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HQ 559080




May 1, 1996

CLA-2 RR:TC:SM 559080 KKV

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.50

District Director
U.S. Customs Service
San Diego, CA 92101

RE: Application for Further Review of Protest No. 2501-95-10002; applicability of partial duty exemption under HTSUS subheading 9802.00.50 to turbine blades, etc., and other parts of Civil Aircraft; Mexico; NAFTA

Dear Sir:

The above-referenced protest, filed by counsel on behalf of Chromizing Southwest, concerns your classification and duty assessment for turbine blades and other parts of civil aircraft imported from Mexico. Protestant claims that the articles at issue are eligible for a complete duty exemption under subheading 9802.00.50, and seeks a refund of merchandise processing fees previously paid under another subheading.

FACTS:

The subject protest was filed in connection with forty-five (45) entries purportedly covering turbine blades and other parts of civil aircraft imported from Mexico. The entries were made under subheadings C 8411.99.90.90, or MX 8411.99.90, Harmonized Tariff Schedule of the United States(HTSUS) and were liquidated duty-free but with assessment of merchandise processing fees ("MPF"). The subject protest, timely filed on January 2, 1995, contests the liquidations and seeks a refund of all merchandise processing fees on the grounds that the goods are eligible for liquidation under subheading 9802.00.50 as goods returned from Mexico after repairs or alterations and thus qualify for both duty free treatment and MPF exemption.

ISSUE:

Whether the turbine blades and other parts of civil exported to Mexico are advanced in value or improve in condition by means of repairs or alterations, and therefore eligible for duty-free treatment under subheading 9802.00.50, HTSUS, when returned to the United States.

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) and 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(c), Customs Regulations (19 CFR 181.64(c)), are met.

Article 307 of the North American Free Trade Agreement (NAFTA) and Annex 307.1 of the Agreement provide, that articles exported from the U.S. to Mexico for "repairs or alterations" may, upon their return, enter into the U.S. free of duty.

Article 307 of NAFTA provides in pertinent part as follows:

1. Except as set out in Annex 307.1, no
Party may apply a Customs duty to a good, regardless of its origin, that re-enters its territory after that good has been exported from its territory to the territory of another Party for repair or alteration, regardless of whether such repair or alteration could be performed in its territory.

The Customs regulations which implement NAFTA are contained in title 19 CFR Part 181. Section 181.64(a) defines "repairs or alterations" for purposes of NAFTA as follows:

For purposes of this section, "repairs or alterations" means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the
essential characteristics of, or create a new or commercially different good from, the good exported from the United States.

Pursuant to 19 U.S.C. 58c(b)(8)(B)(i), no merchandise processing fee may be charged for any article that is provided for under any item in Chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS), except subheadings 9802.00.60 and 9802.00.80. Consequently, MPF is not assessed on goods liquidated under subheading 9802.00.50, HTSUS.

For purposes of the duty allowance under subheading 9802.00.50, HTSUS, the replacement and/or addition of parts to restore products to their original condition may constitute repair operations, provided that the particular article does not lose its identity and the replacement and/or additions are not so extensive as to create a new or 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, as long as the article was not considered a new and different article of commerce or its identity was destroyed, the use of improved materials in the restoration was of no consequence.

Thus, application of this tariff provision is precluded where the foreign operation destroys the identity of the exported article or creates a new or different commercial article. In Headquarters Ruling Letter 554539, dated August 25, 1987, we stated that:

So long as the identity of [the exported unit] is maintained throughout the disassembly and repair process, and there is a genuine repair of parts carried out during the foreign process, these units may be entered under the repairs provision of item 806.20, Tariff Schedules of the
United States (TSUS) [the predecessor tariff provision to subheading 9802.00.50, HTSUS].

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" becomes relevant. This concept is employed in interpreting 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 HQ 555443 (dated November 30, 1990) and rulings cited therein.

The concept of "essential identity" has been the subject of many Customs rulings, one of which has been cited by the Protestant as grounds for relief in this case. In HQ 556452 (dated April 4, 1992), Customs considered gas producers. The four "essential identity" parts, namely the air inlet housing, compressor stator case, combustor housing, and nozzle support case, were first serialized, then the units were disassembled, cleaned, grit blasted, machined, non-essential components were replaced, and the units were reassembled. It was held that since the "essential identity" of the exported gas producers was preserved, the repaired gas producers qualified for the partial duty exemption under subheading 9802.00.50, HTSUS.

With regard to the some of operations performed in Mexico, Protestant admits that "some of the components are removed and replaced," but asserts that "...as long as the essential identity' parts, such as buttresses, do not lose their commercial identity, the operations constitute repairs" under subheading 9802.00.50, HTSUS. However, we note that, during a visit to the Protestant's repair facilities in Mexico, Customs officials observed that a variety of items are repaired on the premises, that some of the articles were serially numbered, while others are processed in bulk and that some of the articles repaired on the premises are remanufactured.

Although the Protestant has submitted portions of an inspections procedures manual which contain a general description of the procedures to be followed in certain repair operations, no information has been provided to correlate even these standard operating procedures with any of the aircraft parts covered by the entries under this protest. Furthermore, other than the above reference to "buttresses," the Protestant has not identified which components comprise the "essential identity" of any of the subject articles, nor provided evidence demonstrating the method by which these components were identified so as to establish that these "essential identity" components were maintained together throughout the repair operation as a matched set. Also absent is any information which indicates which particular pieces of an article were removed and replaced and which were refurbished.

The duty exemption provided under subheading 9802.00.50, HTSUS is a privilege. It is well settled that compliance with mandatory regulations is a condition precedent to obtaining the duty exemption and that the burden of proof thereof rests on the protestant. See, F.W. Myers & Co., v. United States, C.D. 4515, 72 Cust.Ct. 133, 374 F.Supp. 1395 (1974); H.F. Keeler v. United States, C.D. 1842, 38 Cust.Ct. 48 (1957); and, Pacific Customs Brokerage Co. v. United States, T.D. 48887, 71 Treas.Dec. 530 (1937). Additionally, we note that the entries for articles otherwise eligible for duty-free treatment under subheading 9802.00.50, HTSUS, must meet the documentary requirements of 19 CFR 181.64(c) before the exemption is granted. Essentially, 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, unless waived by the district director, a repair declaration containing identification marks or numbers of the exported goods, a description of the goods and of the repair or alterations, and the value of the repairs, etc., must be filed with each entry for which the duty exemption under 9802.00.50, HTSUS, is claimed. Additionally, the owner, importer or consignee (or their agent) of the goods must also submit a separate declaration which essentially represents an endorsement of the repair declaration prepared by the foreign processor.

Upon review, we find no evidence which indicates that either of the required declarations were filed in connection with any of the 45 entries under protest. Although 19 CFR 181.64(c)(3) provides that these declarations may be waived, at the discretion of the district director, your office has not granted any such waiver with regard to any of the subject entries. Moreover, none of the documents submitted with the protest provide the information required under these declarations or otherwise provide sufficient evidence that the subject goods underwent acceptable repairs or alterations in Mexico. Under these circumstances, we find that Protestant has failed to comply with the documentary requirements of 19 CFR 181.64(c)(1).

HOLDING:

On the basis of the record provided, the Protestant has neither carried his burden of proof in establishing the eligibility of the turbine blades and other parts of civil aircraft for duty-free treatment under subheading 9802.00.50 nor complied with the prerequisite documentary requirements set forth in 19 CFR 181.64(c)(3). It has not been demonstrated to Customs satisfaction that the turbine blades and civil aircraft parts imported are the same as those exported and that even if they were the same goods, that they were subject to acceptable repairs or alterations in Mexico. Therefore, the returned articles are not entitled to entry under subheading 9802.00.50. Accordingly, there is no exemption from the payment of merchandise processing fees, and this protest should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision 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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