HQ 559968

May 7, 1997

CLA 02 RR:TC:SM 559968 KKV

CATEGORY: Classification

Tariff No.: 9802.00.50

Mr. Frank Parker

Parker & Co.

P.O. Box 271

4964 Coffee Port Road

Brownsville, TX 78521

RE: Applicability of the partial duty exemption under

subheading 9802.00.50, HTSUS to certain front

wheel drive axle assemblies exported to Mexico for

repair; disassembly; essential identity; outer

constant velocity joint housing; HRL 554539; HRL

556609; welding, grinding; restoration; Ashdown,

U.S.A. v. United States; HRL 951072; HRL 559970;

NAFTA; Article 307, Article 509

Dear Mr. Parker:

This is in response to your letter dated June 28, 1996

(and subsequent facsimile dated March 31, 1997), on behalf

of GSR Industries, Ltd., which requests a ruling regarding

the country of origin marking requirements and eligibility

of certain front wheel drive axle assemblies for the partial

duty exemption provided under 9802.00.50, Harmonized Tariff

Schedule of the United States (HTSUS).

FACTS:

We are informed that GSR Industries, Ltd. (hereinafter

\"GSR\") has contracted with Import Products Co., Inc. (IPC)

for the supply of front wheel drive axles, on consignment,

which will be exported to Mexico for repair per IPC

specifications and then returned to the U.S. for

distribution to the auto parts distribution network for

repaired parts.

IPC collects, sorts and inspects worn out front wheel

drive axles, known as \"cores,\" most, but not all of which

are manufactured in the United States. Prior to shipment to

GSR\'s Texas facility for export to Mexico, IPC inspects and

sorts the cores into work order batches by model number,

discarding any cores deemed by IPC to be unrepairable. Upon

receipt by GSR in Texas, the cores to be exported are

documented by model number and work order batch number and

invoiced for Customs purposes prior to exportation to GSR\'s

Mexican facility.

We are informed that the front wheel drive assembly

consists of the following components: CV joint boots (

rubber boots designed to seal lubricant into a constant

velocity joint), inner and outer constant velocity joints,

bearing balls (used in the constant velocity joints) a

bearing cage (a machined casting, either inner or outer, to

contain bearing ball and cage within the constant velocity

joint), grease (lubrication for the joint), retaining bands

(stainless steel bands for sealing the CV boots to the

constant velocity joints and drive shaft) and a drive shaft

(either passenger or driver side). It is stated that each

automobile contains two front wheel drive axles, one each

for the driver and passenger side. Generally, one axle will

be shorter than the other, depending upon the model of the

vehicle of which they are a part, so that the axles are not

interchangeable but have different part numbers and

characteristics.

You state that the outer constant velocity joint

housing is the \"essential component\" of the front wheel

drive axles, as it constitutes 75% of the value of the core.

Because new housings are not readily available on the open

market, the core is considered worthless unless the outer

housing is repairable. In the event that the outer housing

is not repairable, the center shaft and the inner constant

velocity joint become scrap material. The internal

components of the outer constant velocity joint, which you

indicate are minor components, consist of the bearing balls,

bearing cages and bearing races. Unlike the housings, these

components are easily replaceable and are always in

oversupply.

The cores are exported to Mexico where they undergo the

following repair processes:

1\. The cores are received in lots, disassembled

by separating the outer and inner constant

velocity joints from the center shaft. The

constant velocity joints are removed and

discarded. All minor components are separated

into bins by part type within model number to

be reassembled with the outer constant

velocity joint housing at a later stage in the

process. Like minor components from different

components from different core units are

commingled in the bin.

2\. All components are washed in a high

temperature washing machine to remove grease

and dirt.

3\. All components are shot blasted to remove rust

and grime.

4\. All components are inspected for reusability.

5\. The outer constant velocity joint

housings are inspected for needed

repairs, resulting in one of four

alternative conclusions. Each housing is

either:

a\) acceptable for use in its

current condition,

b\) requires TIG welding and hand

grinding,

c\) requires oversize grinding on

CVS grinding machines, or

d\) is discarded as unusable.

TIG welding is used to restore the ball

track of the outer constant velocity

joint housing by filling the worn area

with material, which is then reground to

the original size by hand. In this case,

all reground housings are sent to final

inspection where the cages are replaced

with new ones and the outer constant

velocity joint is sent to final assembly

utilizing the used bearing race and

balls.

CVS grinding to oversize is used to

restore the ball track of the outer

constant velocity joint housing by

grinding the ball track to an oversize,

typically .010\", and grinding the used

cage and bearing race to the same

oversize. The outer constant velocity

joint is then sent to final assembly

utilizing new oversized bearing balls.

After all usable constant velocity joints

have been assembled from the particular

model lots, these sub-assemblies are sent

to final assembly with the cleaned center

shaft and inner constant velocity joint.

6\. The final assembly process includes

reassembly of the inner and outer

constant velocity joints onto the center

shaft, the installation of the two new

constant velocity joint boots and the

greasing of each joint. New stainless

steel clamps are applied to seal the

boots. The final assembly is washed to

remove excess (new) grease, is dipped in

rust inhibitor, dried, identified by

model and batch number and boxed.

7\. The boxed axle is date coded and the

appropriate customer label is affixed to

the end of the box along with the

original country of origin label. The

boxed axles are then prepared in

containers for shipment back to the U.S.

for delivery to IPC.

ISSUE:

Whether the front wheel drive axle assemblies exported

to Mexico are advanced in value or improved in condition by

means of repairs or alterations, and therefore eligible for

the duty exemption provided by subheading 9802.00.50, HTSUS,

when returned to the United States.

LAW AND ANALYSIS:

I. Applicability of subheading 9802.00.50, HTSUS

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) and Guardian

Industries Corp. v. United States, 3 CIT 9 (1982). Articles

entitled to this duty exemption are subject to the

documentary requirements of section 181.64(c), Customs

Regulations (19 CFR 181.64(c)), are met.

Article 307 of the North American Free Trade Agreement

(NAFTA) and Annex 307.1 of the Agreement provide, that

articles exported from the U.S. to Mexico for \"repairs or

alterations\" may, upon their return, enter into the U.S.

free of duty.

The Customs regulations which implement NAFTA are

contained in title 19 CFR Part 181. Section 181.64(a)

defines \"repairs or alterations\" for purposes of NAFTA as

follows:

For purposes of this section, \"repairs or

alterations\" means 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.

For purposes of the duty allowance under subheading

9802.00.50, HTSUS, the replacement and/or addition of parts

to restore products to their original condition may

constitute repair operations, provided that the particular

article does not lose its identity and the replacement

and/or additions are not so extensive as to create a new or

different article. Press Wireless, Inc. v. United States, 6

Cust. Ct. 102, C.D. 438 (1941). In Press Wireless, radio

tubes were sent abroad for repairs which involved the use of

heavier filament than that used in the original manufacture

of the tubes. Also, the markings on the articles were

erased, and new numbers were substituted to facilitate

matching the tubes for use in transmitters. The court held

that, as long as the article was not considered a new and

different article of commerce or its identity was destroyed,

the use of improved materials in the restoration was of no

consequence.

Thus, application of this tariff provision is

precluded where the foreign operation destroys the identity

of the exported article or creates a new or different

commercial article. In Headquarters Ruling Letter (HRL)

554539, dated August 25, 1987, we stated that:

So long as the identity of \[the exported

unit\] is maintained throughout the

disassembly and repair process, and there

is a genuine repair of parts carried out

during the foreign process, these units

may be entered under the repairs

provision of item 806.20, Tariff

Schedules of the United States (TSUS)

\[the predecessor tariff provision to

subheading 9802.00.50, HTSUS\].

The replacement and/or addition of parts to restore

products to their original condition may constitute repair

operations for purposes of subheading 9802.00.50, HTSUS, if

the particular article does not lose its identity and the

replacements and/or additions are not so extensive as to

create a new or different article. Where, as here, the

foreign repair operation entails the complete disassembly of

the exported article and numerous component parts of the

article are replaced, the concept of \"essential identity\"

becomes relevant. This concept is employed in interpreting

this tariff provision to insure that the article imported is

the same as the article exported and operates by identifying

certain component parts of an exported article as embracing

the essential identity of the particular article exported.

Component parts so identified are to be maintained together

throughout the repair operation as a matched set. Thus,

replacing any one of these essential components would

violate the uniqueness of the matched set and result in a

new article of commerce, thereby precluding eligibility for

the duty exemption under

subheading 9802.00.50, HTSUS. See Headquarters Ruling

Letter (HRL) 555443, dated November 30, 1990, and rulings

cited therein.

In support of your position that the returned front

wheel drive axles are eligible for duty-free treatment

provided by subheading 9802.00.50, HTSUS, you reference HRL

556609, dated July 23, 1992, in which Customs considered the

\"essential component\" of steering gear assemblies or \"core\"

units exported to Mexico for repair. In that case, the

housing of the assemblies, which constituted 80% of the

value of the assembly, was not interchangeable but was

specific to each model. Because new housings were not

readily available for purchase on the open market, the core

assembly was deemed worthless unless the housing was

repairable. Customs concluded that the housing was the

\"essential component\" of the cores, and held that,

notwithstanding the replacement of non-essential parts,

where the housing was not replaced in the repair process but

remained segregated from the components of other cores, the

steering gear assemblies were entitled to the duty exemption

under subheading 9802.00.50, HTSUS.

Unlike the facts presented in HRL 556609, supra, where

the finished article contained only one housing, the front

wheel drive axle assemblies under consideration consist of

two separate housings, connected by a center shaft, each of

which is an integral element in the functioning of the

finished article. The outer constant velocity joint

attached to the wheel must maintain a constant velocity

while rotating with the wheel and moving up and down with

the shock absorber or strut. The inner constant velocity

joint serves as a connector to the transmission, and must

also maintain a constant velocity as it rotates. While the

duality of movement of the outer constant velocity joint may

require a more complex assembly than that of the inner

housing and may result in a greater amount of wear than the

singular rotary function of the inner counter velocity

housing, this duality of movement does not render the outer

housing more essential to the identity of finished front

wheel drive axle assembly than its inner counterpart.

Therefore, we find that both housings create the essential

identity of the finished axle assemblies.

In a telephone conversation with a member of our office

you indicated circumstances which would render it physically

impossible to maintain the two housings together as a

matched set during the repair operations: 1) The nature of

the repair operations performed in Mexico (cleaning and

grinding) renders serialization ineffective as a means of

identification; 2) Placing both housings in a common

container could result in damage to the parts during the

washing and shot blasting operations. However, in your

ruling request you stated that the exported cores are

documented by model number and work order number before

shipment to Mexico for repairs. In consideration of the

total circumstances, we find that to the extent that it is,

as indicated above, practically infeasible to physically

maintain the two housings together during the repair process

as an individual matched set, evidence (presented to the

port director) that the inner and outer constant velocity

joint housings originated from the same work order or batch

number will substantiate that the essential identity of the

exported axle assemblies was maintained during the repair

process.

We also find that the operations performed on the

housings are considered genuine repairs within the meaning

of subheading 9802.00.50, HTSUS. The TIG welding process

and the CVS grinding to oversize operations described above

do not result in the creation of a new article, but serve to

restore the article to its original condition, purpose and

application. Accordingly, so long as the essential identity

of the front wheel drive axles assembly is maintained, the

use of other non-essential components which may be

commingled with other identical parts in storage bins or in

inventory until required for reassembly is permissible. See

HRL 556609, supra; See also HRL 554731, dated February 2,

1989\.

Accordingly, provided the criteria set forth above are

met, the repaired front wheel drive axle assemblies are

entitled to duty-free treatment under subheading 9802.00.50,

HTSUS, upon importation into the U.S., provided that the

documentary requirements of 19 CFR 181.64(c) are satisfied.

II\. Country of Origin Marking

Section 304 of the Tariff Act of 1930, as amended (19

U.S.C. 1304), provides that, unless excepted, every article

of foreign origin imported into the United States shall be

marked in a conspicuous place as legibly, indelibly, and

permanently as the nature of the article (or its container)

will permit, in such a manner as to indicate to the ultimate

purchaser in the United States the English name of the

country of origin of the article. By enacting 19 U.S.C.

1304, Congress intended to ensure that the ultimate

purchaser would be able to know by inspecting the marking on

the imported goods the country of which the goods are the

product. The evident purpose is to mark the goods so that

at the time of purchase the ultimate purchaser may, by

knowing where the goods were produced, be able to buy or

refuse to buy them, if such marking should influence his

will. United States v. Friedlaender & Co., 27 C.C.P.A. 297,

302 C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134),

implements the country of origin marking requirements and

exceptions of 19 U.S.C. 1304. Section 134.44, Customs

Regulations (19 CFR 134.44), states that \"any method of

marking at any location insuring that country of origin will

conspicuously appear on the article shall be acceptable.\"

Section 134.41(b), Customs Regulations (19 CFR 134.41(b)),

mandates that the ultimate purchaser in the United States

must be able to find the marking easily and read it without

strain.

The Court of International Trade held in Ashdown,

U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661

(1988), that a printing press, which was continually used in

West Germany for nine years and which was not intended at

the time of original sale to be exported to the U.S., became

a bona fide part of the commerce of West Germany and was

therefore, not an import from a Communist country. In HRL

951072, dated May 22, 1992, Customs determined that a

Russian-built MIG 21U that was disassembled and exported to

Egypt where it was reassembled and used in the Egyptian Air

Force for sixteen years and then stored for several years

was regarded as a product of Egypt for tariff purposes.

Ashdown supports the proposition that the connection to the

country where an article was built may be broken due to the

extended period of time that the article was in use in

another country.

The principles set forth in Ashdown have been applied

to other cases involving the eligibility of merchandise for

the duty exemption contained in subheading 9802.00.50,

HTSUS. In HRL 559970, dated November 26, 1996, Cutoms held

that defective power steering pumps exported to Mexico for

repair were deemed to be of U.S. origin where the pumps had

been incorporated into a vehicle in use in the U.S. and thus

had lost their connection to the country in which they were

originally manufactured.

Applying these principles to the facts in this

particular case, we find that a front wheel drive axle

assembly which has been incorporated into a vehicle in use

in the U.S. and which is later sent abroad for extensive

repair operations has lost its connection to the foreign

country in which the pump may have been originally built.

Under these circumstances, the axle assembly is considered

to be of U.S. origin and is excepted from country of origin

marking under 19 CFR 134.32(m) when returned after having

been repaired abroad. We note, however, that whether the

marking \"Made in the U.S.A.\" may appear on the front wheel

drive axle assemblies is a matter within the jurisdiction of

the Federal Trade Commission. Therefore, you should contact

the FTC at the following address regarding the appropriate

use of this phrase: Federal Trade Commission, Division of

Enforcement, 6th and Pennsylvania Avenue, N.W., Washington,

D.C. 20508

HOLDING:

Based upon the information provided, where it is

demonstrated to the satisfaction of Customs that the inner

and outer constant velocity joint housings originated in the

same work order or batch number, the essential identity of

the exported front wheel drive axle assemblies is

maintained, and the the front wheel drive axle assemblies

exported for repair operations in Mexico as described above

will not become new and different articles. Accordingly,

the repaired front wheel drive axle assemblies are entitled

to duty-free treatment under subheading 9802.00.50, HTSUS,

upon importation into the U.S., provided that the

documentary requirements of 19 CFR 181.64(c) are met.

For country of origin marking purposes, the returned

axle assemblies are considered to be of U.S. origin and

excepted from marking under 19 CFR 134.32(m).

A copy of this ruling letter should be attached to the

entry documents filed at the time this merchandise is

entered. If the documents have been filed without a copy,

this ruling should be brought to the attention of the

Customs officer.

Sincerely,

John Durant, Director

Tariff Classification

Appeals Division