Applicability of duty exemption under HTSUS subheading 9802.00.50 to used vehicle air brake systems; scrap; Reconsider HRL 558823; NYRL 807803; Article 509; NAFTA

HQ 559247 September 5, 1995 CLA-2 R:C:S 559247 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Jack Alsup Alsup & Alsup, Inc. P.O. Box 1251 Del Rio, Texas 78841 RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to used vehicle air brake systems; scrap; Reconsider HRL 558823; NYRL 807803; Article 509; NAFTA Dear Mr. Alsup: This is in reference to your letter of May 31, 1995, requesting reconsideration of Headquarters Ruling Letter 558823 dated February 6, 1995, on behalf of Allied Signal Truck Brake Systems Co. ("Allied Signal"). FACTS: HRL 558823 addressed the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to rebuilt air brake system assemblies, and the eligibility for preferential duty treatment under the North American Free Trade Agreement (NAFTA) for those components not rebuilt into the air brake system assemblies. The facts of HRL 558823 are herein incorporated by reference. However, the relevant facts pertinent to this request for reconsideration concern the recovered parts from the air brake system assemblies that will be returned to the U.S. as unassembled, individual parts. In HRL 558823, we determined that the recovered parts were not "scrap" as defined in General Note 12(n)(ix), HTSUS, because even though the articles may be used goods collected in the U.S., they can be repaired and, therefore, are not fit only for the recovery of raw materials. Accordingly, to the extent that the components were not otherwise wholly obtained or produced in the territory of the U.S. or produced exclusively from originating materials transformed in the United States as prescribed under General Note 12(b), they were not eligible for preferential duty treatment. However, in New York Ruling Letter 807803 dated April 7, 1995, it was found that the recovered parts used in the production of rebuilt air conditioning /refrigeration compressors would be considered waste or scrap, as defined in General Note 12(n)(ix), HTSUS. ISSUE: Whether the air brake system components returned to the U.S. individually qualify for preferential duty treatment under the NAFTA. LAW AND ANALYSIS: To be eligible for tariff preferences under the North American Free Trade Agreement (NAFTA), goods must be "originating goods" within the rules of origin set forth in General Note 12(b), HTSUS. Goods imported into the United States may be considered goods originating in the territory of a NAFTA party if "they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States," or "they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials." See General Note 12(b)(i) and (iii), HTSUS. Goods may also be considered originating if they have been "transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 12(b)(ii)(A), HTSUS, which states: except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein . . . . Under the NAFTA, a good can be considered to be "wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States," when it consists of "waste and scrap derived from ... used goods collected in the territory of one or more of the NAFTA parties, provided such goods are fit only for the recovery of raw materials." See General Note 12(n)(ix)(B). In NYRL 807803, it was determined that the recovered parts of the compressors were waste or scrap as defined in General Note 12(n)(ix), HTSUS. However, in HRL 559199 dated May 15, 1995, we modified NYRL 807803 and determined that the recovered parts of the compressors are not considered "scrap" within the meaning of General Note 12(n)(ix), since the recovered parts may be repaired. Accordingly, we remain of the position that the recovered parts of the air brake assemblies will only be eligible for preferential duty treatment under the NAFTA if the recovered parts are wholly obtained or produced in the territory of a NAFTA country, or produced exclusively from originating materials transformed in the U.S. as prescribed under General Note 12(b), HTSUS. HOLDING: After reconsidering HRL 558823, we remain of the opinion that the recovered parts of the air brake system assemblies are not waste or scrap as defined in General Note 12(n)(ix), but will only be eligible for preferential duty treatment under the NAFTA if the recovered parts are wholly obtained or produced in the territory of a NAFTA country, or produced exclusively from originating materials transformed in the U.S. as prescribed under General Note 12(b), HTSUS. Sincerely, John Durant, Director Commercial Rulings Division