Applicability of duty exemption under HTSUS subheading 9802.00.50 to alternators; rotors; stators; rectifier frames; essential identity

HQ 561030 February 16, 1999 CLA-2 RR:CR:SM 561030 MLR CATEGORY: Classification TARIFF NO.: 9802.00.50 Lawrence M. Friedman, Esq. David G. Forgue, Esq. Barnes, Richardson & Colburn 200 East Randolph Drive, Suite 7920 Chicago, Illinois 60601-7796 RE: Applicability of duty exemption under HTSUS subheading 9802.00.50 to alternators; rotors; stators; rectifier frames; essential identity Dear Mr. Friedman and Mr. Forgue: This is in reference to your letter of June 1, 1998, requesting a ruling on behalf of Cummins Engine Company (“Cummins”), concerning the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to alternators repaired in Mexico. Drawings of two representative alternators were submitted with your request. FACTS: It is stated that Cummins plans to recondition certain models of alternators (S125 and S127) used in diesel engines in Mexico. After reconditioning, Cummins will import the alternators into the U.S. for resale. The alternators will be bulk-shipped to Mexico in wiretainers. In Mexico, they will be completely disassembled for cleaning, painting, electronic testing, and replacement of defective parts. It is claimed that the principal components of an alternator are the rotor, stator, and rectifier frame. The frames are stated to be housings used to support and anchor components for the alternator. The rotor is the magnet that rotates within the alternator to create the electrical current that allows the alternator to produce electricity for the vehicle. The stator is the stationary element of the electrical generator in the alternator. Based on the diagrams submitted, the stator contains wire windings that enable the rotor spinning within the wire to generate electricity. Using these components, the alternator produces the constant, regulated electrical current that powers the electrical apparatus in a vehicle. It is stated that Customs issued Headquarters Ruling Letter (HRL) 555117 dated December 22, 1988, which approved a process where Cummins may receive subheading 9802.00.50, HTSUS, treatment when the stator, rotor, rectifier housing, and rotor housing are kept together as a matched set. However, the issue whether it is sufficient only to keep the rotor was not presented. It is now claimed that the rotor alone imparts the essential identity to an alternator because it is either the largest or as large as any component by weight. It is also stated that the rotor is the only moving part and the most expensive . A meeting was held at the Office of Regulations & Rulings on November 20, 1998, to discuss the essential identity of alternators, and additional information was presented on December 18, 1998. While not abandoning the prior position that the rotor represents the essential identity of an alternator, in the alternative it is claimed that the rectifier frame alone may impart the essential identity to the alternators. It is stated that the frame constitutes a significant portion of the value of the alternator and it provides the crucial structural and operational support for the functioning alternator. It is stated that the frame holds important components of the alternator, such as the stator, and supports the axis on which the rotor spins. The frame keeps the parts of the alternator in operating proximity, and many important parts are attached to the frame. Additionally, the frame is specifically designed for each model of alternator. Depending on the model, it is stated that the value of the frame constitutes between approximately 12-14 percent of the value of the alternator. The rotor constitutes approximately 31 percent, and the stator between 20-23 percent. In terms of weight, it is stated that the rectifier frame weighs between 18-21 percent of the weight of the alternator, the rotor between 31-36 percent, and the stator between 14-32 percent. It is also stated that the scrap rates are 30 percent for rotors and 80 percent for stators. The stator is a frame wound with wire and is often scrapped because the wire windings become damaged from heat. ISSUE: Whether it is sufficient to merely keep the rotor (or rectifier frame) intact during the reconditioning of the alternators at issue in Mexico for purposes of determining their eligibility for duty-free treatment under subheading 9802.00.50, HTSUS. LAW AND ANALYSIS: Articles exported from and returned to the U.S., after having been advanced in value or improved in condition by repairs or alterations in Mexico, may qualify for a duty exemption under HTSUS subheading 9802.00.50, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Articles are entitled to this duty exemption provided the documentary requirements of section 181.64(c), Customs Regulations (19 CFR 181.64), are satisfied. “Repairs or alterations” are defined in 19 CFR 181.64 as the restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the U.S. Repairs are operations aimed at restoring articles to their original condition, but cannot be so extensive as to destroy the identity of the exported article or to create a new and different article. Press Wireless, Inc. v. United States, 6 Cust. Ct. 102, C.D. 438 (1941). In Press Wireless, radio tubes were sent abroad for repairs which involved the use of heavier filament than that used in the original manufacture of the tubes. Also, the markings on the articles were erased, and new numbers were substituted to facilitate matching the tubes for use in transmitters. The court held that the use of improved materials in the restoration was immaterial, as long as the article was not considered a new and different article of commerce or its identity was destroyed. In this case, it is claimed that the rotor alone imparts the essential identity to the alternator since it is either the largest or as large as any of the components of the alternator by weight. It is also stated that the rotor is also the only moving part. By rotating through a magnetic field, electricity is produced which, it is argued, is the sole function of an alternator. It is also stated that the rotor is the single most expensive part of the complete alternator. While the rotor does not impart the general profile to the alternator in question, it is claimed that profile is not always a critical element of a mechanical device. In the June 1, 1998, submission, Headquarters Ruling Letter (HRL) 560022 dated January 7, 1998, is cited as support that the rotor alone imparts the essential identity to the alternator. In HRL 560022, Customs considered a fuel injection pump which consisted of a large machined casting. The pumps in HRL 560022 were specifically contrasted to pumps considered in HRL 554816 dated November 23, 1987, where Customs determined that the housing, top cover, and fuel pump drive gear must be maintained together even though some of the pumps at issue were not designed with a top cover or fuel pump drive gear. Accordingly, in HRL 560022, in considering that the pump housing represented the general profile of the finished article and was the largest and most integral component of the finished pump, Customs found that for purposes of the specific pumps at issue, the housing alone imparted the essential identity for purposes of subheading 9802.00.50, HTSUS. In the alternative, it is claimed that the rectifier frame may provide the essential identity of the alternators. In support, HRL 561017 dated August 19, 1998, is cited where Customs applied three factors in determining that the engine block represented the essential identity of used motor vehicle engines for purposes of subheading 9802.00.50, HTSUS. In HRL 561017, the engines were dismantled and the pistons, rings, pins, bearings, seals, gaskets, and timing gears were discarded. The retained parts were cleaned and wheelabrated, blasted, and wire brushed to remove traces of dirt. The cylinder blocks were painted, honed to finished size, and then matched with new pistons and rings. The crankshafts were ground to specific sizes, and polished. The crankshaft and new pistons were fitted into the engine housing and the cylinder heads, sheet metal parts, oil pump, timing components, oil pan, and valve covers were installed. The cylinder block assembly (“engine block”) and crankshaft, both of which were not replaced but repaired, were the most significant and expensive components of the engine assemblies. In consideration that the two main features of the engines, the size and number of cylinders, were determined by the design of the engine block, Customs agreed that the engine block imparted the essential identity of the engine based on three factors: (1) its value (the cylinder block assembly accounted for between 65 and 70 percent of the value of the complete engine); (2) its role in providing the structural support to the engine components and (3) it determined the two main features of an automotive engine, the size and number of cylinders. Here, it is claimed that the three factors are relevant, and as in HRL 561017 for the engine block, the frame holds important components of the alternator and keeps the parts of the alternator in operating proximity. The frame holds the stator inside and supports the axis on which the rotor spins, and it is the spinning of the rotor inside of the stator that is central to the operation of the alternator. Additionally, because the frame is specifically designed for each alternator model, it is related to its function. It is also claimed that the frame is factually analogous to the engine block. A diesel engine consists of two major housings, the engine block and the head, with the moving components of the engine including the crankshaft and camshafts, connecting rods and pistons contained inside these two housings. It is stated that alternators are also composed of two housings. The frame is the larger of the two and is similar to an engine block, and the frame contains the moving parts and is critical to the functioning of the alternator. It is claimed that the stator should not be considered as providing the “essential character” to the alternator either alone or in combination with the rotor. The reason offered is that while the stator is a frame wound with wire and as a result of the rotor spinning within the wire, the alternator generates electricity, the stator is seen as entirely passive. Furthermore, it is claimed that the stator is often scrapped because the wire windings become damaged from heat. Finally, the stator is simpler in design and construction than the rotor. As stated in HRL 560022, the concept of “essential identity” is not the same as the concept of “essential character” which is used for purposes of classifying an unfinished article under General Rule of Interpretation 2(a), HTSUS. While HRL 561017 discussed three factors in determining whether the engine block constituted the essential identity to an automobile engine, we do not find these as definitive in each case concerning repairs conducted under subheading 9802.00.50, HTSUS, since it is a case-by-case basis determination whether foreign operations destroy the identity of an exported article or create a new or commercially different article which may not occur as provided by 19 CFR 181.64. We continue to believe that the rotor is a component that represents an important part of the essential identity of the alternators at issue. In this case, the rotor has the most value and is the largest or as large as any other component, and it is actually the rotor with its spinning motion that creates the electrical energy. However, we also find that the stator represents a part of the essential identity. In an alternator, “current is induced in a rotor as its conductors cut lines of magnetic flux created by currents in a stator.” McGraw Hill Encyclopedia of Science & Technology (1987). Alternating-current generators are also described as having a “stationary armature with ... windings that are displaced at regular intervals around the machine to produce ... voltage ... and have a field winding that is attached to the rotor.” McGraw Hill Encyclopedia of Science & Technology (1995). As is noted in these descriptions, both the rotor and the stator (also known as the stationary armature) are key items that produce the current. While we agree that it may be more economical to scrap the stator rather than repair its windings, we cannot conclude that this fact renders the stator any less essential to the identity of the alternators. Both, the rotor and stator work hand-in-hand to produce current. The stator does remains stationary - hence its name, but it is an essential piece in which the rotor turns to produce current. Therefore, we find that the rotor and stator represent the essential identity of the alternators. We do not find that the rectifier frame imparts the essential identity. While it is of course true that without the frame the rotor cannot function, this often would hold true for every minor component that is lacking in an article. While repairs may be performed to the rotor, and burned out wire windings and insulation may be removed from the stator, the stator core must remain the same in order to maintain the essential identity of the alternators at issue. HOLDING: On the basis of the information submitted, we find that the alternators are entitled to subheading 9802.00.50, HTSUS, treatment, provided the rotors and stators which represent the essential identity of the alternators are retained, and the documentary requirements of 19 CFR 181.64 are satisfied. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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