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HQ 555078

March 27, 1989

CLA-2 CO:R:C:V 555078 DBI


TARIFF NO.: 9802.00.50, HTSUS (806.20, TSUS)

Mr. C. Daniel Ford
Border Enterprises, Inc.
660 Plaza Drive, Suite 2350
Detroit, Michigan 48226

RE: Applicability of subheading 9802.00.50, HTSUS, to certain clamp lower brackets exported to Canada for cleaning, coating, rinsing, heating and painting; eligibility of these brackets for duty-free treatment under the Automotive Products Trade Act of 1965, as amended (APTA).

Dear Mr. Ford:

This is in response to your letters of June 21, and July 1, 1988, to the Area Director, New York Seaport, on behalf of your clients, Riverside Fabricating Limited and D.W. Gregg and Associates. You request a ruling concerning the applicability of item 806.20, Tariff Schedules of the United States (TSUS), and the Automotive Products Trade Act of 1965, as amended (APTA), to certain clamp lower brackets which will be exported to Canada for cleaning, coating, rinsing, heating and painting and reimported by your client. The case has been forwarded to this office for a determination.


You advise that raw metal automobile parts will be exported to Canada where the following processes will be performed:

1. Cleaning with alkaline cleaner to remove all traces of oil or drawing compounds.
2. Spraying with a zinc phosphate solution to produce a coating.
3. Chrome rinsing.

4. Drying in an oven for 10 minutes at 250 degrees Fahrenheit.
5. Three different coating methods: a) Dipping the part in enamel and drying it in a 300- 425 degree oven with approximately 1 milliliter of enamel finish deposited on the part. b) Electrostatically charging and spraying the part with the powder coating. Baking it in a 300-425 degree oven, cooling and packing it with approximately 1 milliliter of coating. c) Electrically charging the part and electrically depositing the coating on it. Rinsing the residue and drying the part in an oven with 1 milliliter of coating.

You note that only one type of coating is used on each part and without one of the above processes, the life span of the part would be reduced by more than 75 percent and remain unacceptable for installation on the finished automobile. You also state that the coating process is a necessary part of the manufacture of the automobile assembly and that the appearance of the part is secondary to the required protection from the elements.


1) Whether the described clamp lower bracket automobile parts, when returned to the U.S., will be eligible for the partial exemption from duty in subheadings 9802.00.40 or 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS) (806.20, TSUS).

2) Whether the described automobile parts are eligible for free entry under the Automotive Products Trade Act of 1965, as amended (APTA).


As you may be aware, the HTSUS replaced the TSUS, effective January 1, 1989. Item 806.20, TSUS, has been carried over into the HTSUS as subheadings 9802.00.40 and 9802.00.50. Subheading 9802.00.40, HTSUS, provides for the assessment of duty on the value of warranty repairs or alterations performed on articles that have been exported for that purpose. Subheading 9802.00.50 provides for the assessment of duty on the value of nonwarranty repairs or alterations performed on articles exported for that purpose. However, the application of these tariff provisions is precluded in circumstances where the operations performed abroad
destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1957); Guardian Industries Corporation v. United States, 3 CIT 9, Slip Op. 82-4 (Jan. 5, 1982). Treatment under subheadings 9802.00.40 and 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).

In the present case, the coating processes are admittedly a necessary part of the manufacture of the finished article. According to the reasoning in Dolliff, the coating processes would clearly exceed the meaning of the term alteration under subheading 9802.00.50, HTSUS (the applicable provision here since warranties are not involved). Therefore, the clamp lower brackets would not be entitled to the partial exemption from duty under this tariff provision.

As you correctly point out in your letter, we have held in previous rulings dated January 23, 1978 (HQ 054202), and July 2, 1987 (HQ 554642), that similar operations exceeded the scope of item 806.20, TSUS. In ruling 054202, we held that automobile bumpers that were shipped to Canada to be washed, rinsed, coated with zinc phosphate, rinsed again, dipped in a chromic acid bath, rinsed with dionized water, oven-dried, and finally painted with a baked-on prime coat and a finish color coat, constituted a series of finishing operations which were a part of the total manufacture of the bumpers. However, you erroneously conclude in your letter that this ruling held that the process in question caused the article to obtain characteristics resulting in a new or commercially different article of Canadian origin.

You express a similar conclusion regarding ruling 554642. In that case, plastic automobile window guides were shipped to Canada where special functional paint was sprayed on the parts. We held that item 806.20, TSUS, applied only to finished articles which have been merely altered abroad and that the foreign painting of the unfinished articles was too extensive an operation to be considered an alteration under item 806.20, TSUS. You incorrectly state that this ruling held that the window guides had become products of Canada.

Finally, you state that if the application of a coating in ruling 054202 was not acceptable due to the fact that the process performed in Canada was too extensive an operation to afford item 806.20, TSUS, treatment to the returned bumpers, then it was clear that the articles had been so altered that they no longer retained the characteristics of a U.S. article, but were considered to be of Canadian origin. Based on this reasoning, you conclude that rulings 054202 and 554642 can be cited to support the argument that the processing of the articles in Canada in the instant case would substantially transform them into Canadian articles, thereby qualifying them for for duty-free treatment under the APTA.

In order for the clamp lower brackets in the present case to be eligible for duty-free entry under the APTA, they must fall within the General Note 3(c)(iii), HTSUS, definition of "original motor-vehicle equipment." This term is defined, in part, as a Canadian article obtained from a supplier in Canada under or pursuant to an order, contract, or letter of intent of a bona- fide motor-vehicle manufacturer in the U.S. The term "Canadian article" is defined in General Note 3(c)(iii), HTSUS, as a product of Canada, produced either with Canadian or U.S. material without limit, or with material imported into Canada from any third country, with certain limitations.

Before the clamp lower brackets may be considered products of Canada, they must undergo a substantial transformation in Canada. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character or use, different from that possessed by the article prior to processing. See Texas Instruments Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982). The coating process does not substantially transform the clamp lower brackets into new and different articles of commerce. They remain essentially the same clamp lower brackets as they were prior to coating, albeit unfinished.

We wish to make it clear that a process which is more than a repair or an alteration under subheading 9802.00.50, HTSUS, does not necessarily result in the substantial transformation of the product into a new and different article of commerce of the country where the processing was performed. It can be seen from the circumstances of the instant case that it is entirely possible for a process, namely the coating, to be more than an alteration or repair, yet not constitute a substantial transformation.

It appears that the clamp lower brackets may be entitled to reduced duty under the U.S.-Canada Free-Trade Agreement (CFTA), which became effective January 1, 1989. However, without additional information on the U.S. manufacturing process we are not in a position to rule at this time. The U.S. Customs Service provides a help number at (202) 566-6232, which you can call in order to find out more general information about the CFTA. You may call Matt Rohde of my staff at 566-8181 to obtain specific information on what will be needed to obtain a ruling on CFTA applicability.


Based on the information submitted, it is our opinion that the coating process to be performed abroad is not considered an alteration as that term is used in subheading 9802.00.50, HTSUS, and, therefore, the clamp lower brackets will not be entitled to the partial duty exemption under this tariff provision. Additionally, the coating process will not substantially transform the brackets into products of Canada and, therefore, the brackets will not be entitled to duty-free treatment under the APTA.


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