CON-9-04 RR:CR:DR
229265 RDC
Framatome ANP Richland, Inc.
Robert A. Dutton
Office of General Counsel
2101 Horn Rapids Road
Richland, WA 99352
RE: Request for Ruling regarding TIB entry of enriched uranium hexafluoride; temporary importation under bond; subheading 9813.00.05, HTSUSA; UF6; inventory control system; hydrogen fluoride; cylinder heels; uranium oxide powder; UO2; direct identification; FIFO; accounting for commingled fungible merchandise; valuable waste.
Dear Mr. Dutton:
This is in response to your October 1, 2001, request for a ruling regarding the importation of enriched uranium hexafluoride (“UF6”) under Temporary Importation under Bond (TIB) which is processed into uranium oxide powder (“UO2”) in the United States. We have also received your August 14, 2001, and August 28, 2002, submissions.
FACTS:
The following facts are based solely on the representations contained in Framatome’s submissions of August 14, 2001, and October 1, 2001, the exhibits to those submissions and conversations with Framatome’s counsel.
Framatome imports enriched uranium hexafluoride (“UF6”), which may be subject to antidumping or countervailing duties or both, from several European producers. The receipt, storage and processing of the UF6 and the resulting uranium oxide powder are strictly controlled in compliance with the nuclear material accountability requirements of the Nuclear Regulatory Commission (“NRC”). The UF6 is converted to uranium dioxide (“UO2”) in the U.S. and the UO2 is then exported to Japan. Framatome is the importer of record for the UF6 but “at all times, [its] Japanese customers own both the UF6 and the resultant UO2 powder.” Because the UF6 is imported for processing and then exported to Japan, Framatome intends to use temporary importation under bond (“TIB”), under subheading 9813.00.05, Harmonized Tariff System of the United States (“HTSUS”) to import the UF6.
When the cylinders of the imported uranium hexafluoride arrive at Framatome’s facility, they are inspected; the cylinder weights and serial numbers as well as the enrichment levels of the UF6 are verified and compared with the shipping documents. That information is recorded on DOE/NRC Form 741 and filed with the NRC. These cylinders are tracked through direct identification because they are individually numbered, until they are emptied into the conversion process. After the cylinders are emptied into the production process they are cleaned.
The cylinders contain approximately 1500 kilograms of UF6 in solid form. In order for the UF6 to be removed from the cylinders it is converted to gas by heat and is then transferred into the dry conversion facility. A small amount of the UF6, typically 1 to 3 kilograms, remains in the cylinder because it adheres to the walls. This UF6 remaining in the cylinders is referred to as the “heel.” The heel is removed so that the cylinder may be re-used and because the most accurate way to measure the total amount of UF6 in the cylinder as imported is to compare the weight of the full cylinder to the weight of the empty cylinder. The heel is removed from the cylinder during a cleaning process which introduces water under pressure into the cylinder.
The water does not flush the UF6 from the cylinder nor does the UF6 dissolve into a solution. The UF6 reacts chemically with the water to form the new compound - uranyl fluoride (UO2F2) - and hydrofluoric acid. This new compound together with the uncombined water and metallic contaminants from the walls of the cylinder constitutes an aqueous residue which is drained from the cylinder and diverted to a storage tank. Framatome characterizes this aqueous residue as an unwanted residue inevitably and unavoidably incurred in the process of manufacturing UO2 from UF6. It cannot be added as is to the UF6 that was previously removed from the cylinder nor can it be introduced as is into the dry conversion process.
Framatome states that disposal of this aqueous residue is subject to regulation; this regulation precludes burial or other destruction of this residue. Further, Framatome states that there is no market for this residue, but the uranium contained in it does have a commercial value. Thus, after accumulating sufficient quantities of this and other residues, it is processed to reclaim the uranium. The aqueous residue is pumped to the Miscellaneous Uranium Recovery System where the uranium is removed from the solution. It is mixed with ammonium hydroxide to produce ammonium diuranate (“ADU”) which is removed from the liquid with centrifuges. The ADU is treated and recycled into the main uranium production stream as purified uranyl nitrate solution. The uranium is then converted to uranium dioxide powder.
The imported UF6 is subjected to a dry conversion process, referred to as a continuous process, during which vaporized UF6 is converted to uranium oxide in a defluorination / reduction process in a fluidized bed. The following is an extremely truncated, very simplified version of that process.
TIB UF6 is introduced into the bed which is fluidized with a gas mixture of nitrogen, hydrogen and superheated steam. UF6 imported under different TIBs may be processed together here, but non-IB UF6 will not be mixed with TIB UF6. While in the bed the UF6 reacts with the superheated steam. Uranyl fluoride powder and hydrogen fluoride gas are formed. This resulting Uranyl fluoride powder is defluorinated which forms UO2 and more hydrogen fluoride gas. UO2 leaves the bed and enters a rotary calciner. The UO2 is further defluorinated in the rotary calciner. The UO2 leaves the calciner and enters the blender.
In the blender the enrichment level of the UO2 powder is adjusted by adding UO2 powder from working stock, which may be TIB UO2 or non-TIB UO2 powder. In the event that the addition of the working stock UO2 powder results in too much UO2 powder, the excess UO2 powder may either be exported or designated as TIB working stock. Completed UO2 powder is stored until packaged for export. The UO2 powder is packaged for export into special shipping containers which are identified by customer, weighed, numbered, enrichment noted and other important date recorded. Detailed records are maintained on each container, including customer identity and ownership of the material.
The hydrogen fluoride which results from the dry conversion process is “highly hazardous from a health and environmental standpoint, requiring significant and highly controlled treatment to convert it to a form that is either useful or saleable.” The hydrogen fluoride is first filtered “to remove residual uranium” and then processed into hydrofluoric acid. Framatome states that the hydrogen fluoride gas which results from the fluidized bed stage and the rotary calciner stage are subject to additional processes of condensation, filtration and dilution to form hydrofluoric acid, which is combined with the hydrofluoric acid that results from cleaning the cylinders. The hydrofluoric acid is sold although Framatome states that the “considerable effort and expense” to convert the hazardous hydrogen fluoride into saleable hydrofluoric acid is not recaptured in its sales price.
Framatome states that it will account for the TIB UF6 through direct identification until the cylinders are emptied into the dry conversion process. The cylinders which contain the imported UF6 are numbered and tracked by this number from the time of importation until the UF6 enters the dry conversion process. Thus, the cylinders imported under TIB can be directly identified until they are emptied into the dry conversion process. Framatome’s requests of October 1, 2001, and August 14, 2001, supply different and sometimes contradictory versions of how it intends to account for the TIB UF6 after the cylinders are emptied into the dry conversion process. However, Framatome’s submission of August 28, 2002, and Framatome’s counsel, during a telephone conversation with an attorney in this office on August 30, 2002, clarified Framatome’s intended accounting method.
Framatome states that it may combine “different entries of TIB UF6 into one processing run so as to increase the economic and process efficiencies of the dry conversion process.” Further, since UF6 is fungible, after the cylinders are emptied, the TIB UF6 will be accounted for using the first-in first-out method (FIFO), as illustrated in Schedule X in the Appendix to Part 181 of the Customs Regulations. Moreover, the UO2 powder which results from commingling different TIB entries of UF6 will be physically segregated in storage. Any other statements in Framatome’s submissions that state any other inventory method will be used or contradict that the FIFO method inventory accounting will be used subsequent to emptying of the cylinders are disregarded.
Further, Framatome states that “it understands its obligation" to maintain the identification of the imported UF6 through the dry conversion process until the resultant UO2 powder is exported. Framatome also states that it understands that goods from one TIB entry cannot be substituted for other goods. Framatome states that all of the TIB UF6 will be used in the conversion process and that UF6 imported under TIB will not be commingled with “non-TIB” uranium during the dry conversion process itself. The dry conversion line used to process TIB UF6 will be cleaned out before and after the TIB project is processed so that there is no commingling with the prior or subsequent production runs.
Finally, Framatome states that the NRC’s material accountability requirements require it to account for all uranium to within 0.25 per cent. Framatome historically has recovered 99.5 percent of the UF6 in the form of UO2 powder. The remaining 0.5 percent is a manufacturing process loss due to several circumstances. First, an amount of UF6 is lost due to quality assurance testing in that laboratory samples are taken from the UO2 powder and analyzed in Framatome’s laboratories.” “Second, the UF6 that is captured in filter media, rags used to clean out equipment, gloves, shoe coverings and other forms of combustible solid waste is lost. The third category is the process loss from filtered liquids used in the conversion process. All these wastes are accounted for and to the extent possible, the uranium is extracted before the waste is disposed of as permitted by environmental regulations. The recovered uranium is further processed and added into the working stock.” Framatome considers these processing losses to be valuable waste and states that it “will pay the applicable duties on the .5 percent of the UF6 that is considered a process loss.”
ISSUES:
1. Is the inventory method used by Framatome to account for the TIB UF6 acceptable under the law and regulations?
2. Can the 1) aqueous residue which contains the cylinder heels; 2) the blended powder returned to working stock; 3) the processing losses; and 4) the hydrogen fluoride be characterized as valuable waste within the meaning of Note 2(b) of Subchapter XIII (Chapter XIII, HTSUS)?
3. What is the classification of the aqueous residue which contains the cylinder heels?
LAW AND ANALYSIS:
All merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Subheading 9813.00.05, HTSUS, provides for duty-free entry, under bond, for merchandise imported into the United States for a temporary period for the purpose of repair, alteration, or processing. The latter may include processing that transforms an article into one that is considered manufactured or produced in the United States. The provision requires that the imported merchandise be exported or destroyed within one year of the date of importation. This period may be extended for one or more periods which, when added to the initial one year, do not exceed a total of three years. In order to qualify for this duty-free treatment, merchandise cannot be imported for the purpose of sale (or sale on approval).
Note 2(b) of Subchapter XIII, HTSUS, requires that, when processing of merchandise admitted into the United States under subheading 9813.00.05, HTSUS, results in an article manufactured or produced in the United States,
(i) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.
Framatome states that it may combine “different entries of TIB UF6 into one processing run so as to increase the economic and process efficiencies of the dry conversion process” and that, since UF6 is fungible, after the cylinders are emptied, the TIB UF6 will be accounted for using the first-in first-out method (FIFO), as illustrated in Schedule X in the Appendix to Part 181 of the Customs Regulations.
The Customs Service has interpreted the temporary importation under bond provisions as usually requiring direct identification of each particular article to show timely exportation. There have been exceptions, however, to requiring direct identification of each individual article covered by a TIB entry when direct identification of the imported merchandise was impossible because the imported merchandise was indistinguishable from and commingled with other merchandise, and thus the ability to directly account for the imported merchandise was lost. The FIFO method has been permitted as one such exception.
In C.S.D. 86-16 (HQ 218370 (December 9, 1985)) TIBs were permitted to be canceled on a FIFO basis when fungible merchandise entered for consumption and merchandise entered under a TIB, under item 864.05, TSUS (presently subheading 9813.00.05, HTSUS), were commingled. Further, in HRL 225566 (August 7, 1995) we held that “the FIFO method, as illustrated in Schedule X to the 19 CFR Part 181 Appendix, may be used to identify the goods when the finished products are manufactured from fungible domestic merchandise commingled with fungible TIB merchandise.”
Thus, to the extent that the UF6 imported under a TIB is fungible with the UF6 imported under a different TIB with which it will be commingled, and 100 percent of the resultant UO2 powder is exported (or destroyed) within the one-year statutory period, the FIFO inventory accounting method, as illustrated in Schedule X to the 19 CFR Part 181 Appendix, may be used to identify the merchandise from a particular importation that was commingled with other merchandise upon receipt into the production process. Framatome must use the point after the cylinders are emptied into the dry conversion process, which is when the UF6 becomes commingled and when the dry conversion process starts, as when the TIB UF6 is received into inventory for purposes of identification by FIFO. Additionally, the UO2 powder must enter finished goods inventory when it is ready for storage - after removal from the blender - to simplify identifying the UF6 by avoiding receipts into and removal from inventory of working stock.
Finally, per Note 2(b) of Subchapter XIII, HTSUS, Framatome must provide a complete accounting of 100 percent of the TIB UF6 to the Customs Service, including accounting for all articles, wastes, or irrecoverable losses resulting from the processing, and all articles and valuable wastes resulting from such processing must be exported or destroyed or entered into the U.S. and the appropriate duty paid. Specific documentation of these matters is an essential requirement of qualifying for TIB treatment.
2. Can the 1) aqueous residue which contains the cylinder heels; 2) the processing losses; 3) the blended powder returned to working stock; and 4) the hydrogen fluoride be characterized as valuable waste within the meaning of Note 2(b) of Subchapter XIII (Chapter XIII, HTSUS)?
U.S. Note 2(b)(ii) recognizes several categories of outputs resulting from the manufacture or production of materials imported under TIB: articles, wastes, valuable wastes and irrecoverable losses. Though a complete accounting for all these outputs is required some of the categories of outputs must be treated differently, e.g., valuable waste may be exported or destroyed or “duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.” Framatome characterizes 1) aqueous residue which contains the cylinder heels; 2) the processing losses; 3) the blended powder returned to working stock; and 4) the hydrogen fluoride as valuable waste and intends to enter and pay duty on these materials.
In C.S.D. 82-109 we discussed the definitions of “waste,” “article,” and by-product in the context of Item 864.05, Tariff Schedules of the United States, 19 USC § 1202, which was the predecessor provision to heading 9813, HTSUS. C.S.D. 82-109 stated, “When used in the tariff statutes it is clear that Congress intended different meanings for by-products and waste.” This decision cited the drawback statute (19 USC § 1313) which requires distribution of drawback if more than one article is produced as a result of the use of imported merchandise in a manufacturing process. The courts have construed this latter provision to require distribution of drawback to by-products, which clearly indicates that the term "article" includes by-products.
Further in C.S.D. 82-109, the Customs Service concluded that "wastes" and "by-products" are not synonymous for the purposes of temporary importation under bond. The characterization of material resulting from the manufacture of a product as either waste or a by-product, for TIB purposes, is the subject of several Customs Service Decisions (see C.S.D. 83-5; C.S.D. 84- 40; C.S.D. 79-419, C.S.D. 82-109 and C.S.D. 81-224). Because of the practical difficulties encountered in distinguishing between a by-product and a valuable waste, we adopted considerations similar to those observed in making that distinction where drawback is concerned. C.S.D. 83-5 sets out elements used to determine whether a material is a by-product or waste for drawback purposes. These elements are:
1. The nature of the material of which the residue is composed.
2. The value of the residue as compared to the value of the principal product and the raw material.
3. The use to which it is put.
4. Its status under the tariff law, if imported.
5. Whether it is a commodity recognized in commerce.
6. Whether it must be subjected to some process to make it saleable.
These criteria are based on judicial interpretations. See Patton v. United States, 159 U.S. 500, 503, 16 S. Ct. 89 (1895), in which the Court stated that
[t]he prominent characteristic running through all these definitions [of waste] is that of refuse, or material that is not susceptible of being used for the ordinary purposes of manufacture. It does not presuppose that the article is absolutely worthless, but that it is unmerchantable, and used for purposes for which merchantable material of the same class is unsuitable.
See also, Latimer v. United States, 223 U.S. 501, 504, 32 S. Ct. 242 (1912), in which the Court stated that "[t]he word [waste] as thus used generally refers to remnants and by-products of small value that have not the quality or utility either of the finished product or of the raw material." These Supreme Court cases were cited and relied upon in Mawer-Gulden-Annis (Inc.) v. United States, (17 CCPA 270, T.D. 43689 (1929)), in which broken green olives, imported in casks in brine and used to make garnishing or sandwich material, were held not to be waste on the basis that the broken green olives "possess[ed] the same food qualities and some of the uses of whole pitted green olives" (17 CCPA at 272). See also, Willits & Co. v. United States, 11 Ct. Cust. App. 499, 501-502, T.D. 39657 (1923), in which certain beef cracklings were held to be waste as material not susceptible of being used in the ordinary operations of a packing house, material not sought or purposely produced as a by-product in the industry, material not processed after it became a waste, and not possessing the characteristics of its original estate.
To clarify Framatome’s request, we understand that when it refers to the “heel” it is referring to the small amount of UF6 left in the cylinders, which, as we understand the process, cannot be extracted from the cylinders except in the aqueous residue as described. Therefore, without further processing to reclaim the uranium and hydrogen fluoride “the heel” cannot be separated from the aqueous residue. For the following reasons, this aqueous residue which contains the heel is a valuable waste for purposes of subheading 9813.00.05, HTSUS.
The aqueous residue which results from removing the heel from the cylinder by introducing water into the cylinder is an unwanted and unavoidable product of the conversion of UF6 to UO2. Federal and state regulation preclude the disposal of it by burial or destruction. Further, the nature of the aqueous residue is different from the UF6 entered into the dry conversion line in that it is no longer suitable for its original purpose; the aqueous residue cannot be entered into the dry conversion process. There is no market for this residue, though when subject to further processing the reclaimed uranium and HF are valuable. No further processing is required to make the aqueous residue scrap; however, additional processing is necessary to retrieve the two valuable components. Therefore, the aqueous residue is valuable waste within the intendment of Note 2(b) of Subchapter XIII.
This aqueous residue is classifiable in subheading 2844.20.00, HTSUS, as dispersions and mixtures containing uranium enriched in U235. Section VI, Note 1(a), HTSUS, states in part that goods answering to a description in heading 2844 or 2845 are to be classified in those headings and in no other heading of the tariff schedule. Pursuant to Chapter 28, Note 1(a), HTSUS, except where the context otherwise requires, the headings of that chapter apply only to "separate chemical elements" and "separate chemically defined compounds." The aqueous residue in this case is neither. However, the language of heading 2844, HTSUS, provides the context in which the product must be viewed. That heading covers radioactive chemical elements and radioactive isotopes and their compounds; mixtures and residues containing these products. The merchandise at issue is, in fact, a residue containing a radioactive chemical element, i.e., uranium. Under GRI 1, HTSUS, the aqueous residue, as described, is provided for in heading 2844. It is classifiable in subheading 2844.20.00, HTSUS, as dispersions and mixtures containing uranium enriched in U235. The column 1 rate of duty is free.
Framatome asks if the duty on the aqueous residue is calculated based upon the quantity and value of the UF6 which remains present in the cylinder heels after the major portion of the UF6 has been removed. Since the rate of duty is free we, with Framatome’s consent, do not address how the duty is to be calculated.
The enrichment level of the completed UO2 powder is adjusted by adding UO2 powder from working stock. In the event that the addition of the working stock UO2 powder results in too much UO2 powder, i.e. more UO2 than is required for the order, the excess UO2 powder is returned to working stock. Framatome contends that this excess blended powder ”is functionally the same as the damaged pellets [which were considered valuable waste in HRL 224187] and thus, this excess UO2 powder should also be considered valuable waste.” The blended powder returned to working stock is not valuable waste within the meaning of Note 2(b) of Subchapter XIII. The critical difference between the damaged pellets characterized as valuable waste in HRL 224187 and the excess UO2 powder here is that the damaged pellets were damaged, thus making them different from and less valuable than the exported pellets.
In HRL 224187 we said, “the nature of the rejected pellets differs from the good pellets in that they are no longer suitable for its original purpose (to be used in fuel assemblies). The damaged pellets retain only a scrap value and retain no commercially marketable value. No further processing is required to make them scrap, however, additional processing is necessary to make them useful as working stock. The identity, characteristics, and classification differ.” In contrast, the excess blended UO2 powder is identical to the exported UO2 powder.
The excess blended UO2 powder is the same as the exported UO2 powder in that it is suitable for its original purpose (to be used in fuel assemblies). The excess blended UO2 powder retains its commercially marketable value. No further processing is required to make it useful as working stock. The identity and characteristics of the excess blended UO2 powder are identical to the blended UO2 powder. Therefore, the excess blended UO2 powder is not a valuable waste within the meaning of Note 2(b) of Subchapter XIII but an article and must be exported or destroyed within the one-year time period unless an extension is authorized.
Framatome states that 0.5 percent of the TIB UF6 is lost during manufacturing due to laboratory samples, materials captured in filters, rags, etc., and “process loss from filtered liquids used in the conversion process.” “All of these wastes are accounted for and to the extent possible, the uranium is extracted before the waste is disposed of as permitted by environmental regulations. The recovered uranium is further processed and added into the working stock.” Framatome considers these processing losses to be valuable waste. Since we do not have enough information regarding the specifics of the materials described by Framatome as “other processing wastes” we do not rule on whether this material is properly characterized as valuable waste within the meaning of Note 2(b) of Subchapter XIII. However, we direct Framatome’s attention to its obligation to identify 100 percent of the TIB UF6 after it has entered the dry conversion process by the FIFO inventory accounting method.
To the extent that a portion of the TIB UF6 physically cannot be recovered it is an irrecoverable loss – not a valuable waste. Per Note 2(b) of Subchapter XIII, HTSUS, irrecoverable losses must be included in the complete accounting to Customs. To the extent that UF6 can be recaptured from the laboratory samples, or from filters, rags, etc., or from filtered liquids used in the conversion process, and then used in the dry conversion process and thus be converted to UO2, such UF6 is not a valuable waste, but an article which must be identified using FIFO and accounted for when exporting the UO2. Only that portion of UF6, if any, that is recovered but cannot be used as is in the dry conversion process, e. g. that has been changed so that it cannot be used as UF6 unless subject to further processes, but yet retains some value is valuable waste. Per Note 2(b) of Subchapter XIII, HTSUS, valuable waste must be included in the complete accounting to Customs.
The hydrogen fluoride that results from the dry conversion process is an unwanted, unavoidable result of the conversion of UF6 to UO2. Hydrogen fluoride, according to Framatome, is a hazardous waste and as such must be disposed of within strict guidelines. Obviously, the hydrogen fluoride differs from the uranium oxide powder in that it is not suitable for the same purpose (to be used in fuel assemblies). As a hazardous waste the hydrogen fluoride has no commercially marketable value but does retain a scrap value because of the residual uranium content and conversion to hydrofluoric acid. Framatome subjects the hydrogen fluoride gas to additional processes of condensation, filtration and dilution to form hydrofluoric acid. The hydrofluoric acid is sold but Framatome does not recover the cost of converting the hydrogen fluoride in the sale. Given these properties and characteristics the hydrogen fluoride that results from the dry conversion process is a valuable waste within the meaning of Note 2(b) of Subchapter XIII.
Per Note 2(b) of Subchapter XIII, HTSUS, “in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.” In its request, Framatome requested guidance as to how duty on the hydrogen fluoride – which we hold is a valuable waste – is calculated. Framatome contends and this office agrees that the hydrogen fluoride is classified under subheading 2811.11.00 (HTSUS). This subheading provides for “Other inorganic acids and other inorganic oxygen compounds of nonmetals: Other inorganic acids: Hydrogen fluoride (hydrofluoric acid).” Since the 2002 HTSUS shows the column 1 and 2 rate of duty for subheading 2811.11.00 as free, we, with Framatome’s agreement, do not address how duty is calculated on hydrogen fluoride.
HOLDING:
1. To the extent that Framatome maintains identity of the TIB UF6, through use of a FIFO inventory management system as exemplified by Schedule X in the Appendix to 19 CFR, Part 181, during the dry conversion process that accounts for all the UO2 powder, including the TIB UO2 powder diverted to working stock, so as to ensure timely export or destruction, there will be compliance with the statute.
2. The 1) aqueous residue which contains the cylinder heels and 2) the hydrogen fluoride are valuable wastes within the meaning of Note 2(b) of Subchapter XIII (Chapter XIII, HTSUS). The blended powder returned to working stock is NOT a valuable waste, but an ARTICLE within the meaning of Note 2(b) of Subchapter XIII (Chapter XIII, HTSUS).
3. The aqueous residue that contains the cylinder heels is classifiable in subheading 2844.20.00, HTSUS.
Sincerely,
Myles Harmon, Acting Director
Commercial Rulings Division