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HQ 555165


June 26, 1989

CLA-2 CO:R:C:V 555165 GRV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60

Leslie Alan Glick, Esq.
Porter, Wright, Morris & Arther
1233 20th Street, N.W. - 4th Floor
Washington, D.C. 20036-2395

RE: Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.60 to lantern parts to be imported from Mexico

Dear Mr. Glick:

This is in response to your letters of October 19, 1988, and March 21, 1989, on behalf of American Lantern Company, requesting a ruling on the applicability of subheading 9802.00.60, Harmo- nized Tariff Schedule of the United States (HTSUS) (formerly item 806.30, Tariff Schedules of the United States (TSUS)), to lantern parts to be imported from Mexico. Two complete sets of lantern parts, reflecting the condition of the parts as exported and imported, and a fully assembled lantern, were submitted for examination. You also provided a narrative description of the various operations to be performed on the component parts.

FACTS:

You state that brass sheet stock of U.S. origin is processed in the U.S. into approximately twelve to twenty or more--depend- ing on the lantern style--raw lantern component parts. The rough, unfinished brass components will then be exported to Mexico, where certain processing operations will be performed on the components, after which they will be returned to the U.S. for additional processing and final assembly operations.

The processing operations to be performed on selected components in Mexico are described as follows:

(1) the corner posts are bent or swaged into a compound curve, which irreversibly affects the metal's memory; (2) all components are rough-cut buffed with a linen cloth buffing wheel and an abrasive compound to smooth the edges of the stamped components and strip oxidation from the brass. This operation removes, on average, 0.0002 inch from the flat metal surfaces and "smears" the metal surface of the components to eliminate surface imperfections. Sufficient metal is removed so as to be clearly visible with the naked eye; (3) all components are color buffed with a linen cloth buffing wheel without an abrasive compound to bring out the polished brass finish;
(4) all components are degreased by dipping them into a triac compound; and
(5) all components are painted with a clear marine enamel and baked.

Upon return to the U.S., certain of the components undergo additional operations which you describe as follows:

(1) certain parts are riveted together;
(2) the hexagonal top plate is eyeletted, two other compo- nents are grommetted, and a few of the components are swedged together. The insertion of the eyelets and grommets expands and stretches the metal of the hole through which the eyelet or grommet is inserted; and (3) the various components are assembled into the final fixture and packaged.

You state that these domestic operations constitute further processing because the components are not returned in a completed state, inasmuch as they have no commercial or other application except as parts to be incorporated into a specific lantern style. Further, you state that where sets of components are involved, the double processing requirement of HTSUS subheading 9802.00.60 is satisfied where some parts of the set undergo processing in each of the two countries.

With the exception of the corner posts, the lantern parts assembled into the finished lantern in the U.S. have the same shape as when they were exported to Mexico.

ISSUE:

Whether the metal lantern parts to be imported from Mexico will be eligible for the partial duty exemption available under HTSUS subheading 9802.00.60.

LAW & ANALYSIS:

As you know, the HTSUS superseded and replaced the TSUS, effective January 1, 1989. TSUS item 806.30 was carried over into the HTSUS without change as subheading 9802.00.60. This tariff provision provides a partial duty exemption for:

[a]ny article of metal (as defined in U.S. note 3(d) of this subchapter) manufactured in the United States or subjected to a process of manufacture in the United States, if 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. (Emphasis supplied).

HTSUS subheading 9802.00.60 imposes a dual "further processing" requirement on metal articles: one foreign, and when returned, one domestic. However, not all "processing" to which articles of metal can be subjected are significant enough to qualify as "further processing," within the purview of HTSUS subheading 9802.00.60. Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055, 460 F.2d 1083 (1972). Metal articles satisfying these statutory requirements may be classified under HTSUS subheading 9802.00.60 with duty only on the value of such processing done outside the U.S., upon compliance with section 10.9, Customs Regulations (19 CFR 10.9).

In the Intelex case (a case decided under paragraph 1615(g)(2) of the Tariff Act of 1930, as amended, the precursor provision of HTSUS subheading 9802.00.60), copper wire and insulating paper were foreign processed into lead-covered telephone cable and imported on cable rolls. The cable was then merely strung on poles after a wire stripping and splicing operation. The issue presented was whether the imported telephone cable was "returned to the U.S. for further processing," within the meaning of paragraph 1615(g)(2)(B). The court considered the words "process" and "processing" and stated that:

...its meaning [processing] must be controlled by the particular context in which it is used here and the legislative intent. (Citation omitted). When we look to the context of [paragraph] 1615(g)(2), we do not think that Congress had in mind that any and all kinds of 'processing' taking place upon return of an article to the United States would suffice to bring the article within the purview of that paragraph. Instead, we believe that the words 'further processing' relate to the kind of processing to which the article had been subjected before--namely, 'a process of manufacture,' as expressed in [paragraph] 1615(g)(2)(A). We continue of the view that Congress used the expression 'subjected to a process of manufacture' as synonymous with 'processing' (citation omitted), and that the 'further processing' referred to in [paragraph] 1615(g)(2) is a further manufacturing process.

The court stated that it did "...not think that processes to which an already completed article were subjected, incident to using it for the purpose intended, were necessarily part and parcel of manufacturing processes performed on that article." (Court's emphasis). Therefore, finding no evidence that the operations performed in the U.S. on the imported telephone cable constituted a process of manufacture in any common or commercial sense, the court determined that the partial duty exemption was inapplicable to the imported cable.

In C.S.D. 84-49, 18 Cust. Bull. 957 (1983) we held that:

[f]or purposes of item 806.30, TSUS, the term 'further processing' has reference to processing that changes the shape of the metal or imparts new and different character- istics which become an integral part of the metal itself and which did not exist in the metal before processing; thus, further processing includes machining, grinding, drilling, threading, punching, forming, plating, and the like, but does not include painting or the mere assembly of finished parts by bolting, welding, etc.

You cite ruling letter 055377 (March 12, 1979) in support of your contention that because the lantern parts will be incomplete for their intended purpose when returned to the U.S., the operations to be performed in the U.S. to place the lanterns into a finished state necessarily constitute further processing for purposes of HTSUS subheading 9802.00.60. Ruling 055377 posed the following question: "Under item 806.30, TSUS, can the metal article in its returned condition be used for its intended purpose, or does it require further processing to place it in a condition that would advance it toward completion and its final purpose?" In that case, the drilling of holes in a grapple yarder in the U.S. was found adequate to meet the requirements of further processing under TSUS item 806.30, as the process constituted a significant process that advanced the articles toward completion to serve the purpose intended. However, ruling 055377 should not be construed to mean that if a returned metal article is in an incomplete state, any kind of processing in the U.S. that advances it toward completion will serve to satisfy the HTSUS subheading 9802.00.60 domestic "further processing" requirement. As stated in the Intelex case, the returned metal article must be subjected to "a process of manufacture."

You also cite ruling letter 053633 (January 5, 1978) as supporting your assertion that the domestic operations to be performed in the instant case qualify as "further processing." You specifically direct our attention to that portion of the ruling which held that affixing two handle parts to a blade by drilling and tapping two holes in the blade and then driving in two machine screws may be considered as further processing under TSUS item 806.30.

We are of the opinion in the instant case that the steps comprising the domestic operation do not, either individually or collectively, constitute a process of manufacture in a common or commercial sense. The operations performed on the returned components consist of riveting certain parts together, inserting eyelets in the hexagonal top plate, inserting a grommet through holes of two components to join them together, "swedging" together a few parts, and assembling all parts into the finished lantern. The sample set of lantern parts to be exported to Mexico reflect that the holes into which the rivets, eyelets, and grommmets are to be inserted are punched or drilled prior to the parts' exportation to Mexico. This clearly distinquishes the present case from ruling 053663, where the processing operation under consideration involved the drilling and tapping of two holes into a knife blade followed by the driving of screws into the holes. Moreover, in regard to your contention that the insertion of the eyelets and grommets impacts on the metal by expanding and stretching the metal of the holes through which they are inserted, we are unable to confirm from our analysis of the relevant lantern parts that this process changes the shape of the metal in any way or imparts any new or different characteristics to the metal. In fact, we should note that the samples submitted indicate that the eyelets are inserted into the top plate prior to its exportation to Mexico.

The riveting, eyeletting and grommetting operations, and the remaining processes to be performed in the U.S. -- "swedging" certain parts together and final assembly of all parts -- are all essentially assembly operations. As previously stated, in C.S.D. 84-49 we held that the mere assembly of finished parts by bolting, welding, etc., does not qualify as further processing under TSUS item 806.30.

As the operations to be performed in the U.S. on the returned lantern parts do not, in our opinion, satisfy the domestic further processing requirement, it is unnecessary for us to consider whether the lantern parts will be further processed in Mexico.

HOLDING:

On the basis of the information and samples submitted, we conclude that the returned lantern parts will not be subjected to further processing in the U.S., as required by HTSUS subheading 9802.00.60. Therefore, these parts will not be eligible for the partial duty exemption provided for in this tariff provision, and will be dutiable on their full value when imported into the U.S.

Sincerely,

John Durant, Director

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