HQ 555078: 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).

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                                      HQ 555078

                                   March 27, 1989



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

          CATEGORY:  Classification

          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.

          FACTS:

                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.


















                                         -2-


                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.

          ISSUE:

                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).

          LAW AND ANALYSIS:

                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















                                         -3-



          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.

















                                         -4-



                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.  














                                         -5-



                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.

          HOLDING:

                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.

                                     Sincerely,





                                     John Durant
                                     Director, Commercial
                                     Rulings Division