment upon the exportation of construction equipment with engines, T.D. 81-234 may not be utilized.

Consequently, since the act of removing an engine and substituting another engine is not a "manufacture" for drawback purposes, the question of whether the removed imported engine may be treated as a "valuable" waste and the proper method of calculating its value under a drawback claim is rendered moot.

HOLDING:

The operation of installing engines into light construction equipment and tools imported without engines is a "manufacture" under 19 U.S.C. 1313(a). The operation of replacing an engine from a completely finished imported construction tool or equipment with a domestically produced engine is not a "manufacture" under 19 U.S.C. 1313(a) and, as such, does not qualify under the general contract for direct identification manufacturing drawback, T.D. 81-234.

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

John Durant, Director Commercial Rulings Division

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