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HQ 559740

October 3, 1996

CLA-2 RR:TC:SM 559740 BLS


TARIFF NO.: 9802.00.50

Mr. Allen D. Kagle
ABB Power T&D Company Inc.
777 Penn Center Boulevard
Pittsburgh, PA 15235-5927

RE: Eligibility of a power transformer for duty-free treatment under the GSP;
19 CFR 10.177; substantial transformation; product of; subheading 9802.00.50

Dear Mr. Kagle:

This is in reference to your letters dated March 8 and August 21, 1996, requesting a ruling that certain burned-out power transformers to be sent from Puerto Rico to Brazil for complete rebuilding will be eligible for duty-free treatment under the Generalized System of Preferences (GSP) upon return to the U.S.


You state that a failed power transformer is shipped to Brazil, where you describe the process in general as disassembly of the failed core/coil assembly, reuse of the core, if possible, design and complete rewind using new copper conductors of high voltage, low voltage and regulating windings, replacing all coil leads, repair of existing tapchanger, and replacement of instrumentation and gaskets. The repaired core assembly is mounted into the old tank shell, and after assembly and testing, the transformer is shipped back to Puerto Rico. The major work to be performed in Brazil is described in greater detail as follows:

1. Clean the core assembly by flushing with a solvent spray.

2. Inspection of damage.

3. Doble test bushing.

4. Visual inspection of load tap changing equipment to include:
a. Draining, opening and flushing with oil the tap changer compartment. b. Visual inspection of moving and fixed mechanical parts, such as shafts, seals, bevel gears, stationary and moving contacts, etc.
c. Tightness test on bolts, locking keys, pins, etc.
d. Mechanical operation with the use of hand crank through all positions to check for binding.
e. Install new tap changer door gaskets, and close the compartment.

5. Rewind of the preventive auto.

6. Dry level all coils to equal height on radial space columns.

7. Process all coils, utilizing the dry process equipment while maintaining axial pressure on the coils. This process removes moisture, oil impregnates, and further sizes the coils to design dimensions.

8. Coils are then compacted to calculated short circuit stresses to verify coils are capable of withstanding short circuit forces.

9. Final sizing pressure applied and held until all coils are loaded on the core.

10. Reassemble the coils on the core iron and restack the top yoke iron.

11. All new coil leads in the main tank will be provided.

12. Reassemble top end frames and insulation superstructure.

13. Reprocess core and coil assembly, utilizing the vapotherm equipment.

14. Install completed core and core assembly in its tank, reconnect the leads, and weld the cover back in place.

15. Various tests are performed on the unit.

Based on these facts, you believe that the article shipped to Brazil is not a power transformer any longer but only a "shell" of the original transformer and that the operations performed in Brazil result in a new product, i.e., a power transformer. Therefore, you contend that the returned article is entitled to duty-free treatment under the GSP.


Whether the article will be eligible for duty-free treatment under the GSP upon return to the U.S.


Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the BDC, plus (2) the direct costs of the processing operations performed in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(b).

As provided in General Note 4, Harmonized Tariff Schedule of the United States (HTSUS), Brazil is a designated BDC for purposes of the GSP. To determine whether an article will be eligible to receive duty-free treatment under the GSP, it must first be classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "A" or "A*." The articles in question are classified under heading 8504, "Electrical transformers, static converters...and conductors ...; parts thereof..." All of the articles under this heading are classified under a provision for which the "Special" subcolumn indicates a "Free" rate of duty followed by the symbol "A."

An article is considered to be a "product of" the BDC for purposes of the GSP only if those materials of which the article is composed are wholly the growth, product, or manufacture of the BDC, or are substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.177(a).

Accordingly, it must first be determined whether the materials imported into Brazil become a "product of" that country as the result of a "substantially transformation." A substantial transformation occurs "when an article emerges from a manufacturing process with a new name, character or use which differs from
that possessed by the article prior to the processing." Texas Instruments v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

We do not agree that a substantial transformation will take place as a result of the processing which occurs in Brazil. A new and different product does not emerge from the operations performed in that country. An article commercially identified as a transformer having a certain character and use will go into Brazil and a transformer with the same identity, character and use will come out of Brazil. While the product exported may undergo extensive repair operations, it retains its identity as a power transformer when returned to the U.S. Therefore, we find that the exported article will not be considered a "product of" Brazil and accordingly, the returned transformer will not be eligible for duty-free treatment under the GSP upon return to Puerto Rico.

Subheading 9802.00.50

Subheading 9802.00.50, HTSUS, provides for the assessment of duty on the value of repairs or alterations performed on articles returned to the U.S. after having been exported for that purpose. However, the application of this tariff provision 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 (1956), aff'd, C.D. 1752, 36 Cust. Ct. 46 (1956); and Guardian Industries Corporation v. United States, 3 CIT 9 (1982), Slip Op. 82-4 (Jan. 5, 1982). Subheading 9802.00.50, HTSUS, treatment 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. See 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). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. (However, see 19 CFR 181.64 for the tariff treatment of articles returned to the U.S. from Canada or Mexico, after having been exported abroad for repair or alteration.)

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, provided that the particular article does not lose its identity and the replacement and/or additions are not so extensive as to create a new or different article. In Press Wireless, Inc. V. United States, C.D. 438 (1941), worn-out radio
tubes were sent abroad for the replacement of filaments damaged through use and for other necessary repairs designed to restore the tubes to a condition which prolonged the use for which they were originally designed. The court held that the tubes returned to the U.S. were identical to the tubes exported for repairs. The court further stated that the fact that they had been restored to their original efficiency so as to prolong their usefulness was of no consequence.

In Headquarters Ruling Letter (HRL) 555135 dated October 18, 1988, passenger automobiles were exported to Mexico to be repaired and refurbished and then returned to the U.S. In this case, components such as the engine and drive train as well as the steering and suspension, were rebuilt and repaired in Mexico. Repairs were made to other components, including the frame, shell, seats, etc., as needed. In addition, disposable items, such as oil, brake shoes, tires and filters were replaced. The frame, bumpers, and other body parts were repaired by straightening and/or welding. Items such as seats, headliners, carpets and dash items were repaired when possible, but in most cases, these units were replaced or required some replacement parts. Defective windows, windshields, bulbs, lens covers and mirrors were replaced. The automobile was reassembled and painted before being returned to the U.S. for sale. Customs held that the described foreign repairs and refurbishments did not create a new or commercially different article, and that the automobiles that were returned were the same articles as those exported with the described modifications. Therefore, the foreign operations constituted an acceptable repair operation within the meaning of subheading 9802.00.50, HTSUS, and the automobiles were entitled to a partial duty exemption when returned to the U.S.

In HRL 554922 dated June 13, 1988, Customs held that the replacement of defective components of a fuel nozzle in Mexico constituted an acceptable repair operation. In that case, the nozzle body (or body assembly) and the check valve was kept together as a matched set throughout the repair operation. We held that as long as the identity of the matched sets of nozzles and check valves exported from the U.S. was maintained throughout the repair process, other defective parts could be replaced and the repaired complete units were eligible for the partial duty exemption under subheading 9802.00.50. Further, in HRL 555819 dated October 11, 1991, Customs found that the replacement of 17 defective parts (i.e., resistors, capacitors, diodes, transistors, crystals, switches, integrated circuits, potentiometers, speakers, microphones, batteries, antennas, and cords) of cordless telephones, answering machines, and combination cordless telephone/answering machines in Mexico constituted a genuine repair operation. In that case, it was noted that in replacing these parts, the integrity of each unit was maintained, i.e., there was no commingling of disassembled parts with other like parts from other

Similarly, in the instant case, it is our opinion that the work performed on the exported transformer, which involves retention of the steel tank, and reuse of the core if possible, and replacement and/or repair of parts as described, does not create a new or commercially different article and that the transformer's identity is retained throughout the repair operations. Under these circumstances, we find that the returned article will be entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, based on the value of the work performed abroad.


1) Power transformers sent to Brazil for repair and rebuilding do not undergo a substantial transformation as a result of the operations performed in that country. Therefore, the transformers are not considered a "product of" Brazil and are not eligible for duty-free treatment under the GSP upon return to the U.S.

2) Based on the information provided, the operations performed in Brazil on the exported power transformers are considered "repairs or alterations" within the meaning of subheading 9802.00.50, HTSUS, and therefore, the returned transformers will be entitled to a partial duty exemption under this provision, upon compliance with the documentation requirements of 19 CFR 10.8.

For your information, the GSP program expired on July 31, 1995, but has been reinstated by Congress effective October 1, 1996, and has been made retroactive to August 1, 1995, for merchandise entered, or withdrawn from warehouse, on or after that date.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.


John Durant,

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