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HQ 561047




October 22, 1998

CLA-2 RR:CR:SM 561047 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9801.00.10

Timothy Sullivan, Esq.
Gregory C. Anthes, Esq.
Adduci, Mastriani & Schaumberg, L.L.P.
1140 Connecticut Avenue, N.W., Suite 1303 Washington, D.C. 20036

RE: Applicability of duty exemption under HTSUS subheadings 9801.00.10, 9801.00.60, and 9801.00.85 to active matrix liquid crystal displays and flat panel image sensors; test equipment; exhibition

Dear Mr. Sullivan and Mr. Anthes:

This is in reference to your letter of April 29, 1998, forwarded to us by Customs in New York, requesting a ruling on behalf of OIS Optical Imaging Systems, Inc. (hereinafter "OIS"), regarding the applicability of subheadings 9801.00.10, 9801.00.60, and 9801.00.85, Harmonized Tariff Schedule of the United States (HTSUS), to certain active matrix liquid crystal displays (hereinafter "AMLCD") and flat panel image sensors (hereinafter "sensors"). Specification brochures were submitted with your request.

FACTS:

The articles at issue are: (1) sample AMLCDs manufactured by OIS in the U.S.; (2) sample sensors manufactured by OIS in the U.S.; and (3) test equipment, either manufactured or purchased by OIS in the U.S. It is stated that OIS uses these articles to introduce its product line to potential customers located in the U.S. and abroad. The AMLCDs incorporate the use of microelectronics and amorphous materials technology to construct transparent thin film electronic switching devices, such as diodes or transistors, on a specially prepared plate of glass, known as the active plate. The electronic components are made of semiconductor materials. A filter is applied to the surface of a second plate of glass known as the passive plate. The filter has a black background with a microscopic translucent opening for each pixel in the display. In a color display, the openings must be alternatively colored in the primary colors to form pixel groups that will allow the formation of the entire spectrum of colors. A transparent electrode is applied below the filter to complete the circuit with the electronics on the active plate. To complete the AMLCD, a liquid crystal material is placed between the two plates of glass. The two plates are then sealed together, and polarizing layers are laminated to the outside surfaces of the glass creating the glass cell. When a light source is placed behind the display, and electronic controllers (called "drivers") are connected to the active plate to control the individual switches, the display is complete and an image can be generated. It is stated that OIS manufactures the following seven standard models of AMLCDs:

(1) 5.0" x 5.0", 64 Graylevel, AMLCD;
(2) 6.25" x 6.25", 64 Graylevel, AMLCD;
(3) 6" x 8", 8 Graylevel, AMLCD;
(4) 10.4" Diagonal, Rugged AMLCD;
(5) 2.4" x 2.4" AMLCD;
(6) 4.0" x 4.0", 89 Graylevel AMLCD; and
(7) 4.0" x 4.0", 64 Graylevel, AMLCD;

It is also stated that OIS manufactures custom-made AMLCDs for a number of military and commercial avionics programs. It is stated that all standard and custom-made AMLCDs are made and marked "Made in the USA."

The second article at issue are sensors which detect an image on a surface and convert it into electronic impulses. It is stated that OIS sensors are found in electronic copyboards. OIS manufactures sensors that employ both direct and indirect conversion methods. The direct conversion mode sensors use an X-ray photoconductive layer coated over the matrix of pixel electrodes, while the indirect conversion mode sensors use an X-ray sensitive phosphor coated over a matrix of photosensitive pixels. It is stated that all sensors are made and marked "Made in the USA."

It is also stated that OIS must use test equipment to exhibit and demonstrate the use of its AMLCDs and sensors to potential customers. This test equipment comprises two types of test sets. The first is a combination of standard equipment that consists of a PC-based Central Processing Unit ("CPU"), keyboard, monitor, and PC-based software. In addition, this equipment has a custom designed printed circuit board and cables to interface the AMLCDs and sensors to the PC's CPU. The second is the Westar DHA Drive System ("DDS") which is a portable system designed to drive the OIS Display Head Assembly. The DDS is housed in a small, portable, sturdy PC chassis. The Westar Test Set includes a hand-held terminal to allow the user to communicate with an embedded PC. The DDS also includes back light power. It is stated that the test system to be used will be determined by the profile that the prospective customer wishes to see and the availability of equipment at OIS. It is stated that depending on the test equipment needed, OIS may purchase it from other manufacturers, rather than producing the test equipment in its facilities. Some of the test equipment is made in the U.S. However, it is stated that OIS always purchases its test equipment through American distributors. Therefore, it is claimed that any foreign produced test equipment purchased by OIS is imported by the American distributor with duty paid.

OIS plans three scenarios: (1) public exhibition at trade fairs; (2) private exhibition at a potential customer's location; and (3) short term, temporary use of an article at a potential customer's location. It is stated that each transaction involves an OIS representative taking the articles abroad with the intent to introduce OIS' product to a potential customer. It is stated that at the time of exportation, OIS will not make any drawback claims and that the articles exported will not be sold to potential customers. After introducing the article to the customer, OIS will return it to the U.S. through the port of Detroit, Michigan.

It is stated that to the best of OIS' knowledge, none of the public trade shows that OIS marketing engineers attend deny admission to any person that has a reasonable business interest in attending the event. For these shows, the OIS representative will take AMLCDs, a personal computer used to operate the AMLCDs, and a display booth. These articles are stated to exceed $10,000 and are included in the OIS representative's checked baggage.

Under the second scenario, it is stated that OIS will demonstrate a particular product at a potential customer's facility. The articles usually involved in this type of transaction are medical flat panel image sensors and aircraft instrument AMLCDs. It is stated that in order to demonstrate the product, OIS must take certain test equipment depending upon the customer's particular needs. It is stated that the value of all of the articles taken on such trips will usually exceed $10,000 and are taken abroad as part of the OIS representative's checked baggage. It is also stated that OIS will not sell the demonstration AMLCDs, flat panel image sensors, or the test equipment.

Under the third scenario, it is stated that a potential customer may request OIS to permit it to temporarily use an AMLCD for 30 days. It is stated that this short term test period permits the potential customer to assess the compatibility of OIS' merchandise with the customer's system and equipment. It is stated that in this situation, OIS ships a sample AMLCD to the customer, but that OIS does not intend to sell and the potential customer is not permitted to purchase the sample. At the completion of the trial period, the potential customer returns the sample AMLCD to OIS in the U.S.

It is stated that under each scenario, OIS intends to filed completed Forms 3311 and 4455 with the Port Director in Detroit at the time of exportation.

ISSUES:

I. Whether the AMLCDs and sensors taken abroad for a demonstration at a potential customer's facility will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the U.S.

II. Whether the AMLCDs and sensors taken abroad for display at a trade show are eligible for duty-free treatment under subheading 9801.00.60, HTSUS.

II. Whether the test equipment may qualify for duty-free treatment under subheading 9801.00.85, HTSUS.

LAW AND ANALYSIS:

I. Subheading 9801.00.10

Subheading 9801.00.10, HTSUS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1), are met. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the United States. Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

Section 10.1(a), Customs Regulations {19 CFR 10.1(a)}, outlines the necessary documentation required for duty-free entry under subheading 9801.00.10, HTSUS. The first documentary requirement is a declaration by the foreign shipper (if the value of the returned articles exceed $1,000), which includes the quantity, description and value of the returned articles, the U.S. port of export, and the date of exportation from the U.S. 19 CFR 10.1(a)(1).

The second documentary requirement is a declaration by the owner, importer, consignee, or agent stating that the information provided is true and correct, where the articles were manufactured, they were not manufactured or produced under bond, and they were not exported with benefit of drawback. 19 CFR 10.1(a)(2). However, these documentation requirements may be waived by the port director. 19 CFR 10.1(d).

Under scenario two, where the articles are taken abroad for a demonstration at a potential customer's facility, and under scenario three where the articles are temporarily used by a potential customer, it is claimed that the AMLCDs or flat panel image sensors are eligible for entry under subheading 9801.00.10, HTSUS, when they are returned to the U.S.

We agree that the AMLCDs and sensors may be entered under subheading 9801.00.10, HTSUS, as OIS states that these articles are manufactured in the U.S. and will not be advanced in value or improved in condition while abroad. Furthermore, it is stated that the AMLCDs and sensors will not be exported from the U.S. with benefit of drawback. Therefore, when the AMLCDs and sensors are returned to the U.S. under subheading 9801.00.10, HTSUS, a declaration by the foreign shipper and a declaration by the owner, importer, consignee or agent having knowledge of the facts regarding the claim for free entry shall be filed, unless these documentary requirements are waived by the port director. For your information, Customs amended 19 CFR 10.1 and eliminated the filing of Customs Form (CF) 3311. 59 F.R. 25563 (1994).

II. Subheading 9801.00.60

Subheading 9801.00.60, HTSUS, provides for the free entry of articles which are returned after having been exported for temporary use abroad solely for exhibition or use in connection with any public exposition, fair, or conference, provided such articles are returned by or for the account of the person who exported them.

In connection with the entry of articles exported for temporary exhibition and returned and claimed to be exempt from duty under subheading 9801.00.60, HTSUS, a certificate of exportation on Customs Form 3311, and a declaration of the importer on Customs Form 4455 for articles of either domestic or foreign origin are required. 19 CFR 10.66(a)(1) and (2).

In Headquarters Ruling Letter (HRL) 221961 dated May 15, 1990, Customs stated that the controlling factor that Customs will focus on in determining the applicability of subheading 9801.00.60, HTSUS, is the intention of the exporter at the time of exportation, and that compliance with the provision of subheading 9801.00.60, HTSUS, requires that no commercial venture (i.e., sale of goods) be contemplated at the time of exportation.

With regard to whether articles are exhibited at a public exposition, fair, or conference, in C.S.D. 92-23 (HRL 556092 dated October 22, 1991), Customs held that a fair or conference may be considered "public" so long as it does not deny admission, for reasons other than space limitation, to persons who have a reasonable business interest in attending the event.

In this case, it is claimed that the AMLCDs, personal computer and display booth may be returned to the U.S. under subheading 9801.00.60, HTSUS, as they will be exhibited at trade shows where to the best of OIS' knowledge any one may be admitted with a reasonable business interest. It is also stated that the articles will not be exported with the intention of being sold to potential customers while abroad. Therefore, the AMLCDs, personal computer and display booth may be returned under subheading 9801.00.60, HTSUS, provided the documentary requirements of 19 CFR 10.66 are satisfied.

III. Subheading 9801.00.85

Subheading 9801.00.85, HTSUS, provides duty-free treatment for:

[p]rofessional books, implements, instruments, and tools of trade, occupation, or employment, when returned to the United States after having been exported for use temporarily abroad, if imported by or for the account of the person who exported such items.

Section 44 of the Miscellaneous Trade and Technical Corrections Act of 1996, Pub. L. No. 104-295, 110 Stat. 3514 (1996), added subheading 9801.00.85, HTSUS, to permit the duty-free entry of "tools of the trade" by corporations which previously could only be entered duty-free if they were exported and reimported by the same individual under subheading 9804.00.10, HTSUS.

Under the second scenario, where the test equipment is taken abroad to aid in the demonstration of the AMLCDs and sensors at a potential customer's facility, it is claimed that the test equipment is eligible for entry under subheading 9801.00.85, HTSUS.

In this case, we find that test equipment, whether of domestic or foreign origin, exported by OIS for use in the demonstration of AMLCDs or sensors may be entered under subheading 9801.00.85, HTSUS, if the merchandise is imported by or for the account of OIS.

While the Customs Regulations do not currently specify specific documentation required to substantiate a claim under subheading 9801.00.85, HTSUS, it is our opinion that carnets, commercial invoices, packing lists, landing certifications, Customs documents used to import the merchandise into the foreign country, or any other documentation which shows that the merchandise being imported under subheading 9801.00.85, HTSUS, is the same as what was exported, may be utilized.

HOLDING:

On the basis of the information submitted, we find that under scenario two and three where the AMLCDs and sensors will be exported for demonstration purposes at a potential customer's facility or for temporary use by a potential customer, these articles may be imported duty-free treatment under subheading 9801.00.10, HTSUS, when returned to the United States, provided the documentation requirements of 19 CFR 10.1 are satisfied. Under scenario one, where the AMLCDs, personal computer, and display booth will be used at a public trade show where to the best of OIS' knowledge anyone with a reasonable business interest may be admitted, and the articles will not be exported with the intention of being sold while abroad, they may be returned to the U.S. under subheading 9801.00.60, HTSUS, provided the documentary requirements of 19 CFR 10.66 are satisfied. Furthermore, the test equipment, whether of domestic or foreign origin, exported by OIS for use in the demonstration of AMLCDs or sensors may be reimported duty-free under subheading 9801.00.85, HTSUS, provided OIS exports the merchandise temporarily and the same merchandise is imported by OIS or for its account.
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
Commercial Rulings Division

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