CLA-2 CO:R:C:S 557089 BLS
Rufus E. Jarman, Jr.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016
RE: Subheading 9802.00.80, HTSUS; catalytic converter;
catalytic converter elements; nitrate salts; fabricated
components, the product of the U.S.; substantial
transformation; chemical reaction; 19 CFR 10.12(e),
10.14(b);
Dear Mr. Jarman:
This is in reference to your letter dated January 6, 1993, on
behalf of International Catalyst Technology ("ICT"), requesting a
ruling as to whether certain automotive parts, described as
catalytic converter elements ("CC elements), or completed catalytic
converters, exported for assembly into a complete automobile, will
be considered "fabricated components, the product of the U.S.", for
purposes of determining the eligibility of the imported automobile
for the partial duty exemption under subheading 9802.00.80,
Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
The CC elements are to be manufactured in the U.S. from the
following materials or components: (1) a ceramic honeycomb
substrate fabricated to the precise size and shape for a particular
automotive exhaust system, (2) aluminum oxide ("washcoat"), and (3)
a solution of platinum and/or other precious metal nitrate salts.
The ceramic substrate and washcoat dispersion will be of U.S.
origin. The process of preparing the precious metal nitrate salts,
which may take place either in the U.S. or abroad, is as follows:
Precious metal raw material such as platinum is obtained in
a powder form called "sponge". Platinum cannot be sourced from
the U.S., and therefore will be imported from either South Africa,
Canada, or the former Soviet Union. This material will be
converted into a chloride solution, chloroplatinic acid ("CPA"),
through a chlorination chemical reaction. The chlorine solution
is then converted into nitrate salts through a second chemical
- 2 -
reaction. In this reaction, fuming nitric acid is added to the
CPA to form a platinum nitrate hydroxide salt ("PNHS") with a
chlorine radical, and by-products. The PNHS solution is then
purified by distillation and evaporation.
In the United States, the washcoat and PNHS are mixed together
and the substrate is dipped into the mixture of washcoat and PNHS.
The coated substrate is then dried and fired (cured) in a hydrogen
atmosphere. The purpose of the drying and firing is to transform
the chemical salts, by chemical reaction (reduction) into a
metallic state, thereby uniformly depositing them on the surface
of the substrate. This results in a finished CC element which may
be exported in this condition.
The next operation, which may be performed either in the
United States or abroad, is to assemble the completed CC element
into a finished catalytic converter. This involves wrapping the
element in wire mesh, enclosing the wrapped element within the two
halves of a metal canister, and welding the two halves together.
If assembled in the U.S., the completed catalytic converter will
be exported in this condition. Whether assembled in the U.S. or
abroad, the converter will be further assembled abroad into a motor
vehicle as part of the exhaust system.
In operation, the function of the catalytic converter is to
reduce harmful emissions and pollution. This is done by chemical
catalytic effect of the precious metals which encourages the
conversion of pollutants contained in automotive exhaust into
harmless compounds which would otherwise escape into the
atmosphere.
Either CC elements or finished catalytic converters may be
exported. In the latter case, the metal canisters will be produced
in the United States.
ICT contemplates that the location of the chemical reactions
will occur under one or both of two different scenarios, as
follows:
Scenario No. 1. The chlorination reaction, resulting in the
CPA, will be performed in Canada and the nitrate reaction,
resulting in the PNHA, will be performed in the U.S.
Scenario No. 2. As in No. 1, except that the nitrate reaction
will also be performed in Canada and the PNHS will be imported into
the U.S. where mixing with washcoat, substrate dipping into the
subsequent mixture and finishing operations will be performed.
- 3 -
ISSUES:
1) Whether under Scenario No. 1, the production of the PNHS
in the U.S., from the foreign CPA and other materials, and
subsequent operations necessary to produce the CC element, result
in a substantial transformation of the foreign material into a
fabricated component, the product of the U.S.
2) Whether under Scenario No. 2, a substantial transformation
would similarly result from the operations performed in the U.S.
in connection with the imported PNHS.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
(a)rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape,
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process,
such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS, must
be satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty upon
the full cost or value of the U.S. components assembled therein,
upon compliance with the documentary requirements of section 10.24.
Customs Regulations. (19 CFR 10.24).
Section 10.12(e), Customs Regulations (19 CFR 10.12(e)),
provides generally that an article wholly or partially of foreign
components or materials, may be a "product of the United States"
if such components or materials are "substantially transformed" by
a process of manufacture into a new or different article, or are
merged into a new or different article. Section 10.14(b) provides
that a "substantial transformation" occurs when, as a result of
manufacturing processes, a new and different article emerges,
having a distinctive name, character or use, which is different
from that originally possessed by the article or material before
being subject to the manufacturing process. If the manufacturing
or combining process is merely a minor one which leaves the
identity of the article intact, a substantial transformation has
- 4-
not occurred. See, Belcrest Linens v. United States, 573 F. Supp.
1149 (CIT 1983), 741 F.2d 1368 (1984). In prior rulings, we have
also held that when chemical compounds are mixed together to form
a different substance and the individual properties of each
ingredient are no longer distinguishable, they have undergone a
substantial transformation. See, for example, Headquarters Ruling
Letter (HRL) 555989, dated June 24, 1991.
Scenario No. 1
Under this scenario, the imported CPA solution is, through the
chemical processes described above, converted into a platinum
hydroxide nitrate salt (PNHS) in the U.S. This product has
different chemical and physical characteristics than its
predecessor, the CPA. The subsequent operations, resulting in the
production of the CC element, involves dipping the substrate into
a mixture of PNHS and aluminum oxide, drying and then "firing"
(curing) the coated substrate in a hydrogen atmosphere. In this
process, the metal catalyst (platinum coated on ceramic) is
prepared by the reduction of a precursor (PNHS) that contains the
active component (platinum) in either an oxide or chloride form.
(In this case, reduction is defined as the acceptance of one or
more electrons by an atom or ion, i.e., the platinum ion in PNHS
is converted to platinum metal by a reduction reaction.) These
operations require special conditions, special equipment, and
strict quality control in order to produce the final product.
We find that the chemical processes (controlled chemical
reaction, purification, and concentration), involved in producing
the PNHS, and the subsequent operations, resulting in the completed
CC element, are processes of manufacture within the meaning of 19
CFR 10.12(e). The completed product, the CC element, has an
identity different than the imported CPA solution, different
characteristics and a different use, i.e., to control automotive
emissions.
It is apparent from these facts that the process of converting
the CPA (along with other materials) into the CC element results
in a substantial transformation of the CPA into a new and different
article of commerce. Accordingly, the CC element is considered a
fabricated component of the U.S. for purposes of determining the
eligibility of the imported automobile for partial duty treatment
under subheading 9802.00.80, HTSUS. (If the catalytic converter
is to be assembled in the U.S. from CC elements and other U.S.
parts, before being sent abroad for assembly into the exhaust
system of an automobile, it would similarly be considered a U.S.
fabricated component.)
- 5 -
Scenario No. 2
Under this prospective scenario, the chemical reactions
resulting in the CPA and PNHS will be performed in Canada. The
subsequent processing in the U.S. will be identical to the
operations performed under Scenario No. 1.
As in Scenario No. 1, we find that these operations are
processes of manufacture, within the meaning of 19 CFR 10.12(e),
and that the completed CC element is a product with an identity,
character, and use, different from the imported PNHS. Accordingly,
we find that the PNHS has been substantially transformed, as that
phrase is used in 19 CFR 10.12(e), together with the other
materials, into a new and different article of commerce. As a
result, the CC element will be considered a fabricated component,
the product of the U.S. (A similar finding would apply to the
catalytic converter, if assembled in the U.S. from CC elements and
other U.S. parts.)
HOLDING:
A chloroplatinic acid solution (CPA) or a platinum nitrate
hydroxide solution (PNHS), of foreign origin, will be substantially
transformed in the U.S., through chemical and other manufacturing
operations, into a new and different article of commerce, a
catalytic converter element. The completed element (or assembled
catalytic converter from such elements) will be considered a
fabricated component, product of the U.S., for purposes of
determining the eligibility of the imported automobile for the
partial duty exemption under subheading 9802.00.80, HTSUS.
Sincerely,
John Durant, Director
Commercial Rulings Division