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HQ 557992




January 23, 1996

CLA-2 RR:TC:SM 557992 AT

CATEGORY: CLASSIFICATION

TARIFF NO.: 8109.90.00; 9802.00.60,

Patrick D. Gill, Esq.
Rode & Qualey
295 Madison Avenue
New York, New York 10017

RE: Modification of C.S.D. 84-49; Classification and applicability of partial duty exemption under HTSUS subheading 9802.00.60 to zirconium tubes manufactured in Germany of U.S. origin zirconium and returned to the U.S. for further processing; "further processing".

Dear Mr. Gill:

This is in response to your letter dated May 27, 1994, and supplemental information dated September 14, 1995, submitted on behalf of Siemens Power Corporation ("Siemens"), requesting a ruling concerning the classification and applicability of the partial duty exemption under subheading 9802.00.60, HTSUS, to zirconium tubes imported into the U.S. We regret the delay in responding.

FACTS:

According to your submission, Siemens intends to import into the U.S., zirconium tubes manufactured in Germany to be further processed and used in the manufacture of nuclear fuel rods for nuclear reactors. You state that there are three discreet processing steps performed sequentially in the United States, Germany and the United States which lead to the manufacture of the finished fuel rods. First, in the U.S., zircon sand of United States origin is crushed, blended and otherwise processed into a zirconium ingot. This ingot is then forged, extruded and formed on a tube rocker into tube stock or semifinished tubing, designated TREX. This TREX tubing is then exported to Germany where it is subjected to three successive cold reductions using the Pilger process. This process reduces both the diameter and wall thickness of the tubing with a mandrel and a pair of rolls which rotate continuously. The tubing is annealed between each cold reduction and both inside and outside diameters etch cleaned with acid to remove surface impurities and to reveal microscopic cracks in the surface of the metal. After the third cold reduction, the tubing is straightened, grit blasted, etched on the inside diameter, belt polished and cut to final lengths consistent with the length of the fuel rods or elements into which they will be finished. This is their condition upon return to the U.S.

In the U.S., the imported zirconium tubes are further processed by Siemens into fuel rods for nuclear reactors. First, the zirconium tubes are cleaned, dried and inspected by Siemens. Then, lower end caps are welded to the zirconium tubes using a tungsten inert gas welding process in a purged chamber, making sure that the weld is free of moisture or other contaminants, after which uranium pellets are inserted into the tubes. Cleaned and inspected springs are then added to the lower-end welded cap and the loaded fuel rods are inserted individually into high pressured TIG welders. The fuel rods are then evacuated to remove air and back filled with helium to the design pressure of the fuel rod. Upper end caps, which have been cleaned and inspected, are then welded onto the upper portion of the fuel rod. The finished fuel rods are tested for defects, subjected to a radiographic examination by quality control, and the integrity of both upper and lower welds is determined. Minimum weld cover, contact between the upper end cap and the spring, presence of foreign material, and visual appearance are checked during this inspection. The fuel rods are then put through a final inspection which includes verification of serial numbers, inspections for weld color, autoclave finish, length, weld overhand, rod straightness, end cap straightness, and visual appearance. Inspected rods are then placed in storage trays to await release to bundle assembly by quality control.

You state that the process by which the zirconium end caps are welded to the imported zirconium tubes to produce the finished fuel rods is known as gas tungsten arc welding ("GTAW"), also known as TIG (tungsten inert gas) welding. GTAW is a process wherein coalescence of metals is produced by heating them with an arc between a tungsten (nonconsumable) electrode and the work. The weld is made by applying the arc so that the abutting work pieces are melted and joined together as the weld metal solidifies. Although filler metal may be added during the GTAW welding process, because this process is used extensively for the welding of longitudinal seams of thin wall stainless steel and alloy pressure pipe and tubing, generally filler metal is not used, as is the case with the zirconium tubes.

You contend that the zirconium tubes manufactured in Germany from U.S. origin Trex which are returned to the U.S. to be further processed and used in the manufacture of fuel rods should be classified under subheading 8109.90.00, HTSUS and are eligible for the partial duty exemption under subheading 9802.00.60, HTSUS.

ISSUES:

1. Whether the zirconium tubes, as imported, are articles of zirconium or unfinished fuel elements for nuclear reactors or unfinished parts of fuel elements

2. Whether the zirconium tubes manufactured in Germany from U.S. origin Trex which are returned to the U.S. to be used in the manufacture of fuel rods, in the manner described above, qualify for a partial duty exemption available under subheading 9802.00.60, HTSUS, when imported into the U.S.

LAW AND ANALYSIS:

Proper Classification of the Merchandise

Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6. Under GRI 2(a), an incomplete or unfinished article is to be classified as the complete or finished article provided it has the essential character of the complete or finished article. The provisions of GRI 2(a) apply both to articles and to parts of articles. Tubes and pipes of specific base metals are provided for in provisions of chapters 73, 74, 75, 76 and 78. However, there is no corresponding provision in the HTSUS for pipes and tubes of zirconium. Heading 8109 provides for zirconium and articles thereof, including waste and scrap.

Heading 8401 covers, among other things, fuel elements (cartridges), non-irradiated, for nuclear reactors, and parts thereof. The finished fuel rods are classifiable in subheading 8401.30.00, HTSUS, a provision for fuel elements (cartridges), non-irradiated, and parts thereof. Although imported cut to length, the zirconium tubes are in an otherwise bare configuration. They are without end caps and special attachments for handling, and lack supports to keep them spaced apart and fixed in place. Most importantly, they lack the uranium fuel in pellet form. For these reasons, we agree with counsel's contention that, as imported, the zirconium tubes lack the essential character, under GRI 2(a), either of finished or complete fuel elements or of parts of such elements.

Applicability of subheading 9802.00.60

Subheading 9802.00.60, HTSUS, provides a partial duty exemption for:

[any} 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 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 satisfied. Pursuant to U.S. Note 3(d) of subchapter II, Chapter 98, 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; (3) and alloys of any of the foregoing.

As the Trex material is an alloy of "zirconium", a base metal enumerated in additional U.S. Note 1, Section XV, HTSUS, the Trex material is an eligible article of metal for purposes of subheading 9802.00.60, HTSUS. Moreover, as the Trex is manufactured in the U.S. from U.S. origin zirconium sand it satisfies the initial requirement under this tariff provision that the metal must be manufactured in the U.S. or be subjected to a process of manufacture in the U.S.

Clearly the processing operations performed in Germany to manufacture the zirconium tubes (cold pilgering, annealing, etching, straightening, blasting, polishing and cutting to length) constitutes sufficient "further processing" so as to satisfy the foreign "further processing" requirement of subheading 9802.00.60, HTSUS. See, HQ 556123 dated July 30, 1991 (holding that steel plates subjected to cutting, and forming operations are considered "further processing" under subheading 9802.00.60, HTSUS). See HQ 555103 dated February 2, 1989 (holding that a stainless steel article subjected to a heat treatment process known as "Solution (water) Quench, Annealed" which was designed to relieve rolling stress constituted a "further processing" operation. In this case, as in the cited rulings, the processing operations performed to the Trex impart new and different characteristics to the Trex (they have changed in shape and form) which did not exist in the Trex prior to the processing.

It next must be determined whether the domestic processing of the zirconium tubes in the U.S. satisfies the domestic "further processing" requirement of subheading 9802.00.60.

You assert that the GTAW operation which is performed in the U.S. by Siemens to manufacture the fuel rods constitutes sufficient "further processing" so as to satisfy the domestic "further processing" requirement of subheading 9802.00.60, HTSUS. 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 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. (Emphasis added).

You argue that the statement in C.S.D. 84-49, that "the mere assembly of finished parts by ..., welding, etc" would not constitute "further processing" is clearly in error, because there are some types of welding operations, such as the GTAW operation performed in this case, which do constitute further processing of the metal as required under subheading 9802.00.60. We agree for the reasons stated below.

In Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055 (1972), the court discussed the type of processing that would entail "further processing". In the Intelex case, copper wire and insulating paper were processed into lead-covered telephone cable and imported into the U.S. on cable rolls. The cable was then merely strung on poles after wire stripping and splicing operations. The issue presented was whether the imported cable was "returned to the U.S. for further processing," within the meaning of paragraph 1615(g)(2)(B), Tariff Act of 1930, as amended (a precursor provision of subheading 9802..00.80, HTSUS). The court considered the words "process" and "processing" and stated that:

... its meaning must be controlled by the particular context in which it is used here and the legislative intent. Fleming v. Hawkeye Pearl Button Co., 113 F. 2d 52, 57 (8th Cir. 1940). When we look to the context of paragraph 1615(g)(2), we do not think that Congress had in mind that any and all kinds of 'processing' would suffice to bring the article within the purview of that paragraph. Instead, we believe that the words 'further processing' relate to the kind of processing to which the article had been subjected before--namely, 'a process of manufacture,' as expressed in paragraph 1615(g)(2)(A). We continue of the view that Congress used the expression "subjected to a process of manufacture' as synonymous with 'processing' A. F. Burstrom v. United States, 44 CCPA 27, CAD 631 (1956), and that the 'further processing' referred to in paragraph 1615(g)(2)(A) is a further manufacturing process. (Court's emphasis).

The court stated that it did "...not think that the processes to which an already completed article were subjected, incident to using it for the purpose intended, were necessarily part and parcel of manufacturing processes performed on that article." (Court's emphasis). Therefore, finding no evidence that the operations performed in the U.S. on the imported telephone cable constituted a process of manufacture in any common or commercial sense, the court determined that the partial duty exemption was inapplicable to the imported cable.

Unlike the court's finding in Intelex, we find that sufficient evidence has been presented to support a finding that the GTAW operation which is performed on the zirconium tubes, in this case, does constitute a process of manufacture "in a common or commercial sense" in satisfaction of the "further processing" requirement under subheading 9802.00.60.

The GTAW operation creates a physical change on the imported tubes by melting them at the point of the weld. See, ASM Metals Reference Book, Second Edition, published by the American Society for Metals, which defines welding as "joining two or more pieces of material by applying heat or pressure, or both, with or without filler material, to produce a localized union through fusion or recrystallization across the interface". Also, this fusion or recrystallization effects the molecular characteristics of the zirconium tube at the point of the weld in that

When a liquid (or pure molten) metal begins to solidify or freeze, atoms begin to take up their positions in the appropriate lattice at various spots or nuclei in the molten metal. ...Eventually these arms meet arms of neighboring crystals and no further growth outwards can take place. The crystal then increases in size, within its boundary, forming a solid crystal, and the junction where it meets the surrounding crystals becomes the crystal of grain boundary. Its shape will now be quite unlike what it would have been if it could have grown without restriction; hence it will have no definite shape. A.C. Davies, The Science and Practice of Welding, Eighth Edition, Volume 1.

The form of the zirconium tube also changes as a result of the GTAW operation in that the point of the weld between the tube and the lower and upper end cap can be viewed as a tiny casting itself.

As the amount of solid metal increases, of course, the amount of liquid metal decreases proportionately, and the grains grow larger and larger until they ultimately meet. Where the grains meet produces a disarrayed arrangement of atoms called a grain boundary which is naturally irregular. ...The grain boundaries of an ingot which has been cast in a cylindrical mold is much the same as in a weld, and because of the similarity in the shape of its grains, a fusion weld can be viewed as a tiny casting. (Emphasis added). American Welding Society, Welding Handbook, Seventh Edition, Volume 1, "Fundamentals of Welding".

Based on the above considerations, we find that the GTAW operations performed in the U.S. by Siemens, in the manner described above, to manufacture nuclear fuel rods constitute "further processing" of the imported zirconium tubes. Thus, the GTAW operation, as described above, satisfies the domestic "further processing" requirements of subheading 9802.00.60, HTSUS. Accordingly, the imported zirconium tubes are eligible for the partial duty exemption available under subheading 9802.00.60 provided the documentation requirements of 19 CFR 10.9 are satisfied.

HOLDING:

Under the authority of GRI 1, the zirconium tubes, as described, are provided for in heading 8109. They are classifiable in subheading 8109.90.00, HTSUS, as other articles of zirconium. The rate of duty is 5.1 percent ad valorem.

Based on our review of the information submitted, we find that the processes performed in Germany to the U.S. origin Trex material satisfy the foreign "further processing" requirement. In addition, the GTAW operations performed in the U.S. to the imported zirconium tubes, as described above, satisfy the domestic "further processing" requirement for purposes of subheading 9802.00.60, HTSUS. Therefore, the imported zirconium tubes subjected to the operations described above are eligible for the partial duty exemption under this tariff provision with duty only upon the cost or value of such processing performed outside the U.S., upon compliance with the documentary requirements of 19 CFR 10.9.

C.S.D. 84-49 is modified in accordance with this ruling to reflect that GTAW constitutes "further processing" for purposes of subheading 9802.00.60, HTSUS. Whether other types of welding operations, other than GTAW, constitute "further processing" for purposes of subheading 9802.00.60, will be determined on a case-by-case basis.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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