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HQ 560245




April 4, 1997

CLA-2 RR:TC:SM 560245 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

John W. Bryant, Esq.
Eames Wilcox
1400 Buhl Building
Detroit, MI 48226-3602

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.50 to trucks with mobile satellite communications systems; Canada; Article 509; 19 CFR 181.64(c)

Dear Mr. Bryant:

This is in reference to your letter dated November 12, 1996, January 8, 1996, to U.S. Customs in New York, requesting a ruling on behalf of TNT Expedited Services, Inc. ("TNT"), concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to mobile satellite communications systems installed into trucks and vans in Canada.

FACTS:

It is stated that certain satellite communications systems are installed in freight vans or trucks operated by TNT. TNT conducts operations as a motor carrier in the U.S. and parallel operations are conducted by TNT divisions of a Canadian corporation, TNT Canada Inc., in Canada, which is a corporate parent of TNT. The two entities conduct a combined operation known as TNT Expedited Services.

It is stated that approximately 100 of TNT's vehicles are titled and based in the U.S., and perform domestic trucking service between points in the U.S. and international service between the U.S. and Canada. The vehicles themselves are stated to be exempt from entry on return to the U.S. under 19 CFR 123.16. TNT is leasing mobile satellite communications systems to be installed in all of its vehicles. The systems leased are Omnitracs Mobile Communications Systems manufactured by Qualcomm Inc., San Diego, California. The units consist of three main components: a communications unit, an outdoor antenna unit, and a display unit. The system is an interactive communications tool that links vehicles to a dispatch center so that messages and positioning information of the vehicle may be sent and received through a network management center.

The party arranging for the leasing of these systems is Cancom located in Canada. Cancom receives the systems from the U.S. and ships them from its facility in Canada to TNT's facility in Windsor, Ontario. It is stated that each system arrives in Windsor as a completely integrated unit contained in a single box. As U.S. vehicles pass through to Canada in the course of moving freight to or from Canada, the systems are installed onto the vehicles. It is claimed that the systems shipped from the U.S. to Canada are entered duty-free into Canada under the North American Free Trade Agreement (NAFTA). NAFTA certificates of origin prepared by Qualcom have been submitted. TNT only wishes to enter the communications system, and not the vehicles, when the articles are returned to the U.S.

ISSUE:

Whether the installation of the Omnitracs systems into U.S. vehicles constitutes a repair or alteration within the meaning of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), thereby qualifying the returned vehicles for the partial or total duty exemption under this tariff provision.

LAW AND ANALYSIS:

Title 19, United States Code, section 1322(a), as amended {19 U.S.C. 1322(a)}, provides, in pertinent part:

Vehicles and other instruments of international traffic, of any class specified by the Secretary of the Treasury, shall be excepted from the application of the customs laws to such extent and subject to such terms and conditions as may be prescribed in regulations or instructions of the Secretary of the Treasury....

The relevant implementing regulations promulgated under statutory authority appear in Parts 10 and 123 of the Customs Regulations (19 CFR Parts 10 and 123), and regulate the use and movement of designated instruments within the U.S. It is claimed that the vehicles at issue are vehicles covered by 19 CFR 123.16, and that according to Article 307, NAFTA, vehicles repaired or altered in Canada are not subject to duty.

However, reference must also be made to Annex 307.1, NAFTA, which makes goods exported from the U.S. to Canada for repair or alteration dutiable on the value of the repair or alteration of such goods at the customs duty incorporated into Annex 302.2, NAFTA. Furthermore, section 123.17(b), Customs Regulations {19 CFR 123.17(b)}, provides, in pertinent part:

A report of the first arrival in the United States of domestic trucks...and their equipment after repairs have been made in a foreign country, other than those required to restore such vehicle or equipment to the condition in which it last left the United States ("running repairs"), shall be made by the driver or person in charge of the vehicle promptly, in writing, to the Customs officer at the port of reentry. The report shall state the time and place of arrival and the nature and value of the repairs. Each such vehicle or its equipment when withdrawn from international traffic shall be subject to duty upon the value of the repairs (other than "running repairs") made abroad at the rate at which the repaired article would be dutiable if imported.

Customs interprets this regulation to mean that reports need be made only with respect to other than running repairs, and that no duty is assessed upon the value of running repairs. Further, repair receipts should be retained for presentation to U.S. Customs at such time that a vehicle is withdrawn from international traffic. It is our opinion that the installation of the Omnitracs systems is not a running repair.

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 partial or total 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); 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), are satisfied.

"Repairs or alterations" are defined in 19 CFR 181.64 as the 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 U.S.

In Headquarters Ruling Letter (HRL) 556574 dated May 12, 1992, Customs considered tractors and passenger trailers. In Mexico, certain wiring was installed into the tractors to enable the tractor driver to operate all functions of the passenger trailer, such as opening and closing doors in the passenger module, etc. Additionally, a particulate trap was installed which served to filter and clean the diesel exhaust, and monitors and an intercom system were installed to allow driver/passenger communication. The tractor and passenger trailer modules were then connected to ensure proper functioning of all features, after which they were disconnected to allow separate importation into the U.S. In HRL 556574, it was held that the operations performed to the tractor exceeded an alteration within the meaning of subheading 9802.00.50, HTSUS, as the installation of monitors, an intercom system, a particulate trap, and wiring harnesses were operations necessary to adapt the tractor for use with the passenger trailer. Until these operations were performed, the tractor was incomplete for its intended specialized use.

In this case, we find that the function of the vans and trucks remains the same before and after the installation of the Omnitracs systems, that is for the transportation of articles. We also find that the installation of the Omnitracs systems does not change the identity of the vans or trucks; it merely enables the vans and trucks to be located while they are on the road. Therefore, we find that the vans and trucks may be entered under subheading 9802.00.50, HTSUS, with duty payable upon the value of the alterations made in Canada.

HOLDING:

On the basis of the information submitted, it is our opinion that the installation of Omnitracs systems into the vans and/or trucks at issue is an alteration. Therefore, the vans and trucks may be entered under subheading 9802.00.50, HTSUS, with duty payable upon the value of the alterations made in Canada. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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

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