Revocation of NY M86482; Subheading 9802.00.50, HTSUS; Automotive Rim Forgings

HQ H306334 April 2, 2020 OT:RR:CTF:VS H306334 JK CATEGORY: Classification Alex Romero A.F. Romero & Co., Inc. 1749 Stergios Road Calexico, CA 92231 RE: Revocation of NY M86482; Subheading 9802.00.50, HTSUS; Automotive Rim Forgings Dear Mr. Romero: This is in reference to New York Ruling Letter (“NY”) M86482, dated September 25, 2006. At issue was the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (“HTSUS”), to automotive rim forgings subject to various operations including grinding and polishing in Mexico. In NY M86482, U.S. Customs and Border Protection (“CBP”) determined that the automotive rim forgings were eligible for duty-free treatment under subheading 9802.00.50, HTSUS, which provides for articles returned to the United States after exportation for repair or alterations. We have reviewed NY M86482 and determined it to be in error. For the reasons set forth below, we are revoking the ruling. Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625 (c)(1)), as amended by section 623 of title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice was published in the Customs Bulletin, Volume 53, No. 48, on January 2, 2020, proposing to revoke NY M86482, and revoke any treatment accorded to substantially identical transactions. No comments were received in response to the notice. FACTS: NY M86482 stated, in relevant part, that Prime Wheel Corporation imports forgings of automotive rims from Taiwan. Subsequently, these forgings are exported to Mexicali, Mexico to be subject to the following operations: staging, grinding with air grinder, polishing with polishing wheel, sanding, buffing, and cleaning. After the Mexican operations, they are returned to the United States, where they undergo the following operations: compound removal, pre-clean spray wash, clean spray wash, rinse spray wash, deoxidizer spray (pre-treatment process prior to painting the wheels), rinse spray wash, oven drying, application of a clear coat (powder pain process), curing, coating thickness inspection, and packaging. CBP held that the automotive rim forgings were eligible for duty-free treatment under subheading 9802.00.50, HTSUS. ISSUES: Whether automotive rim forgings are eligible for tariff treatment under subheading 9802.00.50, HTSUS? LAW AND ANALYSIS: Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles returned to the United States after having been repaired or altered in Mexico, whether or not pursuant to warranty, may be eligible for duty-free treatment, provided the documentary requirements of 19 CFR § 181.64 are satisfied. Section 181.64(a), CBP Regulations, (19 CFR § 181.64(a)) states, in pertinent part: ‘[R]epairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States. Section 181.64(b), CBP Regulations, (19 CFR § 181.64(b)) states: Goods not eligible for duty-free or reduced-duty treatment after repair or alteration. The duty-free or reduced-duty treatment referred to in paragraph (a) of this section shall not apply to goods which, in their condition as exported from the United States to Canada or Mexico, are incomplete for their intended use and for which the processing operation performed in Canada or Mexico constitutes an operation that is performed as a matter of course in the preparation or manufacture of the finished goods. Subheading 9802.00.50, HTSUS, treatment is precluded where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int’l Trade 9 (1982); Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff’d, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979). In Guardian Industries v. United States, the Court of International Trade stated that, in construing “the tariff provision for repairs and alterations performed abroad, the focus is upon whether the exported article is ‘incomplete’ or ‘unsuitable for its intended use’ prior to the foreign processing.” At issue in Guardian Industries was the question of whether subjecting U.S.-produced annealed glass to a tempering process in Canada to create glass for sliding glass patio doors qualified as an “alteration” under item 806.20, TSUS (a predecessor provision of subheading 9802.00.50, HTSUS). The court noted that glass must be tempered (i.e., strengthened) for practical safety use reasons and to conform to U.S. federal regulations before it may be marketed for use in sliding glass patio doors. In concluding that the tempering process was not an “alteration,” the court stated that “the exported articles of raw annealed glass were not ‘completed articles’ since they were entirely unsuitable for their intended use” as sliding glass patio doors and required a manufacturing process to make them compete. The court further concluded that, because the tempering of the annealed glass transformed the glass in name, use, performance characteristics and tariff classification, the operation created a new and different commercial article. See also Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff’d, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979) (finding that U.S.-origin fabrics which were exported to Canada as griege goods for heat-setting, chemical-scouring, dyeing, and treating with chemicals, were ineligible for 806.20, TSUS, as the processing in Canada resulted in a finished fabric suitable for manufacture into curtains). Conversely, in Amity Fabrics, Inc. v. United States, 43 Cust. Ct. 64, C.D. 2104 (1959), “pumpkin” colored fabrics were exported to Italy to be redyed black since the pumpkin color had gone out of fashion and black was a consistently good seller. The court held that the identity of the goods was not lost or destroyed by the dyeing process, that no new article was created since there was no change in the character, quality, texture, or use of the merchandise; it was merely changed in color. The court found that such change constituted an alteration for purposes of paragraph 1615(g) of the Tariff Act of 1930 (a predecessor provision of subheading 9802.00.50, HTSUS). See also Royal Bead Novelty Co. v. United States, 68 Cust. Ct. 154, C.D. 4353, 342 F. Supp. 1394 (1972) (finding that uncoated glass beads exported and coated was entitled to preferential tariff treatment under 806.20, TSUS as the identity of the beads was not lost or destroyed in the coating process and no new article was created). In Headquarters Ruling Letter (HQ) H288285, dated January 18, 2018, CBP found that painting automotive bumpers in Canada did not constitute a repair or alteration under subheading 9802.00.50, HTSUS. Distinguishing Amity Fabrics, which determined that redyeing (but not dyeing) was a repair or alteration, CBP noted that the process undertaken in Canada was not a repainting operation; rather, the painting process was a continuation of the production process that allowed the automotive bumpers to be fit for their intended purpose. In addition, painting the bumpers prevented them from rusting. As a result, CBP concluded that the bumpers were not ready for their intended purpose prior to exportation to Canada. See also HQ H278563, dated November 23, 2016 (aluminum coils exported to Canada to undergo a paint coating process did not qualify for subheading 9802.00.50, HTSUS treatment). Consistent with the above-referenced cases and rulings, we find that the staging, grinding, sanding, polishing, buffing and cleaning operations undertaken in Mexico are necessary, intermediate steps in the production of the finished good. As in Guardian Industries, where the raw annealed glass was incomplete and unsuitable prior to the foreign processing, the automotive rims are merely “forgings” that require additional processing prior to exportation to Mexico to be suitable for their intended use. The grinding, polishing, sanding, buffing and cleaning processes undertaken in Mexico prepare the forgings for further additional operations in the United States, which include washing, oven drying, and the application of a clear coat. As in HQ H278563, these operations are necessary to ensure the automotive rims can withstand rusting and exposure to the outdoor environment. Therefore, since the automotive rim forgings are not complete for their intended use prior to exportation and the Mexican operations are merely a continuation of the production of the finished good, we conclude that the subject goods do not qualify for subheading 9802.00.50, HTSUS treatment. HOLDING: NY M86482 is revoked to reflect that the operations undertaken in Mexico as described above do not constitute a repair or alteration and therefore the forgings of automotive rims are not eligible for duty-free treatment under subheading 9802.00.50, HTSUS. EFFECT ON OTHER RULINGS: NY M86482, dated September 25, 2006, is hereby REVOKED. In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin. Sincerely, Craig T. Clark, Director Commercial and Trade Facilitation Division