United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2000 HQ Rulings > HQ 561409 - HQ 561657 > HQ 561461

Previous Ruling Next Ruling
HQ 561461




July 25, 2000

CLA-2 RR:CR:SM 561461 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Joseph J. Wilson
Port Director
111 W. Huron Street
Buffalo, New York 14202

RE: Request for internal advice; applicability of subheading 9802.00.50, HTSUS, to “impregnation” operations on aluminum or magnesium castings

Dear Mr. Wilson:

This is in reference to your memorandum dated July 20, 1999, requesting internal advice as to whether certain “impregnation” operations performed in Canada on aluminum or magnesium castings constitute repairs or alterations under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

New Venture Gear, Inc. (“NVG”) is a manufacturer of automotive transmissions, transfer cases and transaxles. NVG purchases raw castings of transmission housings and other transmission components from U.S. and Canadian suppliers as well as other products for use in its finished goods. It purchases the castings for further machining at one of its U.S. facilities in Syracuse, New York or Muncie, Indiana or for direct use in its manufactured equipment. After machining, castings which do not meet specifications will be sent to Thermo Sealed Castings, Ltd., of Burlington, Ontario, Canada (“TSC”) for processing. Infrequently, when it is recognized that a particular part number may not meet specifications, NVG may send all of that particular part number production batch to TSC for processing to ensure that all the castings meet specifications.

TSC performs three different operations on different parts sent from NVG. The operations are (1) washing; (2) thermal deburring; and (3) thermo curing impregnation. The Syracuse plant may send components to TSC for all three operations. Occasionally, NVG’s Muncie plant may send components to TSC for deburring, cleaning or derusting, but not for impregnation.

Porosity is a common problem arising from the casting process and occurs when small amounts of air enter the molten metal as it is poured into the mold. As liquid metal enters the mold it is possible for hidden air bubbles to form inside the casting, causing it to become porous in some places. The subsequent machining process by NVG may cause the casting to develop leak channels. NVG states that although useable as a transmission housing, its standards require that the casting not leak. Therefore, NVG tests all of the finished transfer cases and transmissions it builds. If the assembly leaks, the part is sent to TSC to perform a thermo-curing impregnation operation.

The process essentially seals the casting and closes the leak channels by forcing a methacrylate sealant on and into the casting. The sealant is applied in a vacuum chamber. After the application, excess sealant is drained and the components are washed by agitation in cold water to remove any residual sealant. They are then cured in a hot water tank for two to a maximum of ten minutes, depending on the weight of the components. Components are then pressure tested for verification that the impregnation process was successful and that the casting is leak-proof. NVG states that the only noticeable difference between the original casting and the thermo-cured casting is that the thermo-cured casting has a slight tint from its original color.

ISSUE:

Whether the castings sent abroad for the impregnation process will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles sent abroad for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. 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 Corporation v. United States, 3 CIT 9 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Companv. Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), affd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).

NVG states that the Canadian processing is not a necessary step in the manufacture of the transmission castings as the machining operations are performed in the U.S. to make a finished casting. Rather, NVG argues that the processing in Canada is a repair operation intended to make the transmission casting useable as intended.

Thus, the question to be resolved in this case is whether the exported castings are “incomplete” or “unsuitable for their intended use” prior to the foreign processing operation or whether they are finished articles complete for their intended use upon exportation. See Guardian Industries, Id. at 13.

In HRL 555359 dated May 14, 1990, approximately 25 percent of a drill bit production run was routinely rejected in-house because the bits were found to be out of tolerance (i.e., did not meet industry standards) following microscopic inspection. The drill bits were then sent to Mexico where they were reworked or resharpened and attached to a plastic depth gauge ring (denominated a plastic collar) to complete the imported article. Customs found that in their exported condition the drill bits could not be used for their intended purpose of drilling precision holes into printed circuit boards and that the sharpening operation constituted a continuation of the manufacturing process begun in the U.S. Thus, Customs concluded that the drill bits were not completed articles when exported, as required by HTSUS subheading 9802.00.50, and the imported reworked drill bits were ineligible for the partial duty exemption under this tariff provision. HRL 555359 was affirmed upon reconsideration. See HRL 555707 dated February 20, 1991.

In HRL 556738 dated September 18,1992, Customs held that resharpening operations performed in Mexico on previously-manufactured tools which became dull from repeated use was an acceptable “repair” or “alteration,” within the meaning of HTSUS subheading 9802.00.50. Customs distinguished HRLs 555359 and 555707 as those rulings involved incomplete articles at the time of their exportation from the U.S., in part, because the foreign “resharpening” process was a necessary step in the initial manufacture of drill bits which must meet exacting industry tolerance standards. In HRL 556738, the tools were completed articles when exported to Mexico to undergo resharpening and the operation merely rendered used tools sharp again.

NVG cites HRL 557327 dated July 26,1993, as supportive of its position. In that case, Levi’s jeans and jean jackets were sent abroad for operations which included restitching a broken or skipped stitch, replacing or restitching a belt loop, tucking under and restitching seams that have become frayed, and replacing rivets or buttons that may have fallen off or become loose. Customs found that the jeans and jean jackets were suitable for their intended use in their condition as exported, and, in fact, were so used. Accordingly, we held that the operations performed in Mexico constituted repairs or alterations within the meaning of subheading 9802.00.50, HTSUS.

We are of the opinion that the castings which are sent abroad for curing or impregnation are not completed articles but in their condition as exported are unsuitable for their intended use. As in HRL 555359, the castings are tested after processing in the U.S. and those castings that do not conform to industry specifications require additional processing (in this case impregnation) to complete the manufacturing process. The foreign impregnation operation constitutes a continuation of the manufacturing process for these castings and is a necessary step, performed as a matter of course, in producing transmission castings which meet industry specifications. In this regard, it is noted that NVG scraps those castings returned from Canada after impregnation if a housing continues to leak.

Accordingly, we find that the castings sent abroad for impregnation are not finished articles and the manufacturing process is not complete until the impregnation operation is performed and the articles meet industry specifications. Further, we do not find HRL 557327 to be supportive of NVG’s position, as in that case the jeans and jean jackets were suitable for their intended use in their condition as exported, and, in fact, were so used.

HOLDING:

Transmission castings exported to Canada for an impregnation process to meet industry specifications are not entitled to the partial duty exemption under HTSUS subheading 9802.00.50, HTSUS, when returned to the U.S., as they are incomplete products when exported from the U.S.

This decision should be mailed by your office to the internal advice requester no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,
John Durant, Director
Commercial Rulings Division


Previous Ruling Next Ruling

See also: