CON-9-04
OT:RR:CTF:ER
H289067 TP
Jared R. Wessel, Esq.
Hogan Lovells US L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Re: Request for a Ruling on the Importation of Silicon Metal under a Temporary Importation Under Bond.
Dear Mr. Wessel:
This is in response to your request dated August 7, 2017, on behalf of Wacker Polysilicon North America LLC, (“Wacker” or the “Company”) on whether silicon metal used in the production of hyperpure polysilicon may be imported under a temporary importation under bond (TIB) under subheading 9813.00.05, Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
Wacker intends to import silicon metal under subheading 9813.00.05, HTSUS, to be used in the production of hyperpure polysilicon. Hyperpure silicon is used primarily in the production of solar products, including solar cells. The production process begins with the transfer of the silicon metal from inventory into either the grinder or a silo. All silicon metal received in bulk form must be ground before it is introduced into a silo. Once the silicon metal is in ground form, it is transferred directly into a silo. As the silicon metal is fed into the silo or the grinder, it is recorded in Wacker’s SAP inventory system under a single material number because the ground silicon metal is fungible and physically mixed in the silo. Silicon metal is then combined with hydrogen chloride gas inside a reactor to form trichlorosilane (TCS) which is used to remove impurities. The purified liquid is then heated at 1,000 degrees Celsius in a reactor to undergo the “Siemens process.” You state that during the Siemens process, silicon atoms are deposited on silicon rods inside a reactor chamber which produces hyperpure polysilicon. These rods are then crushed, packaged and shipped to customers. The production of hyperpure form silicon metal will result in valuable waste (i.e., wet silicon) and waste (i.e., silicates), as well as a small amount of irrecoverable losses.
Wacker combines the domestically-sourced silicon metal and foreign-sourced silicon metal in the production of hyperpure polysilicon for both domestic use and export. Upon receipt of the foreign-sourced silicon metal, Wacker will document the silicon metal supplier, receipt date, lot number, weight and country of origin. Wacker states that it cannot directly identify domestically-sourced and foreign-sourced silicon metal entered under a TIB once it enters Wacker’s grinding facility and storage silos. Therefore, since the silicon metal is fungible after physically being mixed in the silo, the silicon metal will be accounted for using the first-in, first-out (“FIFO”) method. Under the FIFO accounting methodology, the first fungible commingled silicon metal deposited into the silos, or the grinder, is treated as being the oldest silicon metal used in the production process. Wacker contends that each deposit of the fungible commingled metal, whether deposited into the silos or into the grinder, as applicable, is considered a unit based on its date of deposit. Wacker contends that it will ensure that the proper (i.e., oldest) deposited unit is decremented and declared to CBP as appropriate to account for shipments (both domestic and export) and destructions.
ISSUES:
Whether Wacker’s proposed commingling and hyperpure polysilicon production process qualifies for entry under subheading 9813.00.05, HTSUS?
Whether Wacker can use the “First-In First-Out” inventory method to properly close out Wacker’s TIB for goods entered under subheading 9813.00.05, HTSUS?
Whether wet silicon can be entered and sold in the United States as a valuable waste, and whether other waste can be disposed of pursuant to U.S. Note 2(b) of the Subchapter XIII, Chapter 98, HTSUS?
LAW & ANALYSIS:
Whether Wacker’s proposed commingling and hyperpure polysilicon production process qualifies for entry under subheading 9813.00.05, HTSUS?
General Note 1, HTSUS, dictates that all merchandise imported into the United States, unless specifically exempted, is subject to duty. Pursuant to U.S. Note 1(a) of Subchapter XIII of Chapter 98, HTSUS, which contains subheading 9813.00.05, articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States may enter into the United States temporarily free of duty under a TIB for exportation within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 C.F.R. § 10.37. Additionally, the imported merchandise may not be imported for the purpose of a sale or sale on approval.
Merchandise may be entered under subheading 9813.00.05, HTSUS, only if it is to be “repaired, altered or processed.” CBP has previously defined the word “process” as:
process ... to subject to a particular method, system, or technique of preparation, handling, or other treatment designed to effect a particular result: put through a special process: (1) to prepare for market, manufacture, or other commercial use by subjecting to some process ... (2) to make usable by special treatment .…
See Headquarters Ruling (“HQ”) 229970 (Aug. 11, 2003) (relying upon the definition in Webster’s Third New International Dictionary (unabridged, 1966)). Furthermore, in HQ 224661, dated January 11, 1994, we stated that under subheading 9813.00.05, HTSUS, “[t]he processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” Accordingly, we must examine whether the : 1) the grinding and commingling of silicon metal; and 2) the hyperpure polysilicon production process, including the “Seimens process,” qualifies as a “process” for purposes of 9813.00.05, HTSUS.
CBP has found that transforming indigo powder into indigo paste constitutes a process for TIB purposes when the powder is diluted and ground in order to be useable to manufacture denim. In HQ 228961, dated January 23, 2002, CBP found milling of indigo powder and suspending it in water to form a paste constituted a “process.” In this case, water, a dispersing agent and an antimicrobial agent were added to the indigo powder that formed a paste which was passed through a sand mill to reduce the particle size. Here, CBP determined that the method by which indigo powder becomes paste and ultimately used to manufacture denim constituted a process. Similarly, in HQ H198355, dated March 7, 2013, CBP found that milling a product to make it usable as a pharmaceutical constituted a “process.” In HQ 230942, dated June 6, 2005, CBP held that slow churning liquid ice cream constituted a “process” because the product was incomplete for its intended use, retail sale, until the slow churning made it complete as ice cream.
Here, Wacker’s operations of grinding and commingling the silicon metal is a process that prepares the silicon metal to form TCS which ultimately produces hyperpure polysilicon. Wacker states that bulk silicon metal must be ground before it is commingled with additional silicon metal in the silo. Similar to HQ 228961, the grinding and mixing operations in the present case prepare the silicon metal for its ultimate use as hyperpure polysilicon. In Wacker’s operations, if the silicon metal is not ground before it is mixed with additional silicon metal, then the end product of hyperpure polysilicon could not be produced or fit for its intended use in the production of solar products.
Additionally, CBP has previously found that a process occurs when combining materials or subjecting material to heat results in a character change that makes the product fit for its end use. In HQ 229962, dated August 1, 2003, CBP also found that blending and grading of wheat is a process for TIB purposes because the “result is a change in the character and use of the wheat.” Here, wheat from Canada is blended with domestically produced wheat to produce an end product with a higher protein level which may be sold for a higher price than unblended wheat. We held that the “character is changed in the grade, protein level, moisture content or falling number, and the use is changed to meet certain customer specifications.” Id. In this case, the blending operations that the wheat underwent was process because it was done for a specific character change to meet client requirements. In HQ H276968, dated January 23, 2017, CBP determined that blending individual gases constitutes a process within the meaning of subheading 9813.00.05, HTSUS because the character of the gases are changed during the blending process and this process makes the gases fit to conform to industry standards for its end use. Moreover, in HQ 229940, dated May 6, 2003, CBP concluded that subjecting beryllium copper strips in coil to a cold roll treatment to reduce the thickness and increase the length of the copper strip and then annealing the strip by subjecting it to heat in a furnace are considered processes. The copper strips were subjected to these processes to produce a thinner and narrower beryllium copper strip or foil.
Based on the above authorities, Wacker’s operations used to transform silicon metal into hyperpure polysilicon is a process that would satisfy the requirements for a process under subheading 9813.00.05, HTSUS. As stated above, blending materials to produce an end product that is fit for its intended use is considered a process. Similar to HQ 229962, where domestically produced wheat was blended with foreign produced wheat to create a wheat blend with a higher protein level, Wacker’s operations involve combining foreign and domestically produced ground silicon metal with hydrogen chloride inside a reactor to form TCS. TCS is then distilled and the resulting purified liquid undergoes the “Siemens process”, which is an operation that prepares the silicon metal to transform into hyperpure polysilicon by depositing silicon atoms on rods to produce hyperpure polysilicon. The end product of hyperpure polysilicon, which is used commercially in the production of solar products, is achieved by subjecting ground silicon to blending, distillation, and heating and therefore this operation is considered a process under subheading 9813.00.05, HTSUS.
Whether Wacker can use the “First-In First-Out” inventory method to properly close out Wacker’s TIB for goods entered under subheading 9813.00.05, HTSUS?
The foreign silicon metal will be commingled with domestic silicon metal. The end product, hyperpure polysilicon, is a fungible good, and it is impossible to segregate the domestic and imported components. Therefore, you request that Customs cancel the TIB on a FIFO basis when the resultant hyperpure polysilicon is exported, provided that Wacker has on hand at all times, a sufficient quantity of the merchandise to cancel all outstanding TIBs.
In general, TIB provisions require the direct identification at exportation of each article imported under a TIB to show timely exportation of that article. When direct identification of the imported article is impossible because the imported articles are indistinguishable from and commingled with other merchandise, the FIFO method of identification as described in 19 C.F.R. § 191.14(c)(1) has been permitted. Pursuant to 19 C.F.R. § 191.14(c)(1), the FIFO method is “the method by which fungible merchandise or articles are identified by recordkeeping on the basis of the first merchandise or articles received into the inventory. Under this method, withdrawals are from the oldest (first-in) merchandise or articles in the inventory at the time of withdrawal.” For example, in HQ 218370, dated December 9, 1985, TIBs were permitted to be cancelled on a FIFO basis when fungible merchandise entered for consumption and merchandise entered under a TIB, under item 864.05, TSUS (presently subheading 9813.00.05, HTSUS), were commingled, provided that sufficient merchandise was maintained in the commingled merchandise to cancel all outstanding TIBs.
Here, Wacker will use the FIFO accounting methodology to close out the TIB entries. Under the FIFO accounting methodology, Wacker states that the first fungible commingled silicon metal deposited into the silos, or in the case of un-ground metal, when deposited into the grinder, is treated as being the oldest silicon metal used in the production process. Wacker states that each deposit of the fungible commingled metal will be properly decremented and declared to CBP to account for exports and destructions. Wacker also states that it will account for the finished goods, wastes, and irrecoverable processing losses consistent with its SAP inventory and accounting records and previous Customs rulings. Wacker also states that it will do so by calculating the weight of the silicon metal from the weight of the hyperpure polysilicon and wet silicon, and provides that the remainder is non-valuable waste and irrecoverable process loss.
Therefore, to the extent that the foreign sourced silicon metal imported under a TIB is fungible with the domestic sourced silicon metal with which it will be commingled, and 100 percent of the resultant hyperpure polysilicon is exported (or destroyed) within the one year statutory period, the FIFO inventory accounting method, as illustrated in Schedule X to the 19 C.F.R. Part 181 Appendix, may be used to identify the merchandise from a particular importation that was commingled with other merchandise upon receipt into the production process.
Whether wet silicon can be entered and sold in the United States as a valuable waste, and whether other waste can be disposed of pursuant to U.S. Note 2(b) of the Subchapter XIII, Chapter 98, HTSUS?
U.S. Note 2(b) of Subchapter XIII, Chapter 98, HTSUS, requires that when the processing of merchandise admitted into the United States under subheading 9813.00.05, HTSUS, results in an article manufactured or produced in the United States:
A complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and
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 wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.
In this case, the hyperpure polysilicon is an article manufactured or produced in the United States because once production is complete, the hyperpure polysilicon is a new and different article from the imported silicon metal. See U.S. Note 2(b), Subchapter XIII, Chapter 98, HTSUS. Accordingly, it is permissible to enter valuable waste if a complete accounting is provided to CBP and the applicable duties are tendered. See e.g., HQ 230286 (April 12, 2004).
In this case, the production process will result in a valuable waste. As discussed above, a certain percentage of the silicon metal used in the production of hyperpure polysilicon becomes wet silicon. Wet silicon is a valuable waste which cannot be used in Wacker’s production process. Wacker will either enter the wet silicon into the United States and pay applicable duties, or destroy the material. Pursuant to U.S. Note 2(b) of Subchapter XIII, Chapter 98, HTSUS, Wacker may enter this valuable waste into the United States provided that it tenders any applicable duties.
Additionally, the production process will result in valueless wastes and irrecoverable losses. Wacker states that a certain percentage of the silicon metal forms into silicates during the conversion process to produce TCS. These silicates are a valueless waste product that will either be disposed of in accordance with environmental permits, or lost through the production process as a de minimis amount of floor sweepings. Furthermore, Wacker provides that it can neither reuse the floor sweepings in its process, nor will sell those sweepings due to contamination. Per U.S. Note 2(b) of Subchapter XIII, Chapter 98, HTSUS, Wacker may dispose of these silicates pursuant to all applicable regulations, provided that Wacker gives a complete accounting to CBP of all wastes, including irrecoverable loss resulting from its process.
HOLDING:
Based on the above, the production process to create hyperpure polysilicon qualifies as a “process” for purposes of 9813.00.05, HTSUS. Therefore, entry under TIB under subheading 9813.00.05 is permissible. Wacker may use the FIFO accounting method to account for silicon metal imported under TIBs and hyperpure polysilicon exported for purpose of closing the TIBs. Furthermore, Wacker must comply with the accounting requirements in U.S. Note 2(b) to Subchapter XIII of Chapter 98, HTSUS, which requires the complete accounting of all silicon metal entered into the United States under TIB, including all waste and irrecoverable losses.
Please note that 19 C.F.R. § 177.9(b) provides that, “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Gail G. Kan, Branch Chief
Entry Process & Duty Refunds Branch