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HQ 559749




March 20, 1997

MAR-2-05 RR:TC:SM 559749 KR

CATEGORY: CLASSIFICATION

Robert Noell, Vice President
Cain Customs Brokers
Texano Industrial Park
415 S. Industrial
P.O. box 150
Hidalgo, TX 78557

RE: Used Compressors Exported to Mexico from the U.S. and Disassembled for Salvage and Repair and Returned to the U.S. as Parts for Reassembly; Article 509.

Dear Mr. Cain:

This is in response to your letter dated March 13, 1996, on behalf of Emerson Electric Co. - Copeland Corporation Division ("Copeland"), requesting a ruling regarding whether used compressors exported to Mexico from the U.S. and disassembled for salvage and repair and returned to the U.S. as parts for reassembly are eligible for duty free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States

FACTS:

Copeland intends to export U.S.-origin compressors that are used and non-functioning to Mexico. In Mexico the compressors are disassembled and parts are removed for scrap or salvage and repair. After the salvageable parts are repaired, they are returned to the U.S. for reassembly as rebuilt compressors. The parts removed for scrap are also returned to the U.S. The parts are not reassembled prior to importation. The components are shipped back to the U.S. in bulk with other identical parts. Copeland states that the compressors are of U.S. origin. Copeland wishes to bring back the parts pursuant to subheading 9802.00.50, HTSUS.

The processing performed in Mexico involves the complete disassembly of the compressors. Minor, incidental operations are performed on the salvaged parts, such as removing dents, cleaning, testing, the application of rust inhibitor, grinding and polishing. The salvageable and unsalvageable parts are then returned to the U.S.

ISSUE:

Whether the disassembled compressor components returned to the U.S. from Mexico are entitled to a duty exemption under subheading 9802.00.50, HTSUS.

LAW AND ANALYSIS:

Annex 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.

Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the U.S. after having been advanced in value or improved in condition by repairs or alterations, provided the documentary requirements of section 181.64, Customs Regulations (19 CFR ?181.64), are satisfied. Section 181.64, which implements Article 307 of NAFTA, provides that goods returned after having been repaired or altered in Mexico are eligible for duty-free treatment, provided that the requirements of this section are met. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad 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 Corporation v. United States, 3 CIT 9 (1982).

"Repairs or alterations" for purposes of 19 CFR ?181.64 are defined as:

... restoration, addition, renovation, redying, cleaning, resterilization, 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.

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 submitted 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.

In HQ 554539 (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 to subheading 9802.00.50, HTSUS].

In HQ 555819, dated October 11, 1991, 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 HQ 555819, that under the circumstances of that case, the foreign operations constituted "repairs" within the meaning of subheading 9802.00.50, HTSUS. Reassembly was also a factor in granting treatment under subheading 9802.00.50, HTSUS, in HQ 558987 (May 17, 1995). See also HQ 559012 (May 9, 1995).

In the instant case, the compressors after exportation are disassembled. These components do not remain together as a matched set. Further, the components are not reassembled prior to importation. The components are imported in bulk to the U.S. with other identical components. After importation the components will be assembled with the other imported components which were also shipped in bulk with identical components. There will be no means to determine which components originally were matched together. Under these circumstances, as the essential identity of the exported used compressors is not maintained during the disassembly and other operations performed abroad, we find that the imported salvageable compressor parts will not qualify for a duty preference under subheading 9802.00.50, HTSUS.

HOLDING:

Based on the information provided, we find that the returned salvageable compressor parts will not qualify for a duty preference under subheading 9802.00.50, HTSUS.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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,
Tariff Classification Appeals

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