HQ 226904

May 29, 1996

CON-9-04-RR:IT:EC 226904 GOB

CATEGORY: Entry/Temporary Importation Bond/Drawback

Jack Rafferty

Manager, Consulting Services Department

PBB Group

P.O. Box 950

434 Delaware Avenue

Buffalo, New York 14202

RE: Temporary importation bond; subheading 9813.00.05, HTSUS;

Repair; Alteration; Processing; 19 CFR 10.31(g), 181.43-.45,
181.53(b)(5); Unused merchandise drawback; 19 U.S.C.

1313(j)(1) and (3), 3333; NAFTA drawback

Dear Mr. Rafferty:

This is in response to your letter of March 26, 1996 on

behalf of Husky Injection Molding Systems Ltd. (\"Husky\").

By facsimile transmission of April 19, 1996, you withdrew

your request for confidentiality.

FACTS:

In your letter of March 26, 1996, you state as follows:

For some time, we have been filing temporary importation

bonds (T.I.B.\'s) for certain parts which Husky ships from

Canada to one of its U.S. suppliers\...\[who\] assembles these

parts into a sub-assembly consisting as well of parts

sourced/produced in the U.S. and third countries.

\...

In the U.S. \[the supplier\] does the following with the parts

that are supplied by Husky from (not manufactured in) Canada

and which, until January 1, 1996, were routinely entered

under T.I.B.:

Spherical Bearing - is inserted onto the front end of

the spline shaft in the motor housing casting.

Tapered Roller Bearing - is inserted into the rear end

of the spline shaft and then into the motor housing

casting.

Hydraulic Motor - is attached to the spline shaft and

then bolted to the motor housing casting.

Slides and Rails - are bolted to the motor and drive

castings.

The \"Extruder Drive Units\" are then exported to Canada and

entered there free of duty.

\...

In the situation described above, none of the components

supplied by Husky in Canada to \[the supplier\] are further

processed, i.e., none of those components is advanced in

value or improved in condition by any process of manufacture

while in the U.S. Neither are those same components

repaired. We believe that the components are \"altered\"

inasmuch as their identity is now lost in and subservient to

the identity of the greater sub-assembly.

\...

As a separate item for your consideration, could the filing

of \"unused merchandise drawback\" on the same Canadian

supplied components on export of the \"Extruding Drive Units\"

be an alternative to the filing of T.I.B.\'s on entry into

the U.S. of the Canadian supplied components?

ISSUES:

1\. May the parts be entered under subheading 9813.00.05,

HTSUS?

2\. Is 19 CFR 181.53(b)(5) applicable to the factual

situation described supra?

3\. Are the exported articles (the extruding drive units)

eligible for drawback pursuant to 19 U.S.C. 1313(j)(1)?

4\. May you file NDDP-exempt temporary importation bond

entries for consumption entries filed since January 1, 1996.

LAW AND ANALYSIS:

Issue One

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.

Subheading 9813.00.05, HTSUS, provides for the temporary

duty-free entry of:

Articles to be repaired, altered, or processed (including

processes which result in articles manufactured or produced

in the United States.)

Pursuant to U.S. Notes 1(a) and (c) of Subchapter XIII of

Chapter 98, HTSUS, which contains subheading 9813.00.05:

The articles described in the provisions of this subchapter,

when not imported for sale or for sale on approval, may be

admitted into the United States without the payment of duty,

under bond for their exportation within 1 year from the date

of importation, which period, in the discretion of the

Secretary of the Treasury, may be extended, upon

application, for one or more further periods which, when

added to the initial 1 year, shall not exceed a total of 3

years \...

\...

For purposes of this subchapter, if an article imported into

the United States under heading 9813.00.05 is withdrawn for

exportation to the territory of Canada or Mexico, the duty

assessed shall be waived or reduced in an amount that does

not exceed the lesser of the total amount of duty payable on

the article that would have been payable on importation

under chapters 1 through 97, inclusive, of the Harmonized

Tariff Schedule of the United States or the total amount of

customs duties paid to Canada or to Mexico on the exported

article, unless such article is covered by section 203(a)(1)

through 203(a)(8), inclusive, of the NAFTA Implementation

Act. The amount of duties or refunds calculated on such

articles pursuant to this note shall be adjusted to take

into account any subsequent claim for preferential tariff

treatment made to another NAFTA country. This note shall

apply to shipments to Canada on or after January 1, 1996,

and to Mexico on or after January 1, 2001.

19 CFR 181.53(b)(5), promulgated by Treasury Decision 96-14

(published in the Customs Bulletin and Decisions on February 14,

1996 at p.6), provides:

\(5\) Temporary importation under bond. Except in the case of

a good imported from Canada or Mexico for repair or

alteration, where a good, regardless of its origin, was

imported temporarily free of duty for repair, alteration or

processing (subheading 9813.00.05, Harmonized Tariff

Schedule of the United States) and is subsequently exported

to Canada or Mexico, duty shall be assessed on the good on

the basis of its condition at the time of its importation

into the United States. Such duty shall be paid no later

than 60 calendar days after either the date of exportation

or the date of entry into a duty-deferral program of Canada

or Mexico, except that, upon filing of a proper claim under

paragraph (a)(3) of this section, the duty shall be waived

or reduced in an amount that does not exceed the lesser of

the total amount of duty payable on the good under this

section or the total amount of customs duties paid to Canada

or Mexico.

At issue are the applicability of subheading 9813.00.05,

HTSUS, and 19 CFR 181.53(b)(5) to the factual situation described

by the ruling requester on behalf of Husky.

We determine that the parts described, supra, i.e.,

spherical bearings, tapered roller bearings, hydraulic motors,

slides and rails, may be entered under subheading 9813.00.05

because they are processed within the meaning of subheading

9813.00.05.

In Ruling 224211 dated October 20, 1992, we stated:

In this instance, certain speaker parts will be imported

through the port of San Juan and assembled with domestic

parts into a complete speaker unit. After assembly, the

speaker unit will be exported to Japan, Canada and South

Africa. This type of assembly would appear to be a

\"processing\" within the meaning of subheading 9813.00.05,

HTSUS. We have previously ruled that component parts

imported for the purpose of assembly with other parts into a

finished article constitute a \"processing.\" HQ 221572

(08/02/89) and HQ 219823 (11/03/87). Accordingly, the

subject speaker parts are entitled to temporary duty-free

entry, under bond, as articles to be processed.

Similarly, in Ruling 221488 dated May 15, 1991, we held that

roller bearings are \"processed\" within the meaning of subheading

9813.00.05, HTS, when they are \"installed \... into the various

parts of the Fuller Loesche Mill and the Fuller HRC Roll

Crusher.\"

Please note U.S. Note 2(b) of Subchapter XIII of Chapter 98,

HTSUS, which states:

2\. Merchandise may be admitted into the United States under

heading 9813.00.50 only on condition that:

\* \* \* \* \*

\(b\) If any processing of such merchandise results in an

article (other than an article described in (a) of this U.S.

Note) manufactured or produced in the United States:

\(i\) A complete accounting will be made to the Customs

Service for all articles, wastes and irrecoverable losses

resulting from such processing; and

\(ii\) All articles and valuable wastes resulting from such

processing will be exported or destroyed under customs

supervision within the bonded period; except that in lieu of

the exportation or destruction of valuable waste, duties may

be tendered on such wastes at rates of duties in effect for

such wastes at the time of importation.

Issue Two

A different question is presented with respect to the

applicability of 19 CFR 181.53(b)(5). In particular, in addition

to being a \"processing,\" is the subject operation a \"repair or

alteration,\" such that the \"except\" clause at the beginning of

section 181.53(b)(5) would apply to take the operation out of

section 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

parts at issue. There is no restoration, replacement, renewal,

or the like to the parts.

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.

19 CFR 181.64(a) provides in pertinent part as follows:

§181.64 Goods re-entered after repair or alteration in

Canada or Mexico.

\(a\) General. This section sets forth the rules which apply

for purposes of obtaining duty-free or reduced-duty

treatment on goods returned after repair or alteration in

Canada or Mexico as provided for in subheadings 9802.00.40

and 9802.00.50, HTSUS\...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.

The matter at issue here does not involve subheadings

9802.00.40 or 9802.00.50, and thus the definition in section

181.63(a) is not controlling here. Nevertheless, we believe that

the above definition is instructive. The work performed in this

case would not fall within the definition of \"repairs or

alterations\" in 19 CFR 181.64(a).

In U.S. v. Oakville Company, 402 F. 2d 1016, 56 CCPA 1,8,

C.A.D. 943 (1968), a case which involved Paragraph 1615, Tariff

Act of 1930, as amended by the Customs Administrative Act of

1938, T.D. 49646, and as further amended by the Customs

Simplification Act of 1954, T.D. 53599, with respect to articles

exported for repairs or alterations, the court stated, in

pertinent part:

In our view, paragraph 1615(g)(1) does not apply because the

paper tape was not exported \"for repairs or alterations.\"

Like the pins, the paper tape was sent to Canada to become a

component or element of pins-in-rolls, a new commercial

entity manufactured in Canada by De Long Hook & Eye Company.

The tape was clearly not \"repaired\" and we do not think it

was exported \"for\" alterations, notwithstanding it was

somewhat altered in having the pins stuck into ribs formed

in it. Paragraph 1615(g)(1) refers to an \"article\" which is

exported, that same \"article\" being returned after being

repaired or after having had alterations made in it and then

further makes reference to \"the article itself in its

repaired or altered condition.\" We think that this

contemplates that the article returned is still recognizable

as an article in the same category as the article exported

and does not contemplate such a situation as that here where

the paper tape - the \"article\" exported - comes back as a

mere component of an entirely different article, namely,

pins-in-rolls. The pins-in-rolls is an article consisting

of several components: a wood core, two cardboard discs held

thereto by staples to for a spool, a formed paper ribbon

made from the exported tape into which pins have been

inserted at regular intervals, the pin-carrying ribbon being

wound on the spool. This is a far cry from the exported

tape. It is in no sense the article exported. (emphasis in

original.)

In Guardian Industries Corporation v. U.S., 3 C.I.T. 9, 14

(1982), which involved item 806.20, Tariff Schedules of the

United States, the predecessor to subheading 9802.00.50, HTSUS,

the court stated, in pertinent part:

Beyond these considerations, it is to be noted that for

tariff purposes a process which converts one article into a

new article is not an \"alteration.\" A.F. Burstrom v. United

States, 44 CCPA 27, C.A.D. 631 (1957); C.J. Tower & Sons of

Niagara, Inc. v. United States, 45 Cust. Ct. 111, C.D. 2208

(1960). In Burstrom, steel ingots were exported into Canada

and ramparted after having been converted into steel slabs.

The chemical composition of the steel had not changed in the

course of the slabbing operations. The imported articles

were known as ingots and the exported articles were known as

slabs and they were bought and sold commercially as

different products. Furthermore the court noted that the

ingots and slabs were separately specified in paragraph 304

of the Tariff Act of 1930, as modified. The court concluded

that slabs \"are clearly not the same articles as ingots\" (44

CCPA at 29) and the processing of the ingots into slabs was

therefore held not to be an alteration within the purview of

paragraph 1615(g) of the Tariff Act of 1930. \[footnote

omitted.\] In short, Burstrom holds that when a foreign

processing creates a new article of commerce, the processing

is not an alteration.

The court in Guardian Industries notes, in a footnote at the

end of the excerpted language, that \"\[t\]he decision in Burstrom

was cited by the Court of Customs and Patent Appeals with

approval in Dolliff, 66 CCPA at 81, 83-84, 599 F. 2d at 1020.\"

On the basis of the authorities noted supra, we conclude

that the work described in this case is not an \"alteration.\" The

parts at issue are assembled into extruder drive units, an

article of commerce different from the parts themselves.

Accordingly, we determine that the work is not a \"repair or

alteration,\" as these words are used in 19 CFR 181.53(b)(5).

Thus, the except clause at the beginning of 19 CFR

181.53(b)(5) is not applicable, and 19 CFR 181.53(b)(5) applies

to the factual situation at issue here.

Issue Three

Pertinent statutory and regulatory provisions are as

follows.

19 U.S.C. 1313(j)(1) and (3) provide as follows:

\(j\) Unused merchandise drawback

\(1\) If imported merchandise, on which was paid any duty,

tax, or fee imposed under Federal law because of its

importation-

\(A\) is, before the close of the 3-year period beginning

on the date of importation-

\(i\) exported, or

\(ii\) destroyed under customs supervision; and

\(B\) is not used within the United States before such

exportation or destruction; then upon such

exportation or destruction 99 percent of the amount of

each duty, tax, or fee so paid shall be refunded as drawback. The
exporter (or destroyer) has the right to claim

drawback under this paragraph, but may endorse such

right to the importer or any intermediate party.

\* \* \* \* \*

\(3\) The performing of any operation or combination of

operations (including, but not limited to, testing, cleaning,

repacking, inspecting, sorting, refurbishing, freezing,

blending, repairing, reworking, cutting, slitting, adjusting,

replacing components, relabeling, disassembling, and

unpacking), not amounting to manufacture or production for

drawback purposes under the preceding provisions of this

section on-

\(A\) the imported merchandise itself in cases to which

paragraph (1) applies, or

\(B\) the commercially interchangeable merchandise in

cases to which paragraph (2) applies,

shall not be treated as a use of that merchandise for

purposes of applying paragraph (1)(B) or (2)(C).

With respect to exportations to Canada and Mexico, section

203 of the North American Free Trade Agreement (NAFTA)

Implementation Act (Public Law 103-182; 107 Stat. 2057, 2086; 19

U.S.C. 3333), provides for the treatment of goods subject to

NAFTA drawback. Section 203(a) provides in pertinent part as

follows:

\(a\) Definition of a Good Subject to NAFTA Drawback - For

purposes of this Act and the amendments made by subsection

(b), the term \"good subject to NAFTA drawback\" means any

imported good other than the following:

\(1\) A good entered under bond for transportation and

exportation to a NAFTA country.

\(2\) A good exported to a NAFTA country in the same

condition as when imported into the United States. For

purposes of this paragraph-

\(A\) processes such as testing, cleaning,

repacking, or inspecting a good, or preserving it in

its same condition, shall not be considered to change

the condition of the good, and

\* \* \* \* \*

The Customs Regulations issued under the authority of the

NAFTA Implementation Act specifically provide for the

availability of drawback on the exportation of merchandise to a

NAFTA country.

19 CFR 181.43 provides:

181.43 Eligible goods subject to drawback.

Except as otherwise provided in this subpart, drawback is

authorized for an imported good that is entered for consumption

and is:

\(a\) Subsequently exported to Canada or Mexico (see 19 U.S.C.

1313(j)(1));

\(b\) Used as a material in the production of another good

that is subsequently exported to Canada or Mexico (see 19

U.S.C. 1313(a)); or

\(c\) Substituted by a good of the same kind and quality as

defined in §181.44(c) of this subpart and used as a material

in the production of another good that is subsequently

exported to Canada or Mexico (see 19 U.S.C. 1313(b)).

19 CFR 181.44(a) provides:

181.44 Calculation of drawback.

\(a\) General. Except in the case of goods specified in

§181.45 of this part, drawback of the duties previously paid

upon importation of a good into the United States may be

granted by the United States, upon presentation of a NAFTA

drawback claim under this subpart, on the lower amount of:

\(1\) The total duties paid or owed on the good in the

United States; or

\(2\) The total amount of duties paid on the exported

good upon subsequent importation into Canada or Mexico.

19 CFR 181.44(g), promulgated by Treasury Decision 95-68 and

published in the Customs Bulletin on September 20, 1995,

provides:

\(g\) Unused goods under 19 U.S.C. 1313(j)(1) that have

changed in condition. An imported good that is unused in the

United States under 19 U.S.C. 1313(j)(1) and that is shipped

to Canada or Mexico not in the same condition within the meaning of §
181.45(b)(1) may be eligible for drawback under this

section, except when the shipment to Canada or Mexico does not

constitute an exportation under 19 U.S.C. 1313(j)(4).

19 CFR 181.45 provides in pertinent part:

181.45 Goods eligible for full drawback.

\(a\) Goods originating in Canada or Mexico. A Canadian or

Mexican originating good that is dutiable and is imported

into the United States is eligible for drawback without

regard to the limitation on drawback set forth in §181.44 of this

part if that originating good is:

\(1\) Subsequently exported to Canada or Mexico;

\(2\) Used as a material in the production of another good

that is subsequently exported to Canada or Mexico; or

\(3\) Substituted by a good of the same kind and quality and

used as a material in the production of another good that is

subsequently exported to Canada or Mexico.

\...

\(b\) Claims under 19 U.S.C. 1313(j)(1) for goods in same

condition. A good imported into the United States and

subsequently exported to Canada or Mexico in the same

condition is eligible for drawback under 19 U.S.C. 1313(j)(1)

without regard to the limitation on drawback set forth in

§181.44 of this part.

\...

\(1\) Same condition defined. For purposes of this subpart, a

reference to a good in the \"same condition\" includes a good

that has been subjected to any of the following operations

provided that no such operation materially alters the characteristics of
the good:

\(i\) Mere dilution with water or another substance;

\(ii\) Cleaning, including removal of rust, grease, paint

or other coatings;

\(iii\) Application of preservative, including

lubricants, protective encapsulation, or preservation

paint;

\(iv\) Trimming, filing, slitting, or cutting;

\(v\) Putting up in measured doses, or packing,

repacking, packaging, or repackaging; or

\(vi\) Testing, marking, labelling, sorting or grading.

The exported articles, the extruder drive units, are goods

subject to NAFTA drawback, as that term is used in 19 U.S.C.

3333(a). It does not appear that any of the exceptions stated in

19 U.S.C. 3333(a)(1) through (a)(8) apply. We believe that the

exception in 19 U.S.C. 3333(a)(1) for \"a good entered under bond

for transportation and exportation to a NAFTA country\" would not

apply since drawback would not be pertinent for Husky if it

imported the parts under a duty-free provision such as subheading

9813.00.05. Husky makes this drawback inquiry as a possible

alternative to a temporary importation under bond.

The assembly operation involved here is beyond the scope of

the operations described in 19 U.S.C. 1313(j)(3). Thus, 19

U.S.C. 1313(j)(3) is not applicable.

With respect to the \"unused\" requirement of 19 U.S.C.

1313(j)(1), we stated in Ruling 225552:

A definition of the term \"unused merchandise\" was not

provided in the language of the new act \[section 632, title

VI - Customs Modernization, Public Law 103-182, the North

American Free Trade Implementation Act (107 Stat. 2057),

enacted December 8, 1993\]. However, in Customs Service

Decision (\"C.S.D.\") 81-222 and 82-135 it was found that an

article is used when it is employed for the purpose for

which it was manufactured or intended. See C.S.D. 81-179.

In C.S.D. 81-222, we stated in pertinent part, with respect

to the use requirement of the former 19 U.S.C. 1313(j):

In its primary meaning, \"use\" as a noun may signify the act

of employing anything, the act of using or applying an

object to one\'s service. Further, the verb \"to use\" means

to employ in some manner appropriate to the object to

accomplish an end, which, without the use of the object,

would not be accomplished. (Turner v. Smith, 269 Ky. 880,

108 S.W. 2d 1019, at 1020 (S.Ct. Ky. 1937)).

The boxes, bottles, cans, etc. to be imported in this case

are to be employed or used for their intended purpose, i.e.

to act as containers for the transportation and ultimate

sale of merchandise. Nothing per se is being done to these

containers: they are being put to use in their primary

function, which clearly excludes them for eligibility for

drawback under 19 U.S.C. 1313(j). See also McJimsey v. City

of Des Moines, et al., 231 Iowa 693, 2 N.W. 2nd 65 (S. Ct.

Iowa 1942), Cypress Lawn Cemetery Ass\'n v. City and County

of San Francisco, 284 P. 506 (1930), and Panhandle Gravel

Co. v. Wilson, 248 S.W. 2d 779 (1952).

Based on the above authorities, and based on the fact that

the parts at issue are assembled and are used in the production

of the extruder drive units, we determine that the imported

articles are not \"unused merchandise\" within the meaning of 19

U.S.C. 1313(j)(1) and/or (j)(3).

Thus, drawback is not payable under 19 U.S.C. 1313(j)(1)

upon the exportation of the extruder drive units.

Drawback may be payable under 19 U.S.C. 1313(a). See 19 CFR

181.43(b) and 181.44, supra.

Issue Four

In your letter of March 26, 1996, you state:

Our request for NDDP-exempt T.I.B. substitutions for

consumption entries (filed since January 1, 1996 due to the

confusion of the NDDP and \"alteration\") will be approved.

You have not presented us with enough information to rule

here. However, we call you attention to 19 CFR 10.31(g), which

states in pertinent part:

\(g\) Claim for free entry under Chapter 98, Subchapter XIII,

HTSUS may be made for articles of any character described

therein which have been previously entered under any other

provision of law and the entry amended accordingly upon

compliance with the requirements of this section, provided

the articles have not been released from Customs custody, or

even though released from Customs custody if it is

established that the original entry was made on the basis of

a clerical error, mistake of fact, or other inadvertence

within the meaning of section 520(c)(1), Tariff Act of 1930,

as amended, and was brought to the attention of the Customs

Service within the time limits of that section.

Under 19 U.S.C. 1520(c)(1), an entry may be reliquidated to

correct a clerical error, mistake of fact, or other inadvertence

not amounting to an error in the construction of the law. The

statute provides that the error must be manifest from the record

or established by documentary evidence and brought to the

attention of the appropriate Customs officer within one year from

the date of liquidation.

No allegation has been made with respect to the

applicability of 19 U.S.C. 1520(c)(1), nor has any documentary

evidence been submitted with respect to such a potential claim.

HOLDINGS:

1\. The parts may be entered under subheading 9813.00.5,

HTSUS.

2\. The work at issue is not a \"repair or alteration,\" as

these words are used in 19 CFR 181.53(b)(5). Thus, the except

clause at the beginning of 19 CFR 181.53(b)(5) is not applicable,

and 19 CFR 181.53(b)(5) applies to the factual situation at issue

here.

3\. The imported articles are not \"unused merchandise\"

within the meaning of 19 U.S.C. 1313(j)(1) because they are

assembled into new articles, the extruder drive units. Thus,

drawback is not payable under 19 U.S.C. 1313(j)(1) upon the

exportation of the extruder drive units.

4\. We are unable to issue a ruling with respect to this

issue. Please note the applicability and requirements of 19 CFR

10.31(g) and 19 U.S.C. 1520(c)(1).

Sincerely,

Director,

International Trade Compliance

Division

cc: Director, U.S. Customs Service NAFTA Center

P.O. Box 610088

Dallas, TX 75261