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HQ 557089


May 12, 1993

CLA-2 CO:R:C:S 557089 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Rufus E. Jarman, Jr.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Subheading 9802.00.80, HTSUS; catalytic converter; catalytic converter elements; nitrate salts; fabricated components, the product of the U.S.; substantial transformation; chemical reaction; 19 CFR 10.12(e),

Dear Mr. Jarman:

This is in reference to your letter dated January 6, 1993, on behalf of International Catalyst Technology ("ICT"), requesting a ruling as to whether certain automotive parts, described as catalytic converter elements ("CC elements), or completed catalytic converters, exported for assembly into a complete automobile, will be considered "fabricated components, the product of the U.S.", for purposes of determining the eligibility of the imported automobile for the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The CC elements are to be manufactured in the U.S. from the following materials or components: (1) a ceramic honeycomb substrate fabricated to the precise size and shape for a particular automotive exhaust system, (2) aluminum oxide ("washcoat"), and (3) a solution of platinum and/or other precious metal nitrate salts.

The ceramic substrate and washcoat dispersion will be of U.S. origin. The process of preparing the precious metal nitrate salts, which may take place either in the U.S. or abroad, is as follows:

Precious metal raw material such as platinum is obtained in a powder form called "sponge". Platinum cannot be sourced from the U.S., and therefore will be imported from either South Africa, Canada, or the former Soviet Union. This material will be converted into a chloride solution, chloroplatinic acid ("CPA"), through a chlorination chemical reaction. The chlorine solution is then converted into nitrate salts through a second chemical
reaction. In this reaction, fuming nitric acid is added to the CPA to form a platinum nitrate hydroxide salt ("PNHS") with a chlorine radical, and by-products. The PNHS solution is then purified by distillation and evaporation.

In the United States, the washcoat and PNHS are mixed together and the substrate is dipped into the mixture of washcoat and PNHS. The coated substrate is then dried and fired (cured) in a hydrogen atmosphere. The purpose of the drying and firing is to transform the chemical salts, by chemical reaction (reduction) into a metallic state, thereby uniformly depositing them on the surface of the substrate. This results in a finished CC element which may be exported in this condition.

The next operation, which may be performed either in the United States or abroad, is to assemble the completed CC element into a finished catalytic converter. This involves wrapping the element in wire mesh, enclosing the wrapped element within the two halves of a metal canister, and welding the two halves together. If assembled in the U.S., the completed catalytic converter will be exported in this condition. Whether assembled in the U.S. or abroad, the converter will be further assembled abroad into a motor vehicle as part of the exhaust system.

In operation, the function of the catalytic converter is to reduce harmful emissions and pollution. This is done by chemical catalytic effect of the precious metals which encourages the conversion of pollutants contained in automotive exhaust into harmless compounds which would otherwise escape into the atmosphere.

Either CC elements or finished catalytic converters may be exported. In the latter case, the metal canisters will be produced in the United States.

ICT contemplates that the location of the chemical reactions will occur under one or both of two different scenarios, as follows:

Scenario No. 1. The chlorination reaction, resulting in the CPA, will be performed in Canada and the nitrate reaction, resulting in the PNHA, will be performed in the U.S.

Scenario No. 2. As in No. 1, except that the nitrate reaction will also be performed in Canada and the PNHS will be imported into the U.S. where mixing with washcoat, substrate dipping into the subsequent mixture and finishing operations will be performed.

ISSUES:

1) Whether under Scenario No. 1, the production of the PNHS in the U.S., from the foreign CPA and other materials, and subsequent operations necessary to produce the CC element, result in a substantial transformation of the foreign material into a fabricated component, the product of the U.S.

2) Whether under Scenario No. 2, a substantial transformation would similarly result from the operations performed in the U.S. in connection with the imported PNHS.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

(a)rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24. Customs Regulations. (19 CFR 10.24).

Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), provides generally that an article wholly or partially of foreign components or materials, may be a "product of the United States" if such components or materials are "substantially transformed" by a process of manufacture into a new or different article, or are merged into a new or different article. Section 10.14(b) provides that a "substantial transformation" occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has
not occurred. See, Belcrest Linens v. United States, 573 F. Supp. 1149 (CIT 1983), 741 F.2d 1368 (1984). In prior rulings, we have also held that when chemical compounds are mixed together to form a different substance and the individual properties of each ingredient are no longer distinguishable, they have undergone a substantial transformation. See, for example, Headquarters Ruling Letter (HRL) 555989, dated June 24, 1991.

Scenario No. 1

Under this scenario, the imported CPA solution is, through the chemical processes described above, converted into a platinum hydroxide nitrate salt (PNHS) in the U.S. This product has different chemical and physical characteristics than its predecessor, the CPA. The subsequent operations, resulting in the production of the CC element, involves dipping the substrate into a mixture of PNHS and aluminum oxide, drying and then "firing" (curing) the coated substrate in a hydrogen atmosphere. In this process, the metal catalyst (platinum coated on ceramic) is prepared by the reduction of a precursor (PNHS) that contains the active component (platinum) in either an oxide or chloride form. (In this case, reduction is defined as the acceptance of one or more electrons by an atom or ion, i.e., the platinum ion in PNHS is converted to platinum metal by a reduction reaction.) These operations require special conditions, special equipment, and strict quality control in order to produce the final product.

We find that the chemical processes (controlled chemical reaction, purification, and concentration), involved in producing the PNHS, and the subsequent operations, resulting in the completed CC element, are processes of manufacture within the meaning of 19 CFR 10.12(e). The completed product, the CC element, has an identity different than the imported CPA solution, different characteristics and a different use, i.e., to control automotive emissions.

It is apparent from these facts that the process of converting the CPA (along with other materials) into the CC element results in a substantial transformation of the CPA into a new and different article of commerce. Accordingly, the CC element is considered a fabricated component of the U.S. for purposes of determining the eligibility of the imported automobile for partial duty treatment under subheading 9802.00.80, HTSUS. (If the catalytic converter is to be assembled in the U.S. from CC elements and other U.S. parts, before being sent abroad for assembly into the exhaust system of an automobile, it would similarly be considered a U.S. fabricated component.)

Scenario No. 2

Under this prospective scenario, the chemical reactions resulting in the CPA and PNHS will be performed in Canada. The subsequent processing in the U.S. will be identical to the operations performed under Scenario No. 1.

As in Scenario No. 1, we find that these operations are processes of manufacture, within the meaning of 19 CFR 10.12(e), and that the completed CC element is a product with an identity, character, and use, different from the imported PNHS. Accordingly, we find that the PNHS has been substantially transformed, as that phrase is used in 19 CFR 10.12(e), together with the other materials, into a new and different article of commerce. As a result, the CC element will be considered a fabricated component, the product of the U.S. (A similar finding would apply to the catalytic converter, if assembled in the U.S. from CC elements and other U.S. parts.)

HOLDING:

A chloroplatinic acid solution (CPA) or a platinum nitrate hydroxide solution (PNHS), of foreign origin, will be substantially transformed in the U.S., through chemical and other manufacturing operations, into a new and different article of commerce, a catalytic converter element. The completed element (or assembled catalytic converter from such elements) will be considered a fabricated component, product of the U.S., for purposes of determining the eligibility of the imported automobile for the partial duty exemption under subheading 9802.00.80, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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