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HQ 558713




December 22, 1994

CLA-2 CO:R:C:S 558713 DEC

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.50

Mr. Alex Romero, Jr.
A.F. Romero & Company, Incorporated
P.O. Box 989
Calexico, California 92231-0989

RE: NAFTA; Article 307; Subheading 9802.00.50, HTSUS; Repair/Alteration;
19 CFR 181.64; Article 509

Dear Mr. Romero:

This is in response to your letter dated August 23, 1994, on behalf of Allied Signal Automotive (Allied), in which you seek a determination of the eligibility of certain turbochargers which are reconditioned in Mexico for duty free treatment pursuant to Article 307 of the North American Free Trade Agreement (NAFTA). Your August 19, 1994, letter also raises issues that are within the scope of the Value Branch of the Office of Regulations and Rulings and will be addressed in a separate ruling.

FACTS:

Allied collects used, unusable, and scrapped turbochargers whose country of origin are unknown. These turbochargers are referred to as "cores." These cores are sent to Allied's plant in Mexico where they are disassembled. At this stage, Allied employees determine what components may be salvaged and which are discarded as scrap. The salvageable components are put through a reconditioning process. Once reconditioned, a determination of whether the reconditioned components are usable is made. The components that are deemed usable are referred to as remanufactured parts ("reman" parts) and are put into Allied's inventory for use. The unusable components are scrapped. The inventory of the "reman" parts and the new
components that are used in Allied's operations are segregated, but are fungible with respect to the actual assembly operations.

In filling orders for turbochargers, Allied's computerized inventory system will instruct the employees as to what components will be used in the assembly of the turbochargers. The computer is designed to fill the orders using as many components from the "reman" parts inventory as possible. Components that are required, but not available in the "reman" inventory, are taken from the new components inventory. Once the assembler of the turbochargers physically collects the components from the respective inventories, the new and "reman" components are commingled.

ISSUE:

Whether the exported turbochargers of unknown origin that are disassembled and subjected to reconditioning operations in Mexico are entitled to duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), when returned to the United States.

LAW AND ANALYSIS:

Articles returned to the United States after having been exported to Mexico to be advanced in value or improved in condition by repairs or alterations may qualify for duty-free treatment under subheading 9802.00.50, HTSUS, provided that the foreign operation does not destroy the identity of the exported articles or create new or different articles. Entitlement to this tariff treatment is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries, Inc. v. U.S., 3 C.I.T. 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished articles. Dolliff & Company, Inc. v. U.S., 455 F. Supp. 618 (C.I.T. 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979).

Repairs are operations aimed at restoring articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or to create a new or different article. Press Wireless, Inc. v. U.S., C.D. 4386, Cust. Ct. 102 (1941). The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purposes of subheading 9802.00.50, HTSUS, if the particular article does not lose its identity and the replacements and/or additions are not so extensive as to create a new or different article. Where the foreign repair operation entails the complete disassembly of the exported article and numerous
component parts of the article are replaced, the concept of essential identity may come into play. This concept is employed under this tariff provision to insure that the article imported is the same as the article exported, and operates by identifying certain component parts of an exported article as embracing the essential identity of the particular article exported. Component parts so identified are to be maintained together throughout the repair operation as a matched set. Thus, replacing any one of these essential components would violate the uniqueness of the matched set and result in a new article of commerce, thereby precluding eligibility for the partial duty exemption under subheading 9802.00.50, HTSUS. See Headquarters Ruling Letter (HRL) 555443, dated November 30, 1990 and rulings cited therein. In HRL 554568, dated August 25, 1987, Customs stated that:

In view of the many court cases and established precedents holding that the returned article must be merely a changed version of the exported product but in a repaired or altered condition and the change must not destroy the identity, it would be difficult to regard the total breakdown of the exported starters and alternators into their multiple parts, with random indiscriminate reassembly into new, remanufactured units, as a mere repair of the exported articles.
The result is not a repaired version of exported units but a collection of new, remanufactured units that are sold in the automotive after-market.

The information provided to us in this case indicates that the exported turbochargers are completely disassembled in Mexico and the salvageable components are reconditioned and then commingled with other like parts from other units until needed for the reassembly operation. There is no indication that the components comprising the essential identity of the turbochargers are maintained as a matched set throughout the reconditioning and reassembly operations. Thus, when the turbochargers are reassembled with both new and used components, the resulting articles are not repaired or altered pursuant to subheading 9802.00.50, HTSUS. Rather, the described processing destroys the identity of the exported turbochargers and results in new and different manufactured articles comprised of various new and reconditioned components. These processing operations will cause the exported and disassembled turbochargers to lose their individual identity and will create new and different articles.

HOLDING:

The turbochargers that are exported for disassembly, reconditioned, and subjected to various replacement and repair operations in Mexico will become new and different articles and are not entitled to duty-free treatment under subheading 9802.00.50, HTSUS, when returned to the United States.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer.

Sincerely,

John Durant

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