CLA-2 CO:R:C:S 556080 KCC
Mr. Matthew Chang
C.Itoh & Co. (America) Inc.
335 Madison Avenue
New York, New York 10017
RE: Aluminum discs created by casting, hot- and cold-rolling,
coiling, blanking, annealing, polishing, anodizing, plating
and magnetic coating.Further processing; 037347; 554965;
C.S.D. 84-49; 063601; 553252; 845453; 555037; 553860; 555530
Dear Mr Chang:
This is in response to your letter dated June 4, 1991,
requesting a ruling on the applicability of subheading
9802.00.60, Harmonized Tariff Schedule of the United States
(HTSUS), to aluminum discs to be imported into the U.S.
FACTS:
Kobe Steel, Ltd. of Japan will purchase U.S.-origin aluminum
ingots and ship them to Japan. In Japan, Kobe Steel will melt
the ingots, and various other metal to form an aluminum alloy
for the manufacture of discs. The aluminum alloy will be cast
into slabs, hot- and cold-rolled into sheets of the required
thickness, and coiled. The sheet is then uncoiled, blanked, and
annealed into the proper sizes and shapes to create disc blanks.
Kobe Steel then sells the disc blanks to C.Itoh (Japan), who will
sell them for export to C.Itoh (America) Inc.
Upon importation into the U.S., the disc blanks are sent to
customers who polish the blanks to a mirror-finish during which
approximately 1.5% of the metal is removed from the disc blanks.
The polished discs, known as aluminum substrates, will be
subjected to one of two coating operations:
1. a. the polished disc is electroplated with a magnetic
material,
b. the magnetic plated disc is further polished, and
c. the disc is further electroplated with nickel-
phosphorus. The resulting product is known as a
"plated disc"; or
2. a. the polished disc is "anodized" (an
electroplating process which is performed
primarily on aluminum),
b. the anodized disc is polished to a mirror finish,
and
c. the disc is then coated with "sputter", a magnetic
coating material. The coating is then heated to
180-300 degrees Celsius which bonds the coating to
the disc. The resulting product is known as an
"anodized sputtered disc" or "plated sputtered
disc".
Upon completion of the domestic operations, the discs can be
used as memory units for automatic data-processing machines.
ISSUE:
Whether the aluminum discs will qualify for the partial duty
exemption available under subheading 9802.00.60, HTSUS, when
returned to the U.S.
LAW AND ANALYSIS:
Subheading 9802.00.60, HTSUS, 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 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, Tariff Schedules of the
United States (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 this case, the aluminum discs are eligible articles of
metal for purposes of subheading 9802.00.60, HTSUS. The
processing in Japan is considered "further processing" under
this tariff provision. Converting primary forms of metal, e.g.,
ingots, into semi-finished or finished articles of metal by hot-
or cold-rolling operations changes the shape of the metal and
constitutes "further processing" for purposes of subheading
9802.00.60, HTSUS. See, HRL 037347 dated July 14, 1975, HRL
063601 dated April 18, 1980, HRL 553252 dated September 26, 1984,
and HRL 845453 dated October 17, 1989.
Moreover, the operations performed in the U.S. to the
returned blank discs are considered sufficient processes to
comply with the domestic "further processing" requirement of
subheading 9802.00.60, HTSUS. We have previously held that
merely polishing a metal article does not constitute "further
processing" for purposes of subheading 9802.00.60, HTSUS. See
HRL 555037 dated June 24, 1988. However, polishing accompanied
with another process which imparts new and different
characteristics will be acceptable "further processing" under
subheading 9802.00.60, HTSUS. We are of the opinion that the
polishing operation which removes approximately 1.5% of the
metal from the disc and the application of the magnetic coating
are considered "further processing" operations. The magnetic
coating which is applied by anodizing or electroplating changes
the metal and imparts new and different characteristics which
become an integral part of the metal. The "sputter" coating
operation improves the discs resistance to corrosion and imparts
magnetic properties. See, HRL 553860 dated October 22, 1985,
which held that electroplating with nickel, brass, or chrome is
an operation sufficient to comply with the "further processing"
requirement of item 806.30, TSUS (the precursor provision to
subheading 9802.00.60, HTSUS), and HRL 555530 dated February 7,
1990, which held that galvanizing which applied a zinc coating to
black plate steel coils was considered a "further processing"
operation for purposes of subheading 9802.00.60, HTSUS.
HOLDING:
On the basis of the information submitted, it is our opinion
that the processes performed abroad and upon return to the U.S.
constitute "further processing" as that term is used in
subheading 9802.00.60, HTSUS, and, therefore, the imported
aluminum discs will be entitled to entry under this tariff
provision with duty only on the cost or value of such processing
performed outside the U.S., upon compliance with the documentary
requirements of 19 CFR 10.9.
Sincerely,
John Durant, Director
Commercial Rulings Division