CLA-2 CO:R:C:M 952994 DWS

Mr. Frank J. Desiderio
Grunfeld, Desiderio, Lebowitz & Silverman
12 East 49th Street
New York, NY 10017

RE: Defective Telephone Equipment; Waste and Scrap; GRI 3(b); Explanatory Note 3(b)(VIII); Section XV, Note 6(a); General Explanatory Note (IV)(C)(2)(d)(iv) to Chapter 72; General Explanatory Note to Chapter 74; U.S. v. Baker Perkins, Inc. et al.; Roser Customs Service a/c Continental Ore Corporation et al. v. U.S.; Condition As Imported; 3915.90.00

Dear Mr. Desiderio:

This is in response to your letters of July 20, 1992, and of October 15, 1992, on behalf of American Telephone & Telegraph Company (AT&T), to the Area Director of Customs, New York Seaport, concerning the classification of defective telephone equipment under the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The merchandise consists of defective telephone equipment. When the telephones which AT&T produces are not in working order, AT&T sends them to one of several repair facilities in Mexico. Telephone equipment deemed irreparable is exported from Mexico to the U.S. as waste and scrap to be reclaimed for the equipment's plastic and metal content. The metal consists in weight predominately of either copper or carbon steel. Also, some of the metal is plated with gold.

At importation, the equipment is entered either grouped together in large containers or separated into individual boxes. A sample of various pieces of used equipment purported to be representative of the imported equipment was submitted. At a reclamation center in the U.S., the defective equipment is sent down one of two lines. On one line, the equipment is run through a hammer mill. On the other line, the equipment is run through a ring mill, which uses teeth-like rings to chew-up the equipment. The various categories of scrap materials are then grouped according to type and sold to various recyclers.

ISSUE:

Whether the defective telephone equipment is classifiable as waste and scrap under the HTSUS?

LAW ANALYSIS:

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.

It is claimed that the telephone equipment is plastic waste and scrap classifiable under subheading 3915.90.00, HTSUS, which provides for: "[w]aste, parings and scrap, of plastics: [o]f other plastics." We disagree with this classification.

The defective equipment, containing metal and plastic parts, constitutes composite goods under the HTSUS. GRI 3(b) states that:

[m]ixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

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. 35127, 35128 (August 23, 1989). Explanatory Note 3(b)(VIII) (p. 4) states that:

[t]he factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.

Although it is our understanding that the plastic parts together weigh more than the metal parts, it is also our understanding that the metal parts are higher in value than the plastic parts. Therefore, based on the higher value and the role of the metal parts in the imported merchandise, it is our position that those parts impart the essential character of the defective equipment.

Section XV, note 6(a), HTSUS, defines "waste and scrap" as:

[m]etal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons.

As the subject equipment is defective and to our understanding irreparable, it is our position that it satisfies the definition of "waste and scrap" under section XV, note 6(a), HTSUS. Once the equipment has been deemed irreparable, its only use is for reclamation purposes.

The remaining question is whether the gold plating of some of the metal parts affects the classification of the equipment. General Explanatory Note (IV)(C)(2)(d)(iv) to chapter 72 (p.981) states that:

[s]urface treatments or other operations, including cladding, to improve the properties or appearance of the metal, protect it against rusting and corrosion, etc. Except as otherwise provided in the text of certain headings, such treatments do not affect the heading in which the goods are classified. They include:

(a)-(c) xxx

(d) Surface finishing treatment, including:

(i)-(iii) xxx

(iv) coating with metal (metallisation) the main processes being:

- electroplating (cathodic deposition of a coating material on the product to be coated, by electrolysis of a suitable solution of metallic salts), e.g., . . . gold . . .

In part, the General Explanatory Note to chapter 74 (p. 1042) states that:

[t]he products and articles of copper are frequently subjected to various treatments to improve the properties or appearance of the metal, etc. These treatments are generally those referred to in the General Explanatory Notes to Chapter 72, and do not affect the classification of the goods.

Therefore, the General Explanatory Note to chapter 74 incorporates General Explanatory Note (IV)(C)(2)(d)(iv) mutatis mutandis.

As the gold plating does not affect the classification of the defective telephone equipment, it is our position that the equipment in which copper predominates by weight over the other base metals is classifiable under subheading 7404.00.00, HTSUS, which provides for: "[c]opper waste and scrap". The equipment in which carbon steel predominates by weight over the other base metals is classifiable under subheading 7204.49.00, HTSUS, which provides for: "[f]errous waste and scrap; remelting ingots of iron or steel: [o]ther waste and scrap: [o]ther."

It has been suggested that for the defective equipment to qualify as waste and scrap, it must be mutilated so that reuse is not possible. This is an incorrect position.

It is well settled that, in the absence of deception, disguise, or artifice resorted to for the purpose of perpetrating a fraud upon the revenue, imported merchandise must be classified with reference to its condition as imported. U.S. v. Baker Perkins, Inc. et al., 46 CCPA 128, 131, C.A.D. 714 (1959). "Condition as imported" refers to the condition of the goods when they are brought within the jurisdiction of the United States with intent to unlade. Roser Customs Service a/c Continental Ore Corporation et al. v. U.S., 64 Cust. Ct. 20, C.D. 3953 (1970).

We are satisfied that the merchandise is waste and scrap from the information you have submitted, that the importations consist of used equipment either grouped together in containers or separated into individual boxes, the fact that the used equipment will be sent through hammer and ring mills, the fact that the broken up equipment will be sold to recyclers, and from an examination of the submitted sample. It is our position that mutilation prior to importation would be an unwarranted requirement.

On the other hand, we recognize that the question as to whether damaged or worn-out articles are waste and scrap involves variable facts which can only be determined by inspection at the time of importation. We do not deem it unwarranted if the District Director, in carrying out his inspection responsibilities, requires, in his discretion, written documentation regarding the ultimate disposition of the merchandise.

HOLDING:

The defective telephone equipment in which copper predominates by weight over the other base metals is classifiable under subheading 7404.00.00, HTSUS, which provides for: "[c]opper waste and scrap". The defective telephone equipment in which carbon steel predominates by weight over the other base metals is classifiable under subheading 7204.49.00, HTSUS, which provides for: "[f]errous waste and scrap; remelting ingots of iron or steel: [o]ther waste and scrap: [o]ther." Goods classifiable under these provisions receive duty free treatment.

Sincerely,

John Durant, Director