NAFTA; Article 307; Digital voice terminals;Repair/Alteration; HRL 556992; HRL 557024; 19 C.F.R. 181.64
Issued March 8, 1995 by U.S. Customs and Border Protection.
Tariff classification
HTS codes: 9802.00.50
Headings: 9802
Product description
According to a telephone conversation on March 7, 1995, with an attorney of my staff, we were informed that the AT&T Corporation's (AT&T) digital voice terminals at
CBP rationale
Articles returned to the United States after having been exported to Mexico to be advanced in value or improved in condition by repairs or alterations may qualify for duty-free treatment under subheading 9802.00.50, HTSUS, provided that the foreign operation does not destroy the identity of the exported articles or create new or different articles. Entitlement to this tariff treatment is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries, Inc. v. U.S., 3 C.I.T. 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished articles. Dolliff & Company, Inc. v. U.S., 455 F. Supp. 618 (C.I.T. 1978), aff'd, 599 F.2d 1015, (Fed. Cir. 1979). In Headquarters Ruling Letter (HRL) 556992, dated May 7, 1993, Customs considered whether notebook computers with a monochrome video display that were to be sent abroad to have the monochrome display replaced with a color display feature would be eligible for subheading 9802.00.50, HTSUS, treatment. The upgraded unit would retain all of the original capabilities of the exported unit, i.e., the ability to store programs, to be freely programmed, to perform computations, and to execute a program requiring logical decision. In that case, we found that the computer in its exported condition was complete for its intended use as an "automatic data processing machine." It could be used for this purpose without exercising the option to upgrade the unit. There was no change in the identity of the computer as a result of the upgrade and no new article was created. Accordingly, we found that the upgrade was an alteration within the meaning of subheading 9802.00.50, HTSUS. (See also Royal Bead Novelty v. United States, 324 F. Supp. 1394 (1972), where a lustrous coating given to glass beads also marketed in that condition was found to constitute an alteration.) In HRL 557024, dated June 30, 1993, Customs determined that a U.S.-origin host computer sent to Canada to be modified by the addition of a Canadian-produced board set was an alteration. This alteration increased the data processing speed of the computer to enable it to handle the complex software. As in HRL 556992 and in HRL 557024, we find that the digital voice terminals in its exported condition is complete for its intended use as a telephone, and that the processing abroad does not serve to change the identity or the character of the exported article. No new and different article of commerce is created as a result of the processing abroad. Rather, the exported digital voice terminal is merely undergoes an operation to equip it with the ability to function as a telephone in accordance with the U.S. specifications. Accordingly, we find that the modifications performed abroad constitute an alteration within the meaning of subheading 9802.00.50, HTSUS. Based on your su
Full text
HQ 558869 March 8, 1995 CLA-2 CO:R:C:S 558869 DEC CATEGORY: Classification TARIFF NO.: 9802.00.50 Ms. Mary E. Gill AT&T Corporation Law Department Guilford Center 1-3A10 5420 Millstream Road Greensboro, North Carolina 27420 RE: NAFTA; Article 307; Digital voice terminals; Repair/Alteration; HRL 556992; HRL 557024; 19 C.F.R. 181.64 Dear Ms. Gill: This is in response to your letter dated October 6, 1994, in which you seek a determination on the eligibility of certain repair and alteration activities to be performed in Mexico for duty free treatment. FACTS: According to a telephone conversation on March 7, 1995, with an attorney of my staff, we were informed that the AT&T Corporation's (AT&T) digital voice terminals at issue (AT&T 7400 Plus product line) were originally manufactured in the United States for sale in the United Kingdom. The digital voice terminals were programmed to meet the United Kingdom's specifications. The digital voice terminals that were suitable for the United Kingdom, but never sold, will be sent from the United States to Pentex Mexicana in Juarez, Mexico. Pentex Mexicana is a contract repair facility at which the micro-controller chip, which is programmed to meet the United Kingdom specifications, will be replaced with a chip programmed for use in the United States. Additionally, after the micro-controller chip is replaced, each digital voice terminal will be checked for upgrades that apply to all digital voice terminals and these upgrades will be performed if needed. The units will be assigned a new comcode number (an internal AT&T coding system) when the operation is completed. Finally, all digital voice terminals will be tested, packed, and shipped for sale and use in the United States. ISSUE: Whether the exported digital voice terminals (AT&T 7400 Plus model) that are exported to Mexico and subjected to various replacement operations in Mexico, as described above, are entitled to duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), when returned to the United States. LAW AND ANALYSIS: Articles returned to the United States after having been exported to Mexico to be advanced in value or improved in condition by repairs or alterations may qualify for duty-free treatment under subheading 9802.00.50, HTSUS, provided that the foreign operation does not destroy the identity of the exported articles or create new or different articles. Entitlement to this tariff treatment is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries, Inc. v. U.S., 3 C.I.T. 9 (1982), or where the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished articles. Dolliff & Company, Inc. v. U.S., 455 F. Supp. 618 (C.I.T. 1978), aff'd, 599 F.2d 1015, (Fed. Cir. 1979). In Headquarters Ruling Letter (HRL) 556992, dated May 7, 1993, Customs considered whether notebook computers with a monochrome video display that were to be sent abroad to have the monochrome display replaced with a color display feature would be eligible for subheading 9802.00.50, HTSUS, treatment. The upgraded unit would retain all of the original capabilities of the exported unit, i.e., the ability to store programs, to be freely programmed, to perform computations, and to execute a program requiring logical decision. In that case, we found that the computer in its exported condition was complete for its intended use as an "automatic data processing machine." It could be used for this purpose without exercising the option to upgrade the unit. There was no change in the identity of the computer as a result of the upgrade and no new article was created. Accordingly, we found that the upgrade was an alteration within the meaning of subheading 9802.00.50, HTSUS. (See also Royal Bead Novelty v. United States, 324 F. Supp. 1394 (1972), where a lustrous coating given to glass beads also marketed in that condition was found to constitute an alteration.) In HRL 557024, dated June 30, 1993, Customs determined that a U.S.-origin host computer sent to Canada to be modified by the addition of a Canadian-produced board set was an alteration. This alteration increased the data processing speed of the computer to enable it to handle the complex software. As in HRL 556992 and in HRL 557024, we find that the digital voice terminals in its exported condition is complete for its intended use as a telephone, and that the processing abroad does not serve to change the identity or the character of the exported article. No new and different article of commerce is created as a result of the processing abroad. Rather, the exported digital voice terminal is merely undergoes an operation to equip it with the ability to function as a telephone in accordance with the U.S. specifications. Accordingly, we find that the modifications performed abroad constitute an alteration within the meaning of subheading 9802.00.50, HTSUS. Based on your submission, it is apparent that AT&T intends to alter the digital voice terminals and introduce them for sale to the United States market as the same items that were previously manufactured for the United Kingdom's market. Consequently, when the merchandise that is shipped from the United States is returned from Mexico after having been altered, it will be entitled to duty-free treatment, assuming compliance with the documentation requirements under section 181.64(c), Customs Regulations (19 CFR 181.64(c)). HOLDING: The exported digital voice terminals that are subjected to various alteration operations in Mexico are entitled to duty-free treatment under subheading 9802.00.50, HTSUS, when returned to the United States provided the documentary requirements of section 181.64 are satisfied. 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 handling the transaction. Sincerely, John Durant Director, Commercial Rulings Division
Ruling history
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