19 U.S.C.1562; manipulation; Tropicana Products, Inc. v. United States; manufacture; disassembly; reassembly

HQ 227723 March 4, 1998 WAR-3-01-RR:CR:DR 227723 SMC CATEGORY: Entry Mr. Michael D'Ambrosio Service Port Director U. S. Customs Service P. O. Box 1490, Room 218 St. Albans, VT 05478 RE: 19 U.S.C.1562; manipulation; Tropicana Products, Inc. v. United States; manufacture; disassembly; reassembly Dear Mr. D'Ambrosio: This is in reference to your letter dated September 26, 1997, concerning a request for a "binding ruling" from A.N. Deringer, Incorporated concerning its client, Century Arms, Inc.'s proposed manipulation in a Class 8 bonded warehouse. FACTS: Century Arms Incorporated (Century) proposes an operation in its Class 8 bonded warehouse facility. The operation involves the disassembly of various types of tracer ammunition for the purpose of removing the projectiles from the bullets and replacing them with new ball projectiles afterwhich the bullets are reassembled. The projectiles that are removed are either sold to manufacturers or destroyed. ISSUE: Whether the proposed operation is a permissible manipulation under title 19, United States Code, section 1562. LAW AND ANALYSIS: 19 U.S.C. 1562 provides that imported "merchandise may [with Customs' permission and supervision] be cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured, in bonded warehouse." (emphasis added) In those situations involving proposed drawback manufacturing or production operations under 19 U.S.C. 1313, Customs has consistently looked at the Court's finding in Anheuser Busch v. United States, 207 U.S. 556 (1907) for a definition of manufacture or production. They were defined as processes which transform an article into a new and different article, with a distinctive name, character, or use. Following this criteria, the assembly of component parts which results in a new or different article has been held to constitute a manufacture or production. There is a general drawback contract (T.D. 81-300) covering such operations. In a much more recent decision by the Court of International Trade (CIT) which has a greater degree of applicability to the case at hand, the meaning of the term "manufactured" as it relates to section 1562 was discussed. See Tropicana Products, Inc. v. United States, 16 C.I.T. 155, 789 F. Supp. 1154 (1992), aff'd 983 F. 2d 1097 (1992). The Court which in fact cited to Anheuser stated that while the term "manufactured" commonly connotes a "transformation" of an import to a "new and different article", for purposes of section 1562 a low threshold of transformation satisfies the meaning of "manufactured." Tropicana at 62. The CIT referred to the evident legislative intent of the statute to permit only very minor or rudimentary manipulations in bonded warehouse which are akin to the exemplars (cleaning, sorting and repacking). Century's operation involves the disassembly of a finished bullet, the removal and subsequent replacement of the projectile by a different type of projectile, and the reassembly of the components back into a finished bullet. While as previously stated the assembly of components into a finished article constitutes a manufacture or production for purposes of drawback, we have also determined that disassembly alone does not constitute a manufacture or production. See 218344 of November 29, 1985, which involves the disassembly of atomizer wheels and 210094 of April 20, 1979, concerning the disassembly of trucks (copies enclosed). In both cases the disassembly was taking place in a Customs bonded warehouse. Century's operation, however, does not stop after the disassembly operation. It proceeds with the substitution of the projectile that is removed and the subsequent reassembly of the parts back into bullets. Headquarters ruling 226316 of December 6, 1995, copy enclosed, also involved a proposed manipulation by the same company. It held that the disassembly of a magazine for the purpose of cutting the magazine box in half, the lowering of the spring, and its reassembly back into a completed magazine would not constitute a permissible bonded warehouse manipulation. The character of the magazine is being changed in that its capacity is lowered making it incapable of holding more than ten rounds of ammunition. The change in the character of the article being processed results in a new article being manufactured. The three steps of Century's overall operation, the disassembly, removal and insertion of parts, and reassembly are not operations akin to cleaning, sorting or repacking either singularly or in combination with one another. The reinsertion of a new and presumably different type of projectile, a ball projectile, changes the character of the bullet. We presume that the same type of projectile is not being used because it was not stated in the facts that the removed projectiles are defective. Since the character of the bullets are being changed, the operation constitutes a manufacture and thus Century's operation goes beyond the permissible operations allowed by 19 U.S.C. 1562, as interpreted by the Court in Tropicana Products. HOLDING: The subject operation is not a permissible operation under 19 U.S.C. 1562. Sincerely, William G. Rosoff Chief Duty & Refund Determination Branch Enclosures