DRA-4
RR:CR:DR 229081 DR
R. Kevin Williams
Rodriguez, O’Donnell, Fuerst, Gonzalez & Williams
20 N. Wacker Drive
Suite 1416
Chicago, IL 60606
RE: Ruling request; cutting steel; Unused merchandise drawback; 19 U.S.C. 1313(j); 19 U.S.C. 3333; exports to NAFTA countries; same condition; 19 C.F.R. 181.45(b)
Dear Mr. Williams:
This in response to your letter dated February 15, 2001, on behalf of Böhler-Uddeholm Corporation (“Böhler”), in which you requested reconsideration of a ruling on the drawback eligibility of certain steel products imported by Böhler into the United States and subsequently exported to Canada and Mexico. Our ruling follows.
FACTS:
Böhler imports steel products into the U.S. from non-NAFTA countries. The steel is not the subject of any antidumping duty or countervailing duty orders or investigations. You have informed us that duty is deposited on the goods at the time of entry into the U.S. Böhler’s sister companies are called Uddeholm Limited, located in Mississauga, Ontario, Canada (“BCA”) and BUMX de Mexico, S.A. de C.V., located in Nuacalpan de Juarez, Mexico (“BUMX”). The majority of the steel products sold by Böhler to BCA and BUMX are shipped directly from Böhler’s stock without any further processing. On occasion, however, Böhler will cut the steel to sizes specified in the BCA or BUMX purchase order. These goods are referred to as “cut to finish” on Böhler’s internal documents and are the subject of this ruling.
The steel received from Böhler is warehoused in Canada and Mexico by BCA and BUMX, respectively, and then sold to customers that use the steel for a variety of applications. Böhler stipulates that it is not the end-user of the exported products and thus can only make assumptions about the exact use of the each product after it is sold to a customer by BCA and BUMX.
To illustrate the above general transactions, two sample “cut to finish” transactions are represented by the documents attached to this ruling request, which include CF 7501 entry summaries, purchase orders from the Mexican and Canadian purchasers, mill invoices, a Mexican pedimento for the Mexican exports, and Canadian entry documentation for the Canadian exports.
The Canadian Export
A sample CF 7501 entry summary has been submitted by Böhler. The subject item consists of 12,840 kg of steel merchandise classified as “Other bars and rods, not further worked than forged,” under subheading 7228.40.0000, HTSUS, and imported by Böhler. Purchase order #40018280 was issued by BCA on July 24, 2000. This P.O. initiated the purchase of three items (2 pieces each):
Böhler W302 ISOBLOC FLATS cut to finish; 11.00” x 15.00” x 25.00”:
The order further states that the item “must adhere to GM specs,” which as explained by Böhler, refers to standards published by General Motors, Inc., that must be adhered to by all of its contractors. Also, an additional inch is added to the unfinished length to allow for oversize and a 5/8” sample piece to be cut 97% through on the ends of each length.
Böhler W302 ISOBLOC FLATS cut to finish; 11.00” x 15.00” x 25.00”:
This order also states that the item “must adhere to GM specs.” Also, an additional inch is added to the unfinished length to allow for oversize and a 5/8” sample piece to be cut 97% through on the ends of each length.
Böhler W302 ISOBLOC FLATS cut to finish; 7.00” x 15.00” x 25.00”:
This order states that the item “must adhere to GM specs.” Also, an additional inch is added to the unfinished length to allow for oversize and a 5/8” sample piece to be cut 97% through on the ends of each length.
The ruling request states that the GM specifications information may be found at Böhler US’ website. See . The specifications are contained in Standard Specification #DC-9999-1, which is the standard procedure and specification that ensures the quality of all H-13 and other hot work tool materials and their heat treatment as required for General Motors Powertrain Group tooling projects. Böhler does not heat treat the imported steel after its entry into the U.S.
The attached work order #81114003 shows that these pieces were cut from larger pieces with width and thickness dimensions of 11” x 36 ½”; 11” x 36 ½”; and 7” x 36 ½”, respectively. Invoice #30162759, dated July 31, 2000, was issued by Böhler to complete the transaction and shows that the six cut to finish pieces were shipped to BCA on July 27, 2000. A Canadian Declaration and a Canadian Transaction Record submitted by Böhler shows that the six pieces were then imported into Canada on July 28, 2000, and entered on July 31, 2000. The documents also show that, upon Canadian entry, they were classified under subheading 7228.40.0020, Harmonized Tariff Schedule of Canada, as “Other bars and rods, not further worked than forged: tool steel.”
The Mexican Export
A sample CF 7501 entry summary has been submitted by Böhler. The subject item (Item 001) consists of an entry of steel classified under subheading 7228.50.1060, HTSUS (2000), and imported by Böhler. That tariff classification corresponds to “Other bars and rods, not further worked than cold-formed or cold-finished: of tool steel (other than high speed steel): other: with a maximum cross-sectional dimension of 18 mm or more: of round or rectangular cross section with surfaces ground, milled or polished.” Purchase order #40019406 was issued by BUMX on August 22, 2000. This P.O. initiated the purchase of a piece of steel described as “AISA H-13 Rough Machined Flats” with dimensions of 7” x 30 ½” x 40”. The attached work order #81122155 shows that the ordered piece was cut from a piece of imported steel measuring 7” x 30 ½” x 84 ¾”. Invoice #30172987, dated August 28, 2000, shows that the cut piece (Item #000030) was shipped to BUMX on August 29, 2000. A Mexican pedimento #3348-0006350 shows that the piece was entered into Mexico on September 15, 2000, and classified under 7228.50.01, Harmonized Tariff Schedule of Mexico, “En aceros grado herramiento,” or “Other Bars and rods, not further worked than cold-formed or cold-finished: tool-grade steel.”
ISSUE:
Whether the exported goods as described above are “unused,” under 19 U.S.C. 1313(j)(1).
Whether the exported goods described above are in the “same condition” under §203 of the NAFTA Implementation Act (19 U.S.C. 3333), as the imported, uncut steel pieces.
LAW AND ANALYSIS:
Under 19 U.S.C. §1313(j)(1), drawback is authorized if imported merchandise on which was paid any duty, tax, or fee imposed under Federal law because of its importation is, within 3 years of the date of importation, exported or destroyed under Customs supervision and was not used in the United States before such exportation or destruction.
Regarding the use of articles under section 1313(j)(1), 19 U.S.C. §1313(j)(3) provides as follows:
The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on --
(A) the imported merchandise itself in cases to which paragraph (1) applies ... shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B)....
In HQ 225985 (November 30, 1995), Customs stated that for drawback purposes, an operation listed in 19 U.S.C. §1313(j)(3) is not a “use” for the purposes of §1313(j) unless it results in a manufacture. Customs concluded that the listed operations in 1313(j)(3) do not impose a limitation on the qualifying operations, but are illustrative of operations that may, but do not always, result in a new article being manufactured for drawback purposes. A “manufacture or production” is defined in Anheuser-Busch v. United States, 207 U.S. 556, 562 (1907):
Manufacture implies change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary as set forth and illustrated in Hartranft v. Wiegmann (121 U.S. 609)(1887). There must be a transformation; a new and different article must emerge, ‘having a different name, character, or use.’
Although the holdings of many Customs decisions on this issue are phrased in language that is fact specific to the given case in question, it is the “new and different article” test of Anheuser-Busch that is determinative. Regardless of the facts involved - the merchandise used, the procedure involved, and the finished product - if a new and different article has not emerged from the process, then there has not been a manufacture or production for drawback purposes.
We find that the cutting performed by Böhler on the imported steel pieces that were eventually shipped to Canada, as described in your ruling request, would not constitute a manufacture or production, and thus would not be a “use,” for purposes of 19 U.S.C. 1313(j). Cutting is specifically included within the exemplars listed in section 1313(j)(3) which “shall not be treated as a use of that merchandise for purposes of” 19 U.S.C. 1313(j). Furthermore, merely cutting the imported steel pieces to change
their dimensions, while other characteristics such as surface finish and the physical and chemical properties of the steel remain unchanged, is not a “manufacture” for the purposes of 19 U.S.C. 1313(j). The steel strips, after undergoing this operation, would be exported in essentially the same state as imported, with only its dimensions having undergone a change. No “new and different articles” would emerge from the cutting process, nor would the cut pieces have attained “distinctive names, characters, or uses” which would be different from the larger pieces from which they were cut.
With regard to the pieces exported to Mexico, we reach the same conclusion. The imported pieces are merely cut into smaller pieces, and the cut pieces would not have attained “distinctive names, characters, or uses” which would be different from the larger pieces from which they were cut.” Those pieces would therefore not be “used” for purposes of 19 U.S.C. 13131(j).
NAFTA Drawback
Regarding exportations to Canada and 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 for the treatment of goods subject to NAFTA drawback. Under 19 U.S.C. §3333(a) (Section 203(a) of the NAFTA), such goods mean any good other than, among other things--
(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph--
(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ...
This section applies only to goods imported into the United States that are subsequently exported into Canada on or after January 1, 1996, or into Mexico on or after January 1, 2001. See Annex 303.7, section C, NAFTA; see also 19 C.F.R. §181.41.
The Customs Regulations issued under the authority of the NAFTA Implementation Act specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country. 19 C.F.R. 181.44(a) provides:
(a) General. Except in the case of goods specified in §181.45 of this part, drawback of duties previously paid upon importation of a good into the United States may be granted by the United States, upon presentation of a NAFTA drawback claim under this subpart, on the lower amount of: (1) The total duties paid or owed on the good in the United States; or (2) The total amount of duties paid on the exported good upon subsequent importation into Canada or Mexico.
But under 19 C.F.R. §181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. §181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Subparagraph (b)(1) of section 181.45 provides that:
For purposes of this subpart, a reference to a good in the “same condition” includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint or other coatings;
(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;
(iv) Trimming, filing, slitting, or cutting;
(v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or
(vi) Testing, marking, labeling, sorting or grading.
Finally, under 19 C.F.R. 181.44(g), an imported good that is unused in the United States under 19 U.S.C. §1313(j)(1) and that is shipped to Canada or Mexico not in the same condition within the meaning of §181.45(b)(1) may be eligible for drawback under section 181.44 ,except when the shipment to Canada or Mexico does not constitute an exportation under 19 U.S.C. §1313(j)(4).
To illustrate, consider that in HQ 226152 (July 23, 1996), imported steel coils were uncoiled, slit to various widths as ordered by customers, recoiled, and welded for packaging , and the narrower coils were exported to third countries. Although that decision dealt specifically with whether the welding was “further processing” under item 806.30, TSUS, we noted that “[c]utting the finished cable or welding several lengths together to fit the various sizes of reels specified by the customer is nothing more than supplying the proper quantity of the finished product to the customer” and, if it does not materially alter the characteristics of the larger pieces from which they are cut, it does not change the condition of the imported good (quoting P.R.D. 75-22). Also, in HQ 224283 (March 17, 1993), Customs considered the slitting and trimming of master coils of steel to dimensions that made them more adaptable as cores for transformers, and held that because the coils after undergoing this operation would be exported in essentially the same condition as imported, with only their dimensions having undergone a change, the coils were in the “same condition” for drawback purposes under section 203(a)(2) of the NAFTA Implementation Act (codified at 19 U.S.C. 3333(a)(2)).
Here, we conclude that the cutting operation meets the description in 19 C.F.R. 181.45(b)(1)(iv) of “[t]rimming, filing, slitting, or cutting.” The cutting does not materially alter the characteristics of the larger imported pieces and, after undergoing this operation, the pieces would be exported in essentially the same condition as the imported pieces, with only its dimensions having undergone a change. Therefore, based upon the evidence presented, the pieces that are sold to BCA and BUMX, and exported to Canada and Mexico, respectively, would be eligible for drawback under 19 U.S.C. §1313(j)(1) without regard to the limitation on drawback provided for in 19 C.F.R. §181.44, provided that all pertinent statutory and regulatory requirements are met. Our determinations are strictly limited to the facts presented.
HOLDING:
With respect to the export of the “cut to finish” steel pieces to Canada and Mexico, when the pieces have been subjected to the cutting operation described in the FACTS portion of this ruling, the pieces are “unused” under 19 U.S.C. 1313(j) and are exported in the “same condition” as the imported steel pieces, under section 203(a) of the NAFTA Implementation Act (19 U.S.C. 3333) and 19 C.F.R. 181.45(b). Such cut pieces would therefore qualify for full drawback under NAFTA.
Sincerely,
John Durant
Director Commercial Rulings Division