CLA-2 CO:R:C:V 555432 KAC
John J. Scanlon, Jr., Esq.
Kemp, Smith, Duncan & Hammond
2000 Mbank Plaza
P.O. Drawer 2800
El Paso, Texas 79901-1441
RE: Applicability of subheading 9802.00.60, HTSUS, to standard
flanges created by turning, boring, facing, cutting, and
stenciling.Further processing;Intelex;C.S.D. 84-49;555377;
554011;554965;037347;086289;19 CFR 10.9
Dear Mr. Scanlon:
This is in response to your letter dated June 26, 1989, on
behalf of Daniel Industries, Inc., requesting a ruling on the
applicability of subheading 9802.00.60, Harmonized Tariff
Schedule of the United States (HTSUS), to standard flanges
imported from Mexico. If, after review of this ruling, you still
desire confirmation of the flange's country of origin marking
requirements, please resubmit your request. We regret the delay
in responding.
FACTS:
Daniel will ship U.S.-manufactured carbon steel forgings to
Mexico for foreign operations. The operations to be performed
entail manufacturing the steel forgings into flanges which will
conform to the latest accepted and approved designs as published
by the American National Standards Institute (ANSI), the ASME
Boiler and Pressure Vessel Code, the American Water Works
Association, and the Manufacturers Standardization Society. All
flanges will conform with the American Society for Testing and
Materials (ASTM) and ASME specifications applicable to customers'
specific requirements, and will be made from ASTM A105 Carbon
Steel. The foreign operations to be performed in Mexico are:
(1) turning the outside diameter, boring, and facing the
forging in a lathe;
(2) facing the overall length of the forging;
(3) cutting a weld bevel;
(4) back facing or spot facing the forging;
(5) boring and deburring four to twelve bolt holes;
(6) stenciling onto the flange the words "Daniel" and
"Mexico", the size and pressure rating of the flange,
the ATSM or ANSI standard, the heat treatment code
number, and the type of material composing the flange.
Daniel also will export some steel forgings to Mexico which are
of foreign origin, but will only claim subheading 9802.00.60,
HTSUS, treatment for steel forgings of U.S.-origin. The U.S.-
origin steel forgings and the flanges made from the forgings will
be kept segregated from the foreign steel forgings by the use of
lot control and job order techniques. The shipping papers and
factory papers for each lot will include a heat treatment code
number and will include country of origin information for
forgings in the lot. The heat number will reflect such
information as the chemical composition of the steel forgings and
the temperature at which the forgings were produced. Forgings
with different heat numbers have different physical and chemical
characteristics. Thus, they must be separated from flanges with
differing characteristics and treated differently by Daniel when
processed into flanges. Even if segregation by lot and heat
number were not required for country of origin purposes, it
still would be required for manufacturing purposes.
After the above operations are performed, the flanges will
be imported into the U.S. and placed into Daniel's inventory.
Upon receiving a customer order, Daniel will perform the
following operations:
(1) boring center hole in flanges not previously bored in
Mexico (approximately ten percent);
(2) fitting and welding (1/16th of an inch weld) a piece of
pipe to the flange;
(3) grinding smooth the weld surface on the inside of
flange and pipe.
Upon completion of the above operations in the U.S., you
state that the flange is now a new and different article known
as a flange pipe. The flange pipe is now ready for use on the
job site as a connecting device and will be delivered to the
customer. In some cases, Daniel's customers will buy only the
flanges, and will fit, weld, and grind the flange into a flange
pipe in the same fashion as described above.
ISSUE:
Whether the standard flanges will be eligible for the
partial duty exemption available under HTSUS subheading
9802.00.60 when imported into the U.S.
LAW AND ANALYSIS:
HTSUS subheading 9802.00.60 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 subject 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 this tariff
provision with duty 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).
There is no legal requirement under subheading 9802.00.60,
HTSUS, that the identity of the person who performs the further
processing in the U.S. be known at the time the material is
exported from the U.S., or at the time the returned material
enters the U.S. There is also no requirement that the same
person who exported the material, or the same person who imports
the material must perform the further processing in the U.S.
However, the importer should satisfy the district or area
director of the actual performance of further processing in the
U.S. in transactions of this type before the entry may be
liquidated under subheading 9802.00.60, HTSUS. A reasonable time
for holding the imported articles in stock in realistic
expectation of customers who will further process the material in
the U.S. may be allowed before a final determination is made
regarding the applicability of subheading 9802.00.60, HTSUS.
See, 19 CFR 10.9 and Headquarters Ruling Letter (HRL) 037347
dated July 14, 1975. In HRL 554965 dated September 6, 1989, we
found that under the circumstances of that case, four months was
a reasonable period of time to warehouse stainless steel sheets
in the U.S. before being further processed.
In C.S.D. 84-49, 18 Cust.Bull. 957 (1983) we stated that:
[f]or purposes of item 806.30, TSUS, 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 the instant case, the steel forging is an eligible
article of metal for purposes of HTSUS subheading 9802.00.60.
The turning, boring, facing, and cutting operations performed in
Mexico are considered "further processing" operations, as they
change the metal and impart new and different characteristics
which become an integral part of the metal. See, C.S.D. 84-49.
Moreover, the boring of the center hole in ten percent of the
returned steel flanges is considered a process which complies
with the domestic "further processing" requirement of subheading
9802.00.60, HTSUS.
However, the operations of welding the pipe to the flange
and smoothing out the inside weld by grinding are insufficient to
satisfy the domestic "further processing" requirement. In
Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D.
1055, 460 F.2d 1083 (1972), the court discussed the type of
processing that would entail "further processing". In the
Intelex case, copper wire and insulating paper were processed
into lead-covered telephone cable and imported into the U.S. on
cable rolls. The cable was then merely strung on poles after
wire stripping and splicing operations. The issue presented was
whether the imported telephone cable was "returned to the U.S.
for further processing," within the meaning of paragraph
1615(g)(2)(B), Tariff Act of 1930, as amended (a precursor
provision of HTSUS subheading 9802.00.60). The court considered
the words "process" and "processing" and stated that:
...its meaning [processing] must be controlled by the
particular context in which it is used here and the
legislative intent. (Citation omitted). When we look to
the context of [paragraph] 1615(g)(2), we do not think that
Congress had in mind that any and all kinds of 'processing'
would suffice to bring the article within the purview of
'processing' related to the kind of processing to which the
article had been subjected before--namely, 'a process of
manufacture,' as expressed in [paragraph] 1615(g)(2)(A). We
continue of the view that Congress used the expression
'subjected to a process of manufacture' as synonymous with
'processing' (citation omitted), and that the 'further
processing' referred to in [paragraph] 1615(g)(2) is a
further manufacturing process.
The court stated that it did "...not think that processes to
which an already completed article were subjected, incident to
using it for the purpose intended, were necessarily part and
parcel of manufacturing processes performed on that article."
(Court's emphasis). Therefore, finding no evidence that the
operations performed in the U.S. on the imported telephone cable
constituted a process of manufacture in any common or commercial
sense, the court determined that the partial duty exemption was
inapplicable to the imported cable.
In the instant case, the flanges with the Mexican bored
center hole are completed articles. The operation of fitting and
welding the pipe to the flange is merely an assembly operation
which does not constitute a process of manufacture in a common
or commercial sense. As stated in C.S.D. 84-49 and in previous
ruling letters, assembly operations do not satisfy the further
processing requirement of subheading 9802.00.60, HTSUS. See,
HRL 555377 dated October 16, 1989, which held that brazing, a
welding operation, is an assembly operation that does not satisfy
the requirements of the tariff provision, and HRL 554011 dated
February 21, 1986, which held that preparation grinding for
welding and welding parts to form wheels do not constitute
"further processing" within the meaning of item 806.30, Tariff
Schedules of the United States (TSUS) (now HTSUS subheading
9802.00.60). Smoothing out the weld surface on the inside of the
flange and pipe by grinding appears to be minor finishing
operation which is incidental to the assembly of the flange and
pipe. As this operation does not impart new and different
characteristics which become an integral part of the metal, we
find that it does not constitute "further processing." See, HRL
086289 dated March 13, 1990 (grinding down backet edges is not
"further processing").
HOLDING:
On the basis of the information submitted, it is our opinion
that the processes performed abroad constitute "further
processing." However, only those flanges which have the center
hole bored in the U.S. will meet the domestic "further
processing" requirement. Therefore, only these flanges will be
entitled to the partial duty exemption available under this
tariff provision, upon compliance with the documentary
requirements of 19 CFR 10.9.
Sincerely,
John Durant, Director
Commercial Rulings Division