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HQ 557661




November 14, 1994

CLA-2 CO:R:C:S 557661 CW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

District Director
555 Battery Street
San Francisco, CA. 94111

RE: Internal Advice Request No. 46/93; Eligibility of returned, repaired telephone products for a partial duty exemption

Dear Sir:

This is in reference to your memorandum of May 6, 1993, forwarding a Request for Internal Advice initiated by AT&T, concerning the acceptability of an accounting method to trace repaired goods which are entered under subheadings 9802.00.40 and 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS). This office received the Internal Advice Request from the National Import Specialist Machinery Branch, New York Seaport, on October 27, 1993.

FACTS:

The Consumer Products division of AT&T exports defective corded and cordless telephones, telephones with integrated systems and telephone answering systems to repair facilities in Hong Kong, Singapore, Malaysia, Thailand and Mexico. Articles repaired in the Far East are entered through the ports of San Francisco and Los Angeles, while articles repaired in Mexico are entered through the ports of Laredo, El Paso and, recently, Harlingen.

When the defective telephone products subject to this Internal Advice were exported, AT&T filed with Customs Certificates of Registration on Customs Form (CF) 4455 listing the quantity and models being exported. AT&T also entered this export shipment information into a data base at that time. Each of the foreign repair facilities enters the articles to be repaired into a general repair inventory. When repaired articles are returned to the U.S., AT&T reconciles the imported quantity against the exported quantity (as reflected on the CF 4455) by using a first-in-first-out (FIFO) inventory method. In other words, the first articles received at the repair facilities and placed into inventory, as identified in the data base, are presumed to be the first to be taken out of inventory, repaired, and returned to the U.S.

According to AT&T, newly manufactured or remanufactured telephone products are not substituted for articles which were exported for repairs and, in fact, new articles are not imported in the same shipments as repaired articles. AT&T states that in "...most instances, substitution of new articles is impossible because there exists no source of new articles near to the repair facility."

A certain portion of the exported articles are found to be non-repairable and are junked. The number of junked articles is recorded by the repair facilities and they are eventually removed from AT&T's accounting records. Thus, according to AT&T, all of the articles listed on the CF 4455s are accounted for.

AT&T maintains that:

[a] direct link from a repaired article to the exact export shipment from which it originated is not necessary to ensure that the article is eligible for classification under the repair provisions. A FIFO method of tracing repaired articles to exports meets the statutory requirements, and review of the regulations, cases and rulings indicates such method would be acceptable. The export documentation maintained by AT&T and the certification from the repair facility evidence that every article imported under the repair program had been exported from the U.S. We do not believe that an article exported for repair must be tied-back to the CF 4455 under which its export was registered in order to entitle the repaired article to treatment under HTSUS 9802.00.40 or .50. Identification of the exact export shipment from which the repaired article originated is not necessary to enforce the law, and should not be required.

You state in your memorandum of May 6, 1993, that the documentation requirements set forth in section 10.8, Customs Regulations (19 CFR 10.8), for goods entered under subheadings 9802.00.40 and .50, HTSUS (both before and after those requirements were modified by T.D. 94-47), provide Customs with a means to trace repaired articles back to when those specific articles were exported. You indicate that the use of a FIFO system does not reconcile the CF 4455s in accordance with 19 CFR 10.8 and, therefore, the repaired articles are not entitled to tariff treatment under subheading 9802.00.40 or .50, HTSUS.

ISSUE:

Whether, under the circumstances described above, the returned, repaired telephone products are entitled to tariff treatment under subheading 9802.00.40 or .50, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.40, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations made pursuant to warranty. Subheading 9802.00.50, HTSUS, provides the same partial duty exemption for articles exported for repairs or alterations made other than pursuant to warranty. Such articles are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

Prior to the modification of the documentation requirements set forth in 19 CFR 10.8 effected by T.D. 94-47, this provision required the filing of a Certificate of Registration, CF 4455, with the district director before exportation of the articles to be repaired. The Certificate includes the quantity and description of the articles being exported and the dates when, and ports where, the articles were examined by Customs and laden aboard the exporting carrier. The form also includes a statement to be signed by the importer when the articles are returned that "[d]uty-free entry is claimed for the described articles...." The regulation also requires the importer to file with Customs a declaration of the person who performed the repair or alteration, stating "in substantially the following form" that the:

"...articles herein specified are the articles which, in the condition in which they were exported from the United States, (Name and address of owner or exporter in the United States)...."

This declaration also includes the "marks and numbers" relating to the articles as well as a description of the articles. In addition, 19 CFR 10.8 requires the filing of a declaration of the owner, importer, consignee, or agent that "the articles entered in their repaired or altered condition are the same articles covered by the Certificate of Registration."

The above documentation requirements (which existed at the time the articles subject to this request were imported) establish that articles that are returned to the U.S. and entered under subheading 9802.00.40 or 9802.00.50, HTSUS, must be traced back to the export shipment and Certificate of Registration encompassing those specific imported articles. These requirements are designed to prevent, to the extent possible, the substitution of new or remanufactured articles for the articles that were exported from the U.S. for repairs or alterations. The use of a FIFO inventory
method to "reconcile" CF 4455s does not satisfy the importer's responsibility, under the above documentation requirements, to to establish that the "articles entered in their repaired or altered condition are the same articles covered by the Certificate of Registration." (Emphasis added).

However, 19 CFR 10.8(j) provides that:

If the district director concerned is satisfied because of the nature of the articles, or production of other evidence, that the articles are imported under circumstances meeting the requirements of subheading 9802.00.40 [or 9802.00.50], HTSUS, and related section and additional U.S. notes, he may waive the declaration [of the person who performed the repair or alteration and the declaration of the owner, importer, consignee or agent].

In a telephone conversation with your office, we were advised that there was no indication or suspicion, in regard to the merchandise subject to this Internal Advice Request, that newly manufactured or remanufactured telephone products were substituted for the articles exported for repairs. The information available to us indicates that, at least during the period encompassed by this request, the foreign facilities in which the articles were repaired were not also producing new or remanufactured products. Thus, the potential for substitution of articles not entitled to subheading 9802.00.40 or 9802.00.50, HTSUS, treatment appears to have been minimal. Under these circumstances, we are satisfied that the articles subject to this request were exported for repairs and that they otherwise meet the conditions and requirements of subheading 9802.00.40 or 9802.00.50, HTSUS. Therefore, the requirement, pursuant to the declarations provided for in 19 CFR 10.8, of tracing the imported articles back to the date and place of export is waived in this case.

HOLDING:

Based on the information provided, we are satisfied that the articles subject to this request were exported for repairs and imported under circumstances meeting the conditions and requirements of subheading 9802.00.40 or 9802.00.50, HTSUS. Therefore, they are entitled to the partial duty exemption under those provisions. This decision is specifically limited to the entries subject to this request.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will take steps to make the 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.

Sincerely,

John Durant, Director

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