CLA-2 CO:R:C:S 556566 SER
John M. Peterson, Esq.
Neville, Peterson & Williams
29 Broadway
New York, NY 10006
RE: CBERA; direct costs of processing, hazardous waste treatment
and removal
Dear Mr. Peterson:
This is in reference to your letter of March 6, 1992, on
behalf of Uniroyal Chemical Company, Inc. ("Uniroyal"),
concerning whether certain costs used in the production of
certain chemicals may be included in the 35% requirement of the
Caribbean Basin Economic Recovery Act (CBERA)(19 USC 2701-2706).
FACTS:
Uniroyal Chemical Company, Inc. ("Uniroyal"), intends to
manufacture various chemical products in the Bahamas, using raw
materials from the U.S., the Bahamas, and non CBERA-beneficiary
countries. Uniroyal will ship the various raw materials of U.S.
and foreign origin to the Bahamas, where they will be reacted
together to form an intermediate chemical called BMCE. The BMCE
will then undergo further reaction with other raw materials,
crystallized, centrifuged and dried, to form three different High
Performance Anti-Oxidants (HPAOs), which will then be imported
into the U.S.
In the manufacture of the chemicals in the Bahamas,
identifiable "streams" of waste material will be produced. These
waste "streams" are essentially hazardous waste materials which
must be disposed of in accordance with all applicable
environmental regulations and requirements. In accordance with
requirements mandated by the Bahamian government, Uniroyal will
treat and purify each "stream", removing useful water therefrom
for recycling at the Bahamas plant, and reducing the hazardous
waste material to the smallest amount.
In some cases, the waste will be packed into secured
containers. Other waste will be incinerated, mixed with ash from
a neighboring facility and packed for shipment. This waste
processing will take place at the Uniroyal facility in the
Bahamas, and the costs thereof will be counted on Uniroyal's
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accounts as a manufacturing cost. After the liquid and ash
wastes have been treated and containerized, Uniroyal will
contract with a private company which specializes in disposal of
chemical wastes, to dispose of this particular waste.
ISSUE:
Whether the costs for hazardous waste water treatment and
waste disposal can be included in the "direct costs of
processing" for purposes of the 35% requirement under the CBERA.
LAW AND ANALYSIS:
Under the CBERA, eligible articles the growth, product, or
manufacture of designated beneficiary countries (BC's), may enter
the U.S. free of duty if such articles are imported directly to
the U.S. from the BC, and if the sum of 1) the cost or value of
the materials produced in a BC or BC's, plus 2) the direct cost
of processing operations performed in a BC or BC's, is not less
than 35% of the appraised value of the article at the time it is
entered into the U.S. See 19 U.S.C. 2703(a). The cost or value
of materials produced in the U.S. may be applied toward the 35%
value-content minimum in an amount not to exceed 15% of the
imported article's appraised value. See, section 10.195(c),
Customs Regulations (19 CFR 10.195(c)).
Customs has already determined that the final chemical
products (HPAOs) are "products of" the Bahamas and that the raw
materials undergo a "double substantial transformation". See,
Headquarters Ruling Letter (HRL) 555989 dated June 24, 1991. The
issue in this case is whether the costs incurred in the
hazardous waste water treatment and waste disposal, may be
considered part of the "direct costs of processing" for purposes
of the 35% value-content requirement.
Direct costs of processing operations are those costs which
are either directly incurred in, or which can be reasonably
allocated to, the growth, production, or manufacture, or assembly
of the specific merchandise under consideration. Section
10.197(a), Customs Regulations (19 CFR 10.197(a)). Those items
which are not included in the meaning of the words "direct costs
of processing operations" are those which are not directly
attributable to the merchandise under consideration or are not
"costs" of manufacturing the product. Primarily, these costs are
profit and those costs which can be considered a "general
expense of doing business". Section 10.197(b), Customs
Regulations (19 CFR 10.197(b)).
Expenses for general trash removal would be considered a
general business expense, and, therefore, may not be included as
"direct costs of processing". However, it is Customs position
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that the costs entailed for the hazardous waste treatment and
waste removal are specifically and directly related to the
processing of the chemicals in the Bahamas. Therefore, these
costs which are properly allocated and identified with the
production of the chemicals may be included as direct costs of
processing for purposes of the CBERA.
HOLDING:
Those costs for the hazardous waste water treatment and
waste removal, which are identifiable and properly allocated to
the production of the HPAOs, may be included as direct costs of
processing for purposes of the 35% value-content rule of the
CBERA.
Sincerely,
John Durant, Director
Commercial Rulings Division