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HQ 555409

March 12, 1990

CLA-2 CO:R:C:V 555409 GRV


TARIFF NOS.: 9801.00.25, 9802.00.50, 9802.00.80

District Director of Customs
Laredo, Texas 78044-3130

RE: Internal Advice Request No. 30/89; Tariff Status of Capacitors Previously Entered under HTSUS subheading 9802.00.80 when Reimported

Dear Sir:

This is in response to your memorandum of May 30, 1989, forwarding a request for internal advice dated May 18, 1989, from counsel for Kemet Electronics Corp. (importer), regarding the dutiability of certain tantalum and ceramic capacitors imported from Mexico between April 1, 1986, and March 31, 1989. The issues presented concern whether capacitors which previously had been assembled in Mexico of U.S. components and properly entered under item 807.00, Tariff Schedules of the United States (TSUS), or its successor provision, subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)), are entitled to a partial or complete duty exemption upon a subsequent importation. Counsel forwarded an additional submission dated December 11, 1989, directly to this office.

By memorandum dated September 29, 1989, the Regional Director, Regulatory Audit Division, Southwest Region, also requested our opinion on these issues. We understand that these transactions are the subject of an ongoing audit by that office.


For the past 20 years, the importer has been engaged in the production of tantalum and ceramic capacitors at its assembly facility in Matamoros, Mexico. U.S. components, consisting of metal can materials, i.e., sheathing, epoxy, lead wire, solder and packaging materials (tape and cartons), were exported by the importer to its Mexican facility and assembled, by soldering (welding) and gluing operations, into a variety of capacitors. Once assembled, the capacitors were individually packaged and returned to the U.S. and entered under the provisions of TSUS item 807.00 or HTSUS subheading 9802.00.80.

Once in the U.S., the capacitors were shipped by the importer to various U.S. (and a few foreign) customers. If a customer determined that certain capacitors either failed to meet its specifications or were defective, they were shipped to the importer's warehouse in Brownsville, Texas, from which they were then exported back to the Mexican assembly facility. In Mexico, the non-defective capacitors (comprising the bulk of the returned articles) were placed in finished goods inventory along with capacitors assembled from current production, while the defective capacitors were either scrapped or subjected to a "reworking" process. The "reworked" capacitors were also placed in inventory. Once they were in inventory, the importer had no means of identifying which capacitors had been reworked, merely returned for inventory, or assembled from current production.

To fill outstanding sales orders, the importer withdrew the required quantity of capacitors from its finished goods inventory and shipped them to the U.S. where all were entered under TSUS item 807.00 or HTSUS subheading 9802.00.80, including those that had been reworked or merely returned to Mexico for inventory. Counsel for the importer advises that, of the total number of capacitors shipped to the U.S. between April of 1987 and June of 1988, 1.6% represented capacitors that had been returned to Mexico.

On January 24, 1989, your office advised the importer of its position that TSUS item 807.00 "may only be claimed once on an imported item and that it is dutiable at its full value if exported and reimported to the U.S."

Counsel asserts that there is nothing in the language of TSUS item 807.00 to indicate that an item cannot be subject to this duty treatment more than once. Citing the statutory requirements for treatment under this tariff provision, it is claimed that the articles exported met these requirements "both the first and second time that they were exported to Mexico." Counsel states that the only restrictive conditions for applica- tion of TSUS item 807.00 are found in Headnotes 1 and 4, subpart B, part 1, Schedule 8, TSUS (U.S. Notes 1 and 5, subchapter II, Chapter 98, HTSUS), and that neither note prohibits successive importations of a product under TSUS item 807.00. Regarding Headnote 1, part 1, Schedule 8, TSUS (U.S. Note 1, Chapter 98, HTSUS), which was cited in your January 24, 1989, letter to the importer as authority for denying TSUS item 807.00 treatment for the second importation, counsel asserts that Customs is incor- rectly interpreting the plain meaning of this note. According to counsel, the note ("...the tariff status of an article is not affected by the fact that it was previously imported..."), means that each importation is looked at as a new event to be judged on its face, regardless of whether the article was previously accorded a duty exemption.

Accordingly, counsel maintains that the fact that TSUS item 807.00 was previously claimed in no way affects the tariff status of the item upon a second importation in terms of making it eligible for this tariff treatment again, so long as the article meets the literal requirements of the statute. Counsel further asserts that when the articles were returned to Mexico, it was not necessary for the importer either to intend to have the capacitors assembled abroad the second time or, in fact, to have actually had them assembled abroad to satisfy the statutory requirements.

In the alternative, counsel argues that if the reimported capacitors are ineligible for TSUS item 807.00 treatment, then they should be eligible for partial or complete duty-free treatment under TSUS item 801.10 or 806.20 (HTSUS subheading 9801.00.25 or 9802.00.50). Since the documentary requirements for these tariff provisions have not been satisfied, counsel requests that Customs waive production of the required forms.

In his December 11, 1989, letter, counsel briefly addresses the effect that the commingling abroad of returned capacitors and newly assembled capacitors may have on the dutiability of the reimported capacitors. In counsel's opinion, the fact that the capacitors may have been commingled in Mexico should not be a bar to granting TSUS item 807.00 benefits to those articles that were imported into the U.S. a second time. Our attention is directed to ruling 067123 dated May 21, 1981, which involved the commingling abroad of U.S. components with identical parts of foreign origin prior to the assembly of semiconductors, which were then entered into the U.S. under TSUS item 807.00. The ruling concluded that:

...so long as the importer can determine and prove the total quantity of foreign-made components purchased during a fixed accounting period and pays the full duty on the semiconduc- tors imported during that period, item 807.00, TSUS, need not be denied to the remaining components of U.S. origin contained in semiconductors imported during the same period of time. Once the foreign parts are accounted for and selected out and duty is paid on the imported semiconduc- tors during the period, the remaining semiconductors are presumed to contain domestic parts for which item 807.00, TSUS, will obtain.

Counsel contends that the situation in 067123 "actually presented a worse fact scenario than the one in our case, since there was no commingling between U.S. components and foreign components in our case." According to counsel, Customs can allow TSUS item 807.00 benefits on the second importation, even though there may have been some commingling, by using a "first in first out accounting method or some other procedure to determine the percentage of exports that are entitled to" such treatment. ISSUES:

1. Where an imported article has received a duty exemption under HTSUS subheading 9802.00.80 for the cost or value of the U.S. components assembled therein, are those components entitled to the exemption again when the article is subsequently reimported?

2. Where an article which had been entered under HTSUS subheading 9802.00.80 is exported and merely placed in inventory, is it entitled to duty-free treatment under HTSUS subheading 9801.00.25 when reimported?

3. Where an article which had been entered under HTSUS subheading 9802.00.80 is exported for reworking, is it entitled to the partial duty exemption under HTSUS subheading 9802.00.50 when reimported?

4. Where articles which otherwise satisfy the requirements of HTSUS subheading 9802.00.80 are imported together with identical articles which fail to meet those requirements, are any of the articles entitled to entry under this tariff provision?


Shipments of the subject capacitors were entered both before and after the effective date of the HTSUS (January 1, 1989). Although the following analysis addresses the HTSUS only, the conclusions reached are considered equally applicable to the TSUS since the TSUS provisions pertinent to this discussion were carried over into the HTSUS virtually without change.

Applicability of HTSUS subheading 9802.00.80 to the Reimported Capacitors

HTSUS subheading 9802.00.80 provides a partial duty exemp- tion for:

[a]rticles assembled abroad in whole or in part of fab- ricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.

All three requirements of HTSUS subheading 9802.00.80 must be satisfied before a component may receive a duty allowance. An article entered under HTSUS subheading 9802.00.80 is subject to a duty upon the full value of the imported article, less the cost or value of the U.S. components assembled therein, provided there has been compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

General Rule of Interpretation (GRI) 1, HTSUS, provides, in part, that:

...for legal purposes, classification shall be deter- mined according to the terms of the headings and any relative section or chapter notes....

Of the Chapter 98 Notes bearing on the applicability of HTSUS subheading 9802.00.80, we believe that U.S. Note 2, subchapter II, Chapter 98, HTSUS, is the most instructive regarding the issues under consideration here. This Note provides, in relevant part, that:

...any imported article which has been assembled abroad in whole or in part of products of the United States, shall be treated for the purposes of this Act as a foreign article, and, if subject to a duty which is wholly or partly ad valorem, shall be dutiable, except as otherwise prescribed in this part, on its full value determined in accordance with section 402 of the Tariff Act of 1930, as amended. (Emphasis supplied).

It is clear from a reading of this U.S. Note that when an article assembled abroad in whole or in part of U.S. fabricated components is entered under HTSUS subheading 9802.00.80, it is considered a "foreign article" for tariff purposes. Thus, unless the article is subjected to processing in the U.S. which trans- forms it into a product of the U.S. before it is subsequently exported, it is not considered a "product of the U.S.," as required by HTSUS subheading 9802.00.80. Where an article originally entered under HTSUS subheading 9802.00.80 is exported for further assembly operations abroad with U.S. components, then those components exported for further assembly are entitled to allowances in duty under this tariff provision upon return of the article. However, those components that were afforded duty allowances when the article was initially imported are not entitled to the duty exemption a second time since, in their condition as exported for further assembly, they are not U.S. fabricated components "ready for assembly", but an already- assembled foreign article.

In the instant case, the capacitors were granted the duty benefit under HTSUS subheading 9802.00.80 on the value of the U.S. components assembled therein when initially imported after foreign assembly. At that point, the capacitors were considered as foreign articles pursuant to the above-quoted U.S. Note. Therefore, as the capacitors were not transformed into products of the U.S. while in the U.S., and were not then further assem- bled abroad, the plain meaning of HTSUS subheading 9802.00.80 and the U.S. Note compels the conclusion that the capacitors were not again entitled to the duty exemption when reimported. In our opinion, the adoption of counsel's argument that "[o]nce an article has met the Item 807 eligibility requirements..., it is then and always remains an Item 807 article" would essentially render meaningless the previously-quoted portion of U.S. Note 2, subchapter II, HTSUS.

This conclusion, and the rationale supporting it, are consistent with previous Customs rulings concerning the multiple applicability of HTSUS subheading 9802.00.80. In C.S.D. 79-438, 13 Cust.Bull. 1667 (December 18, 1978 (058598)), we stated that the "components in question must be assembled on the particular exportation which is to be considered, and not on a previous exportation and subsequent importation." We further stated that:

...an article of merchandise must be assembled abroad before an importation upon which the provisions of item 807.00, TSUS, is claimed, and a similar claim upon a second importation of an already assembled article is not allowable.

See also, Headquarters Ruling Letter 063183 dated September 10, 1979.

Consistent with the foregoing, we find that the reimported capacitors are ineligible for the partial duty exemption avail- able under HTSUS subheading 9802.00.80.

Applicability of HTSUS subheading 9801.00.25 to capacitors returned to Mexico for restocking and then reimported

HTSUS subheading 9801.00.25 (formerly TSUS item 801.10) provides for the duty-free entry of:

[a]rticles, previously imported, with respect to which the duty was paid upon such previous importation if (1) exported within three years after the date of such previous importation, (2) reimported without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, (3) reimported for the reason that such articles do not conform to sample or specifications, and (4) reimported by or for the account of the person who imported them into, and exported them from, the United States. Articles satisfying each of the above requirements are entitled to duty-free treatment, assuming compliance with the documentary requirements of section 10.8a, Customs Regulations (19 CFR 10.8a).

Although the information available to us indicates that certain of the previously imported capacitors may have been returned to Mexico for the reason that they did not conform to U.S. customer specifications, no evidence has been presented to indicate that they were subsequently reimported because they failed to conform to sample or specifications abroad, as required by clause (3) of this tariff provision. Consequently, we find that the capacitors which were returned to Mexico for restocking and then reimported are ineligible for duty-free entry under HTSUS 9801.00.25. Therefore, these articles are dutiable on their full value.

Applicability of HTSUS subheading 9802.00.50 to capacitors returned to Mexico for reworking and then reimported

HTSUS subheading 9802.00.50 provides a partial duty exemp- tion 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. Articles entitled to classification under this tariff provision are subject to duty 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 met.

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 and different article. Press Wireless, Inc. v. United States, C.D. 438, 6 Cust.Ct. 102 (1941).

Counsel states that the "reworking" process performed on certain of the capacitors returned to Mexico involved, "in some instances, ...the removal of the outside sleeve or jacket on the capacitor, which is discarded, replacing it with a new sleeve, and placing new calibration numbers on the capacitor. Without more detailed information concerning the "reworking" process performed abroad, we are unable to determine whether this process constitutes a "repair" within the meaning of HTSUS subheading 9802.00.50.

However, counsel concedes that the importer failed to comply with the documentation requirements of 19 CFR 10.8, which include the requirement that the exporter file a certificate of registra- tion (top portion of CF 4455) with Customs prior to the exporta- tion of the goods "to permit the district director to examine the articles before they are exported." In this regard, counsel notes that 19 CFR 10.8(k) permits the district director to waive production of the CF 4455 if he is satisfied that the returned article is entitled to HTSUS subheading 9802.00.50 treatment.

With respect to counsel's request for a waiver of the certificate of registration, we should point out that this tariff provision is applicable only to imported goods which can be readily identified as being the same goods, though repaired or altered, as were exported. See, 19 CFR 10.8(f) and HQ 055844, dated December 29, 1980. The information available to us in this case indicates that the importer is unable to specifically identify, on an entry-by-entry basis, which of the imported capacitors were "reworked" in Mexico. We also understand that your office has not waived production of the CF 4455 for the "reworked" articles. Under these circumstances, and in the absence of such a waiver, it is our opinion that the reimported capacitors which were "reworked" abroad are not entitled to the partial duty exemption under HTSUS subheading 9802.00.50, but are dutiable on their full value.

The commingling abroad of articles otherwise eligible for HTSUS subheading 9802.00.80 treatment with identical articles ineligible for such treatment

We have determined, as a result of our analysis of the first three issues in this case, that those imported capacitors which were returned to Mexico for restocking or "reworking" are duti- able on their full value as foreign articles when they are subse- quently reimported. The fact that these capacitors, estimated by counsel to represent between less than 1% and 1.6%, of the total number of capacitors imported (for 1987 and 1988), were comming- led abroad with newly-assembled, identical capacitors raises the issue of whether the commingling precludes HTSUS subheading 9802.00.80 treatment for the newly-assembled capacitors imported for the first time.

Counsel indicates that, based on the rationale of HQ 067123 dated May 21, 1981, those capacitors which were reimported can be distinguished from the identical capacitors imported for the first time by using a "first-in/first-out accounting method" or some other similar procedure. Regarding HQ 067123, to the extent that it authorizes the use of an accounting procedure, such as the aggregate-quantity method or the cost-ratio method, to support a claim for HTSUS subheading treatment, the ruling is inconsistent with this agency's current position on this issue. In C.S.D 82-43, 16 Cust.Bull. 748 (October 23, 1981 (067525)), we reconsidered a previous decision (HQ 068013, dated April 6, 1981) which allowed the application of TSUS item 807.00 on an aggre- gated basis, and determined that that decision was contrary to the applicable regulations and, therefore, void. Since the issuance of C.S.D. 82-43, this office has consis- tently taken the position that under 19 CFR 10.24, an allowance under TSUS item 807.00 or HTSUS subheading 9802.00.80 may be granted only if the importer can demonstrate, on an entry-by- entry basis, that those components claimed to be products of the U.S. are, in fact, products of the U.S. 19 CFR 10.24 requires that the importer and assembler establish reliable controls, including the strict physical segregation of U.S. and foreign components and the maintenance of any other records pertaining to the U.S. components, so that the district director can identify, by audit if necessary, the specific components of U.S. origin in particular shipments which are entitled to the duty allowance. Thus, we have taken the position that various accounting proce- dures, such as the aggregate-quantity method or the cost-ratio method, could not be used to support a claim under this tariff provision under circumstances in which U.S. and foreign compo- nents had been commingled in the foreign assembly operation in such a way that the precise quantity and value of the U.S. compo- nents in a given shipment could not be substantiated. See, for example, Headquarters Ruling Letter 071136 (December 27, 1983).

We believe that the position expressed above regarding the commingling of U.S. and foreign components abroad is equally applicable to a situation, such as exists in this case, where articles which would otherwise qualify for HTSUS subheading 9802.00.80 treatment are commingled with articles which are not entitled to such treatment. In both situations, the importer presumably is unable to substantiate for each and every entry the precise quantity and identity of the U.S. components entitled to the HTSUS subheading 9802.00.80 duty exemption.

However, with respect to the facts in this case, we also recognize that the number of reimported capacitors apparently is very small in comparison to the total number of capacitors imported during the period in question. 19 CFR 10.24(e) provides that:

[w]hen the district director is satisfied that unusual circumstances make the production of either or both of the documents specified in paragraph (a) of this section, or of any of the information set forth therein [e.g., the specific identification of U.S. components], impractical and is further satisfied that the requirements of subheading 9802.00.80, HTSUS, and related legal notes have been met, he may waive the production of such document(s) or information.

It is clear that the decision to grant such a waiver rests solely with the district director. Therefore, as the audit of the transactions in question is continuing, we defer to your judgment regarding whether a waiver is warranted in this case. HOLDING:

For the reasons stated above, we conclude that the reimported capacitors are not entitled to a duty exemption under either HTSUS subheading 9802.00.80 or 9801.00.25 (TSUS item 807.00 or 801.10). Moreover, if no waiver of the documentary requirements of 19 CFR 10.8 is granted by your office, entry of the "reworked" capacitors under 9802.00.50 (TSUS item 806.20) also is precluded. Regarding the commingling of capacitors which were returned to Mexico with capacitors assembled from current production, the decision to waive production of certain of the information required by 19 CFR 10.24, so as to permit HTSUS subheading 9802.00.80 treatment for the newly-assembled capacitors, is within your discretion.


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