CLA-2 CO:R:C:S 555816 LS
Robert T. Hume, Esq.
1400 L Street, N.W.
Suite 600
Washington, D.C. 20005
RE: Applicability of duty exemption under subheading 9802.00.60,
HTSUS, to cold finished steel bars; cost of processing
abroad; transportation costs
Dear Mr. Hume:
This is in response to your letter of December 7, 1990, on
behalf of Niagara Cold Drawn Products Inc. ("Niagara"),
requesting a ruling concerning the tariff treatment, under
subheading 9802.00.60, Harmonized Tariff Schedule of the United
States (HTSUS), of cold finished steel bars or rods imported into
the U.S.
FACTS:
Niagara intends to export to Canada under bond U.S. origin
hot rolled wire in coil. The following operations will be
performed by LEC Drawn Products ("LEC") in Canada:
1. Mechanical removal of scale from the rods.
2. Drawing the rods to size through a carbon die.
3. Straightening and cutting the rods to lengths of 12-20
feet.
4. Bundling the finished rods for reshipping to the U.S.
Niagara will be the importer of record when the rods are
returned to the U.S. LEC will charge Niagara a fee to cover the
cost of the processing, and Niagara will pay all brokerage fees
and transportation costs. In a telephone conversation with a
member of my staff, you state that the rods will be sold to
other companies upon return to the U.S. and further processed
here into other items such as screw machines and shell casings.
Having made the assumption that the rods will be eligible
for the partial duty exemption under subheading 9802.00.60,
HTSUS, when imported into the U.S., you inquire whether the duty
payable on the value of the foreign processing includes (1) the
freight costs incurred both inbound and outbound, i.e., between
the U.S. and Canada, and returning from Canada to the U.S.; and
(2) brokerage fees incurred by Niagara for entering the rods into
the U.S., along with other expenses which are not part of the
direct costs of processing.
ISSUE:
(1) Whether the cold finished steel bars or rods will be
eligible for the partial duty exemption under subheading
9802.00.60, HTSUS, when imported into the U.S. from Canada.
(2) Provided that the steel bars are eligible for entry
under subheading 9802.00.60, HTSUS, are the inbound and outbound
freight costs, brokerage fees, and other expenses dutiable as
part of the value of the processing performed in Canada?
LAW AND ANALYSIS:
Subheading 9802.00.60, HTSUS, 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
subjected 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.
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 subheading
9802.00.60, HTSUS, with duty payable only on the value of such
processing performed outside the U.S., provided there is
compliance with the documentary requirements of section 10.9,
Customs Regulations (19 CFR 10.9).
In C.S.D. 84-49, 18 Cust. Bull. 957 (1983) we held that:
[f]or purposes of item 806.30, TSUS [the predecessor tariff
provision to subheading 9802.00.60, HTSUS], the term
'further processing' has reference to processing that
changes the shape of the metal or imparts new and different
characteristics which become an integral part of the metal
itself and which did not exist in the metal before
processing; thus, further processing includes machining,
grinding, drilling, threading, punching, forming, plating,
and the like, but does not include painting or the mere
assembly of finished parts by bolting, welding, etc.
In Headquarters Ruling Letter (HRL) 037817 dated January 2,
1975, and HRL 555314 dated May 16, 1990, we held that descaling
constitutes "further processing" within the meaning of
subheading 9802.00.60, HTSUS. In HRL 555314, we also found that
the cold forming operation of drawing steel wire rod into an
intermediate wire size changes the shape of the metal so as to
constitute "further processing." Thus, we find in the instant
case that descaling the wire and forming or drawing it to size
through a carbon die constitute sufficient "further processing"
so as to satisfy the foreign processing requirement of subheading
9802.00.60, HTSUS. Since you have not provided more detailed
information regarding the domestic processing of the steel rods
to form screw machines, shell casings or other items, we cannot
definitively determine whether the U.S. operations satisfy the
domestic "further processing" requirement of subheading
9802.00.60, HTSUS. If these operations do meet that requirement,
then the steel bars will be eligible for the partial duty
exemption under subheading 9802.00.60, HTSUS, upon compliance
with the documentary requirements of 19 CFR 10.9.
Provided that the steel bars are eligible for the partial
duty exemption under subheading 9802.00.60, HTSUS, duty will be
assessed only on the value of the processing performed in Canada.
U.S. Note 3(a) to Subchapter II, Chapter 98, HTSUS, provides
that the value of the foreign processing is based upon the cost
to the importer of such processing, as set out in the invoice and
entry papers. In the event that the appraiser concludes that the
amount set out in these documents does not represent a reasonable
cost or value, then the value of the processing is to be
determined in accordance with section 402 of the Tariff Act of
1930, as amended.
Section 10.9(j), Customs Regulations (19 CFR 10.9(j)),
which contains the documentary requirements for articles imported
under subheading 9802.00.60, HTSUS, states in part:
The cost or fair market value, as the case may be, of the
processing outside the United States which is set forth in
the invoice and entry papers as the basis for the
assessment of duty under subheading 9802.00.60, HTSUS, shall
be limited to the cost or value of the processing actually
performed abroad (including all domestic and foreign
articles used in the processing, but does not include the
exported United States metal article) and shall not include
any of the expenses incurred in this country, whether by
way of engineering costs, preparation of plans or specifica-
tions, and the furnishing of tools or equipment for doing
the processing abroad, or otherwise.
In HRL 74-400027 dated December 22, 1976, we held that,
for purposes of item 806.30, TSUS, freight and insurance costs
incurred to transport U.S. metal components from the place of
shipment in the U.S. to a foreign subsidiary for processing are
excluded from the cost or value of the processing abroad because
these expenses are incurred in the U.S. Similarly, the brokerage
fees incurred by Niagara in the U.S. are not dutiable under
subheading 9802.00.60, HTSUS. We believe that, based upon the
above-quoted language of 19 CFR 10.9(j), the freight costs
incurred in returning the exported metal article from the place
of shipment in the foreign country to the U.S. for further
processing are also excluded from the cost or value of the
processing abroad. See HRL 544015 dated March 20, 1989 (under
subheading 9802.00.50, HTSUS, which provides a partial duty
exemption for an article returned to the U.S. after having been
exported to be advanced in value or improved in condition by
means of repairs or alterations, we found that the costs incurred
to transport such article from the foreign facility to the U.S.
following the foreign repairs are not dutiable as part of the
value of the foreign repairs).
HOLDING:
Since you have not provided sufficient information
regarding the processing performed in the U.S. on the steel bars
after the foreign processing operations, we cannot provide a
definitive ruling on the eligibility of the steel bars for a
partial duty exemption under subheading 9802.00.60, HTSUS.
However, based upon the information you have provided, the
operations of descaling the wire and forming or drawing the rods
to size constitute sufficient "further processing" to satisfy the
foreign processing requirement of subheading 9802.00.60, HTSUS.
If the steel bars are found to meet all the requirements of
subheading 9802.00.60, HTSUS, duty will be assessed only on the
value of the processing performed in Canada. This amount does
not include the freight costs incurred both between the U.S. and
Canada, and returning from Canada to the U.S. The brokerage fees
incurred by Niagara in the U.S. are also not dutiable under
subheading 9802.00.60, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division