CON 9-04
OT:RR:CTF:ER
HQ H270737 ABH
Port Director
U.S. Customs and Border Protection
Port of Sweet Grass
2108 21st Ave. South
Great Falls, MT 59405
Attn: Ms. Mary Munger, Supervisory Entry Specialist
Re: Application for Further Review of Protest No: 3304-15-100066; Applicability of NAFTA Duty Deferral; Antidumping and Countervailing Duties
Dear Port Director:
The purpose of this correspondence is to address the application for further review of Protest Number 3304-15-100066, dated October 2, 2015, filed by MEG Energy Corporation (“MEG”).
FACTS:
On February 15, 2013, MEG temporarily imported under bond (“TIB”) carbon steel pipe (“pipe”) from Canada to be bent and cut to length. On March 5, 2013, Customs submitted an Entry/Summary Rejection Sheet informing MEG that the entries were being reviewed for possible antidumping and countervailing duty issues and asking for more information regarding the operation involved. On March 14, 2013, MEG responded to Customs’ request for additional information and indicated that “the pipe is being bent, but not further processed or substantially transformed so it will not fall within the [North American Free Trade Agreement] NAFTA duty deferral regulations.” On March 15, 2013, the pipe was exported to Canada from the Port of Sweet Grass. On March 17, 2013, Customs closed the TIB entries.
On March 20, 2013, Customs issued a CF 29 Notice of Action informing MEG that the entries were subject to antidumping and countervailing duty cases A-570-956 and C-570-957, for carbon steel pipe from the People’s Republic of China. Customs also explained that the steel pipe would be subject to NAFTA duty deferral (“NDD”) provisions upon export to Canada because the bending of the pipe was a process. Following Customs’ issuance of the CF 29, MEG responded in an email dated March 20, 2013. MEG stated that the bending and cutting of the pipe should be treated as alterations. On April 9, 2013, MEG filed the NDD entries and on April 15, 2013, MEG submitted a check for the applicable antidumping and countervailing duties (“ADD/CVDs”).
On June 10, 2013, MEG protested the decision that NDD entries were required upon exportation of the subject merchandise to Canada, which was initially entered under a TIB. MEG requested a full refund of the antidumping and countervailing duties on the NDD entries. The Port approved MEG’s application for further review. Because the protest was filed before the NDD entries liquidated, the protest was premature pursuant to 19 U.S.C. § 1514(c)(3), and therefore, this office determined that further review was not warranted.
On June 19, 2015, the NDD entries liquidated. On October 2, 2015, MEG once again protested the decision that NDD entries were required upon exportation of the subject merchandise to Canada. MEG seeks a complete refund of the ADD/CVDs and the merchandise processing fees (“MPFs”) for both NDD entries.
In its Protest, MEG indicates that the NDD entries should not have been required because the “cutting and bending of the pipe were alterations that were performed in the United States without changing the identity or properties of the pipe.” Thus, according to MEG, the cutting and bending does not constitute further processing. In support of its position MEG includes a letter from Shane Rooke, the Project Manager for MEG, who states that,
these entries w[ere] imported to be bent and cut to length then re-exported for installation at our facility. No further work was done to the pipe. The material characteristics of the pipe have not been altered. Its use/application is exactly the same as it was prior to bending.
MEG argues that the bent and cut pipe does not have a new Harmonized Tariff Schedule of the United States (“HTSUS”) classification and the character, name, and use of the pipe does not change. MEG clarifies that the pipe was not threaded, nor were any couplings added to the pipe while in the United States.
MEG explains that the pipe is used for steam blow lines in Once Through Steam Generators (“OTSGs”). MEG indicates that the blow down line is used for emergency evacuation of four OTSGs. This line directs the steam pressure release to a safe discharge area. The pipe goes through a bending process specifically designed not to alter the chemistry of the pipe or overstress the pipe. The pipe is bent, cut to length for the bends, and the cut ends re-beveled for welding purposes. The pipe is bent to direct the flow to the end discharge area and the bends are needed for directional change in the line.
According to MEG, nothing in the bending process or the finished bends make it specific for use with an OTSG. For example, MEG indicates that the pipe has not become specialized or a part of the OTSGs. This pipe can be used in any application where a change in direction is needed and not just for the blow down lines of the OTSGs. Before and after bending, the pipe can be used for the same purpose of being a steam blow line for the OTSG, or the bent pipe can be used in any application where a change of direction is required and the bend angle and pipe specifications are compatible.
MEG explains that the pipe is bent rather than using other methods of direction change due to superior flow properties from a pipe bend. The use of fittings such as elbows and smaller bend radii would restrict flows and create turbulence. By using bends with the pipe, a smooth laminar flow is maintained, turbulence and risk of water hammer is dramatically reduced, and the bend allows for a safer, more efficient discharge.
ISSUES:
Whether MEG’s entries are properly subject to the NDD provisions and, thus, whether CBP properly required ADD/CVDs and MPFs on MEG’s entries?
LAW AND ANALYSIS:
As a preliminary matter, this protest was timely filed. Pursuant to 19 U.S.C. § 1514(c)(3)(A), a protest must be filed “within 180 days after but not before – (A) date of liquidation or reliquidation . . .” The entries at issue were liquidated on June 19, 2015. MEG filed its renewed protest on October 2, 2015, well within the 180-day limitation after liquidation.
It is the opinion of your office that this protest meets the criteria for further review. Specifically, that this protest alleges questions of law and fact which have not been previously ruled upon. 19 C.F.R. § 174.24(b). We agree.
All merchandise imported into the United States is subject to duty unless specifically exempted. General Note 1, HTSUS. There is an exemption for articles temporarily imported under bond to be “repaired, altered or processed” when those articles are exported within one year from the date of importation. See Subheading 9813.00.05, HTSUS. U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS, indicates other requirements that must be met for merchandise to qualify under the TIB provision that are not at issue in this case. It has been determined, that “[m]erchandise imported under TIB is not entered for consumption; therefore, antidumping duties cannot apply to such merchandise.” USEC Inc. v. United States, 25 C.I.T. 459, 469 (2001); Titanium Metals v. United States, 901 F. Supp. 362, 367 (Ct. Int’l Trade 1994). The statutory purpose of the TIB provision is to employ U.S. labor and capital on foreign goods that will be exported from the U.S. (without effecting U.S. manufacturing). HQ 229962 (Aug. 1, 2003) (citing Senate Report No. 1485 (Apr. 28, 1958)).
Because the pipes were exported to Canada, the provisions of the NAFTA apply. The legislative history to the NAFTA indicates that the parties (Canada, Mexico, and the U.S.) intended to restrict drawback and duty deferral programs between the parties. Merck & Co. v. United States, 30 C.I.T. 726, 733 (2006). For example, under NAFTA, drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico – often referred to as the “lesser of” rule. 19 C.F.R. § 181.44(a). TIB entries are treated as a form of “drawback” under the NAFTA provisions. 19 C.F.R. § 181.53(a)(1)(ii). There is an exception to the “lesser of” rule for TIB merchandise, regardless of origin, that is imported from a NAFTA country for repair or alteration and exported back to a NAFTA country. 19 C.F.R. § 181.53(b)(5). These restrictive provisions are often referred to as the NAFTA duty deferral (“NDD”) provisions.
Exportations to a NAFTA country from any of the duty deferral programs are only affected by NDD provisions when the goods or materials are no longer in the “same condition” as entered into the duty deferral program. 19 U.S.C. § 3333(a)(2); 19 C.F.R. § 181.45(b). Thus, goods exported in the “same condition” are eligible for drawback under 19 U.S.C. § 1313(j)(1), without regard to the limitation on drawback provided for under the NDD provisions. 19 C.F.R. § 181.45(b); see HQ H075337 (Nov. 18, 2009) (finding that exported steel strips remained in the “same condition” for purposes of the NDD provisions and, thus, “an entry for consumption would not be required”). Pursuant to 19 C.F.R. § 181.45(b), “same condition,” is defined as
a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:
Mere dilution with water or another substance;
Cleaning, including removal of rust, grease, paint or other coatings;
Application of preservative, including lubricants, protective encapsulation, or preservation paint;
Trimming, filing, slitting or cutting;
Putting up in measured doses, or packing, repacking, packaging, or repackaging; or
Testing, marking, labelling, sorting or grading.
For merchandise, however, that is not in the “same condition” and is “manufactured or otherwise changed in condition” and exported to a NAFTA country, the NDD provisions require an assessment of duty on the merchandise. 19 U.S.C. § 81c(a); 19 C.F.R. § 181.53(a)(2)(i)(A). Under the NDD provisions, withdrawals for exportation to Canada or Mexico are treated as if the merchandise was entered for consumption in the United States. 19 C.F.R. § 181.53(a)(2)(i)(A). For TIB entries, a NDD entry must be filed upon export to a NAFTA country, and regular customs duties and fees must be paid. Id. at § 181.53(b)(5). Thus, if the goods are subject to the NDD provisions, ADD/CVDs and MPFs are required because ADD/CVDs and MPFs are not subject to drawback. 19 U.S.C. § 3333(e); 19 C.F.R. § 181.42(a); HQ H075337 (Nov. 18, 2009).
In the present case, the imported pipe from Canada was subjected to cutting and bending. By regulation, the term “same condition,” includes, inter alia, a good that has been subjected to “[t]rimming, filing, slitting or cutting,” provided that the operation does not materially alter the characteristic of the good. 19 C.F.R. § 181.45(b)(1)(iv). We have previously determined that cutting does not materially alter the characteristics of the larger imported pieces when the pieces would be exported in essentially the same condition with only its dimensions having undergone a change. HQ W229081 (December 4, 2001). The cutting operation, as described by MEG, alters only the dimensions of the pipe. No other characteristic is changed. Thus, under the facts of this case the cutting does not materially alter the characteristic of the pipe for purposes of the NDD provisions.
Bending the pipe, however, is not one of the specifically enumerated “same condition” operations set forth in 19 C.F.R. § 181.45(b)(1). We have previously stated that the list in 19 C.F.R. § 181.45(b)(1) is not exhaustive and that the analysis should focus on whether the item in question is in the “same condition,” which includes the absence of material alterations to the characteristics of the good regardless of the processes to which the item was subjected. HQ 228961 (Jan. 23, 2002). The enumerated list in § 181.45(b)(1), however, necessarily informs what goods qualify as exported in the “same condition” as imported.
For example, CBP has previously determined that cutting and welding finished cable to fit various sizes of reels specified by the customer met the “same condition” definition because it consisted of nothing more than supplying the proper quantity as described in § 181.45(b)(1)(v) – “putting up in measured doses, or packing, repacking, packaging or repackaging.” HQ 226152 (July 23, 1996). CBP determined, on the other hand, that painting parts with John Deere identifying colors exceeded the “same condition” definition of “[a]pplication of preservative, including lubricants, protective, encapsulating, or preservation paint.” HQ 225874 (Mar. 22, 1996) (citing § 181.45(b)(1)(iii)). CBP found it significant that “painting” itself was not included in the list and that the act of painting parts with John Deere identifying colors was of a “greater magnitude” than the operation of applying a preservative paint. Id. Ultimately, whether goods are exported in the “same condition” as imported is a fact-specific determination.
In this case, the bending of the pipe materially alters the characteristic of the good because it exceeds the “same condition” operations contemplated by § 181.45(b)(1). Bending the pipe exceeds operations that merely change the dimensions for purposes of supplying a proper quantity of a finished product to a customer. “[B]ending of metal is generally regarded as a forming operation, intended to cause permanent deformation of the material.” HQ 555417 (Jan. 22, 1990) (analyzing the bending of rebar and the applicability of subheading 9802.00.50, HTSUS). The bending process allows the pipe to be used in applications where a straight pipe cannot – where a change in direction is required. The fact that the bent pipe is imported and exported under the same HTSUS subheading is not determinative. See HQ W231514 (July 22, 2008) (finding that imported and exported fungicide was materially altered by the addition of ingredients despite being classified under the same subheading and being assigned the same CAS numbers). The bent pipe is not in the “same condition” for purposes of 19 U.S.C. § 3333 because the characteristics of the pipe have been materially altered. Thus, the NDD provisions apply to MEG’s entries.
Under the facts of this specific case, the merchandise entered for “free” and therefore the “lesser of” rule and its exception are not at issue. At issue are the ADD/CVDs and the MPFs. Because the goods are subject to the NDD provisions, ADD/CVDs and MPFs are required because ADD/CVDs and MPFs are not subject to drawback. 19 U.S.C. § 3333(e); 19 C.F.R. § 181.42(a); HQ H075337 (Nov. 18, 2009).
HOLDING:
Based on the above, the bent pipe is not in the “same condition” for purposes of 19 U.S.C. § 3333 and, therefore, the entries at issue are subject to the NDD provisions. As such, the ADD/CVDs and MPFs are required on the entries. CBP properly required ADD/CVS and MPFs on MEG’s entries and, accordingly, MEG’s Protest should be DENIED IN FULL.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Sixty days from the date of the decision, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division