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HQ 224450


May 24, 1993

WAR-3-03-CO:R:C:E 224450 CB

CATEGORY: ENTRY

James A. Geraghty, Esq.
Donohue and Donohue
26 Broadway
New York, NY 10004

RE: Magma Copper Company; 19 U.S.C. 1312; Smelting and Refining Bonded Warehouse; Class 7 Bonded Warehouse

Dear Mr. Geraghty:

This is in response to your letter of February 5, 1993 (your file no. 1337-001) on behalf of Magma Copper Company requesting a ruling.

FACTS:

According to your letter, Magma Copper Company ("Magma") is an integrated copper producer operating an underground mine and processing facilities at San Manuel, Arizona. Specifically, Magma mines sulfide ore which it concentrates for smelting and further processing. Magma sells both copper cathode and rod domestically and for exportation. Also, the company imports concentrates or anodes, as the case may be, to meet demand.

In May of 1990, Magma's application for authorization to establish a class 7 bonded warehouse at San Manuel was approved. The bonded area embraces the smelting, refining, and casting facilities. Magma has entered foreign copper concentrate for smelting and refining to cathode, and has withdrawn cathode for exportation to discharge the bond. Magma proposes to enter Mexican origin anode into its class 7 bonded warehouse for refining into cathode and casting into rod. The rod would be withdrawn duty paid for consumption and thereafter further processed into wire for exportation.

It is your contention that there is nothing in the statute or regulations which would prohibit further processing after Magma engages in the smelting and/or refining activities required for proper class 7 status.

ISSUE:

Whether the proposed rod facility qualifies as a class 7 warehouse?

LAW AND ANALYSIS:

Briefly, the process that takes place in the San Manuel plant is as follows: Copper anode is introduced into the plant. The anode - which, according to your request is not fully refined by the time it reaches the plant - is further refined in the plant. The copper is transferred from an anode at the positive pole of an electric circuit, to the cathode at the negative pole. The copper is plated at the cathode and impurities settle to the bottom of the refining cell. Cathodes are then melted and the molten copper is fed to a rotating vertical casting wheel which produces a bar casting. The bar moves through the rolling mill where it is sequentially reduced in diameter and then pickled, rinsed, waxed and coiled. The coils are banded,, shrink wrapped, weighted and loaded directly for shipment. The raw material at the beginning of the process is copper anode; the final end product is rolled copper rod, a wrought product.

The statute provides that "[a]ny plant engaged in smelting or refining, or both, of metal-bearing materials as defined in this section may, upon the giving of satisfactory bond, be designated a bonded smelting or refining warehouse." 19 U.S.C. 1312(a). Subsection (f) of 1312 defines smelting and refining as follows:

[T]he term 'smelting or refining' embraces only pyrometallurgical, hydrometallurgical, electrometallurgical, chemical, or other processes -

(A) for the treatment of metal-bearing materials to reduce the metal content thereof to a metallic state in the course of recovering it in forms which if imported would be classifiable in chapters 71 through 83 of the Harmonized Tariff Schedule of the United States (HTSUS), as unwrought metal, or in the form of oxides or other compounds which are obtained directly from the treatment of materials provided for in chapter 26 of the [HTSUS], and

(B) for the treatment of metal or metal waste and scrap to remove impurities or undesired components.

19 U.S.C. 1312(f)(2). (Emphasis added.)

The definition of smelting and refining sets forth three requirements: 1) the qualifying procedure must be applied to 2) the qualifying material for 3) the qualifying purpose. Thus, three questions are raised: 1) Does the procedure applied to the anode qualify under the statute?; 2) Does the anode qualify as a metal-bearing material under the statute?; and 3) Is the procedure applied for a qualifying purpose under the statute?

Regarding the first question, the statutory definition of "smelting or refining" includes electrometallurgical procedures but qualifies their use to be limited to several described purposes, none of which is a manufacture/production of wrought products. 19 U.S.C. 1312(f)(2)(A) and (B). Since the statute, in its definition of "smelting or refining" operations, limits such operations to certain named procedures, including electrometallurgical procedures, can it be said that an electro- metallurgical procedure employed to manufacture/produce a wrought product is a smelting or refining procedure? To answer in the affirmative would signify a willingness to call a manufacture/ production process a "smelting or refining" procedure merely because the manufacturing/production process employs an electro- metallurgical method. The process used at the San Manuel plant is a manufacturing/production process, not a refining process.

The answer to the second question is "no". The definition of "metal-bearing materials" is, in pertinent part: "unwrought metal to be smelted or refined provided for in chapters 71 through 83 of the [HTSUS]." 19 U.S.C. 1312(f)(1). While copper anode is unwrought metal provided for in chapter 74, HTSUS, it is not, as used in the San Manuel plant, unwrought metal to be smelted or refined. Smelting and refining are processes that are precisely defined under the statute. As explained below, the process that takes place in the San Manuel plant is not a smelting and/or refining process as defined in the statute; it is a production process. Therefore, the anode processed in the plant is not "unwrought metal to be smelted or refined." Rather, it is unwrought metal to be manufactured or produced into copper coils. Consequently, the anode introduced into the San Manuel plant does not qualify as metal-bearing material under the statute.

Finally, the answer to the third question is "no". Therefore, even if the answers to the two foregoing questions were in the affirmative, the negative answer to the third question defeats eligibility for class 7 warehouse status. The statute sets forth three acceptable purposes, or treatments, that a process can achieve, if that process is to qualify under the statute. Two of these are set forth in 1312(f)(2)(A), and one is set forth in 1312(f)(2)(B). Smelting and refining involves
various processes (pyrometallurgical, hydrometallurgical, electrometallurgical, etc.) designed to: 1) reduce the metal content of metal-bearing materials in the course of recovering it (the metal) in unwrought metal forms classifiable (if imported) in chapters 71 through 83 of the HTSUS; 2) reduce the metal content of metal-bearing materials in the course of recovering it in the form of oxides or other compounds which are obtained directly from the treatment of materials provided for in chapter 26 of the HTSUS (ores, slag and ash); and 3) remove impurities or undesired components from unwrought metal or metal waste and scrap. None of the foregoing three purposes, or three kinds of treatments, describes the operation that takes place at the San Manuel plant.

First, the operation at San Manuel is not the reduction of the metal content of metal-bearing materials in the course of recovering the metal in unwrought forms that would be classifiable (if imported) in the specified chapters of the HTSUS. While a final purification occurs in the further refining of the copper anode during the initial refining phase, what is produced ultimately, or what is "recovered," is a wrought metal form - coiled copper rod. We have been advised by our Office of Laboratories and Scientific Services (Lab Services) that this product is not an unwrought metal form; therefore, it would not be classifiable as an unwrought metal in the specified chapters of the HTSUS. See Additional U.S. Note 2, Section 15 of the HTSUS which excludes a rolled product from being considered unwrought for tariff purposes. Second, the operation at San Manuel is not the reduction of the metal content of metal- bearing materials in the course of recovering the metal in the form of oxides or other compounds which are obtained directly from the treatment of materials provided for in chapter 26 of the HTSUS. The finished product recovered, coiled copper rod, is not an oxide or other compound as described in the statute. Third, the operation at San Manuel is not simply the removal of impurities or undesired components from unwrought metal or metal waste and scrap. The San Manuel operation produces a wrought form of copper metal, i.e. coiled copper rod. Therefore, the process employed in the San Manuel plant is not designed to accomplish a qualifying purpose. It is designed to manufacture copper rod from unwrought copper anode.

Based on the foregoing discussion, the process used at the San Manuel plant does not qualify as a smelting and/or refining procedure under the statute. Although there is a refining phase in the process, this does not alter the fact that the process does not fall within the descriptions of the foregoing qualifying purposes or treatments. The refining phase of the operation is only a part of the continuous production process.

You contend that there is nothing in the statute or regulations which would prohibit further processing after Magma engages in the smelting and/or refining activities required for proper class 7 status. Regarding the assertion that manufacturing is not precluded in a class 7 warehouse, we believe that the statutory and regulatory schemes governing bonded warehouses clearly indicate that manufacturing is allowed in a bonded warehouse only where a statute explicitly so specifies. Under 19 U.S.C. 1312, a warehouse can be designated as a smelting and/or refining warehouse - nothing more or less. Subsection 1312(a) states the following: "[a]ny plant engaged in smelting or refining, or both, of metal-bearing materials . . .may . . .be designated a smelting or refining warehouse." The operations permitted therefore in a class 7 warehouse are smelting, or refining, or both smelting and refining. The statute continues with the following: "[m]etal-bearing materials may be entered into a bonded smelting or refining warehouse without the payment of duties thereon and there smelted or refined, or both, together with metal-bearing materials of domestic or foreign origin." The only operations specified are smelting and/or refining. The statute goes on to define smelting and refining, as above, in a precise manner with no mention or suggestion of manufacturing or production operations. The proposed operations are not permitted in a class 7 warehouse because manufacturing/production operations are not authorized.

It is also your position that because a part of the San Manuel operation is a refining procedure, that is enough to qualify the plant as a class 7 warehouse regardless of the manufacturing process. However, based on the above discussion, there is no refining procedure carried on at the San Manuel plant which falls within the language of the statute. The initial refining phase of the operation is not a basis for qualifying the plant for class 7 warehouse status. The refining phase is merely an initial step in the continuous process of manufacturing coiled copper rod. The process used in the San Manuel plant, in effect, merely borrows the final refining step that traditionally took place in the traditional refinery and incorporates it into the production operation carried on in the rod mill. Magma would have Customs accept the rod mill production operation as a legitimate refining operation by merely adding this final refining step.

Finally, you stated that "Nogales Customs approved the application for the class 7 warehouse status which included the rod facility within the fenced bonded area." Customs is limited by statute to approving class 7 bonds only for legitimate smelting and/or refining operations. Customs cannot approve a class 7 bond for a manufacturing operation; thus, where Customs has done so erroneously, it is obligated to correct the situation.
HOLDING:

The proposed rod mill does not qualify as a class 7 bonded warehouse because the operation is not a smelting or refining operation as defined in 19 U.S.C. 1312; it is a prohibited manufacture/production process.

Sincerely,

John Durant, Director

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