CON-9-04 RR:CR:DR 230286RDC
International Trade Consultants, Inc.
Jill Simmons, Manager
P.O. Box 20160
Charleston, SC 29413-0160
RE: Valtimet, Inc.; temporary importation under bond; titanium strip.
Dear Ms. Simmons:
This is in response to your letter of December 15, 2003, which was received in this office on January 8, 2004. Also, we have incorporated the information you provided in your e-mails of January 23, 2004, February 26, 2004, and phone call of March 3, 2004. In your letter you request, on behalf of your client Valtimet, Inc., a binding ruling regarding entering coiled titanium strip under subheading 9813.00.05, Harmonized Tariff System of the United States, (“HTSUS”), for processing and tendering duty on the valuable waste that results from this process. We note that during a telephone conversation with a staff attorney from this office on January 15, 2004, it was agreed that HTSUS subheadings you provided in your letter would be ignored in our response.
FACTS:
The following facts are based solely on your submission and subsequent additional information provided via e-mail. Valtimet, Inc. will be the importer of record for entries of coiled titanium strip. The imported titanium strip is slit and “then continuous roll forming and welding to produce cut lengths” of welded titanium tubing. The welded titanium tubing is exported “all over the world” including perhaps, Canada and Mexico. Production of the welded titanium tubing also produces scrap titanium, i.e., titanium material that is not welded titanium tubing of the length desired. This material is “generated for various reasons including start-up, weld line calibration, butt welding of coils for continuous production and defect removal.”
The scrap titanium consists of tubing scrap, generated by cutting the tubing to desired length, and strip scrap called “slitter scrap” which results from slitting the titanium strip. The amount of scrap produced is “approximately 10 - 15 percent” of the titanium strip used to manufacture the tubing. The tubing scrap and slitter scrap are chopped and sold to one of Valtimet’s parent companies and then melted. The price paid for the scrap usually is negotiated on an annual basis and is approximately 40 to 50 percent of the price paid for the strip. The price paid for the scrap is usually linked with the price of the raw material, in the sense that if the raw material price goes up the scrap price usually goes up as well.
The formation of welded tubing also generates waste during the "scarfing" operation. “After the coils are slit, a slight burr remains on the edge of the slit coils. Prior to the forming operation, the burr is removed leaving a "clean" edge. There is no market for this “deburr” material; it is “not usable.” The value of this deburr material is zero and it is disposed of in a land fill. The amount of “deburr” material is negligible, therefore it is not weighed or identified, but treated as material lost during processing.
ISSUE:
Whether titanium strip in coils can be entered under subheading 9813.00.05, HTSUS, then used to manufacture welded tubing for export and duties tendered due on the valuable waste that is not exported?
LAW AND ANALYSIS:
General Note 1, 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 per 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 CFR 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 Valtimet to produce welded tubing from imported titanium strip constitutes a process. In Ruling 224661 (January 11, 1994), which ruled on 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, creating welded tube from the titanium strip by rolling, welding and cutting is a process within the meaning of subheading 9813.00.05, HTSUS, and the titanium strip may be entered into the U.S. under subheading 9813.00.05, HTSUS.
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 the valuable waste may remain in the United States, and duties must be paid on the valuable waste. If the valuable waste is exported or destroyed this must be done within the bond period under Customs supervision. If the duty is paid on the valuable waste, the duty, including antidumping duty if applicable, is payable at the rate in effect for the valuable 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 titanium strip, the welded tubing is a new and different article having a distinctive name, character and use. (See Anheuser-Busch v. United States, 207 U.S. 556 (1908)). Therefore, Valtimet must comply with the accounting requirements in U.S. Note 2(b) of Subchapter XIII of Chapter 98, HTSUS, and must provide a complete accounting of 100 percent of the imported titanium 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 valuable waste for TIB purposes must be supported by law. “Approximately 10 - 15 percent” of the titanium strip used in the manufacture of the tubing is scrap. This scrap material consists of tubing scrap, and strip scrap called “slitter scrap.” The tubing scrap and slitter scrap are chopped and sold to a melter that is also one of the parent companies to Valtimet. Valtimet characterizes the “scrap” that is sold to the melter as valuable waste and not a by-product. 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.
Typically around 10 to 15 percent of the imported titanium strip is characterized as tubing scrap and slitter scrap. Tubing scrap consists of the pieces of tubing that are leftover end pieces resulting from cutting the tubing to desired length. This leftover tubing is several inches long or as little as 1 inch and identical, but for their lengths, to the tubing that is shipped. 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. The strip scrap called “slitter scrap” which results from slitting the titanium strip is also titanium. The slitter scrap and tubing scrap is chopped and sold to a melter for approximately 40 to 50 percent of the price paid for the strip titanium.
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. In Valtimet’s case, the titanium described as scrap is remnants and not purposely produced; its production is an unavoidable consequence of manufacturing welded tubing. Therefore, it is not a by-product. Because the titanium described as “scrap” is chopped and sold to a scrap dealer it is valuable and saleable, thus it is “a commodity recognized in commerce.” Further, because it is sold at a price significantly lower than the imported titanium strip, it is properly described as valuable waste. Therefore, the applicable duty including antidumping duty, if any is applicable, may be tendered on this valuable waste to cancel the TIB bond.
Finally, the following analysis applies only if and when any of the titanium strip imported under TIB is exported to Canada or Mexico. 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 titanium 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 titanium strip when it was imported into the U.S. The duty, including antidumping duty, is merely deferred until such time as the titanium is exported to Mexico, then Valtimet 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 titanium that will be imported into the United States under TIB by Valtimet is imported into the United States pursuant to a duty-deferral program because per 19 C.F.R. § 181.53(a)(1)(ii), entry under TIB constitutes duty-deferral.
Finally, if and when Valtimet exports the tubing to Mexico or Canada, U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS (as amended) will apply to these exportations. 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 titanium strip will also be eligible to be reduced by either of two amounts: the duty imposed by the U.S. or the duty payable to the other NAFTA country i.e., Canada or Mexico, to which it is exported, whichever amount, is less.
The above-described procedures, i.e., the rolling and welding of imported titanium 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), if the welded tubing was exported to Mexico or Canada, Valtimet would be required to pay the applicable regular duty and the antidumping duty, based on the condition of the titanium 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.
HOLDING:
Titanium strip in coils can be entered under subheading 9813.00.05, HTSUS, then used to manufacture welded tubing for export and the duties, including antidumping duties if applicable, tendered on the valuable waste that is not exported.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division