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HQ 555369

August 10, 1990

CLA-2 CO:R:C:G 555369 CW


TARIFF NO.: 9801.00.10

District Director of Customs
2nd & Chestnut Street
Philadelphia, Pennsylvania 19106

RE: Application for Further Review of Protest No. 1101-88-000569 contesting your denial of item 800.00, TSUS, treatment for certain parts of diagnostic analyzers imported in kits

Dear Sir:

The above-referenced protest was filed against the liquidation on April 8, 1988, of Entry No. XXXXXXXX dated November 2, 1988, denying duty-free treatment as American goods returned under item 800.00, Tariff Schedules of the United States (TSUS) (now subheading 9801.00.10, Harmonized Tariff Schedule of the United States (HTSUS)), for certain electrical components imported in kits of diagnostic analyzers.


Bear Automotive Service Equipment Co. (protestant), a manufacturer of automotive service equipment in the U.S., created kits in the U.S. in a knocked-down condition containing sufficient components to make substantially complete precision analyzers for automotive engine testing. The parts comprising the kits were of both U.S. and foreign origin and were either manufactured by protestant in the U.S. or purchased from U.S. sources. In creating the kits, protestant assembled most of the parts in the U.S. into subassemblies, while the remaining parts were merely placed in the kits without first being incorporated in a subassembly. A number of these knocked-down kits were exported to an Italian subsidiary for final assembly operations (certain minor parts were not included in the kits but were to be provided by the subsidiary). However, the Italian subsidiary closed its operations and the kits were returned to the U.S., apparently in the same condition as exported, where they were entered as American goods returned under item 800.00, TSUS.

As an inspection by Customs disclosed the presence of foreign components in the kits, item 800.00, TSUS, treatment for the units was denied. Your office advised by memorandum dated May 18, 1988, that the Certificate of Exportation required by section 10.l(a)(3), Customs Regulations (19 CFR 10.l(a)(3))~ was not filed, and that protestant has failed to establish which components in the kits are of U.S. origin. This case also is the subject of Philadelphia penalty case No. 88-1119-00001, which is presently pending in Headquarters.

Counsel for protestant contends that those parts of foreign origin which were incorporated into subassemblies in the U.S. were substantially transformed into products of the U.S. Counsel further maintains that those foreign parts which were merely placed in the kits should also be considered of U.S. origin since, by being organized into discrete kits according to detailed bills of materials, they lost their separate identities and were "merged into a new and different article." Alternatively, counsel asserts that only the foreign parts and those whose origin cannot be determined should be dutiable and that those parts clearly of U.S. origin should be accorded item 800.00, TSUS, treatment.


Whether all, or any portion, of the electrical components contained in each returned diagnostic analyzer kit are entitled to duty-free treatment under item 800.00, TSUS.


Under item 800.00, TSUS, products of the U.S. which are returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad are entitled to duty-free entry, provided the documentation requirements of 19 CFR 10.1 are satisfied.

In Superscope, Inc. v. United. StateS, 13 CIT __, 727 F.Supp. 629 (CIT 1989), the court held that certain glass panels of U.S. origin that were exported, repacked abroad with certain foreign components, and returned to the U.S. as part of unassembled audio cabinets, were entitled to duty-free entry under item 800.00, TSUS. The court reasoned that the U.S. panel portion of the imported merchandise was "not 'advanced in value or improved in condition ... while abroad,' but [was] merely repacked." However, it is incumbent upon the importer to establish the portion of the merchandise which is of American manufacture and to prove by satisfactory evidence that it was not advanced in value or improved in condition
while abroad. See United States v. Joyira Perez, 59 CCPA 190, C.A.D. 1065 (1972). Moreover, the court in Ford Motor Co. v. United States, 29 Cust. Ct. 553 (1952), stated that the precursor provision to item 800.00, TSUS:

... being a grant of a privilege instead of a right, must be strictly construed, its scope and application confined to the special circumstances outlined by its provisions. [Citation omitted]. The paragraph bestows no unlimited and unconditional freedom from assessment of duty. It is hedged and circumscribed not alone by the specificity of the lanugage employed by Congress but also by such regulations as to proof of identity and compliance with its conditions as are prescribed by the Secretary of the Treasury. Thus, an unmistakable congressional purpose to restrict the privilege of free entry is evidenced.

In this case, counsel for the protestant contends that as a result of the assembly in the U.S. of parts of U.S. and foreign origin into various diagnostic analyzer subassemblies, the foreign parts were substantially transformed into products of the United States. In support of this contention, counsel cites section 10.12(e), Customs Regulations (19 CFR 10.12(e)), which defines "product of the United States" and provides that if the article consists of foreign components, the manufacturing process in the U.S. must be such that the foreign parts are substantially transformed into a new and different article, or are merged into a new and different article.

However, protestant has provided only a general description of the assembly operations performed in the U.S. to create the numerous subassemblies under consideration here. Without a detailed description of the operations performed in regard to each subassembly, we are unable to determine whether the foreign parts incorporated therein were substantially transformed into products of the U.S. Therefore, based on the record before us, we must necessarily conclude that the foreign parts incorporated into the subassembles were not transformed or merged into new and different articles in the U.S., but remained of foreign manufacture. Moreover, merely placing certain foreign-made components in the kits prior to their exportation to Italy clearly does not result in the substantial transformation of .those parts into products of the U.S.

With respect to the applicability of item 800.00, TSUS, to those parts of U.S. origin included in the analyzer kits, your office advises that protestant has failed to identify and
establish to your satisfaction which parts were manufactured in the U.S. In this regard, protestant has submitted directly to this office an apparently complete listing of the parts included in the analyzer kits, indicating for each part whether it is of U.S. or foreign origin. However, this information, standing alone, is insufficient to establish that the parts claimed to be manufactured in the U.S. are, in fact, of U.S. origin. Therefore, unless protestant is able to establish to your satisfaction the precise identity of the returned U.S.-manufactured parts, item 800.00, TSUS, treatment for the analyzer kits is precluded.

We note that there is no indication from the record that protestant complied with the documentation requirements set forth in 19 CFR 10.l(a). Compliance with the Customs Regulations relating to American goods returned is mandatory and a condition precedent to recovery unless compliance has been waived or is impossible. Mine Safety Appliances Co. v. United States, 36 Cust. Ct. 277, C.D. 1786 (1956). We understand that your office has not waived the documentation requirements in this case (as authorized by 19 CFR 10.l(d)), and we have no reason to believe that production of the required documents was impossible.


Based on the record before us, we conclude that the foreign components incorporated into various diagnostic analyzer kits in the U.S., and those merely placed in the kits, were not substantially transformed into products of the U.S. Therefore, the foreign-made parts are not entitled to item 800.00, TSUS, treatment. With respect to the U.S.-made parts included in the kits, unless the importer establishes to your satisfaction the identity of these parts (and the applicable documentation requirements are waived), free entry under this tariff provision for these parts also is precluded.

Accordingly, you are directed to dispose of the protest in accordance with this decision. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant.


John Durant, Director
Commercial Rulings Division

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