Applicability of duty exemption under HTSUS subheading 9801.00.20 to machinery, materials

HQ 562177 November 9, 2001 CLA-2 RR:CR:SM 562177 MLR CATEGORY: Classification TARIFF NO.: 9801.00.20 Mr. Joe A. Estrada Rudolph Miles & Sons, Inc. 4950 Gateway East P.O. Box 11057 El Paso, Texas 79993 RE: Applicability of duty exemption under HTSUS subheading 9801.00.20 to machinery, materials Dear Mr. Estrada: This is in response to your letter of June 25, 2001, requesting a ruling on behalf of Elcom, Inc., concerning the free entry of certain machinery and materials. FACTS: It is stated that Elcom owns all machinery, materials and consumables that are sent to their Mexican subsidiary, Auto Conectores de Chihuahua Elcom, S.de R.L., de C.V. (“Auto Conectores”), for use in the manufacture of products that will be exported to the U.S. It is stated that the relationship between Elcom and the Auto Conectores is one of bailor to bailee as it pertains to the delivery of the subject materials. An English translation of a Spanish-language document entitled “Approval of the Export Maquila Program” is submitted, dated June 1, 2001, on letterhead of the Secretaria de Economia, Estados Unidos Mexicanos. The document provides that Auto Conectores may temporarily import tools, investigation equipment and accessories, products used for aseptic and public hygiene and for the prevention and control of the environment of the production site, work manuals and industrial drawings, telecommunication and computer equipment, machinery, apparatus, instruments, laboratory, and testing equipment. The document provides that such articles may be able to stay in Mexico “during the periods of time under the Customs Law.” ISSUE: Whether the articles shipped to Auto Conectores in Mexico are eligible for the duty exemption under subheading 9801.00.20, HTSUS, when returned to the U.S. LAW AND ANALYSIS: Subheading 9801.00.20, HTSUS, provides duty-free treatment for: [a]rticles, previously imported, with respect to which the duty was paid upon such previous importation or which were previously free of duty pursuant to the Caribbean Basin Economic Recovery Act [CBERA] or Title V of the Trade Act of 1974 [Generalized System of Preferences (GSP)], if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from, the United States. Section 10.108, Customs Regulations (19 CFR 10.108), provides, in relevant part, that free entry shall be accorded under subheading 9801.00.20, HTSUS, whenever it is established to the satisfaction of the port director that the article for which free entry is claimed was duty paid on a previous importation, and is being reimported by or for the account of the person who previously imported it into, and exported it from the U.S. In Headquarters Ruling Letter (HRL) 553676 dated February 28, 1986, a mold was imported into the U.S. by Bow Plastics from Canada, and duty paid. The mold was later returned to Bow Plastics in Canada for a second production run and again reimported by Bow Plastics. Dutyfree treatment was granted because the mold was imported into the U.S. on both occasions from Canada by the Customs agent acting on behalf of his principal, Bow Plastics, who in turn was responsible for the transportation of the molds, back and forth, and given the license to make and sell planters produced from the mold and to pay the duty. The scenario presented in this case is analogous to HRL 553676. Title to all of the articles shipped from Elcom in the U.S. to Auto Conectores in Mexico is stated to remain with Elcom, and it is stated that the relationship between the parties will be one of bailor and bailee. The document submitted indicates that the specified articles are to be imported into Mexico for temporary use by Auto Conectores, and is specific enough to constitute a “similar use agreement” within the meaning of subheading 9801.00.20, HTSUS. In a case interpreting item 801.00, Tariff Schedules of the United States (TSUS) (now subheading 9801.00.20, HTSUS), the Court of International Trade stated that the purpose of this provision is "to eliminate an assessment of duty which has the appearance of double taxation." See Werner & Pfleiderer Corp., v. United States, Slip Op. 93166. The court in Werner also stated that "the provision concerning goods exported under lease, in particular, is not 'the sort of exemption from duties which must be narrowly construed.'" Therefore, provided Elcom is the importer of the articles and duty was paid on such articles or they were otherwise free of duty under the CBERA or GSP, the articles are shipped to Mexico and not advanced in value or improved in condition while they are in Mexico, the articles will be reimported by or for the account of Elcom, and the documentary requirements of 19 CFR 10.108 are satisfied, the articles will be eligible for duty-free treatment under subheading 9801.00.20, HTSUS. HOLDING: Based on the information submitted, we find that provided Elcom is the importer of the articles and duty was paid on such articles or they were otherwise free of duty under the CBERA or GSP, the articles are shipped to Mexico for temporary use by Auto Conectores and are not advanced in value or improved in condition while they are in Mexico, the articles will be reimported by or for the account of Elcom, and the documentary requirements of 19 CFR 10.108 are satisfied, the articles will be eligible for duty-free treatment under subheading 9801.00.20, HTSUS. A copy of this ruling 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