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HQ 555816


April 17, 1991

CLA-2 CO:R:C:S 555816 LS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60

Robert T. Hume, Esq.
1400 L Street, N.W.
Suite 600
Washington, D.C. 20005

RE: Applicability of duty exemption under subheading 9802.00.60, HTSUS, to cold finished steel bars; cost of processing abroad; transportation costs

Dear Mr. Hume:

This is in response to your letter of December 7, 1990, on behalf of Niagara Cold Drawn Products Inc. ("Niagara"), requesting a ruling concerning the tariff treatment, under subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), of cold finished steel bars or rods imported into the U.S.

FACTS:

Niagara intends to export to Canada under bond U.S. origin hot rolled wire in coil. The following operations will be performed by LEC Drawn Products ("LEC") in Canada:

1. Mechanical removal of scale from the rods.

2. Drawing the rods to size through a carbon die.

3. Straightening and cutting the rods to lengths of 12-20 feet.

4. Bundling the finished rods for reshipping to the U.S.

Niagara will be the importer of record when the rods are returned to the U.S. LEC will charge Niagara a fee to cover the cost of the processing, and Niagara will pay all brokerage fees and transportation costs. In a telephone conversation with a member of my staff, you state that the rods will be sold to other companies upon return to the U.S. and further processed here into other items such as screw machines and shell casings.

Having made the assumption that the rods will be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, when imported into the U.S., you inquire whether the duty payable on the value of the foreign processing includes (1) the freight costs incurred both inbound and outbound, i.e., between the U.S. and Canada, and returning from Canada to the U.S.; and (2) brokerage fees incurred by Niagara for entering the rods into the U.S., along with other expenses which are not part of the direct costs of processing.

ISSUE:

(1) Whether the cold finished steel bars or rods will be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, when imported into the U.S. from Canada.

(2) Provided that the steel bars are eligible for entry under subheading 9802.00.60, HTSUS, are the inbound and outbound freight costs, brokerage fees, and other expenses dutiable as part of the value of the processing performed in Canada?

LAW AND ANALYSIS:

Subheading 9802.00.60, HTSUS, 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.

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 subheading 9802.00.60, HTSUS, with duty payable 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).

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

[f]or purposes of item 806.30, TSUS [the predecessor tariff provision to subheading 9802.00.60, HTSUS], 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 Headquarters Ruling Letter (HRL) 037817 dated January 2, 1975, and HRL 555314 dated May 16, 1990, we held that descaling constitutes "further processing" within the meaning of subheading 9802.00.60, HTSUS. In HRL 555314, we also found that the cold forming operation of drawing steel wire rod into an intermediate wire size changes the shape of the metal so as to constitute "further processing." Thus, we find in the instant case that descaling the wire and forming or drawing it to size through a carbon die constitute sufficient "further processing" so as to satisfy the foreign processing requirement of subheading 9802.00.60, HTSUS. Since you have not provided more detailed information regarding the domestic processing of the steel rods to form screw machines, shell casings or other items, we cannot definitively determine whether the U.S. operations satisfy the domestic "further processing" requirement of subheading 9802.00.60, HTSUS. If these operations do meet that requirement, then the steel bars will be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.9.

Provided that the steel bars are eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, duty will be assessed only on the value of the processing performed in Canada. U.S. Note 3(a) to Subchapter II, Chapter 98, HTSUS, provides that the value of the foreign processing is based upon the cost to the importer of such processing, as set out in the invoice and entry papers. In the event that the appraiser concludes that the amount set out in these documents does not represent a reasonable cost or value, then the value of the processing is to be determined in accordance with section 402 of the Tariff Act of 1930, as amended.

Section 10.9(j), Customs Regulations (19 CFR 10.9(j)), which contains the documentary requirements for articles imported under subheading 9802.00.60, HTSUS, states in part:

The cost or fair market value, as the case may be, of the processing outside the United States which is set forth in the invoice and entry papers as the basis for the assessment of duty under subheading 9802.00.60, HTSUS, shall be limited to the cost or value of the processing actually performed abroad (including all domestic and foreign articles used in the processing, but does not include the exported United States metal article) and shall not include any of the expenses incurred in this country, whether by way of engineering costs, preparation of plans or specifica-
tions, and the furnishing of tools or equipment for doing the processing abroad, or otherwise.

In HRL 74-400027 dated December 22, 1976, we held that, for purposes of item 806.30, TSUS, freight and insurance costs incurred to transport U.S. metal components from the place of shipment in the U.S. to a foreign subsidiary for processing are excluded from the cost or value of the processing abroad because these expenses are incurred in the U.S. Similarly, the brokerage fees incurred by Niagara in the U.S. are not dutiable under subheading 9802.00.60, HTSUS. We believe that, based upon the above-quoted language of 19 CFR 10.9(j), the freight costs incurred in returning the exported metal article from the place of shipment in the foreign country to the U.S. for further processing are also excluded from the cost or value of the processing abroad. See HRL 544015 dated March 20, 1989 (under subheading 9802.00.50, HTSUS, which provides a partial duty exemption for an article returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations, we found that the costs incurred to transport such article from the foreign facility to the U.S. following the foreign repairs are not dutiable as part of the value of the foreign repairs).

HOLDING:

Since you have not provided sufficient information regarding the processing performed in the U.S. on the steel bars after the foreign processing operations, we cannot provide a definitive ruling on the eligibility of the steel bars for a partial duty exemption under subheading 9802.00.60, HTSUS. However, based upon the information you have provided, the operations of descaling the wire and forming or drawing the rods to size constitute sufficient "further processing" to satisfy the foreign processing requirement of subheading 9802.00.60, HTSUS.

If the steel bars are found to meet all the requirements of subheading 9802.00.60, HTSUS, duty will be assessed only on the value of the processing performed in Canada. This amount does not include the freight costs incurred both between the U.S. and Canada, and returning from Canada to the U.S. The brokerage fees incurred by Niagara in the U.S. are also not dutiable under subheading 9802.00.60, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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