OT:RR:CTF:EPDR
H315664 SLJ
Michael Dahm
Cole International USA Inc.
1775 Baseline Road
Grant Island, NY 14072
RE: Eligibility for temporary importation under bond for aluminum coil exported to Canada
Dear Mr. Dahm:
This letter is in response to your submission on November 10, 2020, on behalf of your client, Trim Stamping Inc. (“Trim”). Trim is requesting a ruling on whether aluminum coils imported to the United States for slitting and the addition of a protective poly liner is a process under subheading 9813.00.05 of the Harmonized Tariff Schedule of the United States (“HTSUS”) so as to allow for Temporary Importation under Bond (“TIB”) of the aluminum coils. Additionally, as Trim’s goods will be exported to Canada, we will also consider any applicable duty deferral limitations under the United States-Mexico-Canada Agreement (“USMCA”).
FACTS:
Trim ships German-made aluminum finish sheet material in 48- to 49-inch-wide master coils (“aluminum master coils”) into Canada from Germany. Subsequently, Trim will import the aluminum master coils into the United States to apply a protective poly liner and slit the master coils into different widths ranging from 1.55 inches up to 21 inches or more.
In an email dated September 24, 2021, you noted that the protective poly liner is an adhesive film used to protect the bright metal surface of the aluminum from scratches during the slitting process. The liner is applied at a slitter and rewind operation after the aluminum is in coil form. You noted that it is industry standard to apply the poly liner to protect the aluminum surface, and that although the coils can be sold without the liner, Trim requires the poly liner and sells the aluminum coils with the poly liner still applied. The poly liner remains on the material throughout the slitting process and through to the finished good. The aluminum material is then exported to Canada where the material is ultimately used as automotive decorative trim.
ISSUES:
Whether the slitting and the application of a protective poly liner to the aluminum coils are a “process” for purposes of subheading 9813.00.05, HTSUS.
Whether, after the coils are slit and poly liner applied, the aluminum material is in the “same condition” as when imported, rendering the aluminum not subject to the USMCA lesser of duty rule.
LAW AND ANALYSIS:
General Note 1, HTSUS, mandates that all merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Under subheading 9813.00.05 of the HTSUS, “articles to be repaired, altered, or processed (including processes which result in articles manufactured or produced in the United States)” are eligible for duty free treatment if temporarily imported under bond. Pursuant to U.S. Notes 1(a) and (c) of Subchapter XIII of Chapter 98 of the HTSUS, which contains subheading 9813.00.05, HTSUS, articles to be processed may enter the United States temporarily free of duty under a bond, for exportation within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 C.F.R. § 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval. See Subheading 9813.00.05, HTSUS, U.S. Note 1(a).
Subheading 9813.00.05, HTSUS, does not define the term “processed.” Through its rulings, however, U.S. Customs and Border Protection (“CBP”) has explained the term for purposes of TIB. In HQ 224661, dated January 11, 1994, we explained that “processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” CBP has consistently held that slitting constitutes “processing” for purposes of subheading 9813.00.05, HTSUS. In HQ H075337, dated November 18, 2009, an American company imported coils of stainless-steel strips from Germany to be slit into thinner strips. The ruling concluded that the slitting operation qualified as processing within the meaning of subheading 9813.00.05, HTSUS. HQ H075337; see also HQ 230110, (Dec. 12, 2003). Thus, slitting is a process for purposes of subheading 9813.00.05, HTSUS.
In the scenario you describe, aluminum master coils that start between 48-49 inches wide are slit into different widths ranging from 1.55 inches up to 21 inches or more. As in HQ H075337, where slitting of steel strips was found to be a process when no physical characteristics other than the width of the strips were altered, the slitting operation for Trim’s aluminum is a process. Therefore, Trim’s slitting operation action qualifies as a processing for the purposes of subheading 9813.00.05, HTSUS.
CBP has also held that the addition of protective layers constitutes processing under subheading 9813.00.05, HTSUS. In HQ 230110, dated December 12, 2003, a company imported stainless steel from Japan into the United States under a TIB. A second company in the United States applied a waterborne “dry lube” coating to the coil and then slit the master roll into narrower widths. HQ 230110. CBP found that the addition of the dry lube, as distinct from the slitting operation, was a processing of the steel for purposes of subheading 9813.00.05, HTSUS. Id. The ruling was based on two prior Customs decisions that involved the addition of protective-style coatings. In HQ 227363, dated July 22, 1998, an acrylic coating was added to fabric which was then cut to different sizes. Customs found that those actions made the fabric “different in its characteristics – it is a longer measure on a roll coated and has even edges” and thus qualified as either a process or alteration. HQ 227363. In HQ 227432, dated April 23, 1997, an adhesive coating was applied to the back of imaged film in the United States and that application also qualified as either a process or alteration under subheading 9813.00.05, HTSUS.
Trim’s application of the protective poly liner is also a processing under subheading 9813.00.05, HTSUS. Like CBP’s prior decisions finding that the application or addition of protective layers and coatings such as dry lube, acrylic, and adhesive qualified as processes under subheading 9813.00.05, HTSUS, Trim’s poly liner is applied as a protective layer that coats the aluminum. See HQ 230110; HQ 227363; and HQ 227432. Like the processing operation in HQ 230110, where a dry lube coating was added to the steel before the slitting operation, here the poly liner is added before the slitting operation and protects the aluminum from any scratches or damage during the slitting process. Therefore, both the slitting operation and application of the protective poly liner are processes for the purposes of subheading 9813.00.05, HTSUS.
Whether, after the coils are slit and poly liner applied, the aluminum material is in the “same condition” as when imported, rendering the aluminum not subject to the USMCA lesser of duty rule.
Because the aluminum coils are exported to Canada after the slitting and application of the poly liner, the provisions of the USMCA, which entered into force on July 1, 2020, are implicated. According to U.S. Note 1(c) of Subchapter XIII of Chapter 98 of the HTSUS:
[I]f an article imported into the United States for processing, under heading 9813.00.05, is withdrawn for exportation to Canada or Mexico, the duty assessed shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the article that would have been payable on importation under chapters 1 through 97, inclusive, of the tariff schedule or the total amount of customs duty paid to Canada or Mexico on the exported article, unless such article is covered by sections 208(a)(1) through 208(a)(8), inclusive, of the USMCA Implementation Act.
U.S. Note 1(c), subchapter 9813, HTSUS. Thus, unless a relevant USMCA provision exempts the exported aluminum coils, upon exportation to Canada the coils are subject to the “lesser of” duty rule.
Goods that are exported to Canada or Mexico in the same condition as imported are exempt from the lesser of duty rule under the USMCA. Section 208 of the USMCA Implementation Act provides for the treatment of goods subject to USMCA drawback and duty deferral programs. Pub. L. No. 116-113, 134 Stat. 11 (2020); 19 U.S.C. § 4534. 19 U.S.C. § 4534(a)(2) exempts from the “lesser of” duty rule merchandise which is exported to another USMCA party in the same condition as when it was imported. 19 U.S.C. § 4534(a)(2). Thus, if the imported aluminum master coils are determined to be in the same condition after slitting and the application of the poly liner when exported to Canada as when imported into the United States, the aluminum material will not be subject to the USMCA lesser of duty rule. Accordingly, for the aluminum material exported to Canada to be exempt from the lesser of duty rule, both the slitting operation and the application of the poly liner must have left the aluminum in the same condition as when imported.
CBP regulations define "same condition." Under 19 C.F.R. § 182.45(b), if drawback is filed under 19 U.S.C. § 1313(j) for merchandise exported to Canada or Mexico in the same condition as when imported, that merchandise is eligible for drawback without regard to the lesser of duty rule provided for in 19 C.F.R. § 182.44. Although 19 C.F.R. § 182.45(b) refers to goods that qualify for drawback under 19 U.S.C. § 1313(j), TIB entries are treated as a form of “drawback” under the the North American Free Trade Agreement (NAFTA) provisions, and the regulations allow the same condition exemption from the lesser of duty rule to be applied to goods entered under a TIB as well as set forth in 19 C.F.R. § 181.53(a)(2)(i)(A). While section 181.53 pertains to NAFTA, and the corresponding USMCA regulation 19 C.F.R. § 182.53 has not yet been finalized, the provision is expected to remain unchanged from the NAFTA language.
Thus, pursuant to USMCA regulation 19 C.F.R. § 182.45(b), "same condition" is defined as:
Same condition defined. 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 characteristic of the good: . . .
(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;
(iv) Trimming, filing, slitting or cutting;
. . . .
19 C.F.R. § 182.45(b)(1). When examining whether good remains in the same condition, note that the list of permissible actions in 19 C.F.R. § 182.45(b)(1) is not exhaustive, and any process to which the item was subjected also cannot materially alter the characteristic of the good. See HQ 228961 (Jan. 23, 2002). Of the two actions contemplated in this case, slitting is specifically enumerated in this list, and therefore, maintains the merchandise in the same condition unless such slitting materially alters the characteristic of the good. See 19 C.F.R. § 182.45(b)(1)(iv), HQ H075337.
CBP has previously found that slitting does not materially alter the characteristic of a good. In W228610, dated February 27, 2002, a company unrolled steel master coils to slit the unwound coils into narrower widths ranging from 100mm to 900mm in increments of 20mm. CBP assessed “whether the slitting materially altered the characteristics of the steel.” W228610. The ruling found that the “slitting does not cause the steel to become dedicated to its ultimate role as a transformer core” and “[c]onsequently, the slitting does not remove the steel from its ‘same condition.’” Id.
In this case, slitting does not materially alter the characteristic of the aluminum material. Here, master coils of aluminum are cut from 48-49 inches to 1.55-21 inches or more and are ultimately used for automotive decorative trim. As in W228610, the slitting of the aluminum itself does not cause the aluminum coils to be dedicated to their ultimate role as automotive decorative trim. Therefore, slitting does not materially alter the characteristic of the aluminum material and the slitting operation leaves the aluminum in the same condition.
Regarding the application of the poly liner, we must first assess whether the operation materially alters the characteristic of the aluminum material. See § 182.45(b). In HQ H270737, dated March 1, 2017, CBP found that while cutting a pipe to a certain length kept the pipe in the same condition, bending the pipe materially altered “the characteristic of the good because it exceeds the ‘same condition’ operations contemplated by § 181.45(b)(1).” CBP found that bending the pipe “allows the pipe to be used in applications where a straight pipe cannot – where a change in direction is required” and that the bent pipe is not in the same condition “because the characteristics of the pipe have been materially altered.” H270737. By contrast, in HQ 230110, a company imported a master roll of steel coil for a slitting operation and the application of a dry lubricant. CBP found that the steel was exported in the same condition as imported even after both operations. The characteristics were not materially altered because “the exported product is the same as the [imported] product, just smaller.” HQ 230110.
In this case, the application of the poly liner does not materially alter the aluminum coils. In an email dated September 24, 2021, you noted that the poly liner is an adhesive film used to protect the bright metal surface of the aluminum from scratches during the slitting process. You also noted that it is industry standard to apply the poly liner to protect the aluminum surface. The application of the poly liner does not allow the coils to be used in a situation where coils without the poly liner could not. See H270737. The poly liner merely protects the coils from scratching during the slitting process, much like a protective dry lubricant. See HQ 230110. Further, the application of the poly liner to the aluminum coils is optional and is not necessary to the further processing of the coils. Although it is industry standard and Trim’s policy to apply and sell the aluminum coils with the poly liner, the poly liner is not a necessary part of the processing, and the coils could be sold without the liner. Therefore, the addition of the poly liner does not materially alter the aluminum coil.
Next, we must assess whether the application of a poly liner fits into the enumerated operations in § 182.45(b). The application of a poly liner is not a specifically enumerated operation as was the case with slitting. Due to its role as a protective liner, we consider whether the application of a poly liner falls under 19 C.F.R. § 182.45(b)(1)(iii), as an “application of preservative, including lubricants, protective encapsulation, or preservation paint.”
Although the list of permissible actions in 19 C.F.R. § 182.45(b)(1) is not exhaustive, the magnitude of the operation may not be greater than those actions listed. In HQ 225874, CBP determined that painting parts with John Deere brand identifying colors exceeded the “same condition” definition of “[a]pplication of preservative, including lubricants, protective encapsulation, or preservation paint.” (citing the corresponding NAFTA regulation at 19 C.F.R. § 181.45(b)(1)(iii)). CBP found it significant that “painting” itself was not included in the list and that the act of painting parts with John Deere identifying colors was of a “greater magnitude” than the operation of applying a preservative paint. HQ 225874. Similarly, in HQ H237075, dated May 19, 2016, CBP found that the proposed physical vacuum deposition (PVD) process as applied to plumbing fixtures was of a greater magnitude than those enumerated operations in § 181.45(b)(1). The fixtures, therefore, were not in the same condition after being subject to the PVD process. HQ H237075. CBP determined that:
The PVD process, which imparts a coating that not only changes the fixtures’ color, but also makes them more scratch and corrosive resistant, as well as harder, is a more significant process than simply painting. Thus, we find that the PVD process is an operation of greater magnitude than the operations stated in 19 C.F.R. 181.45(b)(1)(iii). As a result, the brass fixtures are not in the “same condition” as when they were imported and are subject to the limitations of NAFTA drawback.
See HQ 225874 (Mar. 22, 1996). Id. Therefore, if an operation is of a greater magnitude than those enumerated in § 182.45(b)(1), the article is not exported in the same condition.
In this case, the application of the poly liner is not of a greater magnitude than those enumerated actions in § 182.45(b)(1). The poly liner protects the aluminum coils from scratches during the slitting operation and thus acts as a preservative or protective encapsulation. Like in HQ 225874, the act of applying a poly liner is not specifically enumerated in the operations provided for in § 182.45(b). However, unlike painting parts identifying colors, the act of applying a poly liner serves the same role as a preservative paint. Paint that preserves the merchandise serves the same role as the poly liner that preserves the aluminum. In the same way, the application of a poly liner does not go so far as to make the aluminum more corrosive resistant or harder as was the case in HQ H237075. Thus, the application of the poly liner is not an operation of a greater magnitude than those enumerated in § 182.45(b)(1)(iii) as a preservative, including protective or preservation paint.
HOLDING:
The slitting and the application of a protective liner to the aluminum coils are a “process” for purposes of subheading 9813.00.05, HTSUS.
After the imported aluminum master coils are slit and poly liner applied, the aluminum material exported is in the “same condition” as when imported, rendering the exported aluminum material not subject to the USMCA lesser of duty rule.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” If the terms of the import or export contracts vary from the facts stipulated to herein, this decision shall not be binding on CBP as provided for in 19 C.F.R. § 177.2(b)(1), (2) and (4), and § 177.9(b)(1) and (2).
Sincerely,
Monika Brenner, Interim Chief
Entry Process and Duty Refund Branch