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HQ 088161


February 11, 1991

CLA-2 CO:R:C:M 088161 JMH

CATEGORY: CLASSIFICATION

TARIFF NO.: 7204; 9817.00.90

Chief, Customs Information Exchange
U.S. Customs Service
Room 450
6 World Trade Center
New York City, NY 10048-0945

RE: Difference of opinion; ferrous scrap and waste; chapter 72; chapter 98; Customs Regulation 54; merchandise processing fees; unconditional duty free status; conditional duty free status; 9817.00.90; 7204.00

Dear Madam or Sir:

This is in response to a October 24, 1990 request for the resolution of a difference of opinion between the National Import Specialist ("NIS") at the New York Seaport and the Field Import Specialist ("FNIS") in the Detroit District. The difference of opinion concerns ferrous scrap and whether it is properly classified in heading 7204, Harmonized Tariff Schedule of the United States Annotated ("HTSUSA") or subheading 9817.00.90, HTSUSA.

FACTS:

The NIS at the New York Seaport and the FNIS in Detroit disagree on the classification of certain ferrous scrap. Ferrous iron or steel scrap is classifiable under heading 7204, HTSUSA, as "Ferrous waste and scrap; remelting scrap ingots of iron or steel..." This heading provides for unconditional duty free entry. However, scrap entered under this heading is subject to Merchandise Processing Fees. Additionally, ferrous scrap is also classifiable in subheading 9817.00.90 which provides conditional duty free entry. Metal scrap classified under subheading 9817.00.90 is not subject to Merchandise Processing Fees. See Headquarters Telex 01018, dated March 5, 1990.

The FNIS in Detroit believes that articles which are classified under heading 7204 should not also be classified under subheading 9817.00.90. The FNIS believes that articles cannot be
both unconditionally duty free and conditionally duty free. Thus, the FNIS's opinion is that such articles are entitled to duty free entry, but must also pay the Merchandise Processing Fee.

The NIS's position is that the ferrous waste and scrap classified under heading 7204 is also classified under subheading 9817.00.90. Chapter 98, U.S. Note 1, HTSUSA, states that any article described in a provision of Chapter 98 is classified in that provision if all the applicable conditions and requirements are fulfilled. The NIS believes that when a good is classifiable in both heading 7204 and subheading 9817.00.90, the Chapter 98 provision is controlling. Thus, ferrous scrap is not subject to Merchandise Processing Fees.

ISSUE:

Whether ferrous scrap that is properly classified under heading 7204 and unconditionally duty free but subject to Merchandise Processing Fees, may also be classified under subheading 9817.00.90 and conditionally duty free and ultimately not subject to Merchandise Processing Fees.

LAW AND ANALYSIS:

The HTSUSA consists of 99 chapters. The first 97 chapters form the international portion of the tariff that is utilized by all countries which have adopted the tariff. Chapters 98 and 99 of the HTSUSA are United States chapters which have been added to the international portion by Congress. Any item that is imported into the United States will receive a classification from within the first 97 chapters. Chapters 98 and 99 provide an additional classification that subjects the article to special treatment.

The classification of merchandise under the HTSUSA is governed by the General Rules of Interpretation (GRI's). GRI 1, HTSUSA, states in part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes..." Articles which meet the terms of heading 7204 and are not excluded by any Section XV or chapter 72 notes are classified in heading 7204. This is the international classification.

However, if an article is described by a provision of chapter 98 and all applicable requirements are met, then the chapter 98 provision and its duty rate prevail over the classification and tariff rate from the international portion of the tariff. See Chapter 98, U.S. Note 1. The chapter 98 provision would then be the ultimate classification for purposes of importation into the United States.

Before an article can be classified in subheading 9817.00.90 a three part test must be met: (1) the terms of the heading must be met in accordance with GRI 1; (2) the goods must not be excluded by a Chapter 98 subchapter note; and (3) the goods must meet the conditions set out under Customs Regulation 54. The terms of subheading 9817.00.90 describe three different types of goods. These types are as follows:

(1) Unwrought metal including remelt scrap ingot (except copper, lead, zinc and tungsten) in the form of pigs, ingots, or billets

(a) which are defective or damaged, or have been produced from melted down metal waste and scrap for convenience in handling and transportation without sweetening, alloying, fluxing or deliberate purifying, AND

(b) which cannot be commercially used without remanufacture

(2) relaying or rerolling rails

(3) articles of metal (except articles of lead, or zinc or of tungsten, and not including metal- bearing materials provided for in section VI or in chapter 26 and not including unwrought metal provided for in chapters 72-81) to be used in remanufacture by melting or to be processed by shredding, shearing, compacting or similar processing which renders them fit only for the recovery of the metal content.

If the article being imported meets the terms of one of the three parts to subheading 9817.00.90, then the article passes the first test concerning duty free entry in subheading 9817.00.90.

The second part of the test which must be met for an article to be eligible for duty free entry under subheading 9817.00.90 is that the article cannot be excluded from that subheading under the chapter 98 notes and subchapter notes. Subheading 9817.00.90 is within chapter 98, subchapter XVII, HTSUSA. The chapter 98 notes and subchapter XVII notes do not exclude articles from classification under subheading 9817.00.90. Therefore, if an article has met the terms of the subheading 9817.00.90, then the possibility continues that the article will receive special treatment.

The final part of the eligibility test is that the conditions of Customs Regulation 54 must be met. Customs Regulation 54 gives temporary duty free status under 9817.00.90 to certain metal articles that are imported for use in remanufacturing by melting, or for processing by shredding, shearing, compacting or some other similar processing that renders the metal only fit for recovering the metal content. This regulation excludes three types of articles: (1) articles of lead, zinc, or tungsten; (2) metal-bearing materials provided for in Chapter 26, HTSUSA; and (3) unwrought metal provided for in Section XV, HTSUSA. Since the duty free status granted by 9817.00.90 is conditioned upon compliance with Customs Regulation 54, and these three categories of articles are excluded from Customs Regulation 54, then the three types of goods will never obtain duty free eligibility under 9817.00.90.

Therefore, if an article meets the terms of subheading 9817.00.90 and the conditions and requirements of Customs Regulation 54, then the article is properly classified under subheading 9817.00.90. This is the classification even when the article in question, in this instance ferrous scrap, is also classified under heading 7204. Chapter 98, Note 1 states that the provisions of chapter 98 prevail over a provision from the international portion of the tariff. Thus, ferrous scrap which is unconditionally duty free but subject to Merchandise Processing Fees under the international portion of the tariff, may be conditionally duty free and not subject to the fees under the United States chapters.

HOLDING:

Chapter 98, Note 1 requires that when an article is described by a provision in chapter 98, it is to be classified in that provision as long as all conditions and requirements are fulfilled. A three part test must be met for an article to be classified in subheading 9817.00.90. The three steps in the test are: (1) the terms of the heading must be met in accordance with GRI 1; (2) the goods must not be excluded by a Chapter 98 subchapter note; and (3) the goods must meet the conditions set out under Customs Regulation 54. If a good fulfills all three parts of this test, then it is properly classified in subheading 9817.00.90. Subheading 9817.00.90 will take precedence over a heading from the international portion of the tariff when the article is imported into the United States.

Ferrous scrap is classified in the international portion of the HTSUSA under heading 7204. Heading 7204 provides for unconditional duty free entry, but the scrap is subject to

Merchandise Processing Fees. If ferrous scrap meets the terms of subheading 9817.00.90 and the requirements of Customs Regulation 54 then it is conditionally duty free and not subject to the fees under the United States chapters.

Sincerely,

John Durant, Director
Commercial Rulings Division

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