- Type : • HTSUS :
-
Related:
555463
DRA 2
OT:RR:CTF:EPDR
H326829 SLP
Mr. Matthew A. Bock
Middleton Shrull & Bock, LLC
53 State Street, Suite 500
Boston, MA 02109
RE: Application of liquid preservative to plywood; “manufacturing,” “use,” or “unused;” drawback under 19 U.S.C. § 1313(j)(1) and 19 CFR § 190.31(c).
Dear Mr. Bock:
This decision is in response to your August 6, 2021, ruling request on behalf of International Forest Products, LLC (IFP) regarding whether certain activities performed on imported plywood qualify as “manufacturing” or “use” of such products, such that it renders the plywood ineligible for direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1) and 19 CFR § 190.31(c).
FACTS:
IFP imports plywood from Uruguay and subsequently provides such plywood to Everwood Treatment Co. (“Everwood”), which subjects the plywood to pressure treatment with Copper Azole to .06 pounds per cubic feet using a vacuum and pressure process. The plywood is loaded into a cylinder, which is then filled with the liquid preservative. The preservative is then pressure forced into the plywood. The total process is completed in under one day, although the plywood is typically stored at the treatment facility for 7-14 days upon arrival prior to treatment. The treated plywood is then transported to the Port of Mobile, Alabama 1-4 days after the treatment process concludes, for export back to Uruguay.
The treated plywood is intended for outdoor applications and general construction, including for agricultural, commercial, and residential uses. The purpose of the treatment is to improve the plywood’s resistance to moisture and insects; the liquid preservative reacts with the wood to make the wood less attractive to wood-destroying organisms. This quality is particularly valuable to customers in Caribbean markets; therefore, the treatment makes the plywood more marketable to a specific geographic market. The treatment does not otherwise alter the physical characteristics or intended use of the plywood.
ISSUE:
Whether imported plywood that is pressure treated prior to exportation constitutes unused merchandise for purposes of claiming drawback under 19 U.S.C. § 1313(j)(1).
ANALYSIS:
Drawback, which is “the refund, in whole or in part, of the duties, taxes, and/or fees paid on imported merchandise, which were imposed under Federal law upon entry or importation, and the refund of internal revenue taxes paid on domestic alcohol,” or other excise taxes. 19 C.F.R. § 190.2. Drawback is a privilege, not a right, subject to compliance with all applicable statutory and regulatory requirements. See 19 U.S.C. § 1313(l).
Pursuant to 19 U.S.C. § 1313(j)(1)(A)-(B), drawback may be claimed on imported merchandise that is exported or destroyed within 5 years from the date of importation, and, “is not used within the United States before such exportation or destruction.” Merchandise is deemed unused if it is not subjected to any operations from the date of importation. 19 C.F.R. § 190.2. Alternatively, merchandise is deemed unused if subjected to an operation, or combination of operations, which do not amount to a manufacture or production. Id. Such operations may include, but are not limited to: “testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking.” Id.
A manufacture or production occurs from a process or operation such as an “assembly, by which merchandise is either made into a new and different article having a distinctive name, character or use; or is made fit for a particular use even though it is not made into a new and different article.” 19 C.F.R. § 190.2. This regulatory definition of “manufacture or production” is a longstanding aspect of the legal framework governing drawback, as reflected in Customs Service Decision (“C.S.D.”) 82-67, dated December 22, 1981. In that decision, legacy Customs considered whether certain operations performed on imported cotton towels constituted a manufacture or production for purposes of manufacturing drawback. Legacy Customs looked to the Supreme Court’s decision in Anheuser-Busch v. United States, 207 U.S. 556, 562 (1907), which established that:
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary . . . . There must be a transformation; a new and different article must emerge, having a different name, character, or use.
Id. In addition, C.S.D. 82-67 looked to the “fit for a particular use” definition of manufacture established by the Court of Customs and Patent Appeals in United States v. International Paint Co., Inc., 35 CCPA 87 (1948). C.S.D. 82-67 states that the decision in International Paint:
if an operation involves special treatment of merchandise to obtain certain properties required for a specific use by the entity performing the operation or his customers and the operation involves significant capital and labor expenditure, then that operation is a manufacture or production.
Thus, to determine whether an article is one that is manufactured, it is necessary to compare the imported merchandise with the finished article. If the finished article has been rendered fit for a particular use, or is a new and different article having a distinctive name, character or use, vis-a-vis the imported merchandise, a manufacture or production has taken place.
Here, IFP has imported plywood that will be pressure treated for the purpose of rendering the plywood for use in a particular climate: the Caribbean. The purpose of the treatment is to improve the plywood’s resistance to moisture and insects, rendering the plywood particularly valuable to customers in Caribbean markets. IFP contends that the use of the plywood post-treatment “remains identical to the intended use pre-treatment, i.e., for general construction uses.”
CBP has previously considered, in HQ 555463, dated September 11, 1990, whether pressure treatment renders wood suitable for a new or specialized use as compared to untreated wood. In that case, a partial duty exemption under Chapter 98 of the Harmonized Tariff Schedule of the United was sought on wood spindles that were reimported into the United States after being subjected to pressure treatment. The importer claimed that pressure treatment was “not a step in the manufacturing process,” and the treated spindles were thus eligible for the exemption. The wood spindles were pressure treated with chromium copper arsenate to render them suitable for outdoor use because the treatment conferred protection from “weather conditions and wood-destroying agents,” as well as from “termites and fungal decay.” CBP held that pressure treatment yielded a commercially distinct product from untreated wood spindles, because the treated spindles had “new performance characteristics” and were specialized for outdoor use. CBP concluded the wood spindles were therefore ineligible for the exemption.
Similarly, in the present case, IFP imports untreated plywood that it subjects to pressure treatment specifically to render the plywood fit for a particular use post-treatment, outdoor use. The treated plywood is resistant to moisture and pests, which is a new performance characteristic that substantially distinguishes how treated plywood may be used as opposed to untreated plywood. Consequently, the treatment operations described by IFP constitute a manufacture or production within the meaning in 19 C.F.R. § 190.2, because the plywood has been made fit for a particular use. Due to the imported plywood being subjected to an operation constituting a manufacture or production, upon treatment the plywood becomes used for purposes of claiming drawback. See 19 C.F.R. § 190.2 (defining unused merchandise as imported merchandise subjected to an operation “which does not amount to a manufacture or production”). Consequently, we find that IFP’s treated plywood is ineligible for direct identification unused merchandise drawback under 19 U.S.C. § 1313(j)(1).
HOLDING:
Based on the above, we find that plywood imported by IFP that is pressure treated to render the plywood suitable for outdoor use is subjected to an operation amounting to a manufacture or production, and therefore used and ineligible for unused merchandise drawback.
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 ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” If any fact in the transaction varies from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b).
Sincerely,
Monika Brenner, Interim Chief
Entry Process & Duty Refunds Branch