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HQ 559968




May 7, 1997

CLA 02 RR:TC:SM 559968 KKV
CATEGORY: CLASSIFICATION

Tariff No.: 9802.00.50

Mr. Frank Parker
Parker & Co.
P.O. Box 271
4964 Coffee Port Road
Brownsville, TX 78521

RE: Applicability of the partial duty exemption under subheading 9802.00.50, HTSUS to certain front wheel drive axle assemblies exported to Mexico for repair; disassembly; essential identity; outer constant velocity joint housing; HRL 554539; HRL 556609; welding, grinding; restoration; Ashdown, U.S.A. v. United States; HRL 951072; HRL 559970; NAFTA; Article 307, Article 509

Dear Mr. Parker:

This is in response to your letter dated June 28, 1996 (and subsequent facsimile dated March 31, 1997), on behalf of GSR Industries, Ltd., which requests a ruling regarding the country of origin marking requirements and eligibility of certain front wheel drive axle assemblies for the partial duty exemption provided under 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

We are informed that GSR Industries, Ltd. (hereinafter "GSR") has contracted with Import Products Co., Inc. (IPC) for the supply of front wheel drive axles, on consignment, which will be exported to Mexico for repair per IPC specifications and then returned to the U.S. for distribution to the auto parts distribution network for repaired parts.

IPC collects, sorts and inspects worn out front wheel drive axles, known as "cores," most, but not all of which are manufactured in the United States. Prior to shipment to GSR's Texas facility for export to Mexico, IPC inspects and sorts the cores into work order batches by model number, discarding any cores deemed by IPC to be unrepairable. Upon receipt by GSR in Texas, the cores to be exported are documented by model number and work order batch number and invoiced for Customs purposes prior to exportation to GSR's Mexican facility.

We are informed that the front wheel drive assembly consists of the following components: CV joint boots ( rubber boots designed to seal lubricant into a constant velocity joint), inner and outer constant velocity joints, bearing balls (used in the constant velocity joints) a bearing cage (a machined casting, either inner or outer, to contain bearing ball and cage within the constant velocity joint), grease (lubrication for the joint), retaining bands (stainless steel bands for sealing the CV boots to the constant velocity joints and drive shaft) and a drive shaft (either passenger or driver side). It is stated that each automobile contains two front wheel drive axles, one each for the driver and passenger side. Generally, one axle will be shorter than the other, depending upon the model of the vehicle of which they are a part, so that the axles are not interchangeable but have different part numbers and characteristics.

You state that the outer constant velocity joint housing is the "essential component" of the front wheel drive axles, as it constitutes 75% of the value of the core. Because new housings are not readily available on the open market, the core is considered worthless unless the outer housing is repairable. In the event that the outer housing is not repairable, the center shaft and the inner constant velocity joint become scrap material. The internal components of the outer constant velocity joint, which you indicate are minor components, consist of the bearing balls, bearing cages and bearing races. Unlike the housings, these components are easily replaceable and are always in oversupply.

The cores are exported to Mexico where they undergo the following repair processes:

1. The cores are received in lots, disassembled by separating the outer and inner constant velocity joints from the center shaft. The constant velocity joints are removed and discarded. All minor components are separated into bins by part type within model number to be reassembled with the outer constant velocity joint housing at a later stage in the process. Like minor components from different components from different core units are commingled in the bin.

2. All components are washed in a high temperature washing machine to remove grease and dirt.

3. All components are shot blasted to remove rust and grime.

4. All components are inspected for reusability.

5. The outer constant velocity joint housings are inspected for needed repairs, resulting in one of four alternative conclusions. Each housing is either:
a) acceptable for use in its current condition, b) requires TIG welding and hand grinding, c) requires oversize grinding on
CVS grinding machines, or d) is discarded as unusable.

TIG welding is used to restore the ball track of the outer constant velocity joint housing by filling the worn area with material, which is then reground to the original size by hand. In this case, all reground housings are sent to final inspection where the cages are replaced with new ones and the outer constant velocity joint is sent to final assembly utilizing the used bearing race and balls.

CVS grinding to oversize is used to restore the ball track of the outer constant velocity joint housing by grinding the ball track to an oversize, typically .010", and grinding the used cage and bearing race to the same oversize. The outer constant velocity joint is then sent to final assembly utilizing new oversized bearing balls.

After all usable constant velocity joints have been assembled from the particular model lots, these sub-assemblies are sent to final assembly with the cleaned center shaft and inner constant velocity joint.

6. The final assembly process includes reassembly of the inner and outer constant velocity joints onto the center shaft, the installation of the two new constant velocity joint boots and the greasing of each joint. New stainless steel clamps are applied to seal the boots. The final assembly is washed to remove excess (new) grease, is dipped in rust inhibitor, dried, identified by model and batch number and boxed.

7. The boxed axle is date coded and the appropriate customer label is affixed to the end of the box along with the original country of origin label. The boxed axles are then prepared in containers for shipment back to the U.S. for delivery to IPC.

ISSUE:

Whether the front wheel drive axle assemblies exported to Mexico are advanced in value or improved in condition by means of repairs or alterations, and therefore eligible for the duty exemption provided by subheading 9802.00.50, HTSUS, when returned to the United States.

LAW AND ANALYSIS:

I. Applicability of subheading 9802.00.50, HTSUS

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 entitled to this duty exemption are subject to 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.

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.

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 (HRL) 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, as here, 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 duty exemption under subheading 9802.00.50, HTSUS. See Headquarters Ruling Letter (HRL) 555443, dated November 30, 1990, and rulings cited therein.

In support of your position that the returned front wheel drive axles are eligible for duty-free treatment provided by subheading 9802.00.50, HTSUS, you reference HRL 556609, dated July 23, 1992, in which Customs considered the "essential component" of steering gear assemblies or "core" units exported to Mexico for repair. In that case, the housing of the assemblies, which constituted 80% of the value of the assembly, was not interchangeable but was specific to each model. Because new housings were not readily available for purchase on the open market, the core assembly was deemed worthless unless the housing was repairable. Customs concluded that the housing was the "essential component" of the cores, and held that, notwithstanding the replacement of non-essential parts, where the housing was not replaced in the repair process but remained segregated from the components of other cores, the steering gear assemblies were entitled to the duty exemption under subheading 9802.00.50, HTSUS.

Unlike the facts presented in HRL 556609, supra, where the finished article contained only one housing, the front wheel drive axle assemblies under consideration consist of two separate housings, connected by a center shaft, each of which is an integral element in the functioning of the finished article. The outer constant velocity joint attached to the wheel must maintain a constant velocity while rotating with the wheel and moving up and down with the shock absorber or strut. The inner constant velocity joint serves as a connector to the transmission, and must also maintain a constant velocity as it rotates. While the duality of movement of the outer constant velocity joint may require a more complex assembly than that of the inner housing and may result in a greater amount of wear than the singular rotary function of the inner counter velocity housing, this duality of movement does not render the outer housing more essential to the identity of finished front wheel drive axle assembly than its inner counterpart. Therefore, we find that both housings create the essential identity of the finished axle assemblies.

In a telephone conversation with a member of our office you indicated circumstances which would render it physically impossible to maintain the two housings together as a matched set during the repair operations: 1) The nature of the repair operations performed in Mexico (cleaning and grinding) renders serialization ineffective as a means of identification; 2) Placing both housings in a common container could result in damage to the parts during the washing and shot blasting operations. However, in your ruling request you stated that the exported cores are documented by model number and work order number before shipment to Mexico for repairs. In consideration of the total circumstances, we find that to the extent that it is, as indicated above, practically infeasible to physically maintain the two housings together during the repair process as an individual matched set, evidence (presented to the port director) that the inner and outer constant velocity joint housings originated from the same work order or batch number will substantiate that the essential identity of the exported axle assemblies was maintained during the repair process.

We also find that the operations performed on the housings are considered genuine repairs within the meaning of subheading 9802.00.50, HTSUS. The TIG welding process and the CVS grinding to oversize operations described above do not result in the creation of a new article, but serve to restore the article to its original condition, purpose and application. Accordingly, so long as the essential identity of the front wheel drive axles assembly is maintained, the use of other non-essential components which may be commingled with other identical parts in storage bins or in inventory until required for reassembly is permissible. See HRL 556609, supra; See also HRL 554731, dated February 2, 1989.

Accordingly, provided the criteria set forth above are met, the repaired front wheel drive axle assemblies are entitled to duty-free treatment under subheading 9802.00.50, HTSUS, upon importation into the U.S., provided that the documentary requirements of 19 CFR 181.64(c) are satisfied.

II. Country of Origin Marking

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will. United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.44, Customs Regulations (19 CFR 134.44), states that "any method of marking at any location insuring that country of origin will conspicuously appear on the article shall be acceptable." Section 134.41(b), Customs Regulations (19 CFR 134.41(b)), mandates that the ultimate purchaser in the United States must be able to find the marking easily and read it without strain.

The Court of International Trade held in Ashdown, U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661 (1988), that a printing press, which was continually used in West Germany for nine years and which was not intended at the time of original sale to be exported to the U.S., became a bona fide part of the commerce of West Germany and was therefore, not an import from a Communist country. In HRL 951072, dated May 22, 1992, Customs determined that a Russian-built MIG 21U that was disassembled and exported to Egypt where it was reassembled and used in the Egyptian Air Force for sixteen years and then stored for several years was regarded as a product of Egypt for tariff purposes. Ashdown supports the proposition that the connection to the country where an article was built may be broken due to the extended period of time that the article was in use in another country.

The principles set forth in Ashdown have been applied to other cases involving the eligibility of merchandise for the duty exemption contained in subheading 9802.00.50, HTSUS. In HRL 559970, dated November 26, 1996, Cutoms held that defective power steering pumps exported to Mexico for repair were deemed to be of U.S. origin where the pumps had been incorporated into a vehicle in use in the U.S. and thus had lost their connection to the country in which they were originally manufactured.

Applying these principles to the facts in this particular case, we find that a front wheel drive axle assembly which has been incorporated into a vehicle in use in the U.S. and which is later sent abroad for extensive repair operations has lost its connection to the foreign country in which the pump may have been originally built. Under these circumstances, the axle assembly is considered to be of U.S. origin and is excepted from country of origin marking under 19 CFR 134.32(m) when returned after having been repaired abroad. We note, however, that whether the marking "Made in the U.S.A." may appear on the front wheel drive axle assemblies is a matter within the jurisdiction of the Federal Trade Commission. Therefore, you should contact the FTC at the following address regarding the appropriate use of this phrase: Federal Trade Commission, Division of Enforcement, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20508

HOLDING:

Based upon the information provided, where it is demonstrated to the satisfaction of Customs that the inner and outer constant velocity joint housings originated in the same work order or batch number, the essential identity of the exported front wheel drive axle assemblies is maintained, and the the front wheel drive axle assemblies exported for repair operations in Mexico as described above will not become new and different articles. Accordingly, the repaired front wheel drive axle assemblies are entitled to duty-free treatment under subheading 9802.00.50, HTSUS, upon importation into the U.S., provided that the documentary requirements of 19 CFR 181.64(c) are met.

For country of origin marking purposes, the returned axle assemblies are considered to be of U.S. origin and excepted from marking under 19 CFR 134.32(m).

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.

Sincerely,

John Durant, Director
Tariff Classification
Appeals Division


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