Drawback; 19 U.S.C. §1313(j)(1); 19 U.S.C. §1313(j)(3); 19 U.S.C. §3333; strapping machines; low bundle sensor; 19 CFR 181.44(a), 181.44(g) and 181.45(b)

HQ 227611 December 14, 1998 DRA-2-DRA-4-RR:CR:DR 227611 IOR CATEGORY: Drawback Susan R. McCabe The Hipage Company, Inc. Corporate Customs Specialist P.O. Box 3158 Norfolk VA 23514 RE: Drawback; 19 U.S.C. §1313(j)(1); 19 U.S.C. §1313(j)(3); 19 U.S.C. §3333; strapping machines; low bundle sensor; 19 CFR 181.44(a), 181.44(g) and 181.45(b) Dear Ms. McCabe: This is in response to the ruling request, dated June 25, 1997, submitted by you on behalf of Dynaric, Inc. (“importer”). The ruling request was supplemented by the importer’s response to our request for additional information. FACTS: Fourteen strapping machines have been imported from Germany, and in the U.S. a low bundle sensor is attached to each strapping machine. The strapping machine is used to apply a loop of plastic strapping to a bundle of newspapers so that the bundle becomes a single package for more efficient distribution. The importer quality tests the machines and adds the optional low bundle sensor which senses a small bundle size and reduces the machine’s tension. The low bundle sensor parts are contained in a kit, and the parts are manufactured in Germany, by the manufacturer of the strapping machines. Strapping machines imported in the future will have the low bundle sensor option installed in Germany. The low bundle sensor kit consists of several mechanical parts and one electrical connection. The parts are installed on the machine by means of bolting the parts into pre-existing holes. The installation time is approximately two hours. The value of the kit is 1.9% of the value of the strapping machine as imported. After quality testing and attachment of the low bundle sensor, the strapping machines are sold to a U.S. company (“purchaser”). The purchaser manufactures complete newspaper mailroom packaging systems that convey, count and stack newspapers. The purchaser inserts the strapping machines into its conveyor line to strap the papers together so that a group of counted newspapers can be transported as a single unit. The strapping machine is installed into the system by being rolled between conveyors, where it is electrically connected by a plug to the stacking equipment and conveyors so that in the event of a malfunction the entire system will shut down. The strapping machine is not welded, attached (other than electrically as described above), remachined or remanufactured in any way by the purchaser. The purchaser brings the strapping machine into its’ facility so that it can be shipped together as a complete system and installed as such. The purchaser exports the system to a newspaper in Canada. The strapping machine reaches Canada in the same condition in which it was imported, with the exception of the attached low bundle sensor option. The purchaser’s invoice to the buyer in Canada, refers to strapping machines separately, in addition to other items such as conveyors. ISSUE: Whether drawback under 19 U.S.C. §1313(j) is available for strapping machines exported after attachment of a low bundle sensor in the U.S., and whether the strapping machine is eligible for full drawback upon exportation of the machine to Canada. LAW AND ANALYSIS: Under 19 U.S.C. §1313(j)(1), drawback is authorized if imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction. Regarding the use of articles under section 1313(j)(1), 19 U.S.C. §1313(j)(3) provides as follows: The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on (A) the imported merchandise itself in cases to which paragraph (1) applies... shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B).... In HQ 225985, dated November 30, 1995, based on the language of 1313(j), Customs stated that either an operation results in a manufacture for drawback purposes or the operation does not amount to a use for the purposes of 19 U.S.C. 1313(j). Customs concluded that the listed operations in 1313(j)(3), do not impose a limitation on the qualifying operations, but are illustrative of operations that, may, but do not always, result in a new article being manufactured for drawback purposes. In HQ 225985 it was determined that attaching watch straps to a watch head is an assembly which does not amount to a manufacture or production, and that the assembly does not amount to a “use” for the purposes of 1313(j). A "manufacture or production" is defined in AnheuserBusch v. United States, 207 U.S. 556, 562 (1907): Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary as set forth and illustrated in Hartranft v. Wiegmann (121 U.S. 609)(1887). There must be a transformation; a new and different article must emerge, 'having a different name, character, or use.' Although the holdings of many Customs decisions on this issue are phrased in language that is fact specific to the given case in question, it is in fact the new and different article test of AnheuserBusch that is determinative. Regardless of the facts involved  the merchandise used, the procedure involved, and the finished product  if a new and different article has not emerged (from the process), there has not been a manufacture or production for drawback purposes. We find that the work performed by the importer and the purchaser on the imported strapping machines, as described in your submissions, does not constitute a manufacture or production. In HQ 225755, dated December 4, 1995, we found that similar work performed on injection molding machines was not a manufacture but was in the nature of a modification to the machines. In HQ 225755, we concluded that after the changes, which included changing the cylinder from 30 mm. to 22 mm., adding an audible alarm, needle shot off nozzle, air safety gate, water saver valve and autoswitch on, and removing the mechanical quick clamp and hydraulic core pull, the function of the machine was not changed, it still operated solely as an injection molding device. In this case, the strapping machine performs solely as a strapping machine, whether it has an added low bundle sensor, or whether it is attached to conveyors. Regarding exportations to Canada and Mexico, section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. §3333), provides for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), such goods mean any good other than, among other things-- (2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph (A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ... Furthermore, this section provides that “[a] good exported to a NAFTA country in the same condition as when imported into the United States” is not a good subject to the NAFTA drawback limitation. This section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; 19 C.F.R. §181.41. The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Under 19 C.F.R. §181.44(g), with regard to unused goods under 19 U.S.C. §1313(j)(1) that have changed in condition,: An imported good that is unused in the United States under 19 U.S.C. §1313(j)(1) and that is shipped to Canada or Mexico not in the same condition within the meaning of § 181.45(b)(1) may be eligible for drawback under this section, except when the shipment to Canada or Mexico does not constitute an exportation under 19 U.S.C. §1313(j)(4). Under 19 C.F.R. §181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. §181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides that: For purposes of this subpart, a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good: (i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting, or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading. We find that the strapping machines which have undergone the modification consisting of the addition of a low bundle sensor, are not in the same condition as they were when imported, within the meaning of 19 CFR 181.45(b)(1), and therefore do not fall within the scope of 19 CFR 181.45(b). We made a similar finding in HQ 225755, supra, where we found that the injection molding machines which had undergone modifications not amounting to a manufacture or production, were not in the same condition as when they were imported, under 19 CFR 181.45(b)(1). Such machines do fall within the scope of 19 CFR 181.44(a) and (g), and the drawback payable under 19 U.S.C. §1313(j)(1) is limited accordingly. This determination is based on a finding that the modification to the strapping machines does not constitute a manufacture or production and is contingent upon the importer meeting all pertinent statutory and regulatory requirements. HOLDING: The strapping machines, with the low bundle sensor added in the U.S., exported to Canada, are not in the same condition as they were when imported, and therefore do not fall within the scope of 19 C.F.R. §181.45(b). Such machines do fall within the scope of 19 C.F.R. §181.44(a) and (g), and the drawback payable under 19 U.S.C. §1313(j)(1) is limited accordingly. This determination is based on a finding that the modifications to the machines do not constitute a manufacture or production and is contingent upon the importer meeting all pertinent statutory and regulatory requirements. Sincerely, John Durant Director, Commercial Rulings Division