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HQ 562220





October 10, 2001

CLA-02: RR:CR:SM 562220 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Port Director
U.S. Customs Service
9 North Grand Avenue
Nogales, AZ 85621

RE: Applicability of subheading 9802.00.50, HTSUS, to new and rebuilt automotive brake shoes; HRL 558712; Press Wireless

Dear Sir:

We are responding to a letter dated July 31, 2001, from Map West Corporation (“Map West”), concerning the eligibility for duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), of new and rebuilt brake shoes used in automotive applications.

FACTS:

The U.S. based customers of Map West send used brake shoe cores directly to Map West’s subsidiary, Map West de Mexico. The operations in Mexico are described by Map West as follows:

The used, worn-out friction material or lining from the shoe is removed. If the lining had been previously bonded to the shoe, it is removed by means of reheating in a debonding oven at temperatures in excess of 550 degrees. This results in liquefaction of the adhesive that had bonded the lining to the shoe in the first place. This process dislodges the lining. It simply falls off the shoe at the end of this process. On the other hand, if the lining had been previously riveted to the shoe, then the lining is removed by means of deriveting or “stripping” the lining from the shoe. This is done using a machine that has sharp blades that fit between the lining and the platform of the shoe, thus “stripping” the lining from the platform as the shoe rotates. The deriveted shoe then goes through a “debrassing” operation in which vibrating air hammers are used to dislodge any remaining rivets still attached to that shoe.

The next stage of the operation consists of the cleaning of the shoe. This is accomplished using machines that have a drum-like interior where the shoe is

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blasted with a combination of shot and grit to remove all dirt, grease, grime and rust. This allows the Quality Control Department to determine whether that shoe can again be rebuilt and sold or whether the shoe is not rebuildable.

The rebuildable shoes are then dipped in a solution that protects them from future rusting. The shoes then go through an operation where the platform of the shoe is “straightened” or “corrected” and in which the surface is “arced” to provide a suitable rounded surface for subsequent bonding or riveting of the lining material to the shoe. Each shoe is then subject to a quality control inspection.

Currently, the shoes are stacked in bulk for return to the customer in the U.S., which performs its own assembly process. However, it is intended that Map West de Mexico will soon be assembling the brake shoes in Mexico as follows:

The assembly process consists of taking the processed shoe and attaching a new piece of lining material to the shoe by means of either bonding or riveting. The lining material used with bonded shoes goes through a further process of grinding where the surface of the lining is ground down to a certain thickness so as to allow the shoe to be easily placed inside the drum upon installation on an automobile. The lining used with riveted shoes, on the other hand, is preground by the manufacturer of the friction material, thus alleviating the repair and alteration facility from also having to include that process in its final assembly operation.

In a small percentage of cases, hardware will also need to be attached to certain shoes, principally new unlined brake shoes supplied without hardware. The latter consists of levers, clips, pins, plates and the like and are predominantly used in parking brake applications on foreign automobiles.

Thereafter, the shoes are inspected, matched in a set of four and packaged in either a plain white box or in a fancier, more expensive graphics box with a bar-coded label affixed to the edge of the box. This boxed, finished set is then delivered to the customer in the U.S. for warehousing and subsequent distribution upon resale.

ISSUES:

Whether brake shoes imported from Mexico under the following scenarios are

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eligible for duty-free treatment under subheading 9802.00.50, HTSUS:

1) Used brake shoe cores returned to the U.S. after rebuilding operations in Mexico that do not include assembly of the brake linings, which operation is performed in the U.S.;

2) Used brake shoe cores returned to the U.S. after rebuilding operations in Mexico that includes assembly of the brake linings;

3) New, unlined brake shoes returned to the U.S. after assembly in Mexico of hardware (levers, clips, pins, plates, etc.), for further assembly (in the U.S.) of the brake linings.

4) New, unlined brake shoes returned to the U.S. after assembly in Mexico of hardware and brake linings.

LAW AND ANALYSIS:

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); Guardian Industries Corp. 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. See Dolliff & Company, Inc. V. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64, Customs Regulations (19 CFR §181.64) are met.

In Press Wireless, Inc. v. United States, 6 Cust. Ct. 102 (1941), the Customs Court held that repairs are operations necessary to restore articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or create a new or different article. See also 19 CFR 181.64, which defines “repairs or alterations” 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 United States.” Emphasis added.

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Rebuilding Performed in Mexico, Relining in U.S.

In Headquarters Ruling Letter (HRL) 558712 dated December 15, 1994, used brake shoes were sent to Mexico for cleaning and rebuilding. The shoes were then imported into the U.S. for riveting or gluing the brake lining. Relying on the principles of Press Wireless, we stated the following:

[t]o comply with the statutory requirements in the instant case, the operations in Mexico must restore the brake shoe cores to their original condition, as lined automotive brake shoes ready for use in automotive applications. Since additional operations are required upon return to the U.S. before the articles may be used in this capacity, in accordance with Press Wireless and 19 CFR 181.64, the operations in Mexico do not constitute a “repair” within the meaning of subheading 9802.00.50, HTSUS.

The facts in HRL 558712 are analogous to the current operations performed by Map West and its subsidiary in Mexico and the U.S., as used brake shoe cores are partially rebuilt by Map West de Mexico in Mexico and relined by Map West’s customers in the U.S. Accordingly, these brake shoes are not restored to their original condition as lined brake shoes in Mexico but require further work in the U.S. (the addition of new linings) to complete the restoration. Therefore, the partially rebuilt brake shoes are not eligible for the duty exemption under subheading 9802.00.50, HTSUS, upon importation.

Rebuilding and Relining Performed in Mexico

In HRL 559568 dated May 7, 1997 Customs held that operations performed abroad on used automotive front wheel drive axles which included disassembly, cleaning, welding, grinding and re-assembly were considered repairs within the meaning of subheading 9802.00.50, HTSUS, as such operations served to restore the article to its original condition, purpose and application. See also HRL 956746 dated January 5, 1995 (operations performed in Mexico on used automobile bumpers which included straightening, sanding, priming and painting were "repairs" within the meaning of subheading 9802.00.50, HTSUS, as the operations restored the bumpers to the use for which they were originally designed.)

In this case, the operations in Mexico that include removal of the old linings, cleaning, grinding, straightening and assembly of new linings serves to restore the articles to their original condition as lined brake shoes. Accordingly, these operations are considered "repairs" within the meaning of subheading 9802.00.50, HTSUS.

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New and Unlined Brake Shoes

In this scenario, new unlined brake shoes are exported to Mexico for assembly of brake hardware ((levers, clips, pins, plates, etc.). Under current procedures, the brake shoes are returned to the U.S. for assembly of the brake lining, which processing completes production of the brake shoes. As noted, it is contemplated that in the future the brake lining will be assembled in Mexico.

In Dolliff & Company, Inc. v. U.S., 66 CCPA 77, C.A.D. 1225 (1979), the court found that the processing steps performed on certain exported fabrics were undertaken to produce the finished article and could not be considered as alterations. At issue in Dolliff was the question of whether certain Dacron polyester fabrics, which were manufactured in the U.S., and exported to Canada for heat-setting, chemical-scouring, dyeing, and treating with chemicals were eligible for the partial duty exemption available under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to HTSUS subheading 9802.00.50), when returned to the U.S. Specifically, the U.S. Court of Customs and Patent Appeals stated that:

. . . repairs and alterations are made to completed articles and do not include intermediate processing operations, which are performed as a matter of course in the preparation or manufacture of finished articles. In the instant situation, the operations performed in Canada comprise further processing steps which are performed on unfinished goods and which lead to completed articles, i.e., the finished fabrics, and, therefore, the processing cannot be considered alterations.

Thus, "the focus is upon whether the exported article is incomplete or unsuitable for its intended use prior to the foreign processing." Guardian Industries Corp. v. United States, 3 CIT 9 (1982). See also HRL 555461 dated March 15, 1990 (“roasting” molybdenum ore abroad to remove sulfur impurities is a manufacturing step necessary to complete the ore for its intended use, and, therefore, may not be considered a repair or alteration for purposes of subheading 9802.00.50, HTSUS); and HRL 556773 dated January 7, 1993 (medical instruments exported to Mexico for sterilization and returned to the United States are not entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, as unsterilized medical instruments are unsuitable for their intended use in the United States.)

In this case, the new unlined brake shoes exported to Mexico are unfinished articles incomplete or unsuitable for their intended use prior to the foreign processing. Therefore, whether the brake linings are assembled in the U.S. or Mexico, the operations performed in Mexico, which includes, at the least, assembly of the hardware, 6
constitute intermediate processing operations performed on unfinished brake shoes performed as a matter of course in the production of completed articles. Therefore, the operations performed in Mexico on the new unlined brake shoes may not be considered a repair or alteration for purposes of subheading 9802.00.50, HTSUS.

HOLDING:

1) Used brake shoe cores subject to rebuilding operations in Mexico which do not include assembly of the brake linings are not entitled to duty-free treatment under subheading 9802.00.50, HTSUS, upon importation, as such operations fail to restore the brake shoe cores to their original condition, as lined automotive brake shoes ready for use in automotive applications.

2) Used brake shoe cores subject to rebuilding operations in Mexico which include assembly of the brake linings so as to restore the brake shoes to their original condition are eligible for duty-free treatment under subheading 9802.00.50, HTSUS, upon importation.

3) New, unlined brake shoes returned from Mexico after assembly of hardware (levers, clips, pins, plates, etc.) or assembly of hardware and brake linings, are not entitled to duty-free treatment under subheading 9802.00.50, HTSUS, upon importation, as such operations constitute intermediate processing operations performed as a matter of course in the production of completed articles.

Please advise Map West Corporation (7807 East Olive Ann Lake, Yuma, Arizona 85364) of this decision, and include a copy with your notice.

Sincerely,

John Durant, Director

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