OT:RR:CTF:VS H317502 CMR
Kevin Lin
Ultimate Brokerage
432 Rt. 34, Suite 2A
Matawan, NJ 07747
RE: Applicability of subheading 9802.00.60 and country of origin of alloy steel coils imported from Germany
Dear Mr. Lin:
This is in response to your request of February 8, 2020, on behalf of your client, Waelzholz North America LLC, for a ruling on whether alloy steel coils, processed as described below, are eligible for a partial duty exemption under subheading 9802.00.60, Harmonized Tariff Schedules of the United States (HTSUS); are subject to section 232 duties only on the value of the processing performed abroad; and are subject to anti-dumping duties under Case Number A-428-843. Your request was forwarded to this office for response.
FACTS:
The products under consideration are alloy steel coils measuring from 660 mm to 1270 mm in width and .2 mm to 1.0 mm in thickness. You indicate that these coils are made to ASTM A677, which is the Standard Specification for Nonoriented Electrical Steel Fully Processed Types.
According to your submission, U.S.-made full-hard electrical steel coils, classifiable under HTSUS 7225.19.00, HTSUS, are sent to a company in Germany where the steel coils are first annealed (heated to approximately 850° Celsius) to achieve certain mechanical and electro-magnetic properties and then coated with an insulating varnish. The steel coils will then be shipped back to your client in the U.S. The steel coils are sold to a U.S. stamping company which will stamp the material into laminations for final usage in electrical motors.
The alloy steel coils meet that ASTM A677 standard after being processed in Germany. However, at the time of export from the U.S., the steel coils are dedicated for the annealing and coating process.
ISSUES:
Whether the alloy steel coils at issue are eligible for a partial duty exemption under subheading 9802.00.60, HTSUS.
Whether the alloy steel coils at issue are subject to section 232 duties only on the value of the processing performed abroad.
LAW AND ANALYSIS:
Before addressing the issues set forth above, we note that you indicate that the electrical steel coils which are exported to Germany are classifiable under subheading 7225.19.00, HTSUS. However, based on the chemistry provided, more specifically, the reported ranges of silicon (0.5% - 3.5%) and aluminum (0.2% - 1.7%), this is not necessarily true. Chapter 72, Subheading Note 1(c) defines silicon electrical steel as follows: “Alloy steels containing by weight at least 0.6 percent but not more than 6 percent of silicon and not more than 0.08 percent of carbon. They may also contain by weight not more than 1 percent of aluminum but no other element in a proportion that would give the steel the characteristics of another alloy steel”.
The applicable tariff provision for the steel coils containing 0.6% or more of silicon and not more than 1.0% of aluminum is subheading 7225.19.00, HTSUS, which provides for Flat-rolled products of other alloy steel, of a width of 600 mm or more: Of silicon electrical steel: Other. The applicable tariff provision for the steel coils containing less than 0.6 % silicon and/or more than 1.0% of aluminum is subheading 7225.99.00, HTSUS, which provides for Flat-rolled products of other alloy steel, of a width of 600 mm or more: Other: Other: Other.
Subheading 9802.00.60, HTSUS, provides a partial duty exemption for:
Any article of metal (as defined in U.S. note 3(e) of this subchapter) manufact-ured 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.
Subheading 9802.00.60, HTSUS, therefore imposes four requirements: (1) the merchandise must be an article of metal; (2) the metal must either be manufactured in the United States or subject to a process of manufacture in the United States; (3) the metal must be exported for further processing; and (4) the metal must be returned to the United States for further processing.
For purposes of subheading 9802.00.60, HTSUS, “metal” includes “base metals enumerated in note 3 to section VX,” which in turn includes steel. See U.S. Note 3(f) to Chapter 98, HTSUS.
In this case, all four requirements for subheading 9802.00.60, HTSUS, are met. The U.S.-made steel coils are exported for further processing and, after return to the U.S., are further processed by the U.S. stamping company to which they are sold. Thus, the steel coils may be classified under this tariff provision with duty assessed only on the value of the processing performed outside the U.S., provided there is compliance with the documentary requirements of § 10.9, Customs and Border Protection (CBP) Regulations (19 CFR 10.9).
Whether the imported alloy steel coils are subject to section 232 duties depends upon whether the U.S.-produced steel coils are substantially transformed by the processing abroad thus changing their origin. Section 232 duties do not apply to products of the United States. A substantial transformation occurs when, as a result of a manufacturing process, a new and different article emerges, having a distinct name, character or use, which is different from that originally possessed by the article or material before being subjected to the manufacturing process. See United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940); and, Texas Instruments, Inc. v. United States, 69 C.C.P.A. 142, 681 F.2d 778 (1982).
The processing abroad includes annealing and coating the alloy steel coils with varnish. In Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987), the court held that "hot-dip galvanizing" full hard cold-rolled steel sheet substantially transformed the steel sheet. The process involved two steps: annealing, undertaken to restore the steel's ductility lost in previous cold rolling, and galvanizing, or dipping the steel in a pot of molten zinc, thus changing the steel's chemical composition to improve its resistance to rust. It is important to note that the court in Ferrostaal did not hold that either the annealing or the galvanizing alone constituted a substantial transformation, but determined that the multiple manufacturing processes effected the requisite changes necessary for a finding of a substantial transformation. Thus, under CBP rulings decided subsequent to Ferrostaal, whether annealing alone results in a substantial transformation has generally depended upon the extent of the heat treatment, in terms of processing time, complexity, the effect on the steel's mechanical properties and uses, and the capital costs and value added by the treatment.
Customs has held that annealing, which is not extensive or complex and does not transform or narrow the uses of the article, is not a substantial transformation. See HQ 555103 dated February 2, 1989 (solution quenching and annealing stainless steel bars and wire rod, which maximizes softness, ductility, and corrosion resistance in the steel, does not constitute a substantial transformation, where steel retains its multi-functional utility); and HQ 554592 dated April 11,1988 (an annealing process designed to merely restore ductility to steel is distinguishable from an annealing operation designed to upgrade a product by radically altering the tensile and yield strengths of the original product, the latter constituting a substantial transformation).
In this case, the alloy steel coils are annealed (heated to approximately 850° Celsius) to achieve certain mechanical and electro-magnetic properties. The ASTM A677 standard indicates that certain characteristics, such as desirable core-loss values and permeability characteristics are developed during mill processing. As the mill processing imparts certain characteristics and, you indicate that at the time of exportation, the steel coils are dedicated to the annealing and coating process, we find that the steel is intended for electrical use upon exportation to Germany, and the annealing and coating process merely furthers such use. Therefore, the alloy steel coils do not undergo a substantial transformation in Germany and remain products of the United States. As U.S. products, the alloy steel coils are not subject to section 232 duties upon their return under subheading 9802.00.60, HTSUS.
Requests regarding the scope of Case Number A-428-843 and whether the alloy steel coils at issue are subject to anti-dumping duties under this case number may be addressed to the International Trade Administration of the U.S. Department of Commerce at 1401 Constitution Ave, NW, Washington, DC, 20230.
HOLDING:
The alloy steel coils at issue are eligible for a partial duty exemption under subheading 9802.00.60, HTSUS, when imported into the United States. As products of the U.S., the alloy steel coils are not subject to section 232 duties.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Classification Branch