CON-9-RR:CR:DR 228610DR
Mr. Adam Aurecchione
Tomen American, Inc.
1285 Avenue of the Americas
New York, NY 10119-6028
Re: Ruling request on behalf of Tomen America, Inc., concerning NAFTA duty deferral changes of January 1, 2001.
Dear Mr. Aurecchione:
This is in response to Mr. Douglas Turnbull’s letter of September 24, 1999, on behalf of Techno Steel Corp. (“Techno”). Mr. Turnbull’s letter concerns the importation of stainless steel coils from Japan for “processing,” and subsequent exportation to Mexico.
FACTS:
Techno places a purchase order for grain-oriented silicon electrical steel sheet in master coils from Tomen Corporation/Japan (“Tomen”). Tomen, in turn, orders those coils from the manufacturer Kawasaki Steel Corporation/Japan (“Kawasaki”). These coils have widths of 1,030 mm or 1,020 mm, and are completely of Japanese origin. The coils are entered by Techno Steel into the United States on a Temporary Importation under Bond (“TIB”). The steel is stipulated to be classifiable under subheadings 7225.11.0000 and 9813.00.0540, HTSUS. If entered for consumption, the steel is said to be subject to antidumping duties.
The processing by Techno generally consists of unwinding the coils and slitting the unwound coils into narrower widths. Specifically, Techno unwinds the master coils and slits the steel to widths specified by their customers’ orders, which range from 100 mm to 900 mm, in increments of 20 mm. The slitting process results in waste production of approximately 5% of the original weight of the steel. After slitting is
completed, Techno rewinds the coils, palletizes them, and ships the coils to their customers in Mexico. The HTSUS tariff numbers for the slit coils are 7226.11.9030 (widths under 300 mm), 7226.11.1000 (widths from 300 mm to 600 mm), and 7225.11.0000 (widths over 600 mm). Techno then obtains approval from the Memphis Customs office to dispose of the waste. Upon the exportation of the slit coils to Mexico and disposal of the scrap steel, the TIB entry is closed in Memphis.
The Mexican customers are transformer manufacturers that use the coils to make transformer cores, which entails rewinding the coils and then cutting the steel strip into various sizes. These specially cut pieces are the core laminations that are stacked to make them of certain heights. The core is then heat treated and assembled into actual transformer cores made of copper, aluminum, paper and assorted materials.
ISSUE:
Whether the slit coils exported to Mexico are subject to the NAFTA duty deferral regulations.
LAW AND ANALYSIS:
The slitting of the steel is a permissible process under HTSUS subheading 9813.00.05. This has been decided by U.S. v. Border Brokerage, 48 C.C.P.A. 19 (1960), and has been so followed by Customs in HQ 224283 and HQ 225368.
The issue now is whether the slitting leaves the imported steel in the same condition for purposes of U.S. Note 1(c), subchapter XIII, Chapter 98, HTSUS (codified at 19 U.S.C. 1202), and Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. §3333). Under the decision in Titanium Metals v. U.S., 901 F. Supp 302 (C.I.T. 1997), the Court held that an entry under subheading 9813.00.05, HTSUS was not subject to antidumping duties. But by virtue of U.S. Note 1(c), temporarily imported merchandise would be required to be entered for consumption and, therefore, would become liable for antidumping duties, if exported to Canada or Mexico, unless the exported merchandise is not subject to NAFTA drawback. And under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), such goods not subject to NAFTA drawback mean any good other than, among other things “a good exported to a NAFTA country in the same condition as when imported into the United States.” 19 U.S.C. 3333(a)(2). This section applies only to goods imported into the United States that are subsequently exported to Canada on or after January 1, 1996, or to Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; see also 19 C.F.R. §181.41.
The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. Under 19 C.F.R. §181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. §181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of §181.45 provides that:
For purposes of this subpart, a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good …
(iv) Trimming, filing, slitting, or cutting; …
Clearly, the steel here has been subjected to one of the listed operations (slitting). The next issue is to determine whether the slitting materially altered the characteristics of the steel. Consider that in HQ 226152 (July 23, 1996), imported steel coils were uncoiled, slit to various widths as ordered by customers, recoiled, and welded for packaging , and the narrower coils were exported to third countries. Although that decision dealt specifically with whether the welding was “further processing” under item 806.30, TSUS, we noted that “[c]utting the finished cable or welding several lengths together to fit the various sizes of reels specified by the customer is nothing more than supplying the proper quantity of the finished product to the customer” and, if it does not materially alter the characteristics of the larger pieces from which they are cut, it does not change the condition of the imported good (quoting P.R.D. 75-22). Also, in HQ 224283 (March 17, 1993), Customs considered the slitting and trimming of master coils of steel to dimensions that made them more adaptable as cores for transformers, and held that because the slit and trimmed coils would be exported in essentially the same condition as imported, with only their dimensions having undergone a change, the coils were in the “same condition” for drawback purposes under section 203(a)(2) of the NAFTA Implementation Act (codified at 19 U.S.C. 3333(a)(2)). Also consider that the process of making a coil after exportation to Mexico involves further cutting of the slit steel so that it can be stacked into a coil core, After stacking, the coil is heat treated to add electrical properties, and the coil is wound with copper wire and further assembled into an actual transformer core. At the point of exportation to Mexico, however, the steel had not been materially altered from its imported state of raw material. The slitting does not cause the steel to become dedicated to its ultimate role as a transformer core. Consequently, the slitting does not remove the steel from its “same condition” under §3333(a)(2), provided that all pertinent statutory and regulatory requirements are met.
Our determinations are strictly limited to the facts presented and, notwithstanding our conclusions, note that 19 U.S.C. 3333(e) states that “nothing in [section 3333] or its amendments made by it shall be considered to authorize the refund, waiver, or reduction of countervailing or antidumping duties imposed on an imported
good.” This appears to override the exemption provided by 19 U.S.C. 3333(a)(1) – (8) with respect to dumping or unlawful subsidies, which are within the purview of the Department of Commerce. We have raised this issue with that department and have requested a statement of its position on that statutory provision.
HOLDING:
With respect to the export of the slit steel pieces to Mexico, when the pieces have been subjected to the slitting operation described in the FACTS portion of this ruling, the pieces are in the “same condition” as the imported steel pieces when they are exported to Mexico, under section 203(a) of the NAFTA Implementation Act (19 U.S.C. 3333) and 19 C.F.R. 181.45(b).
Sincerely,
John Durant
Director Commercial Rulings Division