CLA-2 CO:R:C:V 555096 DBI/CW
District Director of Customs
Boston, Massachusetts 02222-1059
RE: Application for Further Review of Protest No. 0410-7-000005
contesting the denial of item 806.30, TSUS, treatment to
certain articles of stainless steel imported by Newmet
Corp.
Dear Sir:
The above-referenced protest contests the decision by the
Port Director of Customs, Bridgeport, Connecticut, to disallow
entry under item 806.30, Tariff Schedules of the United States
(TSUS) (now subheading 9802.00.60, Harmonized Tariff Schedule of
the United States (HTSUS)), of certain articles of stainless
steel imported by Newmet Corporation (protestant) during the
period 1984-1986.
FACTS:
The record reflects that during the time period in question
the protestant purchased processed stainless steel scrap
(commercial scrap) from various scrap yards in the U.S. The
processed scrap was sent to facilities in Europe where it was
processed into articles of stainless steel (e.g., stainless steel
sheet), which were then returned to the U.S. for further
processing. The scrap which the scrap yards acquire and process
into "commercial" scrap generally consists of two types --
"obsolete scrap" (worn-out or discarded metal articles) and
"industrial scrap" (leftover metal from manufacturing operations
performed on metal articles). A certain unknown portion of the
scrap acquired by the U.S. scrap processors originate from metal
articles manufactured abroad. Scrap derived from U.S. and
foreign-made metal articles are commingled at the scrap yards.
Protestant's entry under item 806.30, TSUS, of the returned
stainless steel articles was disallowed by Customs "since
evidence that the steel scrap exported from the United States was
wholly of U.S. origin was not present." Importations by the
protestant under item 806.30, TSUS, including the entries
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encompassed by this protest, were the subject of an audit
performed by the Regulatory Audit Division, Northeast Region.
The results are reflected in an audit report dated August 11,
1987 (1-87-86F-001), and are summarized, in part, as follows:
All of (the protestant's) scrap suppliers are
public scrap yards. Representatives of (the
protestant) and the scrap facilities admit that
they do not know the country of manufacture of the
articles entering the scrapyards. They acknowledge
that some of the incoming scrap probably originated
from articles which had been manufactured in foreign
countries. Since the country of manufacture of
specific lots cannot be determined, there is no
segregation of U.S.-manufactured steel from foreign
steel in the scrap yards.
Counsel for the protestant presents several arguments in
support of the position that the processed stainless steel scrap
purchased by the protestant from the U.S. scrap yards met all of
the statutory requirements for the partial duty exemption set
forth in item 806.30, TSUS. Counsel states initially that the
purchase orders issued by the protestant to the scrap yards for
the processed scrap required that the scrap be of U.S. origin,
and that the scrap yards certified each shipment of processed
scrap as meeting the requirements of the statute.
It is protestant's position that the stainless steel scrap
met the requirements of the statute prior to the processing in
the scrap yard. Counsel maintains that obsolete or worn-out
articles of stainless steel, which account for about 75 percent
of the stainless steel scrap generated by scrap yards, should be
regarded as being of U.S. origin, regardless of their original
country of manufacture, by virtue of having been used in the U.S.
for a considerable period of time.
Moreover, it is protestant's position that industrial
scrap, which accounts for the remaining 25 percent of the scrap
generated by scrap yards, also conforms to the requirements of
item 806.30, TSUS, even before its processing by the scrap yards.
Counsel notes that, contrary to Customs position, neither item
806.30, TSUS, nor its predecessor statute includes a requirement
that the metal article be of U.S. origin. The statute requires
only that it be "manufactured in the United States or subjected
to a process of manufacture in the United States." Counsel
concludes that any industrial scrap that may have been derived
from foreign metal is a by-product of a U.S. manufacturing
operation, and, therefore, qualifies under item 806.30, TSUS, as
an article of metal "subjected to a process of manufacture" in
the U.S.
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Counsel further argues that the stainless steel scrap
purchased by the protestant met the requirements of item 806.30,
TSUS, since obsolete articles of stainless steel and newly
created stainless steel by-products (industrial scrap) are
substantially transformed in the scrap yards into a new and
different product known as processed stainless steel scrap. It
is protestant's position that the extensive processing performed
at the scrap yards results in stainless steel scrap that is
different in name, character, and use, than the articles of
discarded stainless steel (referred to by counsel as "junk") from
which it is made. Therefore, counsel concludes that all of the
processed stainless steel scrap purchased by the protestant had
been substantially transformed in the U.S. scrap yards into
material of U.S. origin.
Counsel states that even if the processing of stainless
steel material by the scrap yards into commercial scrap did not
result in a substantial transformation, there is no question that
the industrial and obsolete scrap was "subjected to a process of
manufacture" within the meaning of item 806.30, TSUS, which is
all that the provision requires. According to counsel, the scrap
yard processes articles of metal into more valuable scrap. It is
explained that obsolete and industrial scrap obtained by scrap
yards typically are weighed, analyzed, dismantled, sorted, sized,
decontaminated, shredded, crushed, ripped, ground, inspected,
upgraded, blended, baled, and packed.
In summary, counsel maintains that what little imported
metal may be processed by the scrap yards goes through at least
two separate and independent processing operations prior to its
export. First, obsolete scrap is of U.S. origin by virtue of its
lengthy use in U.S. commerce, and industrial scrap is the result
of a process of manufacture. Second, both categories of scrap
are then further processed in the scrap yard.
ISSUE:
Whether the imported stainless steel articles subject to
this protest are entitled to the partial duty exemption provided
for in item 806.30, TSUS.
LAW AND ANALYSIS:
Item 806.30, TSUS (now subheading 9802.00.60, HTSUS)
applies to:
Any article of metal (except precious metal)
manufactured in the United States or subjected to
a process of manufacture in the United States, if
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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 ....
Articles satisfying these requirements are dutiable only on the
cost or value of the processing abroad, upon compliance with
section 10.9, Customs Regulations (19 CFR 10.9).
We disagree with counsel's initial argument that obsolete
metal articles manufactured abroad should be considered metal
articles eligible for item 806.30, TSUS, treatment since they
come to be of U.S. origin by virtue of the considerable time they
have been used in U.S. commerce. It is clear that this tariff
provision does not apply to such articles because they have not
been manufactured or subjected to a process of manufacture in the
U.S., as required by the statute.
We also do not concur with counsel's contention that
industrial scrap (leftover metal such as punchings, turnings and
grindings) derived from the processing of imported metal
qualifies as a metal article under item 806.30, TSUS. The
Customs Service has consistently held that this tariff provision
is inapplicable to scrap obtained directly from processing
foreign-made metal in the U.S. In order for scrap to be eligible
under the statute where foreign metal is involved, the scrap must
be obtained from procesing metal initially obtained from
processing the foreign metal in the U.S. See ruling letters
dated July 23, 1984 (HQ 553126), February 6, 1986 (HQ 553998),
and February 26, 1986 (HQ 554013).
Finally, we turn to a consideration of protestant's
argument that obsolete and industrial scrap is substantially
transformed in the scrap yards into a new and different product
of U.S. origin (commercial scrap), or, at the very least, that
obsolete and industrial scrap "is subjected to a process of
manufacture" when it is converted to commercial scrap in the
scrap yards.
As protestant correctly points out, there is no express
requirement in item 806.30, TSUS, that metal articles must be of
U.S. origin to obtain the benefits of that provision. However,
we have used the term "domestic origin" in the context of item
806.30, TSUS, to describe metal articles which have been
manufactured or subjected to a process of manufacture in the U.S.
Under item 806.30, TSUS, the "substantial transformation" test
commonly used to determine country of origin is not used to
determine whether an article has been manufactured or subjected
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to a process of manufacture in the U.S., nor is it used to
determine the sufficiency of the "further processing" required
while abroad and upon reimportation into the U.S. Thus, whether
or not the processing of obsolete articles and industrial scrap
into commercial scrap results in a substantial transformation
(i.e., the creation of a new and different article of commerce
having a new name, character, or use), the processing which the
scrap undergoes must be analyzed to determine whether it is a
manufacturing process.
Customs does not consider processes such as the dismantling
(by whatever means), shredding, crushing, ripping, and grinding
of obsolete articles and industrial scrap to be manufacturing
processes, whether or not accompanied by sorting, grading, or
other similar activities to promote the stability or utility of
the scrap. Manufacturing begins once raw materials are
available, and does not include reclamation activities undertaken
with respect to obsolete and industrial scrap prior to the
creation of raw materials for new manufacturing. See ruling
letter dated September 23, 1988 (HQ 554750).
Therefore, with respect to obsolete scrap, the requirement
that the scrap be a metal article manufactured or subjected to a
process of manufacture in the U.S. is satisfied if the discarded
article from which the obsolete scrap was obtained was
manufactured or subjected to a final process of manufacture in
the U.S. Similarly, industrial scrap satisfies this requirement
if the metal article from which the scrap was obtained was
initially manufactured or subjected to a process of manufacture
in the U.S.
HOLDING:
For the reasons set forth above, as protestant is unable to
establish that all of the stainless steel scrap exported for
further processing abroad was derived from metal articles
manufactured or subjected to a process of manufacture in the
U.S., we find that the imported stainless steel articles subject
to this protest are not entitled to entry under item 806.30,
TSUS. Therefore, you are directed to deny the protest in full.
Sincerely,
John Durant
Director, Commercial
Rulings Division