CON-9-04-RR:CR:DR 229970 IOR
William Baldwin
Norman G. Jensen, Inc.
P.O. Box 3789
Blaine, WA 98231-3789
RE: Temporary Importation Bond; subheading 9813.00.05 HTSUS; turning squares; spindles; processing; exportation
Dear Mr. Baldwin:
This responds to your request for a prospective ruling, dated April 3, 2003, submitted to the Director, National Commodity Specialist Division, on behalf of Hudson, Mitchell & Sons Lumber Inc. (Hudson), regarding the temporary importation from Canada of hemlock wood known as “turning squares” for the purpose of processing into spindles, and the classification of the spindles. Your ruling request was forwarded to the Office of Regulations and Rulings for a decision. Our decision, based upon your submission follows.
FACTS:
Hudson intends to import from Canada pieces of hemlock wood known as “turning squares” which measure 1 ¼” in width by 1 ¼” in thickness and range in length from 31” to 42”. You assert that the turning squares qualify for preferential duty treatment under the North American Free Trade Agreement (NAFTA). You have provided a NAFTA Certificate of Origin, dated April 3, 2003, which certifies that Hudson is the producer of the turning squares, and that Canada is the country of origin of the turning squares.
In the U.S., the turning squares will be processed into spindles for staircases by running the turning squares through a lathe. You have provided a diagram which shows sample designs of spindles that will be produced from the turning squares. According to the diagram the spindles are rounded, contain decorative grooves, and increase in diameter from the top to the bottom of the spindle. Upon completion of the processing, the spindles will be exported to Canada and entered into Hudson’s inventory at its warehouse in Canada.
Hudson intends to sell the finished spindles as part of a number of different staircase packages. It intends to take orders for the staircase packages from customers located in the United Kingdom, the U.S. and Japan. At the time the spindles are exported from the U.S. after processing, Hudson is not aware of the location to which the spindles will be sold.
You request a ruling on whether the turning squares are eligible for temporary importation under bond under subheading 9813.00.05, Harmonized Tariff Schedule of the United States (HTSUS), and the tariff classification of the spindles upon importation in those instances where the spindles are sold to customers in the U.S.
With regard to the classification of the spindles imported into the U.S., you have not provided the Bureau of Customs and Border Protection (CBP) with sufficient information to obtain a classification ruling. Based on the submission, it is not clear in what condition the spindles will be imported. Specifically you need to provide CBP with the following information before a classification ruling can be issued:
Will the spindles be imported into the U.S. as part of completed staircases, as part of a kit, or by themselves?
If imported by themselves, will the spindles be of the type recognizable for use as supports for stair railings?
Please submit a complete description of the spindles and how they are dedicated for the manufacture of stairs.
Please provide your submission to the attention of NIS Paul Garretto, National Commodity Specialist Division, Bureau of Customs and Border Protection, One Penn Plaza, 10th Floor, New York, NY 10119, referencing NY File J82532.
ISSUE:
Whether the turning squares may be imported under the temporary importation provision of subheading 9813.00.05, HTSUS.
LAW AND ANALYSIS:
General Note 1, HTSUS, dictates that all merchandise imported into the U.S. is subject to duty unless specifically exempted therefrom. Subheading 9813.00.05, HTSUS, provides for duty-free entry, under bond, for merchandise imported into the U.S., for a temporary period, for repair, alteration, or processing.
Pursuant to U.S. Notes 1(a) of Subchapter XIII of Chapter 98, HTSUS, which contains subheading 9813.00.05, articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States, may enter into the United States temporarily free of duty under a Temporary Importation Under Bond (TIB) 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 CFR 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval.
U.S. Notes 2(b) of Subchapter XII of Chapter 98, HTSUS, allows entry of merchandise under subheading 9813.00.05 only on condition that:
If any processing of such merchandise results in an article…manufactured or produced in the United States:
A complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and
All articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.
In 19 U.S.C. §3333(a), NAFTA defines goods subject to NAFTA drawback as “any imported good other than…(5) a good that qualifies under the rules of origin set out in section 3332 of this title that is (A) exported to a NAFTA country, [or] (B) used as a material in the production of another good that is exported to a NAFTA country….
For purposes of this decision, based on the Certificate of Origin, we conclude that the imported turning squares are not goods subject to NAFTA drawback. Therefore, the restrictions imposed in Subpart E of Part 181 of the Customs Regulations (19 CFR Part 181, Subpart E) are not applicable to the subject merchandise. Specifically, 19 CFR 181.41 states that subpart E, setting forth the provisions regarding drawback and duty-deferral programs, applies to any good that is a good subject to NAFTA drawback, under 19 U.S.C. §3333. As the turning squares are not goods subject to NAFTA drawback, the duty-deferral provisions set forth in 19 CFR 181.53 are not applicable.
We note that the subject merchandise may be subject to Antidumping/ Countervailing duties (AD/CVD) for Canadian softwood lumber. TIB entries of merchandise are not consumption entries, and although AD/CVD to which the imported merchandise is subject need not be deposited, the TIB bond should be set in an amount to take into account any AD/CVD in order to protect the revenue. See HQ 223491, dated March 30, 1992.
We must determine whether the turning squares undergo a repair, alteration or processing.
Webster's Third New International Dictionary (unabridged, 1966) defines "repair" as follows, in pertinent part:
repair ... 1 a: to restore by replacing a part or putting together what is torn or broken: fix, mend ... b: to restore to a sound or healthy state: renew, revivify...
It is clear that the work performed is not a repair of the turning squares. There is no restoration, replacement, renewal, or the like of the turning squares.
Webster's Third New International Dictionary (unabridged, 1966) defines "alteration" and "alter" as follows, in pertinent part:
alteration ... 1 a: the act or action of altering b: the quality or state of being altered 2: the result of altering...
alter ... 1: to cause to become different in some particular characteristic (as measure, dimension, course, arrangement, or inclination) without changing into something else ... syn see change
The Random House Dictionary of the English Language (The Unabridged Edition, 1973) defines "alteration" and "alter" as follows, in pertinent part:
alteration ... 1. the act or state of altering: or the state of being altered ... 2. a change; modification ...
alter ... 1. to make different in some particular, as size, style, course, or the like; modify ... 3. to change; become different or modified.
We have reviewed the applicable case law pertaining to alterations. In E. Dillingham, Inc. v. United States, 29 Cust. Ct. 16 (1952), four metal discs were imported into the United States to be processed by having the edges bent to form flanges and to be pressed and spun to dish-like shapes. The plaintiff claimed that the processes were alterations or changes in condition which did not result in articles manufactured or produced in the United States within the meaning of the TIB law. The Customs Court held that the metal discs were not entitled to free entry, under bond, because the processing of the discs was not in the nature of repairs or alterations of finished products but an additional and vital step in their manufacture. In Guardian Industries Corporation v. United States, 3 C.I.T. 9 (1982), glass sheets were produced in annealed form in the United States and then sent to Canada for a heat treatment known as tempering. The glass was then re-imported into the U.S. as articles returned to the U.S. after having been exported for repairs or alterations. The plaintiff contended that the tempering operation was an alteration. The court concluded that the tempering process transformed the glass in name, use, performance characteristics and tariff classification and, thus, it was not an alteration. In reaching this decision, the court relied on A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1957), which held that a process which creates a new article of commerce is not an alteration. In Burstrom, steel ingots were exported to Canada and re-imported after having been converted into steel slabs. The court concluded that the imported slabs were not the same articles as the ingots, differing therefrom in name, value, appearance size, shape and use.
Based on these authorities we conclude that the lathing process described in the ruling request is not an “alteration” within the meaning of subheading 9813.00.05, HTSUS. Like the factual situations in the case law discussed above, in the instant case the turning squares are subjected to a physical process which produces a new article of commerce, a spindle, having a new name, appearance size, shape and use.
Therefore, it is necessary to determine if the procedure is a processing. Webster’s Third New International Dictionary (unabridged, 1966) defines the verb “process,” in pertinent part, as follows:
process ... to subject to a particular method, system, or technique of preparation, handling, or other treatment designed to effect a particular result: put through a special process: (1): to prepare for market, manufacture, or other commercial use by subjecting to some process ... (2) to make usable by special treatment .…
In HRL 224661 (January 11, 1994), regarding subheading 9813.00.05, we stated that "the processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production." In other rulings involving subheading 9813.00.05, we have held the following to be a processing for purposes of subheading 9813.00.05: a melting procedure (HQ 223003 citing DB 200149 where we held a freezing procedure to be a processing); the cutting and sewing of airline seat covers (HQ 222106); embroidery (HQ 223640). In HRL 224283 (March 17, 1993), it was held that the trimming of steel coils to reduce their width constitutes a processing within the meaning of subheading 9813.00.05, HTSUS. In HRL 228509 (April 9, 2002) we held that the processing of steel which involved only slitting, and did not alter the characteristics of the imported steel would constitute a process within the meaning of 9813.00.05, HTSUS. Based upon the above authorities, we determine that the lathing procedure, as performed on the turning squares, constitutes a processing within the meaning of subheading 9813.00.05.
In determining whether there has been a manufacture or production for drawback purposes, Customs has long used the criteria in the case of Anheuser-Busch v. United States, 207 U.S. 556 (1908). Under Anheuser-Busch, a manufacture or production is considered to have occurred when the merchandise under consideration is changed or transformed into a new and different article having a distinctive name, character or use. Applying a determination of a manufacture for drawback purposes is appropriate, as the amendment of the TIB law, by Public law 85-414 (May 16, 1958), to allow procedures that amount to a manufacture was designed to supplement the drawback procedures existing at the time. See Senate Report, No. 1485 (April 28, 1958).
In this case, the spindle is an article manufactured or produced in the U.S., as it is a new and different article having a distinctive name, character and use. Therefore, Hudson must comply with the accounting requirements in U.S. Notes 2(b) of Subchapter XII of Chapter 98, HTSUS, as set forth above. The ruling request makes no mention of any waste, but based on the facts it would appear that the lathing process does result in waste.
In order to satisfy the requirements for the TIB, the imported article must be timely exported. An “exportation” is defined as “. . . a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country.” See 19 C.F.R. §101.1 and Swan & Finch Company v. United States, 190 U.S. 143, 23 Sup. Ct. 702 (1903). Thus, in order to have an exportation two elements must be met. There must be a separation from the United States and there must be an intent to unite the good in a foreign country. As stated by the courts, both the element of severance and the element of intent must coincide in order to constitute an act of exportation. Moore Dry Goods Co. v. United States, 11 Ct. Cust. App. 449, T.D. 39531 (1923). In the instant case, there is both a severance of the articles from the U.S. and the placement of the articles into inventory in Hudson’s warehouse in Canada, clearly shows an intent to unite the articles with the “mass of things” belonging to a foreign country. The fact that the articles may be imported into the U.S. subsequently, pursuant to a sale, does not mean that the articles were not exported.
HOLDING:
Based on the information provided, the lathing procedure described above to which the turning squares are subjected, qualifies as a process under subheading 9813.00.05, HTSUS.
Sincerely,
Myles Harmon, Director
Commercial Rulings Division