CLA-2-CO:R:C:S 556530 RAH
Mr. John Sveum
Branch Manager
Milne & Craighead Customs Brokers Inc.
200 International Boulevard
P.O. Box 2
Sweetgrass, MT 59484
RE: Applicability of the partial duty exemption under subheading
9802.00.50, HTSUS, to certain steel products exported
to Canada for weld overlaying
Dear Mr. Sveum:
This is in repsonse to your letter of January 6, 1992,
requesting a ruling on behalf of your client, Capitan Welding
Technologies, Inc., on the dutiability of certain steel products
exported to Canada for weld overlaying and then returned to the
United States.
FACTS:
Your client intends to import into Canada carbon steel pipe
which is manufactured in the United States. In Canada a 1/4 inch
layer of Monel 400 (consisting of 70% Nickel, 30% Copper) will be
welded (clad) to the inside of the pipe to provide corrosion
protection. Your client states that from a "corrosion point of
view" the pipe with the overlay is identical to solid Monel pipe,
the latter being much more expensive. Your client sells the pipe
to various oil companies which have to make their products
"environmentally safe and friendly" for use in oil refineries.
On June 9, 1992, a member of my staff called Capital Welding
Technologies, Inc., for additional information. We were informed
by Mr. Guenette that the pipe must either be solid monel pipe or
have the monel overlay described herein to be used in the oil and
gas industry for which it is marketed.
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ISSUE:
Whether U.S.-manufactured carbon steel pipe exported to
Canada where Monel 400 is welded (clad) to the inside of the pipe
to provide corrosion protection is entitled to a partial duty
exemption under subheading 9802.00.50, Harmonized Tariff Schedule
of the United States (HTSUS), upon importation into the United
States.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles returned to the U.S. after having been
exported to be advanced in value or improved in condition by
means of repairs or alterations. Such articles are dutiable only
upon the value of the foreign repairs or alterations, provided
the documentary requirements of section 10.8, Customs Regulations
(19 CFR 10.8), are satisfied. However, entitlement to this
tariff treatment is precluded in circumstances where the
operations performed abroad destroy the identity of the articles
or create new or commercially different articles. See A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956);
Guardian Industries Corp. v. United States, 3 CIT 9 (1982).
Tariff treatment under subheading 9802.00.50, HTSUS, is also
precluded where the exported articles are incomplete for their
intended use prior to the foreign processing. Guardian; Dolliff
& Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455
F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 82, 599 F.2d
1015, 119 (1979).
Generally, we have held that coating is an alteration if the
uncoated and coated article have the same uses, unless the
coating imparts significantly new performance characteristics.
See, Headquarters Ruling Letter (HRL) 067373 dated April 9, 1982
(application in Canada of a protective plastic coating to
domestically-produced steel which was used in identical
applications to non-coated pipe constituted an alteration), and
HRL 554192 dated September 5, 1986 (treating red cedar shakes and
shingles with a flame retardant constitutes an alteration as they
are completed articles ready for their intended use, are
regularly so used in their untreated condition, and are preferred
over the treated product).
However, in HRL 555384 dated November 20, 1989, we held that
galvanizing of steel in Canada in order to render it resistant to
salt water corrosion exceeded an alteration and precluded any
exemption from duty under the provisions of subheading
9802.00.50, HTSUS. In Ferrostall Metals Corporation v. United
States, 11 CIT 470, 664 F. Supp. 535 (1987), the Court of
International Trade held that hot-dip galvanizing of sheet steel
resulted in a change in character by significantly altering
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the mechanical and chemical composition of the steel and
providing protection against corrosion. Moreover, we have held
that a foreign galvanizing process exceeds an alteration and
makes the steel articles into finished products with new and
enhanced characteristics ready for their intended use as
corrosion resistant materials. HRL 067675 dated February 12,
1982.
In applying the above principles to the instant case, we
conclude that the application of Monel 400 overlay to carbon
steel pipe exceeds an alteration. The carbon steel pipe and the
carbon steel pipe with Monel 400 overlay do not share the same
uses. The carbon steel pipe exported to Canada is incomplete for
its intended use in the oil and gas industry; the pipe is not
suitable for its use in refineries without the overlay. Like
galvanizing, the overlaying (cladding) process provides a
protective coating for corrosion resistance to the metal and
enhances the durability and longevity of the pipe. Accordingly,
the steel pipe will not be entitled to the partial duty exemption
under subheading 9802.00.50, HTSUS, upon importation into the
United States.
HOLDING:
Carbon steel pipe exported to Canada where Monel 400 is
welded to the inside of the pipe to provide corrosion protection
will not be entitled to the partial duty exemption under
subheading 9802.00.50, as that processing exceeds an alteration
and creates corrosion-resistant pipe which is suitable for its
intended use in the oil and gas industry.
Sincerely,
John Durant, Director
Commercial Rulings Division