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HQ 558987




May 17, 1995

CLA-2 R:C:S 558987 DEC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Ms. Mary E. Gill
AT&T Corporation
Law Department
Guilford Center 1-3A10
5420 Millstream Road
Greensboro, North Carolina 27420

RE: NAFTA; Article 307; Digital voice terminals; Repair/Alteration; HRL 555819;
HRL 555758; 19 C.F.R. ?181.64; Disassemble; AT&T Merlin Legend

Dear Ms. Gill:

This is in response to your letter of December 9, 1994, requesting a ruling regarding the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to voice terminals imported from Mexico.

FACTS:

AT&T Corporation (AT&T) is shipping its Merlin Legend voice terminals to Elamex, a contract repair facility in Juarez, Mexico and will be upgrading these articles to correct several problems with the reliability of the Merlin Legend products. The reliability problems have been traced to three circuits: (1) the flex circuit; (2) the Line Interface Processor (IC102), and (3) the User Interface Processor (IC601). AT&T plans to routinely replace all three of these circuits in any Merlin Legend sent for repair regardless of whether the particular article was sent for repair of these circuits in addition to repairing any other faulty part.

The flex circuit provides the electrical contacts for the switches and dial pad on the voice terminal and it contains the red and green LED lamps that signal call
appearance. These functions are built into the circuit and cannot be repaired separately. The replacement flex circuit will appear identical to the original design. All the LED's and connectors are in identical locations.

You stated that the two integrated circuits contain design problems that have diminished the reliability of these units. The IC102 provides the interface between the user designated choices and the transmission lines. The upgrade versions of this integrated circuit add an additional check that allows the processor to reset itself if it locks up. To replace the IC102, the old integrated circuit must be popped off the printed wiring board (PWB) and replaced.

The IC601 provides the interface between the user and the line interface processor, whether that interface involves a message relayed through buttons, lighted lamps, or a readable language display. The Merlin Legend is designed with the capability of displaying certain text in either French, English, or Spanish. Some of these integrated circuits were incorrectly coded and have an error in the Spanish language text. To correct this problem, AT&T will replace the IC601. The functions of this item will not change in any way except that it will provide accurate Spanish language displays.

You state that the replacement of the flex circuit, IC102 and IC601 will constitute a change in value of about 13 percent on the unit's original manufacturing cost. The steps involved in the operations are as follows:

1. Receipt of the terminals with the handset separated from the telephone set housing.
2. Testing of the units for functional problems or upgrading.
3. Disassembly of units for a) replacement of damaged parts. b) upgrading of three circuits with new functional design circuits.
4. Functionality test - if the unit fails, it goes to a troubleshooting center which determines the type of repair needed.
5. Reassembly of the unit.
6. Surface cleaning of the unit.
7. Replacement of the handset.
8. Further quality control testing and repackaging.

You state that there is no commingling of parts with like parts from other units. In particular, you state that the PWB will remain inside the plastic housing unless the housing is broken. If the housing must be replaced, the serial number will be removed from the broken housing and re-affixed to the replacement housing.

ISSUE:

Whether the operations performed to the Merlin Legend voice terminals constitute repairs or alterations within the meaning of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), thereby qualifying the returned voice terminals for the duty exemption under this tariff provision.

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). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64 of the North American Free Trade Agreement (NAFTA), Interim Rules (19 CFR 181.64) are met.

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 and different article. Press Wireless, Inc. v. United States, 6 Cust. Ct. 102, C.D. 438 (1941). In Press Wireless, radio tubes were sent abroad for repairs which involved the use of heavier filament than that used in the original manufacture of the tubes. Also, the markings on the articles were erased, and new numbers were substituted to facilitate matching the tubes for use in transmitters. The court held that the use of improved materials in the restoration was immaterial, as long as the article was not considered a new and different article of commerce or its identity was destroyed.

You cite Headquarters Ruling Letter (HRL) 555819, dated October 11, 1991, where up to 17 parts were replaced in combination telephone answering machines. Customs stated that 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. Furthermore, Customs stated that where the foreign repair operations entail 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 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. It was held in HRL 555819, that under the circumstances of that case, the foreign operations constituted "repairs" within the meaning of subheading 9802.00.50, HTSUS.

You also cite HRL 555758 dated June 10, 1991, where Customs considered modifications to NATO Hawk missiles, which included replacing old gaskets, painting covers, replacing and adding components, and modifying the printed circuit boards which did not include reprogramming. One of the purposes of these operations was to upgrade the missiles to combat recently developed countermeasures. Customs held that the processes qualified as alterations under subheading 9802.00.50, HTSUS, because the missiles were altered to comply with changed specifications, and performed the same function after the alterations were performed.

It is claimed that since the essential identity of the Merlin Legend voice terminals is imparted by the main PWB which will not be replaced, and the upgraded flex circuit, the IC102, and the IC601 which are replaced will make the Merlin Legend product perform more reliably, or in the case of the IC601, with corrected language.

We agree. We find that the operations performed in Mexico, consisting of testing, disassembly, the replacement of damaged parts, the upgrade of the three circuits (flex circuit, IC102, and IC601), the functionality testing, and reassembly, constitute repairs or alterations since the Merlin Legend voice terminals will have the same function and their essential identity is imparted by the PWB which is not replaced. Consistent with the rulings cited above, the completed units qualify for the duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States, provided the documentary requirements of 19 CFR 181.64 are met. Basically, information must be presented in the required documents which enables Customs to verify that the articles returned are the same as the articles exported. For example, identification marks or numbers, such as serial numbers, for the units must be stated in the repair declaration, when they are available.

HOLDING:

On the basis of the information submitted, it is our opinion that the Mexican operations enumerated above constitute repairs or alterations since the essential identity of the voice terminals is retained. The repaired digital voice terminals are entitled to duty-free treatment under subheading 9802.00.50, HTSUS, when returned to the United States provided the documentary requirements of section 181.64 are satisfied.

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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