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HQ 555758




June 10, 1991

CLA-2 CO:R:C:S 555758 GRV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. W.L. Kelly
Director, Export/Import Control
Raytheon Company
141 Spring Street
Lexington, MA 02173

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to upgraded missile guidance group modules. Alterations/repairs; Baylis Brothers Company; C.S.D. 84-8; 071306; J.D. Richardson Company; Guardian Industries Corporation; A. Cohen Sons Corp.; 555634; Gilbert W. Greene; Press Wireless, Inc.

Dear Mr. Kelly:

This is in response to your letters of October 2, 1990, and January 24, and 31, 1991, requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to upgraded missile guidance group modules imported from Europe. Photos of the modules and other data were enclosed with your letters.

FACTS:

Raytheon originally manufactured to existing U.S. Army specifications improved Hawk missile guidance groups (MGGs). The MGGs are composed of electronic subassemblies, which contain printed circuit board modules. Following the production run, a number of the MGGs were retained as "library missiles" to serve as reference units for investigations associated with field problems. In cooperation with a NATO Hawk M3 co-production program established in Europe, you seek to upgrade the NATO Hawk missiles to combat recently developed countermeasures and to replace items that deteriorate with time. You state that this foreign upgrading operation serves to preserve the viability of the NATO Hawk air defense system by bringing the MGGs into compliance with current U.S. Army specifications. The co-production program entails exporting certain component modules of the library missiles' MGG to industries of NATO Hawk M3 participating countries for the purpose of performing designated M3 program modifications.

The modifications include replacing old gaskets, painting covers, replacing components, and adding new component parts. All of the changes entail using components of foreign manufacture. In most instances, the components modified will have new part numbers assigned to them. The upgraded MGG modules are then returned to the U.S. for final assembly and testing.

Concerning the modifications made to the printed circuit boards, you stated in a telephone conversation with a member of my staff that no reprogramming of computer circuits occurs. Further, you state that the upgraded NATO Hawk missiles will have the same role/function against a current threat.

ISSUE:

Whether the upgraded missile guidance group modules are altered/repaired abroad, for purposes of HTSUS subheading 9802.00.50, and, thus, eligible for the partial duty exemption under this tariff provision when returned to the U.S.

LAW AND ANALYSIS:

Articles returned to the U.S., after having been exported to be advanced in value or improved in condition by repairs or alterations abroad, may qualify for the partial 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 different articles. See, Baylis Brothers Company v. United States, C.D. 3987, 64 Cust.Ct. 256 (1970), aff'd on other grounds, C.A.D. 1026, 59 CCPA 9, 451 F.2d 643 (1971). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.

In determining whether the upgraded MGGs are entitled to HTSUS subheading 9802.00.50 treatment, two considerations are readily apparent: whether the exported MMGs are completed products as exported, given that military specifications are applicable to the returned merchandise; and, whether the operations performed abroad are within the meaning of "repairs" or "alterations" for purposes of this tariff provision.

Regarding the applicability of military specifications to the returned merchandise, we note that, under certain circumstances, the foreign processing of exported articles to conform to product specifications and regulations has been cited by the courts as a factor in finding that the returned merchandise constitutes a new and different article from that which was exported. See, United States v. The J.D. Richardson Company, C.A.D. 390, 36 CCPA 15 (1948) rev'g, C.D. 1053, 18 Cust.Ct. 109 (1947), cert. denied, 336 U.S. 936, 69 S.Ct. 746, 93 L.Ed. 1095 (1948) (unflanged tank idler wheel rims, exported for the purpose of having the rims "flanged," in accordance with the specifications and requirements of the U.S. Army, were not completed parts, but, on the contrary, required the manufacturing processes in order to complete them for their intended use, and Congress did not intend by the term "alterations" to mean that uncompleted articles could avail themselves of this tariff treatment); and, Guardian Industries Corp. v. United States, 3 CIT 9 (1982) (annealed glass lites, exported to be tempered because a regulation required that glass used for sliding glass patio doors be tempered into safety glass as a prerequisite to its being marketed in the U.S., were entirely unsuitable for their intended use in patio doors, and the tempered glass produced abroad was a separate and different commercial article from the glass from which it was produced).

However, we believe the facts in this case are distinguish- able from those in the above-cited cases. In this case, the Hawk MGGs initially were manufactured to meet existing military specifications. For various reasons, including the need to combat recently developed countermeasures, the specifications have changed. After their initial manufacture, the Hawk MMGs were suitable for their intended use, and, after the foreign upgrading, the imported Hawk MGGs will perform the same function. Thus, the facts presented here do not compel a finding that new and different articles are imported after the foreign upgrading operation.

Regarding the foreign upgrading operation, we note that no reprogramming of the printed circuit board modules occurs abroad, and, therefore, the holdings in C.S.D. 84-8, 18 Cust.Bull. 844 (1984) and Headquarters Ruling Letter (HRL) 071306 dated April 2, 1984, are inapplicable. The replacement of old component parts and the addition of new ones are acceptable operations under HTSUS subheading 9802.00.50, so long as the identity of the articles remains the same. See, A. Cohen Sons Corp., Abstract 40598, 5 Cust.Ct. 276 (1940) (replacement of broken stoppers in bottles constituted a repair), but cf., HRL 555634 dated November 13, 1990 (replacement of essential identity components does not constitute a repair); and see, Gilbert W. Greene, Abstract 49676, 13 Cust.Ct. 273 (1944) (the supplying of new parts can constitute an alteration so that an article is made different from that exported in some particular so long as it has not been converted into something else). Further, the redenomination of the serial numbers does not preclude the merchandise from receiving the partial duty exemption under this tariff provision, so long as Customs is satisfied that the returned goods are the same as those that were exported. See, Press Wireless, Inc. v. United States, C.D. 438, 6 Cust.Ct. 102 (1941) (although worn-out radio tubes had a certain serial number when exported and a different serial number when returned, as the merchandise was exported under Customs supervision and the returned tubes were the same in construction, operation, performance and use, the duty exemption was allowed).

We wish to note that the MGGs to be exported must comply with all required export licenses and applicable International Traffic in Arms Regulations (ITARs, 22 CFR 120-130).

HOLDING:

On the basis of the information presented, it is our opinion that the upgraded Hawk missile guidance group (MGG) modules are completed products when exported and that the foreign upgrading operation does not result in new and different articles. Accordingly, the upgraded MGGs are deemed repaired and/or altered abroad within the meaning of HTSUS subheading 9802.00.50 and are entitled to the partial duty exemption available under this tariff provision when imported into the U.S., provided the documentary requirements of 19 CFR 10.8 are satisfied.

Sincerely,


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