November 13, 1990
CLA-2 CO:R:C:V 555634 KCC
TARIFF NO.: 9802.00.50 - 806.20
District Director of Customs Laredo, Texas 78044-3130
RE: Application for Further Review of Protest No. 2302-83- 000013, concerning denial of TSUS item 806.20 treatment to electric switches cleaned, tested, and packaged in Mexico.Repair; 071055; 071296; 071390; Hallauer; T.D.
56516(1); 067432; 555318; 055153; 058662; 063112
The above-referenced protest contests your denial of the partial duty exemption under item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9802.00.50, Tariff Schedule of the United States (HTSUS)), to electric switches imported from Mexico following cleaning, repair and packaging operations.
The record reflects that General Electric (GE) contacted an Import Specialist at the San Antonio Port of Entry, in June of 1981, regarding the entry of electrical switches after a proposed repackaging operation in Mexico. After ascertaining the operations to be performed, and the applicable rulings and decisions in existence, the Import Specialist concluded that only the switches actually repaired by replacing defective components (GE estimated that approximately 20 percent of the switches would need repair) would qualify for item 806.20, TSUS, consideration.
GE then proceeded with their Mexican operation and, upon importing the switches into the U.S., claimed item 806.20, TSUS, tariff treatment for the entire shipment. The Import Specialist qualified 15-20 percent of the shipment for item 806.20, TSUS, treatment.
Thereafter, on September 24, 1982, GE submitted a request for a binding ruling to the Regional Commissioner, New York Region, on a "proposed" repackaging operation to be performed in Mexico. The operation entailed accumulating in the U.S.
electrical switches from U.S. and Mexican production facilities (however, as of the filing of this Protest, only foreign articles had been reentered into the U.S.) which required repackaging, and exporting them to Mexico for the following operations:
(1) unpacking switches from display cards; (2) visual inspection for physical defects; (3) cleaning/wiping off dust and dirt; (4) testing; (5) replacing defective components detected during testing (approximately 20 percent of the switches); (6) retesting switches; and (7) repackaging switches for sale.
GE sought to have the switches returned under item 806.20, TSUS, which would result in the assessment of duty only on the cost or value of the repairs performed in Mexico.
In response to GE's September 24, 1982, ruling request, Headquarters Ruling Letter (HRL) 071055 dated December 7, 1982, was issued which held that exporting the carded wiring devices for inspecting, testing, replacing defective parts and repackaging were operations that constituted genuine repairs or alterations within the meaning of item 806.20, TSUS.
The Import Specialist requested reconsideration of HRL 071055 on December 27, 1982. He explained that GE did not inform Headquarters that their operation had already begun, despite his prior opinion that only switches which were actually repaired would qualify for item 806.20, TSUS, treatment. The Import Specialist stated that he did not believe that the "cleaning" operation should qualify the switches for the duty exemption under this tariff provision, because of the simplicity of the operation (merely wiping off dust). The Import Specialist also contended that repackaging, testing, and/or sorting would not qualify the switches for tariff treatment under this provision, citing HRL 055153 dated August 17, 1978 (components which are inspected for defects and then returned to the U.S. are not eligible for item 800.00 or item 806.20, TSUS, treatment) and other ruling letters.
On February 23, 1983, GE responded to a request for further information regarding the cleaning operation performed in Mexico. GE stated that the switches entered into Mexico were either mounted on a card, and in some cases blister sealed, or bulk packaged. All the switches which were bulk packaged and those switches mounted on a torn or punctured card were subjected to the cleaning operation. The cleaning process was a manual operation accomplished by wiping the switches with a cloth to remove dust and dirt. The estimated time required to clean the switches was 5-10 percent of the time required to complete the entire foreign operation. GE estimated that 25-35 percent of the switches would require cleaning. GE further stated that after the cleaning and testing operations were completed, 5-8 percent of the bulk packaged switches would be repackaged by mounting them onto cards.
HRL 071296 dated April 27, 1983, affirmed HRL 071055. The ruling stated that mere testing and separation of articles is not sufficient to qualify them for treatment under item 806.20, TSUS.
However, the switches were additionally sorted, cleaned and repackaged which are sufficient to qualify them for the duty exemption available under this tariff provision, and cited to Wilbur G. Hallauer v. United States, 40 CCPA 197, C.A.D. 518 (1953). The reconsideration decision stated that there is no requirement that the intended processing be substantial so long as it is not merely superficial and serves a real purpose.
Additionally, HRL 071296 stated that recent judicial decisions which enlarged the scope of item 800.00, TSUS, to include certain operations, such as aggregation and sorting of American goods, does not necessarily deprive such operations from being considered as alterations under item 806.20, TSUS.
On May 5, 1983, the Import Specialist once again requested reconsideration of HRL's 071055 and 071296, stating that these holdings would overrule prior court decisions and administrative rulings. In this second request for reconsideration, the Import Specialist summarized the decisions and rulings which he stated supported his opinion that those articles not repaired (by replacing defective components) would fail to qualify for treatment under item 806.20, TSUS. The Import Specialist also stated that he could find no legal precedent for the theory that it is the intent at the time of export which governs whether an article qualifies for the duty exemption available under item 806.20, TSUS.
HRL 071390 dated June 28, 1983, responded to the second request for reconsideration, and stated that the initial prospective ruling written to GE, looking toward GE's future action, was correct in holding that unpacking, wiping, and repackaging of electrical articles would advance in value or improve in condition the switches in support of the claim for entry under the repair or alteration provision of item 806.20, TSUS. Further, HRL 071390 stated that noncompliance with the factual situation found in the request for a binding ruling can be detrimental to the importer, and that, ultimately, it is up to the district or area director to determine whether the claim for item 806.20, TSUS, relief is justified. HRL 071390 concluded that the only exception to compliance in this regard occurs whenever there exists a bona fide intent on the part of the exporter to have an article repaired or altered abroad, but due to some intervening circumstance which interrupts compliance with
the tariff provision, the article is not repaired or altered.
See, CIE 268/55 dated March 11, 1955. However, HRL 071390 stated that this exception does not apply to the circumstances of this case.
On September 2, 1983, the entries were liquidated, and 20 percent of the returned articles were classified under item 806.20, TSUS, while the remainder were classified under item 685.90, TSUS, dutiable at 7.3 percent ad valorem.
GE contends that those electric switches which are cleaned abroad (but not repaired by replacing defective components) should receive item 806.20, TSUS, treatment, citing Wilbur G.
Hallauer v. United States, 40 CCPA 197. GE further contends that those switches which are merely tested and repackaged (but not cleaned) should also be classified under item 806.20, TSUS, because there was a bona fide intent to have them repaired, citing CIE 268/55.
Whether the returned electric switches are entitled to the partial duty exemption available under item 806.20, TSUS.
LAW AND ANALYSIS:
Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under item 806.20, TSUS, provided the operations do not destroy the identity of the exported articles or create new or different articles.
Articles entitled to this partial duty exemption are dutiable only on the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied.
Cleaning operations which restore exported articles to their original efficiency in order to prolong their usefulness have long been considered "repairs" for purposes of item 806.20, TSUS, and its subsequent provision, HTSUS subheading 9802.00.50, so long as the identity of the articles exported was not destroyed, nor a new or different article created. See, Wilbur G. Hallauer v. United States, 40 CCPA 197, (wiping, polishing, grading, wrapping and packaging of American-grown apples in boxes of Canadian origin entitled the apples to the duty exemption available under Paragraph 1615(g)(1), Customs Administrative Act of 1938 (the precursor to TSUS item 806.20)); T.D. 56516(1), 100 Treas.Dec. 693 (1965) (cloth "scoured" in England by passing it through a solvent of boiling trichloroethylene to remove waxes and fatty material, and further processed to remove remaining
trichloroethylene and any water-soluble materials, was entitled to partial exemption from duty under TSUS item 806.20, as the processing abroad was considered a repair or alteration); HRL 067432 (October 6, 1981) (industrial work gloves exported to Canada for cleaning were entitled to TSUS item 806.20 tariff treatment); and HRL 555318 (September 20, 1989) (textile articles soiled in the U.S. and sent to Mexico for laundering, which included washing, drying and pressing, were eligible for HTSUS subheading 9802.00.50 treatment).
Mere testing abroad will not qualify articles for item 806.20, TSUS, treatment. See, HRL 055153 dated August 17, 1978, (electronic components which are visually inspected for defects and then returned to the U.S. are not eligible for item 800.00 or 806.20, TSUS, consideration.) However, when testing is performed in connection with a cleaning or other repair operation, the articles returned to the U.S. will be eligible for the duty exemption available under item 806.20, TSUS. See, HRL 055153 (cleaning and testing of electronic components is permissible under item 806.20, TSUS); HRL 058662 dated December 29, 1978, (testing and replacement of parts qualifies the parts for item 806.20, TSUS, treatment); and HRL 063112 dated July 31, 1979, (visual and electronic testing and repair of defective parts renders the parts eligible for the partial duty exemption available under item 806.20, TSUS).
It is our final opinion that the electrical switches of foreign origin exported to Mexico for cleaning, testing, and repacking operations are eligible for the duty exemption available under item 806.20, TSUS. The electrical switches are cleaned to remove dust and dirt, which restores each switch to its original condition, thereby advancing it in value and improving it in condition. This cleaning process does not destroy the identity of the switch, nor does it create a new or different article of commerce. Each switch is then electrically tested to ensure it is in working order. If the switch does not pass the test, it is repaired and then tested once more. The above described operations performed in Mexico will not preclude the electrical switches from receiving item 806.20, TSUS, treatment upon their importation into the U.S.
However, the electrical switches which are merely tested and repackaged have not been advanced in value or improved in condition by a repair or alteration. In our opinion, the holding in CIE 268/55 is inapplicable to these switches since GE was aware at the time of the articles' exportation that not all of the switches would be repaired abroad. Therefore, these electrical switches are not entitled to the partial duty exemption available under item 806.20, TSUS, but are fully dutiable.
On the basis of the record presented, it is our opinion that the foreign operations of cleaning, testing, and repackaging restored the exported electric switches to their original condition, and therefore, constituted repairs within the meaning of item 806.20, TSUS. Moreover, as your office recognizes, those switches which were repaired abroad by replacing defective components also are entitled to item 806.20, TSUS, treatment.
However, those switches which are merely tested and repackaged are not entitled to the partial duty exemption. Our holding in regard to those articles determined to be entitled to item 806.20, TSUS, treatment presumes compliance with the documentary requirements of 19 CFR 10.8. A copy of this decision should be attached to the Form 19, to be sent to the protestant.
John Durant, Director Commercial Rulings Division