SIG Arms, Inc.; SIGARMS® pistols; HTSUS 9302; 19 U.S.C. 1313(j)(1); direct identification unused merchandise drawback

HQ 228267 October 14, 1999 DRA-4-RR:CR:DR 228267 EAB CATEGORY: Drawback TARIFF NO.: 9302.00.0000 Mr. Edward X. DeSousa Global Drawback, Inc. P.O. Box 130 North Reading, Massachusetts 01864 Re: SIG Arms, Inc.; SIGARMS® pistols; HTSUS 9302; 19 U.S.C. 1313(j)(1); direct identification unused merchandise drawback Dear Mr. DeSousa: This is in response to your letter dated November 23, 1998, in which you request on behalf of “SIGARMS, Inc.”, a ruling concerning a claim for unused merchandise drawback with respect to certain pistols imported and exported by same. In addition to the SIGARMS® “Product Catalogue” that came under cover of the aforesaid letter and the information provided in that letter, we have examined the “1999 Authorized Law Enforcement Distributor Price List - Pistols, Rifles” and the “1999 Distributor Price List - Firearms and Accessories” sent under cover of your letter of April 12, 1999, in which you have presented further views and comments to which we have given consideration and, in material part, upon which the following decision is based. No unused merchandise drawback claims have been filed with Customs; accordingly, this issue is properly before this office as a prospective ruling request under 19 C.F.R. 177.1(d)(1). See 19 C.F.R. 177.1(a). FACTS: SIGARMS® imports fully manufactured pistols of foreign origin. The company sells pistols to two markets, the general public and military/law enforcement organizations. In doing so, it has found that the intersection of legal and operational necessities of those two markets dictates variable configurations for each (or, at least, many) models of the SIGARMS® pistols. As one result of this, the company simultaneously publishes a “Distributor Price List” containing, with respect to pistols, model, accessories and part/component descriptions and numbers for “Firearms & Accessories” to be sold to the general public, and an “Authorized Law Enforcement Distributor Price List” containing similar information for “Pistols, Rifles” to be sold to the military and law enforcement communities both of or in the US and foreign thereto. For example, the company’s pistol referred to as the SP2340 is described in both pricing catalogues in essentially the same terms and has the exact same “technical specifications” regarding dimensions, weight, sight base, etc. Both the civilian and law enforcement units will be sold configured to one of three calibers: .380, .400 or 9mm. These two-catalogue similarities may be found with other pistols, such as the variable caliber P239 and the single caliber (.380) P232 and (.45) P220 pistols. With respect to these illustrative models, we note that the pistols in the law enforcement catalogue bear the prefix “LE”, e.g. LE SP2340, whereas the civilian pistols do not. Further subtle distinction is made between the two categories of pistols. For example, the law enforcement LE SP2340 .357 caliber pistol has an SKU of S0320L with the corresponding “item #” E2340-357-B-G, but the civilian SP2340 .357 caliber pistol has an SKU of S0320C and item number of SP2340-357-B. The actual pistols, however, the law enforcement LE SP2340 and the civilian SP2340, come in the identically described “basic” configuration: “SP2340, Nitron finished stainless steel slide with polymer frame, 2 interchangeable grips.” Each such basic pistol is sold to the appropriate distributor for the same sum. Optional components for both the law enforcement and civilian model pistols include, among other items, wood grips, sights, and triggers. For practically every model of pistol made/sold by SIGARMS®, the law enforcement and the civilian versions are, essentially, the same. There are, however, certain absolute distinctions that are maintained between the two general configurations. For one, a pistol will be made with an integral fire control unit that is either a single action/double action (SA/DA) firing mechanism or a double action only (DAO) firing mechanism; the latter (DAO) mechanism is used in the manufacture of only the law enforcement models. Another distinction is found in the magazines. The possession of magazines the capacity of which exceeds 10 rounds of ammunition (other than .22 caliber rimfire ammunition) is prohibited to the general public in the US. We note that there are certain models of SIGARMS® pistols that are sold only to law enforcement agencies, but those models are not the subject of this Customs ruling. This drawback ruling concerns only those fully assembled pistols that are imported in the following configuration: standard sights (low profile, high contrast, combat-type with a blade front and a notched rear blade), standard grips (one set composite, the second set rubberized), standard trigger, single action/double action integral fire control unit and a magazine with a capacity of no more than 10 rounds. Following importation, SIGARMS® will do one or more of the following: substitute for the standard magazine a large capacity clip (no change in cost to the purchaser); replace the standard sight system with either the “SIGARMS 3 Dot” high contrast sight system, whereby the rear notched blade with white post is replaced with a rear notched blade having two large white dots on either side of the notch (at added cost of approximately 5%), or the “SIGLITE” tritium night sights, consisting of a front blade with a single tritium dot light source and a read blade with two tritium dot light sources, one on either side of the notch (at added cost of approximately 15% depending upon the pistol model); replace the standard grips with wood grips (at added cost of approximately 11%); replace the single action/double action integral fire control unit with a double action only integral fire control unit (no change in cost to the purchaser); and or replace the standard trigger with a smooth, non-serrated short trigger (added cost of approximately 5%). In your letter of November 23, 1998, you state as follows: “All imported and exported firearms include specific serial numbers. Under § 1313(j)(1) claims, exported drawback designated merchandise is identified to the exact import entry by the same model and serial number appearing on the import and export documents. Under § 1313(j)(2), exported drawback designated merchandise will be the exact same model, but may be substituted by a different serial number if administratively efficient. We will request a separate determination of substitution eligibility under § 1313(j)(2), from the local drawback office.” This Office is specifically asked to determine if replacing the standard magazine with a large capacity magazine qualifies for drawback pursuant to 19 U.S.C. 1313(j)(1). We are further asked to determine if replacing one or more of the parts or subassemblies constituting the sighting systems, trigger, grips and fire control unit qualifies for drawback pursuant to 19 U.S.C. 1313(j)(1). Although this Office will limit the decision herein to drawback claims under 19 U.S.C. 1313(j)(1), we note that findings of non-use, or incidental operations of the kind permitted in 19 U.S.C. 1313(j)(3), are not coextensive with findings of commercial interchangeability under 19 U.S.C. 1313(j)(2). ISSUE: Whether imported non-standard component parts or sub-assemblies of pistols, used to modify such pistols imported in standard configurations, may qualify for unused merchandise drawback under 19 U.S.C. 1313(j)(1) (“direct identification”) upon exportation of the then modified pistols. LAW AND ANALYSIS: CONFIDENTIALITY While your letter of April 12, 1999 is silent on the matter, we note that each page of both price list catalogues is marked “Confidential” on the bottom thereof. As provided for in § 177.2(b)(7), Customs Regulations (19 CFR 177.2(b)(7)) concerning “privileged or confidential information”: Information which is claimed to constitute trade secrets or privileged or confidential commercial or financial information regarding the business transactions of private parties the disclosure of which would cause substantial harm to the competitive position of the person making the request (or of another interested party), must be identified clearly and the reasons such information should not be disclosed, including, where applicable, the reasons the disclosure of the information would prejudice the competitive position of the person making the request (or of another interested party) must be set forth. It has long been the position of the Customs Service that a 19 CFR 177.2(b)(7) grant of confidentiality is coterminous with Exemption 4 of the Freedom of Information Act (5 U.S.C. 552). Exemption 4 was enacted to protect from disclosure information such as customer lists, costs, identities of suppliers, quantities of merchandise, formulas, assets, profits, losses, market shares, and similar information, the disclosure of which would inure to the competitive disadvantage of the party providing information. We have reviewed your general request and have determined independently that the pricing information constitutes trade secrets or privileged or confidential information. Accordingly, this ruling contains none of the prices set out in either the “1999 Authorized Law Enforcement Distributor Price List - Pistols, Rifles” and the “1999 Distributor Price List - Firearms and Accessories” submitted by you on behalf of SIGARMS®; that information will not be disclosed except in accordance with the Freedom of Information Act (5 U.S.C. 552) and Part 103, Customs Regulations (19 CFR Part 103), concerning the availability of information. DRAWBACK “Drawback” is the reimbursement of duties paid on goods imported into the U.S. and then used in the manufacture or production of articles which are subsequently exported, and is generally provided for 19 U.S.C. 1313. With particular regard to unused merchandise drawback, (1) If imported merchandise, on which was paid any duty, tax, or fee imposed under Federal law because of its importation - (A) is, before the close of the 3-year period beginning on the date if importation - (i) exported, or (ii) destroyed under customs supervision; and (B) is not used within the United States before such exportation or destruction; then upon such exportation or destruction 99 percent or the amount of each duty, tax, or fee so paid shall be refunded as drawback. . . . . . . (3) 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, relabling, 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, or (B) the commercially interchangeable merchandise in cases to which paragraph (2) applies, shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B) or (2)(C). 19 U.S.C. 1313(j)(1) and (3) (1999), which provisions are implemented in the Customs Regulations. See 19 C.F.R. 191.31(a) and (c). Compliance with the Customs Regulations on drawback is mandatory and a condition of the payment of drawback (Chrysler Motors Corp. v. United States, 14 CIT 807, 816, 755 F. Supp. 388, aff'd, 945 F.2d 1187 (Fed. Cir. 1991), in which the Court stated: "The Supreme Court held in Swan & Finch Co. v. United States, 190 U.S. 143, 146 (1903) that the right to drawback is a privilege granted by the government and any doubt as to the construction of the statute must be resolved in favor of the government. ... Over the years, the courts have held that the allowance of drawback is a privilege and compliance with the regulations is a prerequisite to securing it where the regulations are authorized and reasonable"; see also, United States v. Hardesty Co., Inc., 36 CCPA 47, C.A.D. 396 (1949); Lansing Co., Inc. v. United States, 77 Cust. Ct. 92, C.D. 4675 (1976); Guess? Inc. v. United States, 9 Fed. Cir. (T) 111, 115, 944 F.2d 855 (1991) "[w]e are not dealing here with a question of whether a party has satisfied a commercial contract ... [w]e are dealing instead with an exemption from duty, a statutory privilege due only when the enumerated conditions are met. 'Such a claim is within the general principle that exemptions must be strictly construed, and that doubt must be resolved against the one asserting the exemption'" (emphasis added)). 19 U.S.C. 1313(j)(1) To qualify for drawback under 19 U.S.C. 1313(j)(1): 1. There must be imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation [Compliance with this requirement is not in dispute]; and 2. Before exportation or destruction, the merchandise may not be used in the United States. Not all manipulation constitutes a “use” that would disqualify merchandise for drawback under this provision; examples of operations that are permissible are set forth in 19 U.S.C. 1313(j)(3), which provision includes “. . . any operation or combination of operations (including but not limited to, . . . replacing components . . .), not amounting to manufacture or production for drawback purposes under the preceding provisions [paragraphs (1) and (2)] of this section [(j)] . . .”. It is necessary to determine what constitutes “manufacture or production”, inasmuch as imported merchandise used in manufacture is ipso facto ineligible for unused merchandise drawback under 19 U.S.C. 1313(j)(1). While the replacing of components may qualify as an operation not amounting to manufacture or production, a manufacture occurs when a new and different article having a distinctive name, character or use results from the manufacturing process. Accordingly, the facts in this case will determine if the replacement of specified components of the imported pistols constitutes a manufacture, i.e. a “use” not allowed under 19 U.S.C. 1313(j)(1). “Manufacture”: In the case of US v. International Paint Co., Inc., 35 C.C.P.A. 87 (1948), manufacturing drawback was allowed the importer of paint in paste form, used in the manufacture of subsequently exported marine anti-fouling paint. As imported, the paste contained 77 % copper and copper compounds, the active or essential ingredient imparting anti-fouling properties to the finished paint; also present were strong mineral acids and salts of iron and copper mixed with water, all of these substances, including the water, being unwanted impurities. The court noted with approval the following language from the case of Ishimitsu v. US, 11 Ct. Cust. App. 186: . . . to constitute a manufacture of a thing, or a thing manufactured, it must appear that something has been produced so changed or advanced in condition from what it was before being subjected to the processing or treatment that whether of only one material or of more than one, it has attained a distinctive name, character or use, different from that originally possessed by the material or materials before being subjected to the manufacturing process. International Paint at 89. The court then noted that “the requirements of change of name, character, or use given in the definition are stated in the disjunctive. We do not think the fact that there has been no change of name [imported “paint” and exported “paint”] is of material consequence here. As a matter of fact, a change of name alone would not necessarily result in a product being regarded as ‘manufactured or produced.’” Id. Finding the lack of a change in name inconsequential to the issue, the court, however, found that the change in character and use of the imported versus the exported paint was dispositive: the removal of the mineral acids and the metal salts, together with the introduction of varnish marked a change in character between the imported and exported product; the foregoing processing rendered the exported product useable on steel-bottomed ships, inasmuch as the mineral acids in the imported paste were destructive of steel. Accordingly, the court was of the opinion that, “. . . if an operation performs the function of fitting a substance for a use for which otherwise it is wholly unfitted, it falls within the letter and spirit of the term ‘manufactured’ as used in [19 U.S.C. 1313(a).” International Paint, at 88. The name, character or use test is to a greater degree cumulative rather than strictly disjunctive, with emphasis on a new and distinctive use in conjunction with an essential change in character. Whether a process is a “manufacture” or a “production”, the mere physical altering of a product from a wholesale/bulk portion to individual or consumer portions is not a “manufacture or production” for purposes of 19 U.S.C. 1313(a). See US v. Samuel Dunkel & Co., Inc., 33 C.C.P.A. 60 (1945), where the appeals court reversed the decision of the Customs Court (13 Cust. Ct. 223(1944) and held that butter imported in 56 pound boxed units, pressed through a die to form 4-pound blocks that were quartered, wrapped and placed in tins for export, was not, en toto, eligible for manufacturing drawback. Furthermore, the court distinguished the case of Joshua Hoyle & Sons, Ltd., Inc. v. US, 25 C.C.P.A. 128; while Dunkel could point to a history of Treasury decisions allowing manufacturing drawback on bulk cheeses and soaps cut into consumer sizes and so packaged for export, there was no such practice regarding butter, and re-enactment of the drawback statute without material changes in language did not constitute legislative approval of administrative practice in the matter of claims for manufacturing drawback upon the bleaching, mercerizing and exporting of cotton cloth imported in the “gray” state). Finally, imported dresses dyed in the U.S. and exported are not entitled to manufacturing drawback because merely dying otherwise fully finished dresses does not present dresses that have been “manufactured or produced in the United States with the use of imported merchandise.” John J. Coates v. US, 3 Cust. Ct. 193 (1939). The exporter of dresses imported into and embroidered in the U.S. was denied manufacturing drawback, not necessarily because embroidering was not manufacturing, but because there was a lack of physical and testimonial evidence that the embroidery made the imported dresses into “new and different kinds of dresses with such new characteristics as to make them new manufactures or productions.” Rolland Freres, Inc. v. US , 23 C.C.P.A. 81, 86 (1935). Replacing Components: Where the replacing of components results in a new and different article, with a distinctive name, character or use, then the act of replacement is not an operation within the scope of 19 U.S.C. 1313(j)(3), and no claim for unused merchandise drawback may be allowed under 19 U.S.C. 1313(j)(1). Put another way, if the replacing of one or another or multiple components of an imported pistol performs the function of fitting that pistol for a use for which otherwise it is wholly unfitted, then upon exportation of the altered pistol, unused merchandise drawback may not be claimed under 19 U.S.C. 1313(j)(1). As a general matter, large capacity magazines may not legally be possessed in the U.S. by other than law enforcement personnel. The presence of the magazine, however, does not impact the name, character, or use of the pistol. Regardless of the capacity of the magazine, the handgun is a hand-held firearm, it is used to ammunition, and it is a “pistol.” We find that replacing the standard magazine with a large capacity magazine is not a manufacture, but an operation within the scope of 19 U.S.C. 1313(j)(3). Similarly, regardless of the material constituting the pistol grips, whether composite, rubberized or wooden (walnut), the name, character and use of the handgun are unchanged, and we find that replacing the standard grips is an operation within the scope of 19 U.S.C. 1313(j)(3). The same may be said of, and we so find with respect to changing the standard trigger with the short trigger. We find that replacing the standard sight system with the ‘SIGARMS 3 Dot” system has no impact on the name or use of the pistol, and that there is a visible change in the character of the pistol configured with the rear sight blade that is notched and has a white dot painted on either side of the notch. We find that this change in character is not substantial. Accordingly, we find that replacing the standard sight system with the ‘SIGARMS 3 Dot” system is an operation within the scope of 19 U.S.C. 1313(j)(3). We find that substituting the “SIGLITE” tritium night sight system for other sight systems is a substantial change in the character of the pistol so modified, and that such a change makes the pistol distinctively usable at night or in other minimal visibility conditions. Accordngly, we find that replacing the standard or ‘SIGARMS 3 Dot” sight system with a “SIGLITE” tritium night sight system is an operation beyond the scope of 19 U.S.C. 1313(j)(3). Whereas both the trigger “pull” and firing procedure are noticeably different, advertised to be so and recognized throughout the industry to be so between the double action only (DAO) fire control unit and the single action/double action (SA/DA) fire control unit, we are of the opinion that replacing the SA/DA fire control unit with the DAO fire control unit is an operation that performs the function of fitting the pistol for a use for which otherwise it is wholly unfitted. We find that such an operation is outside the scope of 19 U.S.C. 1313(j)(3). HOLDING: Magazines imported and substituted for magazines imported with pistols are unused and eligible for drawback under 19 U.S.C. 1313(j)(1) after exportation of said pistols. Three-dot sight systems, walnut grips and short triggers imported and substituted for standard white post sight systems, composite or rubberized grips and long or standard triggers are unused and eligible for drawback under 19 U.S.C. 1313(j)(1) after exportation of said pistols. Substituting “SIGLITE” tritium sight systems and double action only fire control units are operations beyond the scope of 19 U.S.C. 1313(j)(3) and are not eligible for drawback under 19 U.S.C. 1313(j)(1).  Sincerely, /s/ John A. Durant, Director Commercial Rulings Division