Applicability of subheading 9802.00.50, HTSUS, to tools which are resharpened abroad; sharpening; 555359; 555707

HQ 556738 September 18, 1992 CLA-2 CO:R:C:S 556738 WAW CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. James E. Gill H.P. Manufacturing Co. 16605 East Gale Avenue, City of Industry, CA 91745 RE: Applicability of subheading 9802.00.50, HTSUS, to tools which are resharpened abroad; sharpening; 555359; 555707 Dear Mr. Gill: This is in response to your letter dated April 23, 1992, addressed to the Area Director of Customs, New York Seaport, requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to tools which are resharpened in Mexico and returned to the U.S. Samples of the sharpened and unsharpened tools were provided for our review. FACTS: H.P. Manufacturing, Co. manufactures and resharpens standard and specialized tools for use in both the manufacture and maintenance of aircraft. The following is a description of the processes performed in Mexico: (1) clean and sort tools according to sizes; (2) resharpen the point; (3) package and label the tool; (4) ship the tool to the U.S. You propose to ship used tools that have become dull from use and have them sharpened in Mexico. You state that the tool is complete at the time of exportation from the U.S and that the foreign operation does not destroy the identity of the exported article, nor create a new or different article of commerce. You also state that no additional components will be assembled to the tool after it is resharpened. It is your contention that the sharpening of the tools in Mexico is an acceptable repair or alteration and that the imported merchandise, therefore, should be given the benefit of the partial duty exemption under subheading 9802.00.50, HTSUS. ISSUE: Whether the sharpened tools will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, when imported into the U.S. LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles sent abroad for that purpose. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 81, Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979). The question in this case is whether the exported used tools are "incomplete" or "unsuitable for their intended use" prior to the foreign processing operation. See Guardian Industries, Id. at 13. You state that you were advised by the District Director of Customs, San Diego, that the operations which you propose to perform in Mexico were previously considered in Headquarters Ruling Letters (HRL's) 555359 dated May 14, 1990 and 555707 dated February 20, 1991 (reconsideration of HRL 555359). However, you claim that these two rulings are distinguishable from the facts in your case. In HRL 555359, we considered one scenario in which drill bits manufactured in the U.S. which were rejected in-house by the manufacturer after microscopic inspection, were shipped to Mexico for reworking (resharpening) to bring them into tolerance in a precision grinding machine, and in order to attach a plastic depth gauge ring (plastic collar) onto the drill bit. We held that the foreign sharpening operations constituted a continuation of the manufacturing process begun in the U.S. and was a necessary step, performed as a matter of course, in producing drill bits which meet industry tolerance standards. In addition, we held that the fact that the plastic collars were not assembled onto the drill bits until after they were resharpened also indicated that the drill bits were incomplete or unfinished articles as exported. Thus, we determined that the drill bits were not eligible for the partial duty exemption under subheading 9802.00.50, HTSUS. In HRL 555707, we reconsidered the portion of HRL 555359 pertaining to the reworking/resharpening of the drill bits in Mexico. In HRL 555707, we confirmed our earlier holding that the out-of-tolerance drill bits exported to Mexico for reworking/resharpening were not completed articles, and thus not eligible for the partial duty exemption under subheading 9802.00.50, HTSUS. We stated that the fact that drill bits which meet industry standards and those that do not are necessarily sold in different commercial markets and at different prices was another indication that they were recognized in the trade as different articles of commerce. Even without the addition of the plastic collars to the drill bits in HRL 555359, we found that the sharpening of the drill bits in Mexico exceeded a repair or alteration within the meaning of subheading 9802.00.50, HTSUS. Therefore, under these circumstances, we affirmed HRL 555359 on the basis that the foreign "resharpening" operation constituted a continuation of the manufacturing process begun in the U.S. and was a necessary step in the production of the drill bits. In another ruling interpreting item 806.20, Tariff Schedules of the United States (TSUS) (the precursor to subheading 9802.00.50, HTSUS), we held that unfinished carbide cutting tool inserts, exported for grinding into a finished state, were not entitled to entry under item 806.20, TSUS, as the grinding process constituted more than a repair or alteration. See HRL dated August 17, 1966 (511.4), abstracted as T.D. 66-190(1), 101 Treas. Dec. 535 (1966). It is our opinion that the instant case is distinguishable from HRL's 555707, 555359 and T.D. 66-190. The tools in HRL 555359 and 555707 were found by Customs to be incomplete articles at the time of their exportation from the U.S., in part, because the foreign "resharpening" process was a necessary step in the initial manufacture of drill bits which meet exacting industry tolerance standards. The fact that plastic collars had to be attached to the drill bits after they were "resharpened," so that they could be used for their intended purpose, also supported our conclusion that the bits were unfinished when exported. With regard to the facts you have presented in this case, we find that the resharpening of the tools in Mexico constitutes an acceptable repair or alteration within the meaning of subheading 9802.00.50, HTSUS. These are previously-manufactured tools which became dull from repeated use. Thus, the tools are completed articles when they are exported to Mexico to undergo resharpening, and do not need the addition of any other item in order to function properly. Moreover, the foreign process does not have the effect of creating a new or different article of commerce. The resharpening operation merely renders used tools sharp again, and does not change the character or use of the article. HOLDING: On the basis of the described foreign operations and the samples submitted, we are of the opinion that the resharpening operations performed in Mexico on the exported used tools constitute an acceptable "repair" or "alteration," within the meaning of HTSUS subheading 9802.00.50. Therefore, upon return to the U.S., the tools will be entitled to the partial duty exemption available under this tariff provision, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8). Sincerely, John Durant, Director Commercial Rulings Division