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HQ 230140




January 8, 2004

CON-9; CON-9-04 FF:CR:DR 230140 MK

CATEGORY: TEMPORARY IMPORTATION BOND

Thomas Giolekas, LCB
Operations Manager, Customer Management Center Menlo Worldwide Trade Services
6940 Engle Road, Suite C
Middleburg Heights, OH 44130

RE: Temporary Importation Bond; Decorative Coatings; NAFTA duty- deferral program; Physical Vapor Deposition (PVD)

Dear Mr. Giolekas:

This is in response to your binding ruling request, dated September 15, 2003, on behalf of Gold Star Coatings. You believe that the physical vapor deposition process described is covered by 19 CFR 181.53(b)(5), Temporary Importation Under Bond, and ask that we issue a ruling declaring that the good imported under this process be excluded from the NAFTA duty-deferral programs. Our decision follows.

FACTS:

Your letter, dated September 15, 2003, states that Gold Star Coatings (“Gold Star”), applies a decorative coating through a process called physical vapor deposition (“PVD”), to hardware received from Mexico. The “Gold Star Decorative PVD Coatings” sales brochure states that the PVD process entails four-steps:

First, parts are affixed to racks that hold the parts through a high-purity aqueous cleaning line.

Next, the racks are placed onto the PVD turntable which is rolled into the PVD chamber.

Then, the PVD chamber is pumped to a high vacuum to remove contaminants from the chamber environment.

Finally, an electric arc is used to evaporate and ionize base metals, while reactive gases flow into the chamber. Together they form very hard, very dense metal compounds on the parts.

After the PVD process is performed, the products are promptly exported to Ideal Standard in Mexico.

You state in your letter that this coating is to alter the products’ appearance, and it does not change the physical dimensions or functions of the products.

The sales brochure contains a chart comparing the typical results of clear organic coated brass with PVD applied Zirconium Nitride. This chart shows that the PVD results equal or outperform the brass in all compared categories (salt spray, cass test, tabor abrasion, and micro hardness of surface). It also states that:

PVD processing is superior to all other industrially mature techniques in that the outermost surface of parts coated by PVD:

Are very stable metal nitrides which require no organic topcoats (no UV degradation), Are noble compounds, which contribute to the corrosion-resistance of the system, Are much harder than any film that can possibly be produced by electrophoritic assisted organic clear coats or electroplated metals, Have a bright, metallic finish with superlative color consistency and stability, and Are harder than electroplated films providing an unsurpassed scratch resistance.

The sales literature submitted by Gold Star further states, under “General Applications,” that the PVD technology results in corrosion resistance, scratch resistance, and never needs polishing. The brochure states that the PVD applied films:

Are four times harder than brass and gold Exhibit levels of adhesion that are unobtainable by means of wet electroplating Require no clear, organic topcoats that are routinely degraded by solar radiation

ISSUE:

Is the application of PVD to the subject hardware an “alteration” within the meaning of 19 CFR 181.53(b)(5) so as to constitute an exception to the limits imposed by the NAFTA drawback rules?

LAW & ANALYSIS:

Pursuant to General Note 1, Harmonized Tariff Schedule of the United States ("HTSUS"), all merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Under subheading 9813.00.05, HTSUS, articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under bond, for exportation within one year from the date of importation. This period may be extended for one or more additional periods, which when added to the initial period does not exceed three years. U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify under this provision, the merchandise imported may not be imported for the purpose of sale or sale on approval.

Gold Star argues that the PVD process “equates to the exception” of 19 CFR 181.53(b)(5), Temporary Importation under Bond. 19 CFR § 181.53(b)(5) provides, in pertinent part, “except in the case of a good imported from Canada or Mexico for repair or alteration.” Thus, TIB goods imported from Canada or Mexico for repair or alteration escape the NAFTA drawback limitations per 19 CFR § 181.53(b)(5).

Gold Star proposes to import the subject goods from Mexico and therefore the only issue we need address is whether the PVD process is a repair or alteration in accordance with 19 CFR §181.53(b)(5).

Webster's Third New International Dictionary (unabridged, 1966) defines "repair" as follows, in pertinent part:
repair ... 1 a: to restore by replacing a part or putting together what is torn or broken: fix, mend ... b: to restore to a sound or healthy state: renew, revivify...

It is clear that the work performed is not a repair of the hardware. The facts do not state that there is a restoration, replacement, renewal, or the like.

Webster's Third New International Dictionary (unabridged, 1966) defines "alteration" and "alter" as follows, in pertinent part:
alteration ... 1 a: the act or action of altering b: the quality or state of being altered 2: the result of altering...
alter ... 1: to cause to become different in some particular characteristic (as measure, dimension, course, arrangement, or inclination) without changing into something else ... syn see change The Random House Dictionary of the English Language (The Unabridged Edition, 1973) defines "alteration" and "alter" as follows, in pertinent part:
alteration ... 1. the act or state of altering: or the state of being altered ... 2. a change; modification ...
alter ... 1. to make different in some particular, as size, style, course, or the like; modify ... 3. to change; become different or modified.

We have reviewed the applicable case law pertaining to alterations. In E. Dillingham, Inc. v. United States, 29 Cust. Ct. 16 (1952), four metal discs were imported into the United States to be processed by having the edges bent to form flanges and to be pressed and spun to dish-like shapes. The plaintiff claimed that the processes were alterations or changes in condition which did not result in articles manufactured or produced in the United States within the meaning of the TIB law. The Customs Court held that the metal discs were not entitled to free entry, under bond, because the processing of the discs was not in the nature of repairs or alterations of finished products but an additional and vital step in their manufacture. In Guardian Industries Corporation v. United States, 3 C.I.T. 9 (1982), glass sheets were produced in annealed form in the United States and then sent to Canada for a heat treatment known as tempering. The glass was then re-imported into the U.S. as articles returned to the U.S. after having been exported for repairs or alterations. The plaintiff contended that the tempering operation was an alteration. The court concluded that the tempering process transformed the glass in name, use, performance characteristics and tariff classification and, thus, it was not an alteration. In reaching this decision, the court relied on A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1957), which held that a process which creates a new article of commerce is not an alteration. In Burstrom, steel ingots were exported to Canada and re-imported after having been converted into steel slabs. The court concluded that the imported slabs were not the same articles as the ingots, differing therefrom in name, value, appearance size, shape and use.

Like the factual situations in the case law discussed above, in the instant case the hardware is subject to a physical process that completes its manufacture. It is unlikely the hardware would be sold without any coating, regardless of that coating’s function as protective or decorative. The sales brochure compares the typical results of hardware coated with PVD with that coated with clear organic brass. It does not however suggest that hardware would be sold without any coating. Coating the hardware with some substance is therefore an additional and vital step in the manufacture of the hardware.

The Dillingham court found that the purpose of putting a flange on the discs and reducing the diameter from 130.5 inches to 112.5 inches was to make the discs suitable for their intended use as covers for a tank-like vessel to process wood pulp. The information on the coating states that the coating improves the durability of the kitchen and bath hardware. The coating, just like the pressing operation that was before the Dillingham court, makes the hardware suitable for its intended use of bath and kitchen plumbing fixtures. The Guardian case, which concerned a heat- treatment that strengthened the glass for use as a patio door, provides an even closer analogy to this situation. Just the tempering operation made the glass more durable, the described coating operation also increases the durability of the bath and kitchen faucets to reduce the effect of corrosion by water. The argument that so long as the material imported is the same material that was exported, any change which has taken place is no more than an alteration was expressly rejected by the Burstrom court.

While the case of C.S. Emery & Co. v. United States, T.D. 49000, 71 Treas. Dec. 880 (Cust. Ct. 1937) held that plating a bushing was an alteration, the decision in that case is distinguishable. First, the Burstrom court expressly rejected the premise that any change, not a manufacture was an alteration. Second, the statute has been amended significantly. In 1937 former section 1308(1) permitted only repairs or alterations and expressly excluded any process that resulted in manufacture. Subheading 9813.00.05, HTSUS, permits any processing, including processing that results in a manufacture so the choice no longer is an “either or” proposition as it was in 1937. Third, the C.S. Emery court reached its decision after noting the lack of judicial interpretation of the term “alteration”. Unlike the situation in 1937, the courts have provided interpretations of the term, as discussed above.

HOLDING:

The application of PVD to the subject hardware is not an “alteration” within the meaning of 19 CFR 181.53(b)(5) and does not constitute an exception to the limits imposed by the NAFTA drawback rules.

Sincerely,

Myles Harmon, Director
Commercial Rulings Division


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