United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1990 HQ Rulings > HQ 0555239 - HQ 0555516 > HQ 0555432

Previous Ruling Next Ruling


HQ 555432

July 26, 1990

CLA-2 CO:R:C:V 555432 KAC

TARIFF NO.: 9802.00.60

CATEGORY: CLASSIFICATION

John J. Scanlon, Jr., Esq.
Kemp, Smith, Duncan & Hammond
2000 Mbank Plaza
P.O. Drawer 2800
El Paso, Texas 79901-1441

RE: Applicability of subheading 9802.00.60, HTSUS, to standard flanges created by turning, boring, facing, cutting, and stenciling.Further processing;Intelex;C.S.D. 84-49;555377; 554011;554965;037347;086289;19 CFR 10.9

Dear Mr. Scanlon:

This is in response to your letter dated June 26, 1989, on behalf of Daniel Industries, Inc., requesting a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to standard flanges imported from Mexico. If, after review of this ruling, you still desire confirmation of the flange's country of origin marking requirements, please resubmit your request. We regret the delay in responding.

FACTS:

Daniel will ship U.S.-manufactured carbon steel forgings to Mexico for foreign operations. The operations to be performed entail manufacturing the steel forgings into flanges which will conform to the latest accepted and approved designs as published by the American National Standards Institute (ANSI), the ASME Boiler and Pressure Vessel Code, the American Water Works Association, and the Manufacturers Standardization Society. All flanges will conform with the American Society for Testing and Materials (ASTM) and ASME specifications applicable to customers' specific requirements, and will be made from ASTM A105 Carbon Steel. The foreign operations to be performed in Mexico are:

(1) turning the outside diameter, boring, and facing the forging in a lathe;
(2) facing the overall length of the forging; (3) cutting a weld bevel;
(4) back facing or spot facing the forging; (5) boring and deburring four to twelve bolt holes;

(6) stenciling onto the flange the words "Daniel" and "Mexico", the size and pressure rating of the flange, the ATSM or ANSI standard, the heat treatment code number, and the type of material composing the flange.

Daniel also will export some steel forgings to Mexico which are of foreign origin, but will only claim subheading 9802.00.60, HTSUS, treatment for steel forgings of U.S.-origin. The U.S.- origin steel forgings and the flanges made from the forgings will be kept segregated from the foreign steel forgings by the use of lot control and job order techniques. The shipping papers and factory papers for each lot will include a heat treatment code number and will include country of origin information for forgings in the lot. The heat number will reflect such information as the chemical composition of the steel forgings and the temperature at which the forgings were produced. Forgings with different heat numbers have different physical and chemical characteristics. Thus, they must be separated from flanges with differing characteristics and treated differently by Daniel when processed into flanges. Even if segregation by lot and heat number were not required for country of origin purposes, it still would be required for manufacturing purposes.

After the above operations are performed, the flanges will be imported into the U.S. and placed into Daniel's inventory. Upon receiving a customer order, Daniel will perform the following operations:

(1) boring center hole in flanges not previously bored in Mexico (approximately ten percent);
(2) fitting and welding (1/16th of an inch weld) a piece of pipe to the flange;
(3) grinding smooth the weld surface on the inside of flange and pipe.

Upon completion of the above operations in the U.S., you state that the flange is now a new and different article known as a flange pipe. The flange pipe is now ready for use on the job site as a connecting device and will be delivered to the customer. In some cases, Daniel's customers will buy only the flanges, and will fit, weld, and grind the flange into a flange pipe in the same fashion as described above.

ISSUE:

Whether the standard flanges will be eligible for the partial duty exemption available under HTSUS subheading 9802.00.60 when imported into the U.S.

LAW AND ANALYSIS:

HTSUS subheading 9802.00.60 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 subject 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.

This tariff provision imposes a dual "further processing" requirement on eligible articles of metal--one foreign, and when returned, one domestic. Metal articles satisfying these statutory requirements may be classified under this tariff provision with duty only on the value of such processing performed outside the U.S., provided there is compliance with the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9).

There is no legal requirement under subheading 9802.00.60, HTSUS, that the identity of the person who performs the further processing in the U.S. be known at the time the material is exported from the U.S., or at the time the returned material enters the U.S. There is also no requirement that the same person who exported the material, or the same person who imports the material must perform the further processing in the U.S. However, the importer should satisfy the district or area director of the actual performance of further processing in the U.S. in transactions of this type before the entry may be liquidated under subheading 9802.00.60, HTSUS. A reasonable time for holding the imported articles in stock in realistic expectation of customers who will further process the material in the U.S. may be allowed before a final determination is made regarding the applicability of subheading 9802.00.60, HTSUS. See, 19 CFR 10.9 and Headquarters Ruling Letter (HRL) 037347 dated July 14, 1975. In HRL 554965 dated September 6, 1989, we found that under the circumstances of that case, four months was a reasonable period of time to warehouse stainless steel sheets in the U.S. before being further processed.

In C.S.D. 84-49, 18 Cust.Bull. 957 (1983) we stated 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 characteristics 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.

In the instant case, the steel forging is an eligible article of metal for purposes of HTSUS subheading 9802.00.60. The turning, boring, facing, and cutting operations performed in Mexico are considered "further processing" operations, as they change the metal and impart new and different characteristics which become an integral part of the metal. See, C.S.D. 84-49. Moreover, the boring of the center hole in ten percent of the returned steel flanges is considered a process which complies with the domestic "further processing" requirement of subheading 9802.00.60, HTSUS.

However, the operations of welding the pipe to the flange and smoothing out the inside weld by grinding are insufficient to satisfy the domestic "further processing" requirement. In Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055, 460 F.2d 1083 (1972), the court discussed the type of processing that would entail "further processing". In the Intelex case, copper wire and insulating paper were processed into lead-covered telephone cable and imported into the U.S. on cable rolls. The cable was then merely strung on poles after wire stripping and splicing operations. 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), Tariff Act of 1930, as amended (a precursor provision of HTSUS subheading 9802.00.60). 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' would suffice to bring the article within the purview of 'processing' related 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 the instant case, the flanges with the Mexican bored center hole are completed articles. The operation of fitting and welding the pipe to the flange is merely an assembly operation which does not constitute a process of manufacture in a common or commercial sense. As stated in C.S.D. 84-49 and in previous ruling letters, assembly operations do not satisfy the further processing requirement of subheading 9802.00.60, HTSUS. See, HRL 555377 dated October 16, 1989, which held that brazing, a welding operation, is an assembly operation that does not satisfy the requirements of the tariff provision, and HRL 554011 dated February 21, 1986, which held that preparation grinding for welding and welding parts to form wheels do not constitute "further processing" within the meaning of item 806.30, Tariff Schedules of the United States (TSUS) (now HTSUS subheading 9802.00.60). Smoothing out the weld surface on the inside of the flange and pipe by grinding appears to be minor finishing operation which is incidental to the assembly of the flange and pipe. As this operation does not impart new and different characteristics which become an integral part of the metal, we find that it does not constitute "further processing." See, HRL 086289 dated March 13, 1990 (grinding down backet edges is not "further processing").

HOLDING:

On the basis of the information submitted, it is our opinion that the processes performed abroad constitute "further processing." However, only those flanges which have the center hole bored in the U.S. will meet the domestic "further processing" requirement. Therefore, only these flanges will be entitled to the partial duty exemption available under this tariff provision, upon compliance with the documentary requirements of 19 CFR 10.9.
Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: