CLA-2 CO:R:C:S 557528 BLS
Mr. Matthew Chang
Assistant Vice President
Itochu International Inc.
335 Madison Avenue
New York, New York 10017
RE: Applicability of partial duty exemption under subheadings
9802.00.60 and 9802.00.80, HTSUS, to pellets composed of
certain metals and polypropylene sulfite
Dear Mr. Chang:
This is in reference to your letter dated June 16, 1993,
requesting a ruling that pellets composed of certain metals and
polypropylene sulfite will be eligible upon importation for the
partial duty exemption under subheading 9802.00.80, Harmonized
Tariff Schedule of the United States (HTSUS). You also request our
opinion regarding the proper classification of the imported
product.
FACTS:
The product to be exported from the U.S. is an isotropic
powder composed of iron, neodymium, boron, and cobalt. In the
U.S., the material is melted down and subjected to a "super quench"
treatment where a rotor revolving at high speed produces a ribbon-
like material. The ribbon is pulverized and annealed prior to
export from the U.S.
In Japan, Daido Steel Ltd. mixes the powder with polypropylene
sulfite (35%) and heats the mixture to form pellets. The pellets
are then shipped to the U.S. After importation, the pellets are
injection molded and subject to a process of magnetization. The
resulting magnets have various applications.
ISSUES:
1) Whether the imported pellets will be eligible for the
partial duty exemption under subheading 9802.00.80, HTSUS, or under
any other reduced duty tariff provision upon return to the U.S.
2) Whether the isotropic powder, in pellet form at the time
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of importation into the U.S., is classifiable under subheading
7202.99.50, HTSUS, as an other ferroalloy, under subheading
8505.11.00, HTSUS, as articles intended to become permanent magnets
after magnetization, of metal, or under subheading 7326.90.90,
HTSUS, as other articles of iron or steel.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process such
as cleaning, lubrication, and painting...
All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty upon
the full value of the imported assembled article, less the cost or
value of such U.S. components, upon compliance with the documentary
requirements of section 10.24, Customs Regulations (19 CFR 10.24).
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides in pertinent part that the mixing or combining of liquids,
gases, chemicals, food ingredients, and amorphous solids with each
other or with solid components is not regarded as an assembly. The
mixing of the isotropic powder, an amorphous solid, with
polypropylene sulfite, a chemical, is therefore not considered an
assembly operation for purposes of subheading 9802.00.80, HTSUS.
(See also Headquarters Ruling Letter (HRL) 555844, dated April 7,
1991, mixing of phosphoric acid and sodium hydroxide to form
crystalline glucose not acceptable assembly operation.)
Subheading 9802.00.60, HTSUS, provides a partial duty
exemption for:
[a]ny article of metal (as defined in U.S. note 3(d) of this
subchapter) manufactured in the United States or subjected to
a process of manufacture in the United States, if exported
for further processing, and if the exported article as
processed outside the United States, or the article which
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results from the processing outside the United States, is
returned to the United States for further processing.
This tariff provision imposes a "dual processing" requirement
on eligible articles of metal--one foreign, and when returned, one
domestic. Metal articles satisfying these statutory requirements
may be classified under this tariff provision with duty only on the
value of such processing performed outside the U.S., provided there
is compliance with the documentary requirements of section 10.9,
Customs Regulations (19 CFR 10.9). The value of such foreign
processing includes the cost or value of all domestic and foreign
articles used in these operations, excluding the exported U.S.
metal article. (19 CFR 10.9(j)).
Eligible articles of metal are defined in U.S. note 3(d),
subchapter II, Chapter 98, HTSUS ("Note 3(d)"), which provides
that:
[f]or purposes of subheading 9802.00.60, the term "metal"
covers (1) the base metals enumerated in additional U.S.
note 1 to section XV; (2) arsenic, barium, boron, calcium,
mercury, selenium, silicon, strontium, tellurium, thorium,
uranium, and the rare-earth elements; and (3) alloys of any
of the foregoing. (Emphasis added.)
Iron and cobalt are among the base metals enumerated in
additional U.S. note 1 to section XV. Neodymium is a rare-earth
metallic element. (See Webster's II New Riverside Universal
Dictionary, 1988 Ed.)
Therefore, the exported isotropic powder qualifies as an
"eligible article of metal" for purposes of U.S. Note 3(d). The
issue which we must now address is whether the "dual processing"
requirement under the statute is satisfied.
In C.S.D. 84-49, 18 Cust. Bull. 957 (1983) we stated that:
[f]or purposes of item 806.30 TSUS, the term 'further
processing' has reference to processing that changes
the shape of the metal or imparts new and different
characteristics which become an integral part of the metal
itself and which did not exist in the metal before
processing; thus, further processing includes machining,
grinding, drilling, threading, punching, forming, plating,
and the like, but does not include painting or the mere
assembly of finished parts by bolting, welding, etc.
We find that the operations performed in Japan, wherein the
isotropic powder is mixed with polypropylene sulfite, and heated
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form pellets, satisfies the foreign 'further processing'
requirement. The shape of the metal is changed by these
operations, and the addition of the sulfite (35% composition)
imparts new and different properties which become an integral part
of the resulting product.
In connection with the operations performed upon return to the
U.S., the thermal injection molding process clearly changes the
shape of the product. In HRL 556080, dated August 27, 1991, we
found that the 'further processing' requirement was satisfied upon
the application of a magnetic coating which imparted new and
different characteristics to aluminum discs which became an
integral part of the metal. Similarly, in this case, the
magnetization of the returned products after the injection molding
process imparts new and different characteristics to the returned
pellets. As a result, we find that the domestic element of the
'dual further processing' requirement is also satisfied by the
operations performed in the U.S. upon return of the article from
Japan.
Accordingly, upon importation, the isotropic pellets will be
eligible for the partial duty exemption under subheading
9802.00.60, HTSUS. Duty will be assessed only on the cost or value
of the foreign processing, which will include the cost or value of
the polypropylene sulfite.
Classification
Classification of merchandise under the HTSUS is in accordance
with the General Rules of Interpretation (GRI's), taken in order.
GRI 1 provides that classification is determined according to the
terms of the headings and any relative section or chapter notes.
In part, chapter 72, note 1(c), HTSUS, states that:
[i]n this chapter and, in the case of notes (d), (e) and (f)
below throughout the tariff schedule, the following
expressions have the meanings assigned to them:
(c) Ferroalloys
Alloys in pigs, blocks, lumps, or similar primary forms,
in forms obtained by continuous casting and also in
granular or powder forms, whether or not agglomerated,
commonly used as an additive in the manufacture of other
alloys or as deoxidants, desulphurizing agents or for
similar uses in ferrous metallurgy and generally not
usefully malleable...
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The isotopic pellets are not described as ferroalloys, because
the presence of the polypropylene binder precludes the pellets from
being used as an additive material in ferrous metallurgy. Also,
the presence of the polypropylene binder makes the pellets usefully
malleable. Therefore, the isotropic pellets are not classifiable
under subheading 7202.99.50, HTSUS.
In understanding the language of the HTSUS, the Harmonized
Commodity Description and Coding System Explanatory Notes may be
utilized. The Explanatory Notes, although not dispositive, are to
be used to determine the proper interpretation of the HTSUS. 54
Fed. Reg. 35128 (August 23, 1989). In part, Explanatory Note 85.05
(p. 1340) states that:
(2) Permanent magnets and articles intended to become
permanent magnets after magnetization.
. . . Articles intended to become permanent magnets
after magnetization are recognisable as such by their
shape and composition, generally being cubes or discs
(tags) of metal or of agglomerated ferrite (e.g.,
barium ferrite). . .
The heading does not cover:
(a) Magnetic ferrite with a binder, in the form of powder
or pellets (heading 38.23).
The isotropic pellets, in their condition as imported, are not
described as articles intended to become magnets because the
pellets are not recognizable as such by their shape. After
importation into the U.S., the pellets must undergo an injection
molding process which will give them their final shape.
Therefore, we find that the isotropic pellets are not classifiable
under subheading 8505.11.00, HTSUS.
Heading 3823, HTSUS, provides for: "[p]repared binders for
foundry molds or cores; chemical products and preparations of the
chemical or allied industries (including those consisting of
mixtures of natural products), not elsewhere specified or included
in the above exclusion in Explanatory Note 85.05 and they are not
classifiable under heading 3823, HTSUS.
The istropic pellets are not described as ferrites, nor, in
their condition as imported, are they magnetic. Therefore, they
are not included in the above exclusion in Explanatory Note 85.05
and they are not classifiable under heading 3823, HTSUS.
As the isotropic pellets are not specifically described
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elsewhere in the HTSUS, they are classifiable under subheading
7326.90.90, HTSUS.
HOLDING:
1) The imported isotropic pellets will not be eligible for the
partial duty exemption under subheading 9802.00.80, HTSUS, upon
return to the U.S.
2) On the basis of the information submitted, it is our
opinion that the processing performed abroad and in the United
States constitutes 'further processing' as that term is used under
subheading 9802.00.60, HTSUS. Therefore, the imported product will
be entitled to the partial duty exemption under that provision,
upon compliance with the documentary requirements of 19 CFR 10.9.
Duty will be assessed only on the processing performed abroad,
which will include the cost or value of the polypropylene sulfite.
3) The isotropic pellets are properly classifiable under
subheading 7326.90.90, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: Chief, NIS Division, Branch 3
New York Seaport