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HQ 555967


April 25, 1991

CLA-2 CO:R:C:S 555967 KCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60

S. Richard Shostak, Esq.
Stein Shostak Shostak & O'Hara
Suite 1240
3580 Wilshire Boulevard
Los Angeles, California 90010-2597

RE: Reconsideration of HRL 554906 concerning header assemblies containing precious metal exported for adjustment operations and returned to the U.S. for stabilization baking, cleaning and inspection. Eligible article; essential character; 048723; 058008; 058301; further processing; C.S.D. 84-49; Intelex; 020418; T.D. 78-416

Dear Mr. Shostak:

This is in response to your letters dated July 29, 1989, August 3, 1990, and March 22, 1991, on behalf Teledyne Relays, requesting reconsideration of Headquarters Ruling Letter (HRL) 554906 dated June 12, 1989. That ruling denied eligibility under subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to header assemblies sent to Mexico for certain adjustment operations and then returned to the U.S. for stabilization baking, cleaning and inspection. You enclosed with your letter Teledyne's detailed figures and diagrams of the adjustment and inspection operations performed in Mexico. We regret the delay in responding to your request.

FACTS:

Teledyne Relays manufactures header assemblies for relays. The U.S. manufacturing operations consist of:

1. chemically cleaning, etching, thermally outgasing and oxidizing kovar pins;
2. inserting a pin and a glass bead into each hole of a blank which is stationed in a carbon mold (5 to 10 holes in each blank);
3. firing the carbon mold holding the blank to fuse the pins and blank together with the glass;

4. trimming the leads in the upper end of the blank; 5. coning the leads in the lower end of the blank (now know as the header seal assembly);
6. gold plating the header seal assembly; and

7. welding the cross bar, return spring, stops, moving contacts, and stationary contacts to the head seal assembly (now known as the header assembly).

The header assembly is then sent to Mexico for certain adjustments. The components to be adjusted are stainless steel return springs, gold moving contacts, and gold stationary contacts. The adjustments performed abroad consist of setting the space between stationary contacts using a gauge, setting the spring force of moving contacts using a gram gauge, and setting the return spring angle using an angled shim.

Upon their return to the U.S., the header assemblies will be cleaned, stabilization baked and inspected.

You state that the header assemblies contain gold, a precious metal, which is not eligible for subheading 9802.00.60, HTSUS, treatment. However, you state that a breakdown of the header assembly's component materials prior to combination into the completed article verify that the essential character of the header assembly is base metal which is eligible for treatment under subheading 9802.00.60, HTSUS. You state that the precious metal content represents less than 4% of its weight and less than 2.5% of its volume. The actual cost breakdown is:

Gold contacts $0.31 26.5%
(material ready for assembly)

Base metal header $0.70 58.5%
(material, labor and overhead ready for plating and assembly)

Gold plating of header $0.17 15%
(material, labor and overhead)

Total Cost $1.18 100%

In HRL 554906, we found that setting the space between the stationary contacts, changing the spring force of the moving contacts, and setting the return spring angle on the base metal articles of domestic origin did not constitute further processing operations under subheading 9802.00.60, HTSUS. We stated that the foreign operations did not affect the metal itself or impart different characteristics which the metal did not have before.

You submit in your reconsideration request that the Mexican adjustment operations constitute "further processing" of the metal headers because they involve precision bending of the leads, resulting in permanent changes in their form, which affect the electrical characteristics of the assemblies as described in the documentary material provided by Teledyne.

ISSUE:

Whether the header assembly will be eligible for a duty allowance under HTSUS subheading 9802.00.60 when returned to 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).

Eligible articles of metal are defined in U.S. note 3(d), subchapter II, Chapter 98, HTSUS, which provides that:

[f]or purposes of subheading 9802.00.60, the term "metal" covers (1) the base metals enumerated in additional U.S. note 1 to section XV; (2) arsenic, barium, boron, calcium, mercury, selenium, silicon, strontium, tellurium, thorium, uranium, and the rare-earth elements; and (3) alloys of any of the foregoing.

Base metals are further enumerated in additional U.S. note 1, section XV, HTSUS, which provides that:

[f]or the purposes of the tariff schedule, the term "base metals" embraces aluminum, antimony, beryllium, bismuth, cadmium, chromium, cobalt, copper, gallium, germanium, hafnium, indium, iron and steel, lead, magnesium, manganese, molybdenum, nickel, niobium (columbium), rhenium, tantalum, thallium, tin, titanium, tungsten, vanadium, zinc and zirconium.

We have previously ruled under item 806.30, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9802.00.60, HTSUS) that an article of metal is eligible for a partial duty exemption if it is in chief value metal made or subjected to a process of manufacture in the U.S. See, HRL 048723 dated January 18, 1977 (residues, oxides, or ordinary dross or slag obtained from processing a metal in the U.S. is not in chief value metal, but a combination of chemical elements such as metallic oxides, and sulfates which are used to produce metal); HRL 058008 dated January 26, 1978 (a zirconium sponge was found to be in chief value of metal, and therefore, eligible for the partial duty exemption); and HRL 058301 dated June 15, 1978 (a die blank composed of polycrystalline man-made diamond core pressed and bonded into a tungsten-carbide outer ring is in chief value of diamonds, and, therefore, is not an article of metal under item 806.30, TSUS).

However, the "in chief value" criterion was not carried over from the TSUS to the HTSUS. Therefore, under subheading 9802.00.60, HTSUS, to determine whether a product is an eligible article of metal, an "essential character" analysis must be applied. As used in the General Rules of Interpretation, HTSUS, the "essential character" criterion involves an examination of the nature of the material or component, its bulk, quantity, weight and value, and the role of a constituent material in relation to the use of the goods.

Based on the information presented, we find that the essential character of the header assembly is base metal, and, therefore, the article is eligible for treatment under subheading 9802.00.60, HTSUS. Based on your calculations, 58.5% of the header assembly's value before the final assembly operation is generated from base metal components such as stainless steel. You also state that less than 4% of the weight and less than 2.5% of the volume of the header assembly is attributed to precious metal. Your March 22, 1991, letter states that the header assembly could be plated with some other form of plating.

However, due to design configuration control and brand identity over the past years, Teledyne has retained the gold finish on the header assembly. Additionally, the gold plating provides good conductivity for the header assembly.

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.

After reviewing HRL 554906 and the additional information provided, we find that the adjustment operations performed in Mexico to the stainless steel return springs are sufficient to satisfy the foreign "further processing" requirement of subheading 9802.00.60, HTSUS.

The above-described operations involve precise adjustments made by slightly bending the return springs to their proper position according to Teledyne's specifications. The adjustments made to the return springs are slight, but they are precise and a necessary part of the production of the completed article. Even though the adjustments are minor, they change the shape and form of the return springs resulting in new and different electrical properties which become an integral part of the metal. Without the adjustments, the header assemblies are incapable of performing their intended function. See, HRL 555620 dated August 8, 1990, which held that the bending, flanging, and cutting of discs in Canada are considered "further processing" operations.

The stabilization baking of the header assemblies in the U.S. has long been considered a sufficient process which complies with the "further processing" requirement for the domestic segment of subheading 9802.00.60, HTSUS. See, T.D. 78- 416, 12 Cust.Bull. 922 (1978) (stabilization baking of semiconductor devices is "further processing" within the scope of item 806.30, TSUS); and HRL 020418 dated July 7, 1972 (stabilization baking of silicon wafers in the U.S. is considered "further processing").

HOLDING:

On the basis of the information submitted, it is our opinion that the header assembly's essential character is base metal and, therefore, the assembly is considered an eligible article of metal under subheading 9802.00.60, HTSUS. The processes performed abroad and in the U.S. to the header assembly constitute "further processing" as that term is used in this tariff provision, and, therefore, the imported article will be entitled to the partial duty exemption under subheading 9802.00.60, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.9. HRL 554906 is modified accordingly.

Sincerely,

John Durant, Director
Commercial Rulings Division

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