U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; Reimportation; Tantalum Capacitors

HQ 556763 October 6, 1992 CLA-2 CO:R:C:S 556763 RAH CATEGORY: Classification Mr. Nolan Wilson, Jr. Foreign Assembly Administrator Philips Components 5900 Australian Avenue West Palm Beach, Florida 33407 RE: U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; Reimportation; Tantalum Capacitors Dear Mr. Wilson: This is in response to your letter of May 11, 1992, regarding tantalum capacitors assembled in the Dominican Republic from U.S.-fabricated components. FACTS: You state that Philips Components assembles tantalum capacitors in the Dominican Republic at its offshore facility. Philips imports the product duty free under the "CBI II." There are certain occasions when Philips has to return an article to the offshore facility in the Dominican Republic for "rework" because the product does not meet specification. You state that under those circumstances the company is assessed 10 percent duty on the labor which is added to make the product meet specifica- tion. You ask why duties are assessed on rework if the original product itself is duty free. ISSUE: Whether merchandise which is originally entered from the Dominican Republic duty-free under U.S. Note 2(b), subchapter II, Chapter 98 ("Note 2(b)"), Harmonized Tariff Schedule of the United States (HTSUS), and then exported back to the same country for repair, is dutiable upon re-entry into the United States. LAW AND ANALYSIS: In the absence of a specific provision to the contrary, the tariff status of an article is not affected by the fact that it was previously imported into the customs territory of the United States and cleared through customs whether or not duty was paid upon such previous importation. U.S. Note 2, subchapter I, Chapter 98, HTSUS. Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS, to provide for the duty-free treatment of articles (other than textile and apparel articles, petroleum and petroleum products) assembled or processed in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990. Note 2(b) specifically provides as follows: (b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) may be treated as a foreign article, or as subject to duty, if-- (i) the article is-- (A) assembled or processed in whole of fabricated components that are a product of the United States, or (B) processed in whole of ingredients (other than water) that are a product of the United States, in a beneficiary country; and (ii) neither the fabricated components, materials or ingredients, after exportation from the United States, nor the article itself, before importation into the United States, enters the commerce of any foreign country other than a beneficiary country. As stated in this paragraph, the term "beneficiary country" (BC) means a country listed in General Note 3(c)(v)(A), HTSUS. Pursuant to General Note 3(c)(v)(A), HTSUS, the Dominican Republic has been designated as a BC for CBERA purposes. Under the facts presented, the capacitors qualify for duty- free treatment under Note 2(b) when initially entered into the United States from the Dominican Republic. Since Note 2(b) provides that eligible articles are not to be treated as "foreign," it necessarily follows that when the capacitors are returned to the Dominican Republic for repair because they do not meet specification, they are considered U.S. products. Therefore, when the repaired articles are returned to the United States, they again qualify for duty-free treatment under Note 2(b), as they are processed (reworked) in whole of U.S.- fabricated components. Accordingly, they will be duty-free under Note 2(b) upon reimportation into the U.S., assuming compliance with the direct shipment and documentation requirements. HOLDING: Merchandise which is originally entered duty-free under Note 2(b), exported back to the BC for repair, and then reimported into the U.S. will be duty-free under Note 2(b) upon the subsequent importation, provided all the components or materials incorporated in the capacitors during the foreign repair operation also are of U.S. origin, and the direct shipment and documentation requirements are satisfied. Sincerely, John Durant, Director Commercial Rulings Division