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HQ 560985




June
2, 1998

CLA-2 RR:TC:SM 560985 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Mr. Gordon Bailey, President
Precision Coach, Inc.
22677 76 B cres
Langley B.C.
Canada VIM2J8

RE: Applicability of subheading 9802.00.50, HTSUS, to work performed on motorhomes; subheading 8703.33.0030; NAFTA; Article 509

Dear Mr. Bailey:

This is in reference to your letter dated February 26, 1998, requesting a ruling concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to motorhomes sent to Canada for certain repairs and other operations, and whether new motorhomes will be entitled to NAFTA preference under the described scenario.

FACTS:

Scenario # 1

U.S. owners of motorhomes register their vehicles with U.S. Customs and enter Canada for the purpose of having the vehicles repaired and to have other operations performed by your company, Precision Coach Inc. The repair operations may include mechanical work on the engine, transmission, and other vehicle components, and work on the exterior and interior of the motorhome. Such work may include, in the interior of the home, replacement of appliances, such as the heating and air conditioning systems, replacement of floor and wall coverings, plumbing fixtures and holding tanks, and cabinetry. Single-glazed windows may also be replaced with double-glazed windows, and the exterior of the home may be painted. A navigational system and back-up camera may also be installed. You also state that the work may include redesign of the floor plan of the home.

Scenario # 2

Precision Coach will produce new motor homes for sale to U.S. purchasers using bus shells acquired from other companies. You have orally advised this office that parts from countries other than Canada, the U.S., and Mexico may be used in producing the shells and in completion of the motorhome. A description of such parts has not been provided.

ISSUES:

Scenario # 1

Whether the motorhome will qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, upon entry into the U.S., and if so, whether the duty will apply only to the cost of the work performed.

Scenario # 2
a) What will be the classification of the motorhome upon entry into the U.S.?
b) Whether the motorhome will qualify for NAFTA Preference upon importation.

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 may qualify for the partial or complete duty exemption under subheading 9802.00.50, HTSUS, 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'd C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979).

Section 181.64, Customs Regulations (19 CFR 181.64), which implements Article 307 of the North American Free Trade Agreement (NAFTA), provides that goods returned after having been repaired or altered in Canada pursuant to a warranty, are
eligible for duty-free treatment, provided that the requirements of this section are met. However, goods returned after having been repaired or altered in Canada other than pursuant to a warranty are subject to duty upon the value of the repairs or alterations using the applicable duty rate under the United States-Canada Free Trade Agreement, provided that the documentation and other requirements of this section are met.

19 CFR 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.

Headquarters Ruling Letter (HRL) 555135 dated October 18, 1988, concerned various repairs and alterations to automobiles. In that case, the operations included repairs to the engine and drivetrain, and rebuilding and repair of the steering and suspension. The frame, bumpers, and shell of the automobiles were also straightened and/or welded. The seats, headliners, carpets, dash items, oil, brake shoes, tires, filters, defective windows, windshields, bulbs, lens covers, and mirrors were also repaired or replaced. After the automobiles were reassembled, they were painted and returned to the U.S. It was held that these foreign repairs and refurbishments did not create a new or commercially different article, and that the automobiles returned were the same articles as those exported. Consequently, the foreign repairs and refurbishments were considered a repair within the meaning of item 806.20, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.50, HTSUS). See also HRL 557890 dated August 19, 1994, where we found that automobiles exported to Mexico and subjected to mechanical reparations, body repairs, repainting, and reupholstery work, will qualify for the full duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S., provided the documentary requirements of section 181.64 were satisfied. (Goods from Mexico which meet the statutory requirements are entitled to duty-free treatment whether or not under warranty.)

In HRL 560245 dated April 4, 1994, mobile satellite communications systems were installed into trucks and vans in Canada. The units consisted of a communications unit, an outdoor antenna unit, and a display unit. In that case, Customs found that the function of the vans and trucks remained the same before and after the installation of the systems, that is for the transportation of articles. Customs also found that the
installation of the systems did not change the identity of the vans or trucks; it merely enabled the vans and trucks to be located while they are on the road. Therefore, we held that the vans and trucks could be entered under subheading 9802.00.50, HTSUS, with duty payable upon the value of the alterations made in Canada.

Similarly, in the instant case, it is our opinion that the work performed on the motorhome including mechanical repair, painting and replacement of major appliances, and systems, flooring and wall coverings, rechroming of certain exterior components, and additions such as navigation systems and back-up camera, are allowable repairs and alterations which do not create a new or commercially different article. Under the described scenario, the essential identity of the motorhome is retained. Accordingly, we find that the returned article will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, and duty will be assessed only on the value of the work performed abroad.

Scenario # 2
a) Classification

The motor home is classifiable under subheading 8703.33.0030, HTSUS, "Motor cars and other motor vehicles principally designed for the transport of persons... Other vehicles, Other vehicles, Of a cylinder capacity exceeding 2,500 cc, Motor homes."
b) Nafta Preference

To be eligible for preferential treatment under the NAFTA, goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUS.

General Note 12(b), HTSUS, provides in pertinent part:

[f]or the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if--

(ii) they have been transformed in the territory of
Canada, Mexico and/or the United States so that--

(A) except as provided in subdivision
(f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or

Since the motor home will be comprised in part of materials which come from countries other than Mexico, Canada and/or the United States, we must ascertain whether the non-originating materials are transformed in Canada pursuant to General Note 12(b)(ii)(A). To qualify under this provision, the non-originating materials must undergo the requisite change in tariff classification and meet any other requirements of General Note 12(t), HTSUS. The applicable rule is found in General Note 12(t)/87.1-12(t)/87.16, Chapter 87, HTSUS, which provides as follows:

7. A change to subheadings 8703.21 through 8703.90 from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method.

As we have not been provided a description of the non-originating components, we cannot ascertain whether any such materials will be transformed in Canada pursuant to General Note 12(b)(ii)(A). Accordingly, as we do not have all the information required to make a determination under this situation, we cannot issue a ruling with respect to Scenario # 2.

HOLDING:

1) Motor homes sent to Canada for repairs and/or alteration will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, upon return to the U.S. Duty will be assessed based on the value of the work performed abroad.

2) The motor home is classifiable under subheading 8703.33.0030, HTSUS, "Motor cars and other motor vehicles principally designed for the transport of persons... Other
vehicles, Other vehicles, Of a cylinder capacity exceeding 2,500 cc, Motor homes."

A copy of this ruling 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


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