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HQ 557296


September 15, 1993

CLA-2 CO:R:C:S 557296 RAH

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60

District Director
909 First Ave., Rm 2039
Seattle, WA 98174

RE: Application for Further Review of Protest No. 3004- 93-100022; further processing

Dear Sir:

This is in response to your memorandum of April 15, 1993, forwarding the above referenced Application For Further Review filed by Border Brokerage Co., Blaine, Washington, on behalf of Earle M. Jorgensen Co.

FACTS:

The merchandise in question consists of 4 hub caps, 4 hub cap covers and 1 cap balancing arbor. The merchandise was classified under subheading 7419.99.5050, Harmonized Tariff Schedule of the United States (HTSUS).

The applicant contends that the merchandise is entitled to a partial duty exemption under subheading 9802.00.60, HTSUS, and that the value of the articles was incorrectly entered in the amount of $292,179.00.

The affidavit of processing from the foreign processor (Ebco Industries, Ltd.) describes the foreign processing as follows:

4 bronze hub caps machined and pressured tested 4 hub caps covers finished machined
1 balancing arbor supplied mat. and machined

The domestic processing performed by the Jorgensen Forge Corporation is described in its affidavit of processing as follows:
covers fitted with cap, new bolts and o-ring installed, holes drilled for dynamic balancing, hand worked for final fit to matching part.

Your office denied protestant's claim for HTSUS subheading 9802.00.60 treatment on the grounds that: (1) the documentation requirements set forth in section 10.9(f), Customs Regulations (19 CFR 10.9(f)), were not satisfied as the declaration of the owner, importer, consignee or agent failed to state that the cost or value of the foreign processing was correctly stated in the entry; (2) the parts were "finished" when returned to the U.S.; and (3) the operations performed in the U.S. do not constitute "significant processing."

ISSUE:

Whether the processing operations performed in Canada, and in the U.S. when returned, constitute "further processing" for purposes of subheading 9802.00.60, HTSUS.

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 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 U.S. 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 the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9), are met.

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

[f]or purposes of item 806.30, TSUS [the predecessor tariff provision to HTSUS subheading 9802.00.60], 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 the instant case, we find that the operations performed in Canada, which include machining, clearly satisfy the foreign "further processing" requirement. Likewise, based upon the information presented, we find that the operations performed in the U.S. to the hub caps and covers, which involved drilling and hand-working (finish machining), satisfies the domestic "further processing" requirement of subheading 9802.00.60, HTSUS. Those operations specifically fall within the purview of C.S.D. 84-49. However, with respect to the balancing arbor, Mr. H.R. Streb of the Jorgensen Forge Corp. advised a member of my staff by telephone that this item was not further processed in the U.S. Accordingly, the arbor is not entitled to the partial duty exemption under subheading 9802.00.60, HTSUS.

At our request, protestant submitted a declaration dated June 9, 1993 (copy enclosed), stating the amount of the foreign processing ($37,563.00). We find that this declaration satisfies the requirements of 19 CFR 10.9(f).

With respect to the value issue, 19 CFR 10.9(j) provides, in pertinent part, that:

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 specifications, and the furnishing of tools or equipment for doing the processing abroad, or otherwise.

The dispute regarding the value of the returned caps and covers appears to relate solely to the cost of the castings exported to Canada for processing. However, under subheading 9802.00.60, HTSUS, duty is assessed only on the value of the foreign processing which does not include the cost of the exported metal articles. The documentation submitted in connection with this protest reflects that the charge by Ebco for the Canadian processing of the hub caps and covers equals $34,644. Therefore, with respect to the hub caps and covers, the applicable duty rate under subheading 7419.99.5050, HTSUS, should be assessed against that amount. The balancing arbor is dutiable on its full value.

HOLDING:

The operations performed in Canada to the exported articles (machining) and the operations performed in the U.S. to the returned hub caps and covers (drilling and hand-working) constitute "further processing" operations under subheading 9802.00.60, HTSUS. Accordingly, the hub caps and covers are entitled to the partial duty exemption available under that tariff provision. However, as the balancing arbor was not further processed upon its return to the U.S., this item is dutiable on its full value.

The protest should be granted in part and denied in part in accordance with this decision. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant.

Sincerely,

John Durant, Director
Commercial Rulings Division


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