DRA-4/CON-9-04/WAR-3-01/FOR-2-03-RR:IT:EC 226152 PH
Kenneth G. Weigel, Esq.
Carol A. Rafferty, Esq.
Kirkland & Ellis
655 15th Street, NW.
Washington, D.C. 20005
RE: Welding of Electrical Sheet Steel Coils to Change Size; 19
U.S.C. 1313(j)(3); 19 U.S.C. 3333(a)(2)(A); Article 303:6(b)
of NAFTA; 19 CFR 181.45(b)(1); Drawback; Temporary
Importation under Bond; Foreign Trade Zones; Modification of
Ruling HQ 225368
Dear Mr. Weigel and Ms. Rafferty:
This is in response to your letters of April 19 and December 19,
1995, and January 23, 1996, on behalf of Pinnacle Steel
Processing, Inc., requesting reconsideration of ruling HQ 225368,
dated February 1, 1995. Our response to your request follows.
FACTS:
According to the April 18, 1994, letter in which you initially
requested a ruling on this matter, your client in this matter
processes domestic and imported flat-rolled alloy steel in master
coils that are uncoiled, slitted and then recoiled. The imported
steel is to be used in cores for electrical transformers. Prior
to its arrival at your client's facilities, the steel (both
imported and domestic) is already dedicated to this specific end
use. Your client uncoils the steel, slits the master coil sheet
with a slitting blade to various widths as ordered by customers,
recoils the steel, and exports the narrower coils to third
countries. You stated that once your client's customers receive
the steel in coil, they will cut the steel in coil into various
lengths and use it to manufacture articles.
You stated that your client will process various types and
thickness of steel. In slitting the steel, your client will
remove the edges and the top and bottom ends of the steel which
will result in waste, estimated at approximately 5 percent of the
weight of the coil. The steel in coil will be held in inventory
by your client until there is an order for that particular width.
Then, depending on the order, all or part of a coil will be slit.
Your client will either retain the remainder of the coil, if
there is sufficient product remaining to use to satisfy future
orders, or if the width remaining is insufficient for this
purpose, dispose of the remaining steel.
In a letter dated January 10, 1995, you informed this office that
on certain occasions your client will weld together steel from
two coils to obtain a larger coil as requested by the customer.
It is the ruling on this issue (i.e., regarding the welding of
steel from two coils) that you request to be reconsidered.
In ruling 225368 we held, in pertinent part, that:
... [T]he welded coils do not qualify for same condition
drawback under NAFTA; but, they do qualify for unused
merchandise drawback under 19 U.S.C. 1313(j). ... The
NAFTA duty deferral rules ... do apply to the welded coils.
... The welded coils would be subject to NAFTA Article 303
restrictions [when the proposed welding operation is carried
out in a foreign trade zone].
In your letters requesting reconsideration of the above holding,
you state that:
... [O]n occasion a customer will request a coil of shorter
length than the master (wide-width) coil, leaving the
remainder of the master (wide-width) coil too small for use.
In these instances [your client] must weld the ends of two
or more of these shorter coils together, to provide a
larger/more standard size coil generally required by its
customers.
Additionally, if a portion of the steel in the master (wide-width) coil is damaged or defective ... [your client] must
remove the damaged portion and join the coil back together.
While it is possible to simply wrap the ends of the coils
together (instead of welding), for safety reasons it is
preferable to weld the two pieces together into a continuous
coil. Wrapping the ends together will usually hold them
intact, but on occasion the ends may come apart while on the
customer's machines causing a possible hazard.
You describe the reason for the welding as follows:
Electrical steel sheet is sold by the pound or kilogram and
packaged in coils. ... [C]ustomers order only the amount
required for a specific project. Generally, customers order
the largest package (i.e., coil) of electrical steel capable
of use on their steel cutting machines, but no more than is
required for the project. ... This [i.e., customer orders
for only the amount of electrical steel needed for a
particular project] causes [your client] to repackage the
steel received in a master coil, and this repackaging
sometimes leaves a smaller portion of the coil. Thereafter,
[your client] must join these pieces of the master coil into
a larger (longer) coil.
You describe the type of welding as follows:
[Your client] precision cuts the ends of two pieces of steel
that are to be joined [and] then plasma welds (melts) the
ends together. There is no overlapping of the ends. As the
sample shows [two samples were provided; see description
below], the welding is not intended to be a permanent
joining of the two coils. It is simply to hold the two
pieces together in one package for use on the cutting
machines of [your client's] customers so that the machine[s]
can continue in [their] operation. The welding is an
operation that connects one piece to another so that the web
of steel continues to flow through the machine. In theory,
[your client] could tape or otherwise affix the two smaller
pieces together, but such wrapping or taping may come undone
during the customer's cutting operation. After the cutting,
the customer will scrap those pieces with the welded
segment.
As noted above, you provided two samples of welded pieces of coil
(two samples were necessary because the first sample separated at
the weld, apparently during transportation to this office). The
samples consist of pieces of grey metal, approximately 10 inches
wide and less than 0.02 inch thick. The ends which are welded
together appear to be cut at a 90 degree angle from the sides.
There is no overlap of the pieces welded together. The weld
appears to be very insubstantial and easily broken (as noted
above, the weld in one of the samples apparently broke in
transportation to this office). The weld is consistent with a
purpose of temporarily holding the two pieces of coil together
(i.e., there is a clear "break" between the two pieces and light
can even be seen in places between the two pieces), as described
above.
ISSUE:
Whether the steel coils described in ruling HQ 225368, subject to
welding operations as described in the FACTS portion of this
ruling, are in the "same condition", under section 203 of the
NAFTA Implementation Act (19 U.S.C. 3333) and 19 CFR 181.45(b),
as the imported steel coils (which are not so welded)? LAW AND ANALYSIS:
Section 203 of the North American Free Trade Agreement (NAFTA)
Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19
U.S.C. 3333), provides for the treatment of goods subject to
NAFTA drawback. Under section 3333(a), such goods mean any good
other than, among other things--
(2) A good exported to a NAFTA country in the same condition
as when imported into the United States. For purposes of
this paragraph--
(A) processes such as testing, cleaning, repacking, or
inspecting a good, or preserving it in its same
condition, shall not be considered to change the
condition of the good[.] ...
The Customs Regulations issued under the authority of the NAFTA
Implementation Act (see above) specifically provide for the
availability of drawback on the exportation of merchandise to a
NAFTA country (for effective dates of the provisions in these
regulations, see 19 CFR 181.41). Under 19 CFR 181.45(b), a good
imported into the United States and subsequently exported to
Canada or Mexico in the same condition is eligible for drawback
under 19 U.S.C. 1313(j)(1) without regard to the limitation on
drawback provided for in 19 CFR 181.44 (i.e., that such 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). Paragraph (b)(1) of section
181.45 provides that:
For purposes of this subpart, a reference to a good in the
"same condition" includes a good that has been subjected to
any of the following operations provided that no such
operation materially alters the characteristics of the good:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint
or other coatings;
(iii) Application of preservative, including
lubricants, protective encapsulation, or preservation
paint;
(iv) Trimming, filing, slitting or cutting;
(v) Putting up in measured doses, or packing,
repacking, packaging or repackaging; or
(vi) Testing, marking, labeling, sorting or grading.
In ruling HQ 225368, no detailed description of the welding
operation was provided or described (i.e., the operation was
simply described as "weld[ing] together steel from two coils").
As described above, we now have a far more complete description
of the welding process. Furthermore, since the issuance of
ruling 225368, Customs has thoroughly considered the effect of
welding on merchandise, albeit for purposes of another Customs
issue.
In Customs Service Decision (C.S.D.) 84-49, Customs had taken the
position that the term "further processing", for purposes of item
806.30, TSUS (the predecessor to subheading 9802.00.60, HTSUS),
did not include "the mere assembly of finished parts by ...,
welding, etc." The merchandise involved in C.S.D. 84-49 was
aluminum can bodies imported into the United States to be
assembled with easy-opening can ends by a welding operation.
Under subheading 9802.00.60, when "[a]ny article of metal ...
manufactured in the United States or subjected 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" duty is limited to the value of the
processing outside the United States.
In a notice published under 19 U.S.C. 1625(c)(1) in the Customs
Bulletin and Decisions, vol. 29, no. 51, p. 56 (December 20,
1995), Customs advised that it was "reconsidering its position
that a welding operation [regardless of its type or complexity]
does not constitute further processing' for purposes of
subheading 9802.00.60, HTSUS". Customs stated that it was
proposing to modify C.S.D. 84-49 to reflect that certain welding
("such as gas tungsten arc welding ... used in the assembly of
nuclear fuel rods") constitutes "further processing" for purposes
of the subheading. Customs stated that:
Whether other types of welding operations ... constitute
"further processing" for purposes of subheading 9802.00.60,
HTSUS, will be determined on a case-by-case basis.
In a notice published in the Customs Bulletin and Decisions, vol.
30, no. 7, p. 52 (February 14, 1996), Customs gave notice that it
was modifying C.S.D. 84-49, as described above.
The above-described Customs positions and actions are not
precedential for this case (because the issue involved in
subheading 9802.00.60, HTSUS, is whether the operation is
"further processing" in the United States and the issue involved
for purposes of NAFTA drawback under 19 U.S.C. 3333(a)(2)(A) and
19 CFR 181.45(b)(1) is whether the merchandise is in the "same
condition"). However, the positions and actions do demonstrate
that there are different kinds of welding operations (see also,
e.g., McGraw-Hill Encyclopedia of Science & Technology, vol. 19,
pp. 416-424 (1987)), and that the effect of welding operations on
Customs issues, at least in the described instance, will be
determined on a case-by-case basis. Furthermore, there is
another published Customs position in regard to the predecessor
of subheading 9802.00.60, HTSUS, which is helpful in the analysis
of the welding operation described in this case.
In Protest Review Decision (P.R.D.) 75-22, Customs considered the
applicability of item 806.30, TSUS (the predecessor to subheading
9802.00.60, HTSUS) to the "cabling" of insulated wire returned to
the United States after processing abroad. The "cabling"
operation was described as winding insulated conductors with one
strand of bare conductor after which the triplex cable could be
cut to proper lengths or several lengths could be welded
together. Customs held that item 806.30 was inapplicable and
that the "cabling" was not "further processing" as required by
item 806.30. In regard to the cutting or welding involved,
Customs stated:
Cutting the finished cable or welding several lengths
together to fit the various sizes of reels specified by the
customer is nothing more than supplying the proper quantity
of the finished product to the customer and cannot be
regarded as "further processing." [Emphasis added.]
We conclude that the welding operation in this case is the same.
This welding operation, clearly used in the packaging of the
coils of steel in sizes as ordered by customers, is "nothing more
than supplying the proper quantity of the finished product to the
customer." We note that you state that, rather than using the
segments of steel coil which are welded, customers scrap the cut
piece with the welded segments. The welding operation in this
case meets the description in 19 CFR 181.45(b)(1)(v) of
"[p]utting up in measured does, or packing, repacking, packaging
or repackaging."
Accordingly, the coils that are welded together as described in
this ruling are in the same condition, for purposes of 19 U.S.C.
3333(a)(2) and 19 CFR 181.45(b), as the imported coils which are
not so welded. As such, the coils that are welded together are
subject to the same treatment, under NAFTA, as that described in
ruling HQ 225368 for the slitted coils. That is, such coils
(welded together as described in this ruling) may qualify for
full same condition drawback under section 203(a)(2) of the NAFTA
Implementation Act (19 U.S.C. 3333(a)(2)) and 19 CFR 181.45(b);
they may qualify for non-NAFTA temporary importation under bond
(TIB) under U.S. Note 1(a), Subchapter XIII, Chapter 98, HTSUS,
19 U.S.C. 3333(a)(2), and 19 CFR 181.45(b); and they may qualify
for withdrawal from a foreign trade zone (FTZ) for exportation
(if they were so welded in the FTZ) without being subjected to
the limitation in section 203(b)(5), NAFTA Implementation Act (19
U.S.C. 81c(a)).
This does NOT mean that any welding operation may be performed on
imported merchandise without its losing its status as "same
condition", for purposes of 19 U.S.C. 3333(a)(2) and 19 CFR
181.45(b). Such determinations must be made on a case-by-case
basis.
HOLDING:
The steel coils described in ruling HQ 225368, subject to welding
operations as described in the FACTS portion of this ruling, are
in the "same condition", under section 203 of the NAFTA
Implementation Act (19 U.S.C. 3333) and 19 CFR 181.45(b), as the
imported steel coils (which are not so welded). Such welded
steel coils qualify for full same condition drawback under NAFTA
and the NAFTA duty deferral rules do not apply to the welded
steel coils for TIB and FTZ purposes (see ruling HQ 225368 and
the LAW AND ANALYSIS portion of this ruling).
EFFECT ON OTHER RULINGS:
Ruling 225368, February 1, 1995, MODIFIED.
Sincerely,
Director, International
Trade Compliance Division