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HQ 558947




April 6, 1995

CLA-2 R:C:S 558947 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Frank A. Vida
Executive Vice President
Brenco Inc.
P.O. Box 246
Laredo, Texas 78042-0246

RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to Kodak IMT-350 Terminal (Reader-Printer); Mexico; remanufacturing; replace parts; Article 509

Dear Mr. Vida:

This is in reference to your letter dated December 5, 1994, requesting a ruling on behalf of Eastman Kodak Company ("Kodak"), regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to a Kodak IMT-350 Terminal (Reader-Printer) ("IMT-350") remanufactured in Mexico. Brochures were submitted with your request.

FACTS:

Kodak plans to ship Kodak Starvue II Reader-Printers ("Starvue"), and Kodak Oracle II Reader-Printers (Terminal) ("Oracle") to Industria Fotografica Interamericana, S.A. de C.V. ("IFISA") in Guadalajara, Mexico, to be remanufactured into IMT-350 terminals. The Oracle brochure indicates that this equipment is used to capture, index, and retrieve documents on microfilm without a computer. A film index gives each document a distinctive code which enables the terminal's built-in microprocessor to find documents. The Oracle also prints images on plain paper from microfilm.

The Starvue brochure indicates that this equipment also stores documents and prints them onto plain paper. The brochure also recommends a Kodak IMT-350 microimage terminal with plain-paper printing for high-volume, fully integrated technology. The IMT-350 brochure states that it combines fast, accurate document image retrieval with the economy of plain-paper printing. It also indicates that it is perfect for any business that needs to get the most out of microfilm record management. It is claimed that both the exported and imported units are still reader-printers and have the same use, except that the imported unit has upgraded features.

In Mexico, the Starvue and Oracle units are evaluated to determine, based on wear and cleanliness, which subassemblies need to be removed. Each unit is then sent to subassembly work stations where a unique number is assigned in order to trace the unit throughout the system and that the identity of the unit remains the same. The units then proceed to the teardown operation for disassembly. The parts and subassemblies removed from a unit are assigned the same unique number to assure that they are reinstalled into the same unit. Once the unit is disassembled, the majority of the dust and toner is blown off, and the cabinetry is removed, and repaired and/or painted as necessary.

Next, the parts, subassemblies, and frame proceed to individual work stations where they are cleaned, worn parts are replaced, lubrication is applied, and any necessary testing is completed. The parts required to make the unit function as an IMT-350 are added and installed. These parts consist of a modified film transport, logic boards, and a keyboard. Kodak states that these additions allow the unit to find specific documents of the film using a modified binary code. Kodak also states that these changes do not destroy the identity or essence of the unit, which still remains a reader-printer which performs the same function, but that the reimported unit only has upgraded features and can perform faster. The original data plate (either Oracle II or Starvue II) is removed and a new data plate is replaced with the new serial number. The old serial number is recorded for reference. Lastly, a functional test is completed, the unit proceeds to a quality audit work station to receive a quality performance test, and the unit is packed and shipped.

ISSUE:

Whether the remanufacturing operations performed on the Oracle and Starvue units in Mexico, constitute an alteration, thereby entitling the IMT-350 units to the duty exemption available under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Articles exported from and returned to the U.S., after having been advanced in value or improved in condition by repairs or alterations in Mexico, may qualify for a duty exemption under HTSUS subheading 9802.00.50, 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). In addition, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing. Guardian; Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64, Interim Regulations (19 CFR 181.64), are met.

You cite Headquarters Ruling Letter (HRL) 557530 dated December 15, 1993, which involved U.S. photocopiers sent to Mexico, where four gears, three chains, and a CPU board were changed to make the copier operate faster. The copiers were also cleaned, subassemblies were removed and given a unique number, worn parts were replaced, and lubrication was applied. It was held that these reconditioning operations were acceptable alterations within the meaning of subheading 9802.00.50, HTSUS.

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 regard to certain consumer electronic products which were completely disassembled, tested, and subjected to repair operations, consisting of the replacement of malfunctioning component parts and/or the addition of missing parts, Customs held that they were entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, if the essential identity of the article exported was retained. HRL 555741 dated February 25, 1991. It was stated that:

This concept (essential identity) is employed under [subheading 9802.00.50, HTSUSA] to insure that the article imported is the same as the article exported, and operates by identifying certain components 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. 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.

Returning to the case at hand, we find that the circumstances here are similar to those in HRL 557530 and HRL 557024, where in each instance the addition of a CPU board and a board set to allow the article to perform faster was an acceptable alteration. In this case, we find that the Starvue and Oracle units exported to Mexico are complete articles, function as reader-printers, and that the installation of the modified film transport, logic boards, and keyboard do not change their commercial identity. In fact, the Starvue brochure recommends an IMT-350 unit for high-volume, fully integrated technology, which indicates that these units are interchangeable. We, therefore, find that the operations performed in Mexico constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS. Furthermore, replacing worn parts are acceptable repairs within the meaning of subheading 9802.00.50, HTSUS; however, since it appears that the entire reader-printer may be completely disassembled, if any of the essential components of the reader-printer are replaced, other than the modified film transport, logic boards, and keyboard, the returned articles will not qualify for subheading 9802.00.50, HTSUS, treatment.

Lastly, you question whether the statistical reporting number required by Statistical Note 2, Chapter 98, HTSUS, is necessary since entries under subheading 9802.00.50, HTSUS, from Mexico are duty-free. Statistical data should be furnished with respect to articles classified in those headings for which a statistical suffix is shown. See Statistical Note 1, Chapter 98, HTSUS. Subheading 9802.00.50, HTSUS, provides for statistical suffixes, and the fact that an article is duty-free does not negate the need to supply a statistical number. In this case the 10 digit statistical number would be 9802.00.5060.

HOLDING:

On the basis of the information submitted, we find that the installation of the modified film transport, logic boards, and keyboard into the Starvue and Oracle units in Mexico do not change their commercial identity, and that these operations constitute acceptable alterations within the meaning of subheading 9802.00.50, HTSUS. Furthermore, replacing worn parts are acceptable repairs within the meaning of subheading 9802.00.50, HTSUS, as long as none of the essential components are replaced. Therefore, provided that the foregoing condition is met and the documentary requirements of 19 CFR 181.64 are satisfied, the IMT-350 units will qualify for the full duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S.

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

Sincerely,

John Durant, Director

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