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HQ 557530




December 15, 1993

CLA-2 CO:R:C:S 557530 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. C. Arthur Trust, Sr.
Vice President
Brenco Inc.
P.O. Box 246
Laredo, Texas 78042-0246

RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to U.S. photocopier with feeder sent to Mexico for reconditioning; perform faster

Dear Mr. Trust:

This is in reference to your letter dated August 3, 1993, requesting a ruling on behalf of Eastman Kodak Company, regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to a U.S. photocopier with feeder sent to Mexico for reconditioning. Photographs were submitted with your request.

FACTS:

Eastman Kodak Company ("KODAK") will send a complete Model 150F copier with feeder (including the CPU board) to Industria Fotografica Interamericana, S.A. de C.V. ("IFISA") in Guadalajara, Mexico, for reconditioning. After reconditioning and return to the U.S., the copier is referred to as a 185F Ektaprint copier with feeder. It is claimed that both the 150F and 185F models are referred to as "indirect process electrostatic photocopiers." The exported copier will be changed to increase its paper speed from 70 to 85 copies per minute so that the copier may make more copies. The new "185F" designation is necessary to indicate that it is a reconditioned "150F" that has undergone an upgrade, and not a new machine.

In Mexico, the reconditioning first involves evaluating the 150F copier to determine based on wear and cleanliness what subassemblies need to be removed. Next, the 150F is sent to subassembly work stations where a unique number is assigned so that the copier may be traced throughout the system. The parts and subassemblies that are removed are given the unique number assigned to the copier to assure that they are returned to the same copier. Once the unit is disassembled, the mainframe, parts, and subassemblies proceed to work stations where they are cleaned, worn parts are replaced, lubrication is applied, and any necessary testing is completed. The parts that are changed to make the unit function as a Model 185F consist of four gears, three chains, and a CPU board. Three front center panels for the paper supplies are also repainted. The original dataplate, showing the Model 150F remains on the copier, and a serial number overlay is used to display the new serial number. This is necessary since the catalog number and name have changed, and the Kodak computer system requires the serial number change. A new nameplate is placed on the front cabinetry panel to show the new model number. Some copiers may not have worn parts replaced but may only have the cabinetry painted, and the gears, chains, and CPU board changed. Upon completion, the parts, subassemblies, and mainframe are moved to a functional checkout work station where the operator assembles the copier and performs a complete functional test. Next, the copier goes to a quality audit work station to receive a quality performance test. Lastly, the copier is packed and shipped to distribution from which it is delivered to the customer. The photographs of the 150F and 185F are basically the same except the color on the three front center panels is different, and the feeder has less buttons.

The average net book value of the unconditioned 150F copier with feeder as shipped from the U.S. to Mexico is stated to be $549.00. The approximate cost to repair the 150F is $3,945.00, $2,100.00 of which is for labor and $1,845 for the cost of the parts. The approximate incremental cost to change the 150F to a 185F copier is stated to be $530.00, $100.00 of which is for labor and $430.00 for the cost of the parts.

ISSUE:

Whether the reconditioning operations performed on copiers in Mexico constitute an alteration or repair, thereby entitling them to the partial duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentation requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

In HRL 556992 dated May 7, 1993, notebook computers with a monochrome video display were sent to Canada to be replaced with an active-matrix color video display. The upgraded unit retained all of the original capabilities of the exported unit, (i.e., the ability to store programs, to be freely programmed, to perform computations, and to execute a program requiring logical decision). It was held that the article in its exported condition was complete for its intended use as an "automatic data processing machine", and that it could be used for that purpose without being upgraded. There was no change in the commercial identity of the computer as a result of the upgrade and no new article was created. Accordingly, the upgrade represented an alteration within the meaning of subheading 9802.00.50, HTSUS.

In HRL 557024 dated June 30, 1993, a "host computer" which was part of the Computer Assisted Medical Reconstruction and Analysis System (CAMRA) was sent to Canada where it was modified by the addition of a Canadian-produced board set which allowed the data processing speed of the computer to be increased so that it could handle certain complex software. It was stated that a standard work station could use the software but would require 60 minutes to perform the function, whereas the added board set accelerated the process. It was held that the computer in its exported condition was complete for its intended use as a "digital processing unit", and that the processing abroad did not change the identity or character of the exported article, and no new article of commerce was created. The exported computer was merely enhanced with an accelerator feature. Accordingly, the modifications performed constituted an alteration within the meaning of subheading 9802.00.50, HTSUS.

In Amity Fabrics, Inc. v. United States, C.D. 2104, 43 Cust.Ct. 64, 305 F.Supp. 4 (1959), the court held that unmarketable, pumpkin colored cotton twill-back velveteen which was exported to be redyed rendered the fabric marketable and that this improvement in the exported fabric advanced its value and improved its condition commercially. As the parties had stipulated that the redyeing in no way changed the quality, texture, or character of the material, the court concluded that the identity of the goods was not lost or destroyed by the dying process; no new article was created; there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color; and that such change constituted an alteration under the statute and Customs Regulations.

Returning to the case at hand, based on HRL 557024 where the upgraded computer accelerated the processing of the software and in Amity Fabrics where the fabric was redyed, we find that the reconditioning operations that increase the speed of the copiers and that involve repainting the cabinetry constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS. The copiers are complete articles when they are exported to Mexico, and in both instances where the parts are installed to upgrade the copiers from a Model 150F to a Model 185F and they are repainted, or where worn parts may also be replaced, no new or different article is created, but the copiers are merely made useful again and are allowed to work more efficiently.

HOLDING:

On the basis of the information submitted, we find that the reconditioning operations in Mexico, which allow the copiers to perform faster, constitute an alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, the copiers are entitled to classification under this tariff provision upon compliance with the documentary requirements of 19 CFR 10.8.

Sincerely,

John Durant, Director

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