CON-9-04 RR:CR:DR 230110 LLB

Category: Temporary Importation Bonds

Alston and Bird, LLP
601 Pennsylvania Avenue, N.W.
North Building, 10th Floor
Washington, D.C. 20004
Attn: Kenneth Weigel

Re: Temporary Importation Bond; slitting; 19 U.S.C. § 3333(a)(2); dry lubrication

Dear Mr. Weigel:

This letter is in response to your September 3, 2003, letter requesting a ruling regarding the duty status under the North American Free Trade Agreement (NAFTA) duty status of stainless steel sheet and strip in coil, which is processed in the U.S. under a TIB and subsequently exported to Canada by your client, Mitsui & Co. (USA). Our decision follows.


Mitsui asserts the following. Mitsui proposes to import stainless steel sheet and strip in coil from Japan and enter the merchandise into the U.S. under a temporary importation bond (TIB) pursuant to subheading 9813.00.05, HTSUS. During the bond period, another company will apply waterborne coating or “dry lube” to the coil. Mitsui asserts that dry lube is used to facilitate the stamping process that occurs after the steel is exported. Generally, oil is applied to the sheet just before stamping; however, since oil needs to be cleaned off before the next stage of processing, dry lube is used because it produces the same result as oiling, but does not need to be washed off like oil.

The same company will take the imported master roll and slit it creating narrower master rolls. A maximum of 6% of scrap could be generated in the foregoing process, for which Mitsui asserts it will probably file a consumption entry under subheading 7204.21.00, HTSUS and sell to a scrap dealer. Further, since Mitsui imports the coil in two different thicknesses, it may have a weak color added to the dry lube to distinguish between the gauges of coils.

After application of the dry lube and slitting, Mitsui will “arrange for delivery to Canada to a Canadian customer” who would feed the master rolls into its stamping dies in a continuous sheet. Mitsui asserts that the stamping dies act like cookie cutters, cutting and forming manifold shapes out of the continuous master rolls of sheet steel. Mitsui has provided this office with illustrations of this process. After the stamping and forming, the exhaust manifold halves will be exported from Canada to the United States for assembly and finishing of the exhaust manifold.

Mitsui concludes under the foregoing scenario that the exportation would result in the cancellation of the TIB and that since steel would be in the same condition as imported, under the NAFTA duty deferral rules, Mitsui would have no duty liability, namely for antidumping duties.


1. Whether the stainless steel sheet strip in coil described herein is eligible for duty-free entry under 9813.00.05, HTSUS a. If so, whether the exportation and handling of waste, as described herein, is sufficient to cancel the TIB

2. Whether the slitting and lubrication process described herein leaves the steel in the same condition so as to avoid the payment of duty (including antidumping duties)

Law and Analysis

Issue 1

Pursuant to General Note 1, Harmonized Tariff Schedule of the United States ("HTSUS"), all merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Under subheading 9813.00.05, HTSUS, articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under bond, for exportation within one year from the date of importation. This period may be extended for one or more additional periods, which when added to the initial period does not exceed three years. U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify under this provision, the merchandise imported may not be imported for the purpose of sale or sale on approval.

In HQ 228509(April 9, 2002), Customs held that slitting of stainless steel coil constitutes a process for the purpose of 9813.00.05, HTSUS. Thus, we conclude the slitting process described herein is also a process for purposes of 9813.00.50, HTSUS. With regard to the dry lubrication processing of the steel, we have held that similar processes constituted a process for the purpose of 9813.00.05. See HQ 227432 (April 23, 1997)(adhesive coating to polyester film); HQ 227363 (July 22, 1998)(acrylic coating to fabric). Thus, we conclude the lubrication process described herein is also a process for purposes of 9813.00.50, HTSUS.

a. Cancellation of the TIB

In order to satisfy the requirements for the TIB, the imported article must be timely exported. An "exportation" is defined as ". . . a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country." See 19 C.F.R. § 101.1 and Swan & Finch Company v. United States, 190 U.S. 143 (1903). Thus, in order to have an exportation two elements must be met. There must be a separation from the United States and there must be an intent to unite the good in a foreign country. As stated by the courts, both the element of severance and the element of intent must coincide in order to constitute an act of exportation. Moore Dry Goods Co. v. United States, 11 Ct. Cust. App. 449, T.D. 39531 (1923). In the instant case, there is both a severance of the articles from the U.S. and delivery to a Canadian purchaser, clearly shows an intent to unite the articles with the "mass of things" belonging to a foreign country. The fact that the articles may be imported into the U.S. subsequently, pursuant to a sale, does not mean that the articles were not exported.

With regard to waste, the importer must meet all of the accountability requirements under Note 2(b) which provides that if any processing of such merchandise [entered under a TIB] results in an article manufactured or produced in the United States: (I) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under Customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable waste, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.

Valuable wastes may be accounted for by tender of applicable duty but a by-product must be exported or destroyed. There is no hard and fast rule as to the distinction between a by-product and valuable waste. In general, a number of elements are considered. See C.S.D. 82-109. The following elements have been described as significant for purposes of distinguishing between by-products and valuable waste:

1. The nature of the material of which the residue is composed. 2. The value of the residue compared to the value of the principal product and raw material. 3. the use to which it is put. 4. Its status under the tariff laws, if imported. 5. Whether it is a commodity recognized in commerce. 6. Whether it must be subjected to some process to make it saleable.

Mitsui states in its ruling request that in the slitting process the edges on the beginning and end will be removed. Removing these portions will result in 6 percent of the weight of the coil. Customs has held that waste and scrap created by a slitting operation constitutes waste and would be classifiable under an HTSUS provision. See HQ 224283 (March 17, 1993) and HQ 225368(Feb. 1, 1995). Here, the scrap would be classifiable under 7204.21.00, HTSUS, which is the provision for stainless steel waste and scrap and could be entered duty-free.

Issue 2

Mitsui asserts that the slitting and lubrication process the steel undergoes leaves the steel in the same condition and therefore, it is not a good subject to NAFTA drawback, thus once the TIB is cancelled, it will not be liable for any duties, including antidumping duties.

Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act, Pub. L. 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333, provides for the treatment of goods subject to NAFTA drawback. Section 203(a)(2) of the NAFTA Implementation Act exempts from the general duty drawback (that is, the NAFTA "lesser of" rule) and duty deferral rules of article 303 of NAFTA, merchandise which is exported to another NAFTA party in the same condition as when it was imported. See Article 303.6(b)(permitting full drawback of U.S. duties upon exportation to other countries, including Canada and Mexico); 19 U.S.C. § 3333(a)(2).

Pursuant to § 3333(a), a good subject to NAFTA drawback means any good other than, inter alia--

. . . (2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph— (A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good

19 U.S.C. § 3333(a)(2). The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Subsection(b)(1) of § 181.45, provides, that for purposes of this subpart:

. . . a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good: (i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading.

Mitsui asserts that the imported master roll is slit creating narrower master rolls and is lubricated in a simultaneous process. Mitsui does not address the tariff classification of the imported and exported steel. Based on the dimensions provided by Mitsui, we understand that the imported steel may be classified under subheading 7219.14.00, HTSUS, which provides for “flat-rolled products of stainless steel, of a width of 600 mm or more: Not further worked than cold-rolled in coils: Of a thickness of less than 3 mm” which is dutiable at 1% ad valorem. Based on the dimensions of the exported steel, we understand that the exported steel may be classified under subheading 7220.20.60, which provides for “flat-rolled products of stainless steel, of a width less than 600 mm: Not further worked than cold-rolled in coils. Of a width of 300 mm or more,” which is dutiable at 1% ad valorem. Based on the description of the lubrication process provided by Mitsui, see FACTS section, supra, such process may not constitute a “further working” of the steel so as to change the tariff classification of the steel. See Explanatory Notes, Section XV, Chapter 72, General Note 5 (C).

Customs has held that it is possible for a process such as slitting to considered “processing” for TIB purposes and, at the same time, be considered in the “same condition” for drawback purposes under 19 U.S.C. § 3333(a)(2). See HQ 228509 (April 9, 2002), holding that imported cold-rolled stainless steel sheets imported in 589 millimeter width coils that was slit into 30 and 58 millimeter wide strips would leave the steel in the same condition); HQ 225368 (Feb. 1, 1995); HQ 957424 (May 12, 1995). However, these cases do not address whether a merchandise, that is processed, and which results in a change in tariff classification, may be considered in the “same condition” under 19 U.S.C. § 3333(a)(2).

In O.A. Both Corporation v. United States, 62 Cust. Ct. 443; Cust. Dec. 3932 (1969), the Customs court determined whether copper and aluminum articles pounded by steel balls into flakes, classified under heading 612.55, TSUS, could be classified as metallic flitters under 644.98, TSUS. The court found that flakes are made in a ball mill from a spherical shape,are 2 ½ to 3 times more dense than flitters, and are regular in shape. Flitters are made from sheet metal that is sheared, then hammer-milled and are irregular in shape. Because flitters are less dense then flakes, they float in liquid, whereas, flakes disperse in liquid. The court held that “[w]hen Congress provided eo nomine in the tariff schedules separately for flakes and flitters, there were intended two classifications for two different articles of commerce.”

Here, although the imported and the exported steel are classified under two different headings, OA Both is distinguishable from the current case. The imported steel in the present case is in a master roll when the processing starts and remains in a master roll when processing ends, albeit significantly narrower. Thus, the exported product is the same as the exported product, just smaller. Further, although the tariff classification changed after the processing, from heading 7219, HTSUS to 7220, HTSUS, such change did not constitute a tariff shift under NAFTA. See HTSUS, GN 12(t), 72.9. Therefore, the imported steel is in the same condition as the exported steel.

However, notwithstanding our foregoing conclusion, 19 U.S.C. § 3333(e) provides:

Nothing in this section or the amendments made by it shall be considered to authorize the refund, waiver, or reduction of countervailing or antidumping duties imposed on an imported good.

Section 3333(e) appears to override the exemptions provided by 19 U.S.C. § 3333(a)(1)-(8) with respect to dumping and unlawful subsidies, which are within the purview of the Department of Commerce. We have asked the Department of Commerce for its position on that statute. When we receive a statement of that position, we will so inform you.


1. The slitting and lubrication of the imported steel sheets in coil is a permissible operation under subheading 9813.00.05, HTSUS.

2. The slitting and the lubrication of the imported steel, absent other processes, leaves the steel in the same condition.


Myles Harmon, Director
Commercial Rulings Division