United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1997 HQ Rulings > HQ 546539 - HQ 559177 > HQ 557528

Previous Ruling Next Ruling
HQ 557528




December 17, 1993

CLA-2 CO:R:C:S 557528 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60, 9802.00.80

Mr. Matthew Chang
Assistant Vice President
Itochu International Inc.
335 Madison Avenue
New York, New York 10017

RE: Applicability of partial duty exemption under subheadings 9802.00.60 and 9802.00.80, HTSUS, to pellets composed of certain metals and polypropylene sulfite

Dear Mr. Chang:

This is in reference to your letter dated June 16, 1993, requesting a ruling that pellets composed of certain metals and polypropylene sulfite will be eligible upon importation for the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). You also request our opinion regarding the proper classification of the imported product.

FACTS:

The product to be exported from the U.S. is an isotropic powder composed of iron, neodymium, boron, and cobalt. In the U.S., the material is melted down and subjected to a "super quench" treatment where a rotor revolving at high speed produces a ribbon- like material. The ribbon is pulverized and annealed prior to export from the U.S.

In Japan, Daido Steel Ltd. mixes the powder with polypropylene sulfite (35%) and heats the mixture to form pellets. The pellets are then shipped to the U.S. After importation, the pellets are injection molded and subject to a process of magnetization. The resulting magnets have various applications.

ISSUES:

1) Whether the imported pellets will be eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, or under any other reduced duty tariff provision upon return to the U.S.

2) Whether the isotropic powder, in pellet form at the time
of importation into the U.S., is classifiable under subheading 7202.99.50, HTSUS, as an other ferroalloy, under subheading 8505.11.00, HTSUS, as articles intended to become permanent magnets after magnetization, of metal, or under subheading 7326.90.90, HTSUS, as other articles of iron or steel.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS

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, lubrication, 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 value of the imported assembled article, less the cost or value of such U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides in pertinent part that the mixing or combining of liquids, gases, chemicals, food ingredients, and amorphous solids with each other or with solid components is not regarded as an assembly. The mixing of the isotropic powder, an amorphous solid, with polypropylene sulfite, a chemical, is therefore not considered an assembly operation for purposes of subheading 9802.00.80, HTSUS. (See also Headquarters Ruling Letter (HRL) 555844, dated April 7, 1991, mixing of phosphoric acid and sodium hydroxide to form crystalline glucose not acceptable assembly operation.)

Subheading 9802.00.60, HTSUS, 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 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). The value of such foreign processing includes the cost or value of all domestic and foreign articles used in these operations, excluding the exported U.S. metal article. (19 CFR 10.9(j)).

Eligible articles of metal are defined in U.S. note 3(d), subchapter II, Chapter 98, HTSUS ("Note 3(d)"), 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. (Emphasis added.)

Iron and cobalt are among the base metals enumerated in additional U.S. note 1 to section XV. Neodymium is a rare-earth metallic element. (See Webster's II New Riverside Universal Dictionary, 1988 Ed.)

Therefore, the exported isotropic powder qualifies as an "eligible article of metal" for purposes of U.S. Note 3(d). The issue which we must now address is whether the "dual processing" requirement under the statute is satisfied.

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.

We find that the operations performed in Japan, wherein the isotropic powder is mixed with polypropylene sulfite, and heated
form pellets, satisfies the foreign 'further processing' requirement. The shape of the metal is changed by these operations, and the addition of the sulfite (35% composition) imparts new and different properties which become an integral part of the resulting product.

In connection with the operations performed upon return to the U.S., the thermal injection molding process clearly changes the shape of the product. In HRL 556080, dated August 27, 1991, we found that the 'further processing' requirement was satisfied upon the application of a magnetic coating which imparted new and different characteristics to aluminum discs which became an integral part of the metal. Similarly, in this case, the magnetization of the returned products after the injection molding process imparts new and different characteristics to the returned pellets. As a result, we find that the domestic element of the 'dual further processing' requirement is also satisfied by the operations performed in the U.S. upon return of the article from Japan.

Accordingly, upon importation, the isotropic pellets will be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS. Duty will be assessed only on the cost or value of the foreign processing, which will include the cost or value of the polypropylene sulfite.

Classification

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's), taken in order. GRI 1 provides that classification is determined according to the terms of the headings and any relative section or chapter notes.

In part, chapter 72, note 1(c), HTSUS, states that:

[i]n this chapter and, in the case of notes (d), (e) and (f) below throughout the tariff schedule, the following expressions have the meanings assigned to them:

(c) Ferroalloys

Alloys in pigs, blocks, lumps, or similar primary forms, in forms obtained by continuous casting and also in granular or powder forms, whether or not agglomerated, commonly used as an additive in the manufacture of other alloys or as deoxidants, desulphurizing agents or for similar uses in ferrous metallurgy and generally not usefully malleable...

The isotopic pellets are not described as ferroalloys, because the presence of the polypropylene binder precludes the pellets from being used as an additive material in ferrous metallurgy. Also, the presence of the polypropylene binder makes the pellets usefully malleable. Therefore, the isotropic pellets are not classifiable under subheading 7202.99.50, HTSUS.

In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes, although not dispositive, are to be used to determine the proper interpretation of the HTSUS. 54 Fed. Reg. 35128 (August 23, 1989). In part, Explanatory Note 85.05 (p. 1340) states that:

(2) Permanent magnets and articles intended to become permanent magnets after magnetization.

. . . Articles intended to become permanent magnets after magnetization are recognisable as such by their shape and composition, generally being cubes or discs (tags) of metal or of agglomerated ferrite (e.g., barium ferrite). . .

The heading does not cover:

(a) Magnetic ferrite with a binder, in the form of powder or pellets (heading 38.23).

The isotropic pellets, in their condition as imported, are not described as articles intended to become magnets because the pellets are not recognizable as such by their shape. After importation into the U.S., the pellets must undergo an injection molding process which will give them their final shape. Therefore, we find that the isotropic pellets are not classifiable under subheading 8505.11.00, HTSUS.

Heading 3823, HTSUS, provides for: "[p]repared binders for foundry molds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included in the above exclusion in Explanatory Note 85.05 and they are not classifiable under heading 3823, HTSUS.

The istropic pellets are not described as ferrites, nor, in their condition as imported, are they magnetic. Therefore, they are not included in the above exclusion in Explanatory Note 85.05 and they are not classifiable under heading 3823, HTSUS.

As the isotropic pellets are not specifically described
elsewhere in the HTSUS, they are classifiable under subheading 7326.90.90, HTSUS.

HOLDING:

1) The imported isotropic pellets will not be eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, upon return to the U.S.

2) On the basis of the information submitted, it is our opinion that the processing performed abroad and in the United States constitutes 'further processing' as that term is used under subheading 9802.00.60, HTSUS. Therefore, the imported product will be entitled to the partial duty exemption under that provision, upon compliance with the documentary requirements of 19 CFR 10.9. Duty will be assessed only on the processing performed abroad, which will include the cost or value of the polypropylene sulfite.

3) The isotropic pellets are properly classifiable under subheading 7326.90.90, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: