CLA-2 CO:R:C:S 557828 MLR
Mr. Michael Edwards, Sr.
Radix Group International, Inc.
4202 East Elwood Street
Phoenix, AZ 85040
RE: Applicability of HTSUS subheadings 9801.00.10, 9802.00.50
and 9802.00.60 to refined selenium; dissolving; filtering
Dear Mr. Edwards:
This is in reference to your letter of February 16, 1994,
requesting a ruling regarding whether selenium ("Se") is
considered a U.S. product after being refined in the Philippines,
and whether it will qualify under the North American Free Trade
Agreement (NAFTA) for preferential treatment when entering
Mexico. The NAFTA issue will be addressed in a separate letter.
FACTS:
You state that Phelps Dodge mines Se in the U.S.
{classifiable under subheading 2804.90.00, Harmonized Tariff
Schedule of the United States (HTSUS)}. The Se is then sent to
the Philippines where it is refined. The refinery process
involves dissolving the Se in acid and filtering the impurities
out of the product. You indicate that the Se leaves the U.S. at
97 percent purity and returns at 99.9 percent purity. The Se is
then imported back into the U.S. The product will then be sold
to another party who exports the Se into Mexico.
ISSUE:
Whether the refined Se qualifies for free entry under
subheading 9801.00.10, HTSUS, a partial duty exemption under
subheadings 9802.00.50, or 9802.00.60, HTSUS, when returned to
the U.S.
LAW AND ANALYSIS:
Chapter 98, Subchapter II, Note 2(a), HTSUS, provides that
any product of the U.S. which is returned after having been
advanced in value or improved in condition abroad by any process
of manufacture or other means shall be treated as a foreign
article and shall be dutiable unless exempted.
Subheading 9801.00.10, HTSUS, provides for the free entry of
products of the United States that have been exported and
returned without having been advanced in value or improved in
condition by any process of manufacture or other means while
abroad, provided the documentary requirements of section 10.1,
Customs Regulations (19 CFR 10.1), are met. See 59 Fed. Reg.
25563 (May 17, 1994), for recent amendments to 19 CFR 10.1 (copy
enclosed). Some change in the condition of the product while it
is abroad is permissible. However, operations which either
advance the value or improve the condition of the exported
product render it ineligible for duty-free treatment upon return
to the United States. Border Brokerage Company, Inc. v. United
States, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165
(1970). It is clear that refining the Se abroad advances its
value or improves its condition, thereby precluding its entry
into the U.S. for the duty exemption available under this tariff
provision.
Articles returned to the United States after having been
exported to be advanced in value or improved in condition by
repairs or alterations may qualify for the partial duty exemption
under HTSUS subheading 9802.00.50, provided the foreign operation
does not destroy the identity of the exported articles or create
new or commercially different articles through a process of
manufacture. See A.F. Burstrom v. United States, 44 CCPA 27,
C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Accordingly, entitlement to this tariff treatment is precluded
where the exported articles are incomplete for their intended
purpose prior to the foreign processing. Guardian; Dolliff &
Company, Inc. v. United States, 455 F.Supp. 618 (CIT 1978),
aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this
partial duty exemption are dutiable only upon the cost or value
of the foreign repairs or alterations when returned to the United
States, provided the documentary requirements of section 10.8,
Customs Regulations (19 CFR 10.8), are satisfied. See 59 Fed.
Reg. 25563 (May 17, 1994), for recent amendments to 19 CFR 10.8.
In Headquarters Ruling Letter (HRL) 082425 dated December 1,
1988, we considered whether refining U.S.-origin crude oil in
Canada, and returning it to the U.S. in the form of gasoline was
considered an alteration. It was held that the refining of crude
oil was more than a mere alteration, since it involved a process
which turned the crude oil into an entirely new and commercially
different product. Furthermore, the crude oil was incomplete for
its intended use and the processing was held to be a necessary
step in the production of gasoline.
In regard to the Se, the Customs Office of Laboratories and
Scientific Services informs us that there are four grades of Se:
(1) a standard-grade which contains over 99.5 percent of Se, and
which is adequate for chemical and metallurgical use; (2) a
pigment-grade containing over 99.8 percent of Se; (3) an
electronic-grade containing over 99.99 percent of Se; and (4) an
ultrahigh purity grade containing over 99.999 percent of Se. The
impurities present in Se powder greatly influence the final use
of the merchandise. It, therefore, appears that the 99.9 percent
grade of Se returned to the U.S. after being refined in the
Philippines from 97 percent grade Se, has different chemical and
physical properties that are important to the intended use of the
product. Consequently, we find that the imported Se is a new and
commercially different article of commerce which is the result of
processing that exceeds the scope of an alteration, thereby
precluding tariff treatment under subheading 9802.00.50, HTSUS.
Another tariff provision is subheading 9802.00.60, HTSUS,
which 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 subject 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 results from the processing outside
the United States, is returned to the United
States for further processing.
U.S. Note 3(d), Subchapter II, Chapter 98, HTSUS, includes Se as
a metal eligible for subheading 9802.00.60, HTSUS, treatment.
However, this tariff provision imposes a dual "further
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 of the U.S., provided there is
compliance with the documentary requirements of section 10.9,
Customs Regulations (19 CFR 10.9). See 59 Fed. Reg. 25563 (May
17, 1994), for recent amendments to 19 CFR 10.9. Since your
ruling request does not mention any "further processing"
operations to be performed in the U.S. after the refined Se is
returned from the Philippines, it will not be eligible for
subheading 9802.00.60, HTSUS. Consequently, the Se will be
dutiable upon its full value when it is returned to the U.S.
HOLDING:
On the basis of the information provided, it is our opinion
that refining Se in the Philippines is beyond the scope of an
alteration. Therefore, the duty exemption or partial duty
allowances under subheadings 9801.00.10, and 9802.00.50, HTSUS,
are inapplicable. Furthermore, the Se also does not qualify for
subheading 9802.00.60, HTSUS, treatment because the Se is not
further processed in the U.S. Consequently, the refined Se will
be dutiable upon its full value when it is returned to the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division