Applicability of subheading 980200. 0, H SUS, to steering gear assemblies; repairs; essential identity; replacement of parts; 19 CFR 10.s; 555443; 555413; 554817; 554731; country of origin marking; 19 CFR 134.32(m)

HQ W556609 July 23, 1992 CO:R:C:S W556609 LS CATEGORY: Classification Mr. Frank Parker, Jr. Parker & Co. P.O. Box 271 4694 Coffee Port Road Brownsville, Texas 78521 RE: Applicability of subheading 9802:00. 0, H SUS, to steering gear assemblies; repairs; essential identity; replacement of parts; 19 CFR 10.s; 555443; 555413; 554817; 554731; country of origin marking; 19 CFR 134.32(m) Dear Mr. Parker: This is in response to your letter dated March 20, 1992, on behalf of TRW Automotive Products Remanufacturing (hereinafter "TRW"), requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to steering gear assemblies to be repaired in Mexico. You have also requested a ruling as to the country of origin marking requirements. No samples were submitted. FACTS: The following facts are based upon your letter of March 20, 1992, and a telephone conversation with a member of my staff. TRW's repair facility in Texas ships worn-out steering gear assemblies, known as "cores," most of which are manufactured in the U.S., to a plant in Mexico for repair operations. Prior to their shipment to Mexico, the cores are inspected and sorted into work order batches by model number. The cores with unrepairable housings are discarded. The cores which are exported to Mexico are registered on Customs Form 4455 by model number and work order batch number. You state that the essential component of the steering gear assembly is considered the housing. Because the housing defines the use of the assembly and is specific for each assembly model, it is not interchangeable between models. The housing constitutes 80% of the core's value. Since new housings cannot be purchased on the open market, a core is considered to be worthless unless the housing is repairable. 2 In Mexico each individual core unit requires disassembly to the extent of approximately 90% of the entire unit in order to perform the reconditioning and replacement operations. You state that the housing is basically the only component or part which undergoes actual repair operations. All the other parts are either cleaned or replaced with new components. You state that the housing, which comprises the essential identity of the core, is the only part which is segregated and kept apart from the components of other core units throughout the repair process. The other parts or components which are disassembled from the units and reassembled after the repair or replacement operations are placed into bins and commingled with parts from other units. A more detailed description of the operations performed in Mexico follows: 1. Identify each core and remove grease and road grime. 2. Disassemble the core by separating the housing, discarding and replacing the elastomer components, and placing the other disassembled components into separate bins to be reassembled with the housing later in the process. Like components from different core units are commingled in the bins. 3. Clean and inspect each component. 4. Recondition the housing assembly by means of the following steps. The outer surface is sand blasted and then "shot blasted" with fine steel shot. Because steering gears are prone to wear in the valve bore sealing surface area, i.e., the internal wall of the housing, the worn surface is removed by a boring operation and a steel sleeve is inserted to replace the surface material. This operation restores the diameter of the internal wall to its original specifications. Finally, the remainder of the housing is polished to its original surface condition. Valves are "wire-brushed" in the spline area. 5. New seals are installed in the housing assembly and on the piston and valve. 6. All the components are reassembled into the housing assembly to complete the gear assembly. 7. The gear assembly is tested for leakage and functional performance. 8. The inner tie rods and bellows are attached to the gear assembly. 9. The gear assembly is packed in a box along with mountin components and instructions. 3 10. The boxed gear is date coded and the appropriate customer label is affixed to the end of the box. You contend that the steering gear assemblies, upon their return to the U.S., are entitled to a partial duty exemption under subheading 9802.00.50, HTSUS, with duty being assessed only on the value of the repairs to the housing and on the cost or value of both the new parts which replace worn, non-essential parts and the parts which are not kept in matched sets with the original housing throughout the repair process. You also contend that the original country of manufacture, which in most cases is the U.S., should be marked as the country of origin on the packaging of the returned steering gear assemblies because the articles do not lose their identity as a result of the operations performed in Mexico. ISSUES: 1. Whether the steering gear assemblies will be eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the U.S. 2. What is the country of origin of the steering gear assemblies for purposes of marking when the articles are returned to the U.S.? LAW AND ANALYSIS: I. Eligibility for partial duty exemption under subheading 9802.00.50. HTSUS Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. such articles are dutiable only upon the value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. 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 create a new or different article. Press Wireless. Inc. v. United States, 6 Cust. ct. 102, C.D. 438 (1941). In Headquarters Ruling Letter 554539 dated August 25, 1987, we stated that: [s]o long as the identity of (the exported unit] is maintained throughout the disassembly and repair process, and there is a genuine repair of parts carried out during the foreign process, these units may be entered under the repairs provision of item 806.20, Tariff Schedules of the United States (TSUS) [the 4 predecessor tariff provision to subheading 9802.00.50, HTSUS]. The replacement and/or addition of parts to restore products to their original condition may constitute repair operations for purposes of subheading 9802.00.50, HTSUS, if the particular product does not lose its identity and the replacements and/or additions are not so extensive as to create a new or different article. Where the foreign repair operation entails the complete disassembly of the exported article and numerous component parts of the article are replaced, the concept of essential identity may come into play. This concept is employed under this tariff provision to insure that the article imported is the same as the article exported, and operates by identifying certain component parts of an exported article as embracing the essential identity of the particular article exported. Component parts so identified are to be maintained together throughout the repair operation as a matched set. Thus, replacing any one of these essential components would violate the uniqueness of the matched set and result in a new article of commerce, thereby precluding eligibility for the partial duty exemption under subheading 9802.00.50, HTSUS. See Headquarters Ruling Letter (HRL) 555443 dated November 30, 1990, and rulings cited therein. The concept of essential identity is applicable here because the worn steering gear assemblies or "core" units are disassembled to the extent of approximately 90% of the entire unit. Based upon your statement that the essential component of each worn steering gear assembly is the housing, and the housing is not replaced, but is segregated and kept apart from the components of other cores throughout the repair operation, we find that the essential identity of the steering gear assembly will be maintained for purposes of conforming to the requirements of subheading 9802.00.50, HTSUS. Moreover, under the concept of essential identity, the essential components may be subjected to repair operations. See HRL 554817 dated November 18, 1987. We find that the operations performed on the housing are considered genuine repairs within the meaning of subheading 9802.00.50, HTSUS. The sand blasting and shot blasting, as well as the polishing operation, are considered cleaning operations because they restore the housing to its original condition. The removal and replacement of part of the internal wall of the housing is also considered an acceptable repair for purposes of this tariff provision because these operations merely restore the diameter of the wall to its original specifications, and do not destroy the identity of the article. So long as the essential identity of the steering gear assembly is maintained, all the other components of the assembly which are considered non-essential may be commingled with other identical parts in storage bins or in inventory until required for reassembly. See HRL 554731 dated February 2, 1989. 5 On the basis of the information provided, the repaired steering gear assemblies will qualify for the partial duty exemption under subheading 9802.00.50, HTSUS, upon compliance with 19 CFR 10.8. We are enclosing a copy of HRL 555413 dated September 5, 1990, which discusses the identity of articles exported and returned to the U.S. within the context of these documentary requirements. As explained in that ruling and in 19 CFR 10.8, information must be presented in the required documents which enables Customs to verify that the articles returned are the same as the articles exported. For example, identification marks or numbers, such as serial numbers, for the units must be stated in the repair declaration, when they are available. Pursuant to section 10.8(1), Customs Regulations (19 CFR 10.8(1)), the cost or value of the repairs performed abroad includes the cost or value of all articles, domestic and foreign, used in the repair. Consequently, for purposes of assessing duty under subheading 9802.00.50, HTSUS, the cost or value of the repair of the steering gear assemblies will include not only the value of the repair to the housing performed in Mexico, but also the cost or value of both new parts and the non-essential used parts which are removed during disassembly, repaired, and commingled with other like parts pending reassembly. See HRL 554731; HRL 555443. II. Country of Origin Marking Requirements Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), generally provides that all articles of foreign origin (or their containers) imported into the U.S. are required to be legibly, conspicuously, and permanently marked to indicate the country of origin to an ultimate purchaser in the U.S. For purposes of this statute, "country of origin" means the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin." See section 134.l(b), customs Regulations (19 CFR 134.1). In the instant case, it is our op1n1on that the repair operations performed in Mexico do not substantially transform the steering gear assembly into a product of Mexico. Accordingly, the returned steering gear assemblies which are originally manufactured in the U.S. will remain products of the U.S. for country of origin marking purposes, and will be excepted from the marking requirements of 19 U.S.C. 1304, pursuant to section 134.32(m), Customs Regulations (19 CFR 134.32(m)). The latter regulation sets forth the exception for products of the U.S. exported and returned. 6 HOLDING: Based upon the information presented, the returned steering gear assemblies will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, provided the documentary requirements of 19 CFR 10.8 are met. Duty will be assessed on the value of the repairs to the housing, as well as the cost or value of all articles used in the repair, including the non-essential used parts which are removed during disassembly, repaired, and commingled with other like parts pending reassembly. The returned steering gear assemblies which are originally manufactured in the U.S. will remain products of the U.S. for country of origin marking purposes and will be excepted from the marking requirements of 19 U.S.C. 13-4, pursuant to 19 CFR 134.32(m). Sincerely, John Durant, Director Commercial Rulings Division.