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HQ 562499




April 30, 2003

CLA-2 RR:CR:SM 562499 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50

Port Director
U.S. Customs Service
9777 Via de la Amistad
San Diego, CA 92154

RE: Application for Further Review of Protest No. 2501-97-100046; Denial of HTSUS subheading 9802.00.50 treatment to photocopiers

Dear Madam:

This is in reference to a protest and application for further review filed by S.K. Ross & Assoc., P.C. (hereinafter “counsel”) on behalf of Eastman Kodak Company (“Kodak”), contesting the denial of the duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to photocopiers imported from Mexico. A meeting concerning the protest at issue was held April 11, 2001, and further information was submitted by letters dated May 25, June 25, 2001, and March 28, 2002.

FACTS:

Protest 2501-97-100046 was filed on July 28, 1997. Kodak contests the denial of subheading 9802.00.50, HTSUS, treatment to certain photocopiers that were exported to Mexico from the U.S. for processing operations and then returned. The processing in Mexico resulted in the conversion of used “model A,” “model B,” “model C,” and “model F,” copiers into “model D” copier duplicators. Your office denied subheading 9802.00.50, HTSUS, treatment based on Headquarters Ruling Letter (HRL) 559418 dated December 12, 1996 (model B to D); HRL 560006 dated March 21, 1997 (model C to D); and HRL 559672 dated December 17, 1996 (model F to D). Rather than restate the factual and legal points made on Kodak’s behalf in other submissions, counsel refers Customs to the prior ruling requests regarding the conversion processes for the model B, C and F to model D copier. Kodak also incorporates by reference its ruling request HRL 560290 regarding the model A to model D process (subsequently issued as an internal advice decision on May 10, 2000). On March 28, 2002, counsel stated that Kodak will abandon its claims regarding the processes for the F, I and J to D conversion processes. Accordingly, no further reference will be made to the models F, I, and J copiers. It is stated that until 1997, Kodak did not designate the starting copier model on its commercial invoices; therefore, for pre-1997 entries, secondary records were consulted and at the time the protest was filed, Kodak was not able to retrieve all relevant records.

Kodak manufactured copier-duplicators at its facility in New York. The copiers were sold or leased to customers, and when the copier no longer functioned, if a copier was salvageable, it was exported to Mexico to be refurbished. If warranted, it was also upgraded and returned to the U.S. It is stated that Kodak’s exported copiers are not completely disassembled in Mexico, and that the major features such as the mechanical frame, casters and wheel systems, film core, drive train, illumination housing and optical tub remained attached to the frame of the exported copier at all times. It is also stated that minor features remained attached to the “carcass” as well.

Pursuant to 19 U.S.C. 1625(c), as amended, Customs issued a notice of revocation of rulings letter and treatment, Vol. 37, No. 39 of the “Customs Bulletin” dated January 29, 2003, relating to the repair and alteration of photocopiers abroad. Specifically, Customs revoked HRL 560290, HRL 559418, HRL 560006, and HRL 559672 (regarding the model F), pursuant to the analysis set forth in HRLs 562513, 562514, and 562515, and 562516 dated January 14, 2003, respectively. Accordingly, HRLs 562513, 562514, and 562515 (including the rulings’ detailed description of processing performed in Mexico with respect to each of the models) are herein incorporated by reference. As stated above, HRL 562516 is not included as this ruling relates to the model F.

ISSUE:

Whether the Kodak D copiers converted from the model A, B, or C were subjected to repairs or alterations within the meaning of subheading 9802.00.50, HTSUS.

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). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64), are satisfied. In particular, the documentation required includes a declaration from the person who performed the repairs or alterations, which describes the operations performed and the value and cost of such operations and which includes a statement that “no substitution whatever has been made to replace any of the goods originally received.”

“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 Press Wireless v. United States, 6 Cust. Ct. 102, C.D. 438 (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 U.S.).

In previous rulings, we have held that subheading 9802.00.50, HTSUS, will be applicable to articles subject to both partial and complete disassembly, where repairs are made and parts are replaced as long as the essential components and therefore the identify of the article remain intact throughout the repair process. For example, in HRL 554731, dated February 2, 1989, Customs considered fuel injectors which involved the replacement of parts and cleaning after disassembly. Customs determined that the fuel injectors qualified for subheading 9802.00.50, HTSUS, treatment, as long as the adapter and retainer of the fuel injector were not replaced and remained together as a matched set, as these constituted the essential identity of the fuel injector.

In Kodak’s case, it is claimed that the copiers are only partially disassembled. Based on the information provided by letter of May 25, 2001, the major features which remain attached to all of the copiers at all times are stated to be the mechanical frame, casters and wheel systems, film core, drive train, illumination housing, optics assembly, wire harnesses and noise filters, and logic and control units. Various minor features remain attached as well. It is also stated that Kodak tracks which parts and subassemblies are removed from a given carcass through the use of unique inventory control numbers. The documentary requirements, as set forth in 19 CFR 181.64(c), were provided June 25, 2001, for two entries, 4020110-3 and 4022601-9.

I. Model C to D

In HRL 560006, regarding the model C to D process, Customs noted that the installation of a new toner and developer assembly, which produces a superior print quality, and a new primary charger, were significant changes to the imaging assemblies, which along with other changes in the paper handling assembly (paper level indicators), changed the copier’s essential identity. In HRL 562515 which revoked HRL 560006, Customs states that it is now of the view that the essential identity of the copiers was retained when processed in Mexico and partially disassembled. The review of the facts of the case indicate that among the major features which remained attached to the copier at all times were the mechanical frame, casters and wheel systems, film core, drive train, wire harnesses, noise filters, and logic and control units. Various minor features remained attached as well. It was stated that Kodak tracked which parts and subassemblies were removed from a given carcass through the use of unique inventory control numbers. As a result, parts could be reassembled with matched subassemblies after the reconditioning process.

HRL 562515 states that it is now clear that many of the replaced parts were parts that can be serviced in the field, and that they were more akin to what we would consider to be “consumables”, or parts that wear out with time and need to be repaired or replaced to ensure the continued functioning of the photocopier.

The processing involving the charger, developer and optics assembly in the instant case was one in which many of the parts were replaced due to normal wear. For instance the worn-out rollers in the charger assembly was replaced. Counsel noted that the roller mechanism around the film core and portions of the charging system were not routinely replaced unless specific parts were worn. In the optics assembly, the platen glass was replaced and the illumination housing was repaired. However, the optics, lens, and mirror assemblies were left intact. The fuser frame (imaging fixing), film core structure (imaging) and document feeder frame (paper handling) were not changed.

A change that did occur was the toning assembly where the key components in the older version – replenisher housing and motor, station sump casting, two developer rollers with two magnet rollers, two mixing blenders along with miscellaneous gears, bearings, and hardware were replaced with a new version having one developer roller and one magnet roller. The difference between the toner and developer assembly of the model C and model D, resulted in a more efficient presentation of the toner to the latent image.

II. Model B to D

In HRL 559418, regarding the model B to D process, Customs noted that the replacement of the toner and developer assembly, installing a new LED erase bar, and adding an upgraded cleaning housing and a new vacuum scavenger in the cleaning assembly were significant changes to the imaging assemblies, which along with other changes in the paper handling assembly (paper level indicators), changed the copier’s essential identity. In HRL 562514 which revoked HRL 559418, Customs stated that it is now clearer that many of the replaced worn components were “consumables.” For instance, in the imaging assemblies, the processing included the replacement of the film belt and worn components. A new LED erase bar was installed in the photoreceptor belt. It is stated that the IQE station slider, plenum assembly build, backup slider assembly, and assembly driver roller were the worn components that were replaced in the photoreceptor belt and handling assembly. The IQE station slider basically allows the developer assembly to be removed from the machine without disassembling the machine. The new model of the plenum assembly build installed into the model D uses hoses and ducts instead of magnets to collect excess toner flakes and developer from the film loop. The backup slider assembly moves the image loop toward the developer roller when actuated. The assembly driver roller starts the movement of the image loop around the film core area, and it is stated that worn out rollers were replaced and the same rollers are used regardless of the resulting finished model.

Furthermore, in regard to the charging assemblies, HRL 562514 found that the worn components replaced were those that naturally wear out during normal copier operations, such as the corona wires (provides the charge to the image loop), the primary (gives off the charge), and the grill (takes the charge from the corona wire and disburses it over the loop). Regarding the optics assemblies, the platen glass was replaced and worn components were replaced in the lens/mirror assembly. The worn components include mechanical parts such as timing belts and pulleys which slide the lens assembly on its guides.

Model A to D

In HRL 560290, regarding the model A to D process, Customs noted that the replacement of the toner and developer assembly was a significant change to the imaging assemblies, which along with other changes in the paper handling assembly (e.g., paper level indicators), LED erase bar, cleaning housing, and scavenger changed the copier’s essential identity. In HRL 562513 which revoked HRL 560290, Customs stated that it is now believes that the essential identity of the copiers was retained when processed in Mexico. The record reflected that Kodak tracked which parts and subassemblies were removed from a given carcass through the use of unique inventory control numbers. With regard to the model A to D process, the differences between the toner and developer assembly and cleaning/erase assemblies of model A and model D resulted in a more efficient presentation of the toner to the latent image. HRL 562513 also found that many of the replaced parts were “consumables.”

Accordingly, with regard to the Model A, B, and C to D process, HRLs 562513, 562514, and 562515 found that the processing of the imaging and optics assemblies did not alter the essential character of the copier. Although certain parts of these assemblies were replaced, the processing did not destroy the essential character of the copiers. Accordingly, Customs stated that it was now of the opinion that, although the processing involved extensive reconditioning of numerous parts and replacement of a number of parts resulting in an enhancement of certain copier functions, the changes were not so extensive as to destroy the essential identity of the exported photocopier or create a new or commercially different article. Furthermore, the fact that many of the parts were identified as being able to be replaced in the field, indicates that the replacement of such parts restore the products to their original condition and, therefore, may be considered “repairs” within the meaning of subheading 9802.00.50, HTSUS. In HRLs 562513, 562514, and 562515, referring to HRL 558858/558859, Customs also stated that subheading 9802.00.50, HTSUS, is applicable to articles subject to partial and/or complete disassembly as long as the essential components and the identity of the article remain intact.

Therefore, consistent with HRLs 562513, 562514, and 562515, the protest should be granted as to the conversion of the Model A, B, and C to D processes. Concerning the model F to D conversion process, as indicated by its statement of abandonment of the claims relating to the model F copier, the protest should be denied. Similarly, no information was provided on the I and J to D conversion proceses. Accordingly, the protest should be denied as the entries involving these model copiers.

HOLDING:

On the basis of the information submitted, it is our opinion that the Mexican operations enumerated above with regard to the model C to D, model B to D, and model A to D operations constitute “repairs or alterations” since they did not destroy the identity of the exported copiers or create new or commercially different articles. Therefore, the imported model D copiers which were exported as model C, B, and A copiers are eligible for the full duty exemption under subheading 9802.00.50, HTSUS. In accordance with counsel’s abandonment of claims relating to the model F, I and J to D conversion processes, the protest is denied as to those entries involving those models. Our holding in regard to those articles determined to be entitled to subheading 9802.00.50, HTSUS, treatment presumes compliance with the documentary requirements of 19 CFR 181.64.

The protest should be granted with regard to the model A, B, and C to D processes, and denied with regard to the Model F, I and J to D processes. In accordance with Section 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel, and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels.

Sincerely,

Myles B. Harmon, Director
Commercial Rulings Division

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