CON-9-04 RR:CR:DR
230217RDC
JAGRO, Customs Brokers
Gerhard Grob, President
290 Nye Avenue
Irvington, N.J. 07111
RE: Thyssen Krupp VDM USA, Inc.; temporary importation under bond; subheading 9813.00.05, HTSUS; stainless steel; antidumping duty; exportation to Mexico; valuable waste; 19 C.F.R. §181.53; 19 U.S.C. §3333
Dear Mr. Grob:
This is in response to your letter of August 26, 2003, which was received in this office on December 16, 2003. You request, on behalf of your client, Thyssen Krupp VDM USA, Inc., a binding ruling regarding entering coiled steel strip, which you confirm is stainless steel, for processing and subsequent export to Mexico, under subheading 9813.00.05, HTSUS (Harmonized Tariff System of the United States). You also confirmed that stainless steel strip from Germany of the kind described in your request is subject to the antidumping duty order (case number A-428-825) on stainless steel sheet and strip in coils from Germany (see Notice of final determination of sales at less than fair value, 64 Fed. Reg. 30,710, June 8, 1999). You also request verification that Thyssen may enter for consumption the valuable waste that results from this processing of the stainless steel in Massachusetts.
FACTS:
These facts are based solely on your letter of August 26, 2003, and telephone conversations with the attorney assigned to the case, on December 17, 2003, January 16, 2004 and January 21, 2004. Thyssen Krupp VDM USA, Inc., (“Thyssen”), will be the importer of record on entries of stainless steel strip in coils, which it will have sold to Springfield Wire de Mexico S.A. de CV in Nuevo Laredo, Tamaulipas, Mexico. The stainless steel coils will be processed at Springfield Wire, Inc. in Springfield, Massachusetts. In Massachusetts the stainless steel is rolled and welded to yield stainless steel welded tubing which is then cut to specific lengths and exported to Springfield Wire’s facility in Mexico.
According to your letter, after processing four to five percent of the imported stainless steel strip is not fit for its intended purpose and is not exported to Mexico. When the tubing is cut to the required lengths leftover small end pieces of tubing are created. These end pieces of tubing are too small to meet the tubing length requirements. During one of the telephone conversations you also stated that tubing up to a foot long that has some defect as a result of the process also is not shipped to Mexico. You characterize these leftover end pieces of tubing and defective tubing as valuable waste since they are sold by the pound at prices published monthly by American Metal Market. The price for this scrap as of the time of your letter was 29 percent of the price paid for the imported stainless steel strip.
ISSUE:
1. Whether the above-described procedures constitute repair, alteration or processing (including processes which result in articles manufactured or produced in the United States) for purposes of duty-free Temporary Importation Under Bond treatment under subheading 9813.00.05, HTSUS?
2. Whether the leftover end pieces of tubing and defective tubing constitute “valuable waste” and may be entered for consumption in lieu of exportation or destruction?
LAW AND ANALYSIS:
1. Whether the above-described procedures constitute repair, alteration or processing (including processes which result in articles manufactured or produced in the United States) for purposes of duty-free Temporary Importation Under Bond treatment under subheading 9813.00.05, HTSUS?
General Note 1, Harmonized Tariff Schedule of the United States (“HTSUS”), dictates that all merchandise imported into the United States is subject to duty unless specifically exempted therefrom. Pursuant to U.S. Notes 1(a) and (c) of Subchapter XIII of Chapter 98, HTSUS, which contains subheading 9813.00.05, articles to be repaired, altered or processed, including processes which result in articles manufactured or produced in the United States, may enter into the United States temporarily free of duty under a Temporary Importation Under Bond (TIB) for exportation within one year from the date of importation. This one-year period may be extended for one or more additional periods, which when added to the initial period may not exceed three years. See 19 C.F.R. § 10.37. The imported merchandise may not be imported for the purpose of a sale or sale on approval.
Based on prior Ruling Letters, the method used by Thyssen to produce welded tubing from imported stainless steel strip constitutes a process. In Ruling 224661 (January 11, 1994), which pertained to subheading 9813.00.05, we stated that “[t]he processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” In other rulings involving subheading 9813.00.05, we have held the following to be a “processing:” trimming of steel coils to reduce their width and the cutting of edges to certain tolerances (HRL 224283); in HRL 228509 (April 9, 2002) we held that the processing of steel which involved only slitting, and did not alter the characteristics of the imported steel would constitute a process within the meaning of 9813.00.05, HTSUS. Based upon the above authorities, manufacturing the strip into tubing by rolling and welding is a process within the meaning of subheading 9813.00.05, HTSUS, and the stainless steel may be entered into the U.S. under subheading 9813.00.05, HTSUS.
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 that all goods imported into the United States are subject to NAFTA drawback restrictions except if otherwise specifically exempted. 19 U.S.C. § 3333(a) provides for the treatment of goods subject to NAFTA drawback. The imported stainless steel is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. § 3333(a) because the steel strip does not fall within any of the exceptions therein, nor is the welded tubing described in 19 C.F.R. § 181.45. exporting the tubing to Mexico triggers the assessment per 19 C.F.R. § 181.53 of import duties, including antidumping duty pursuant to the limitations imposed on goods subject to NAFTA drawback
19 C.F.R. § 181.53 is among the Customs Regulations issued under the authority of the NAFTA Implementation Act. 19 C.F.R. § 181.53(a)(2)(i)(A) states,
Where a good is imported into the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada . . . , and provided that the good is a “good subject to NAFTA drawback” within the meaning of 19 U.S.C. 3333 and is not described in § 181.45 of this part, the documentation required to be filed under this section in connection with the exportation of the good shall, for purposes of this chapter, constitute an entry or withdrawal for consumption and the exported good shall be subject to duty which shall be assessed in accordance with paragraph (b) of this section.
19 C.F.R. § 181.53(b)(5) provides in pertinent part,
where a good, regardless of its origin, was imported temporarily free of duty for repair, alteration or processing (subheading 9813.00.05, Harmonized Tariff Schedule of the United States) and is subsequently exported to Canada or Mexico, duty shall be assessed on the good on the basis of its condition at the time of its importation into the United States.
The duty, including antidumping duty, on the steel strip results from its importation into the U.S. and is based on the condition of the stainless steel strip when it was imported into the U.S. The duty, including antidumping duty, is merely deferred until such time as the stainless steel is exported to Mexico, then Thyssen will be required to make a consumption entry for the steel and pay the applicable regular duty and antidumping duty.
Further, 19 C.F.R. § 181.53(a)(2)(i)(A) states,
Where a good is imported into the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico or is used as a material in the production of another good that is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico, and provided that the good is a "good subject to NAFTA drawback" within the meaning of 19 U.S.C. 3333 and is not described in § 181.45 of this part, the documentation required to be filed under this section in connection with the exportation of the good shall, for purposes of this chapter, constitute an entry or withdrawal for consumption and the exported good shall be subject to duty which shall be assessed in accordance with paragraph (b) of this section.
The stainless steel that will be imported into the United States under TIB by Thyssen is imported into the United States pursuant to a duty-deferral program because per 19 C.F.R. § 191.53(a)(1)(ii), entry under TIB constitutes duty-deferral.
Finally, because Thyssen exports the tubing to Mexico, U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS (as amended) applies to this exportation. U.S. Note 1(c) to Subchapter XIII of Chapter 98, HTSUS, was amended by Presidential Proclamation 6641, December 15, 1993 (published in the Federal Register on December 20, 1993 (58 F.R. 66867, 67087)). U.S. Note 1(c) provides:
For purposes of this subchapter, if an article imported into the United States under heading 9813.00.05 is withdrawn for exportation to the territory of Canada or Mexico, the duty assessed shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the article that would have been payable on importation under chapters 1 through 97, inclusive, of the Harmonized Tariff Schedule of the United States or the total amount of customs duties paid to Canada or to Mexico on the exported article, unless such article is covered by section 203(a)(1) through 203(a)(8), inclusive, of the NAFTA Implementation Act. The amount of duties or refunds calculated on such articles pursuant to this note shall be adjusted to take into account any subsequent claim for preferential tariff treatment made to another NAFTA country. This note shall apply to shipments to Canada on or after January 1, 1996, and to Mexico on or after January 1, 2001.
19 C.F.R. § 181.53(b)(5) further provides,
Such duty shall be paid no later than 60 calendar days after either the date of exportation or the date of entry into a duty-deferral program of Canada or Mexico, except that, upon filing of a proper claim under paragraph (a)(3) of this section, the duty shall be waived or reduced in an amount that does not exceed the lesser of the total amount of duty payable on the good under this section or the total amount of customs duties paid to Canada or Mexico.
Hence, the duty payable on the stainless steel strip is also eligible to be reduced by either of two amounts: the duty imposed by the U.S. or the duty payable to Mexico, whichever is less. However, notwithstanding our foregoing conclusion, 19 U.S.C. § 3333(e) provides:
Nothing in this section or the amendments made by it shall be considered to authorize the refund, waiver, or reduction of countervailing or antidumping duties imposed on an imported good.
Section 3333(e) appears to override the exemptions provided by 19 U.S.C. § 3333(a)(1)-(8) with respect to dumping and unlawful subsidies, which are within the purview of the Department of Commerce.
The above-described procedures, i.e., the rolling and welding of imported stainless steel strip to yield welded tubing constitute a processing for purposes of duty-free Temporary Importation Under Bond treatment under subheading 9813.00.05, HTSUS. Per 19 C.F.R. § 181.53(a)(2)(i)(A), upon the exportation to Mexico of the welded tubing, Thyssen will be required to enter the stainless steel for consumption and pay the applicable regular duty and the antidumping duty, based on the condition of the stainless steel when it was imported into the U.S. pursuant to 19 C.F.R. § 181.53(b)(5). Any waiver or reduction of the regular duties will be subject to the limitations described in 19 C.F.R. § 181.53(b)(5), i.e., the “lesser of the two” rule as specified above.
2. Whether the leftover end pieces of tubing constitute “valuable waste” and may be entered for consumption in lieu of exportation or destruction?
Per U.S. Note 2(b) of Subchapter XIII, Chapter 98, HTSUS, if processing of goods entered under TIB “results in an article . . . manufactured or produced in the United States” valuable waste that results from such processing may be exported, destroyed or entered for consumption. If the valuable waste is exported or destroyed this must be done within the bond period under Customs supervision. If the valuable waste is entered for consumption duty, including antidumping duty if applicable, is payable at the rate in effect for the waste at the time of importation.
In this case, the welded tubing is an article manufactured or produced in the U.S., because, when compared with the imported stainless steel strip, the welded tubing is a new and different article having a distinctive name, use. (See Anheuser-Busch v. United States, 207 U.S. 556 (1908)). Therefore, Thyssen must comply with the accounting requirements in U.S. Note 2(b) of Subchapter XII of Chapter 98, HTSUS, and must provide a complete accounting of 100 percent of the imported stainless steel strip, including accounting for all articles, wastes, or irrecoverable losses resulting from the processing. Specific documentation of these matters is an essential requirement of qualifying for TIB treatment.
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. Because only valuable waste may be accounted for by tender of applicable duty, the characterization of material resulting from the manufacture of a product as waste for TIB purposes must be supported by law. Thyssen characterizes the leftover end pieces of tubing and the defective tubing as valuable waste and not by-products. Because of the practical difficulties encountered in distinguishing between a by-product and a valuable waste, (see C.S.D. 82-109) CBP has adopted considerations similar to those observed in making that distinction where drawback is concerned. C.S.D. 83-5 (August 13, 1982) sets out elements based on judicial interpretations 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 various judicial interpretations over the years. 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.
Four to five percent of the imported stainless steel strip, in the form of leftover end pieces of tubing and defective pieces are characterized as scrap and not shipped to Mexico but sold unchanged “for scrap at scrap prices.” The scrap price quoted in your letter is 29 percent of the price for the imported stainless. Apparently, these pieces of tubing are remnants and are not purposely produced but are an unavoidable consequence of the process. The pieces of tubing that are leftover end pieces resulting from cutting the tubing to desired length are identical, but for their lengths, to the tubing that is shipped. The tubing that is cut off the end to make specific length tubing is several inches long or as little as 1 inch. The imperfect tubing, that tubing which has some defect that makes it unsuitable, is also made of the same material as the tubing that is shipped to Mexico. This imperfect leftover tubing can be up to a foot long.
In HRL 230110 (December 12, 2003) we held that the 6% maximum of scrap consisting of the edges on the beginning and end of the stainless steel sheet and strip in master rolls which results from slitting to create narrower master rolls, and is then sold for scrap was valuable waste. We also held in that ruling that the described scrap would be classifiable under 7204.21.00, HTSUS, which is the provision for stainless steel waste and scrap. Because the tubing described as “scrap” is sold as scrap to a scrap dealer at a price significantly lower than the imported stainless steel, and because stainless steel scrap is a commodity recognized in commerce, the leftover end pieces of tubing and defective tubing are valuable waste. Therefore, this valuable waste may be entered for consumption, and the applicable duty including antidumping duty, paid to cancel the TIB bond.
HOLDING:
1. The rolling and welding of imported stainless steel strip to yield welded tubing constitutes a processing for purposes of duty-free Temporary Importation Under Bond treatment under subheading 9813.00.05, HTSUS. Per 19 C.F.R. § 181.53(a)(2)(i)(A), upon the exportation to Mexico of the welded tubing, Thyssen will be required to enter the stainless steel for consumption and pay the applicable duty, including antidumping duty, based on the condition of the stainless steel when it was imported into the U.S. pursuant to 19 C.F.R. § 181.53(b)(5). Any waiver or reduction of such duties will be subject to the limitations described in 19 C.F.R. § 181.53(b)(5).
2. The leftover end pieces of tubing and defective tubing constitute “valuable waste” and may be entered for consumption and duty and antidumping duty paid in lieu of exportation or destruction.
Sincerely,
Myles Harmon, Director
Commercial Rulings Division