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