Eligibility of certain electronic products from Mexico for a partial duty exemption when repaired abroad with components which receive same condition duty drawback

HQ 556284 November 1, 1991 CLA-2 CO:R:C:S 556284 SER CATEGORY: Classification TARIFF NO.: 9802.00.50 Ms. Gail T. Cumins, Esq. Sharretts, Paley, Carter & Blauvelt 67 Broad Street New York, NY 10004 RE: Eligibility of certain electronic products from Mexico for a partial duty exemption when repaired abroad with components which receive same condition duty drawback Dear Ms. Cumins: This is in reference to your letter of June 7, 1991, on behalf of Thomson Consumer Electronics, Inc. (Thomson), requesting a ruling as to whether duty drawback may be claimed on imported duty paid components exported to Mexico for incorporation into merchandise to be repaired in Mexico and re- imported pursuant to subheading 9802.00.50, Harmonized Tariff Schedule of the United States Annotated (HTSUSA). FACTS: Thomson ships defective consumer electronic products to Mexico to be repaired. The foreign repair operations often require replacement of defective parts of the products. Thomson will also export to Mexico the components needed to perform the repair. These components will have previously been imported into the U.S. and duty paid. Thomson desires to claim same condition duty drawback on the exported components. The repaired electronic products will then be returned to the U.S., at which time the cost of the replacement components will be included in the entered dutiable value. ISSUES: 1. Is merchandise exported, for purposes of same condition drawback, when it is shipped abroad with the intent for use in the repair of other exported merchandise which is to be returned to the U.S. after the repair abroad? 2. Whether the imported repaired products are eligible for subheading 9802.00.50, HTSUSA, treatment.n-2- LAW AND ANALYSIS: 1. Merchandise Exported At issue here is whether the shipment of previously-imported and duty-paid components to Mexico for use in repairing merchandise, constitutes an "exportation" for purposes of same condition duty drawback. "Exportation" is defined in section 101.1(k), Customs Regulations (19 CFR 101.1(k)), as "a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country." This provision also explicitly provides that "[t]he shipment of merchandise abroad with the intention of returning it to the United States with a design to circumvent provisions of restriction or limitation in the tariff laws or to secure a benefit accruing to imported merchandise is not an exportation." In Camera Specialty Co., v. U.S., 34 Cust. Ct. 27, C.D. 1672 (1955), the court held that camera lenses and lens parts manufactured in the Russian Zone of Germany, imported into the U.S., shipped to the Western Zone of Germany for repair, and returned to the U.S. in their repaired condition were considered to be exported from the U.S. when they were shipped to the Western Zone of Germany for repair. Consistent with the definition of "exportation" in the Customs Regulations and the above court case, we have stated that "'uniting [goods] with the mass of things belonging to some foreign country' occurs when any bona fide commercial purpose is proven." Headquarters Ruling Letter (HRL) 212451 dated February 13, 1981. In this case, imported duty-paid components would be shipped to Mexico from the U.S. with the intent that they be used in Mexico to repair consumer electronic products which would be returned to the U.S. in their repaired condition. Based on the foregoing authorities, the components would be considered to be exported when they are so shipped from the United States to Mexico. Any claim for drawback must comply with the applicable law and regulations. (See 19 U.S.C. 1313(j) and 19 CFR Part 191, in particular 19 CFR 191.141). 2. Eligibility of goods under subheading 9802.00.50, HTSUSA Subheading 9802.00.50, HTSUSA, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Under this tariff provision, duty is assessed only on the cost or value of the foreign repairs or alterations. The issue here is whether the claim for duty drawback on the exported components precludes subheading 9802.00.50, HTSUSA, treatment for the returned repaired products.n -3- U.S. Note 1(b), subchapter II, Chapter 98, HTSUSA, provides that "this subchapter shall not apply to any article exported ... (b) with benefit of drawback." The purpose of this Note is to prevent the avoidance of duties by an importer claiming both drawback and one of the partial duty exemption provisions provided for in subchapter II, Chapter 98, HTSUSA. Subheading 9802.00.50, HTSUSA, explicitly applies to articles returned to the U.S. after having been exported for repairs or alterations. It is the entire repaired article that is classified under this tariff provision-- not the non- essential components which may be incorporated therein. Thus, in the situation at hand, the repaired electronic products are the focus of eligibility under subheading 9802.00.50, HTSUSA -- not the components which will be utilized in the repairs. Drawback will not be claimed on the defective electronic products to be exported to Mexico, but only on the previously-imported and duty-paid components utilized as repair parts. In addition, no duty avoidance will occur because the cost or value of the components which receive drawback will be included in the value of the foreign repairs upon which duty will be assessed when the repaired products are returned. See section 10.8(1), Customs Regulations (19 CFR 10.8(1)). Consistent with the above, the electronic products exported for repairs are eligible for subheading 9802.00.50, HTSUSA, duty treatment when returned to the U.S. Duty is assessed under this tariff provision on the actual cost or value of the foreign repairs, which includes the cost or value of the repair components. HOLDING: Based on the information provided, the shipment of previously-imported and duty-paid components to Mexico for use in repairing electronic products constitutes an exportation for purposes of same condition duty drawback. Furthermore, the returned repaired electronic products are eligible for subheading 9802.00.50, HTSUSA, duty treatment even though certain of the components utilized in the repair operation may be afforded same condition duty drawback. Under this tariff provision, duty will be assessed on the actual cost or value of the foreign repairs, which includes the cost or value of the repair components. Sincerely, John Durant, Director