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HQ 228424

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May 2, 2002

CON-9-04 228424 EAB

CATEGORY: TEMPORARY IMPORTATION BOND

TARIFF NO.: 9813.00.0520, 2933.90.9700

John I. Blanck, Jr., Esquire
Crowell & Moring, LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2595

RE: Temporary Importation under Bond for 1,2,4-triazole sodium salt used in the manufacture of a fungicide; subheading 9813.00.05, HTSUS; wastes or by-products, Note 2(b) to Subchapter XIII, Chapter 98; FIFO accounting for commingled goods; Headquarters information letters 228258 dated February 5 and March 10, 1999; HQ 225566 (August 7, 1995)

Dear Mr. Blanck:

This is in response to your inquiry on behalf of E.I. Du Pont de Nemours and Company (DuPont), requesting a ruling concerning the applicability of the Temporary Importation under Bond (TIB) provision of subheading 9813.00.05 of the Harmonized Tariff Schedule of the United States (HTSUS). We regret the delay in responding.

Pursuant to your initial request and responses to our previous letters, CON-9-04 RR:CR:DR 228258 CB dated February 5, 1999 and CON-9-04 RR:CR:DR 228258 CB dated March 10, 1999, and in accordance with section 177.2(b)(7), Customs Regulations (19 C.F.R. 177.2(b)(7)) and Exemption 4 of the Freedom of Information Act (5 U.S.C. 552), we have determined that there is an acceptable basis upon which to conclude that certain information specified by you constitutes trade secrets or privileged or confidential information; consequently, your request for confidentiality is granted.

Specifically, no reference will be made in this ruling letter to the information submitted by or on behalf of DuPont, for which confidential treatment has been requested. Likewise, the information will not be disclosed except in accordance with the Freedom of Information Act, 5 U.S.C. 552, and Part 103, Customs Regulations, 19 C.F.R. Part 103, concerning the availability of information.

FACTS:

DuPont will import 1,2,4-triazole sodium salt for use in the manufacture of a fungicide. The manufacturing process involves a great deal of chemistry from start to finish and begins, for purposes of this decision, with the protonation of the triazole salt to yield 1,2,4-triazole. The resultant triazole is further reacted to form the basis of an intermediate that itself provides a moiety of the end product. When the intermediate is further reacted, the triazole moiety breaks off, stabilizes and becomes part of the waste stream. Once the imported triazole salt is protonated, the salt never again appears in the process. By the end of the process, the 1,2,4-triazole molecule has been flushed, together with other compounds, from the reaction vessel, leaving the fungicide.

According to your letter of September 10, 1997:

All of the finished [] product will be exported. Because current technology does not allow extraction of the used triazole from the waste stream, the process waste has no value. All of the process waste will be collected, removed from the site, and destroyed by incineration.

Additionally:

Although DuPont expects that all imported triazole will be used in the manufacturing process and thereafter destroyed as process waste, in the event that any triazole remains unused at the end of a manufacturing campaign, that triazole will be exported or destroyed under Customs supervision or held over under bond until the next campaign. Similarly, in the event that any manufacturing intermediates containing the imported triazole remain after a manufacturing campaign, they will also be exported or destroyed under Customs supervision or held over under bond until the next campaign. The exportation or destruction of all [] final product will occur within the period of time required under U.S. Note 1(a) of Subchapter XIII, Chapter XII

We assume for purposes of this decision that the original text at this point contains a typographical or other such error and that the intended reference is to Chapter 98., H.T.S.U.S. based upon the first-in-first-out ("FIFO") accounting procedure detailed in Attachment II.

Id.

Briefly stated, the accounting procedure begins with a receiving report that will be used to enter the quantity and type of material into the site inventory control records, thus establishing inventory layers. Each manufacturing campaign has a distinct start and stop identified by a unique lot number, which is used to identify the finished product in export and other shipping documents. At the end of a manufacturing campaign, an overall material balance calculation is used to determine the amount of material consumed in the process as well as the amount of waste created. The material balance data will be used in the FIFO accounting of the TIB material.

ISSUES:

Whether a sequence of controlled chemical reactions constitutes one of the "processes" within the scope of temporary duty-free treatment under subheading 9813.00.05, HTSUS.

Whether a chemical compound created in the reaction sequence is a "waste" or a "valuable waste" as those terms are used in Note 2(b), Subchapter XIII, Chapter 98, HTSUS.

Whether the TIBs may be cancelled on a first-in-first-out (FIFO) basis.

LAW AND ANALYSIS:

Subheading 9813.00.05, HTSUS, provides for temporary duty-free entry under bond for merchandise imported for the purpose of repair, alteration or processing, including processes which result in articles manufactured or produced in the United States. This provision requires that the imported merchandise be exported or destroyed within one year of the date of importation. See U.S. Note 1(a), Subchapter XIII, Chapter 98, HTSUS.

Where imported elemental sulphur was reacted under heat and pressure in the presence of phosphate rock and dilute phosphoric acid to yield a slurry of 54 % phosphoric acid from which merchant grade phosphoric acid, superphosphoric acid and diammonium phosphate fertilizer were produced, Customs determined that the imported elemental sulphur was "processed" for purposes of subheading 9813.00.05, HTSUS. See Customs Headquarters Ruling Letter HQ 225566 dated August 7, 1995. Whereas in this case the chemistry is more involved than that underlying our decision in HQ 225566, it is clear to us that the manufacturing campaign beginning with the triazole sodium salt and ending with a fungicide qualifies as a process under the subheading. Furthermore, since the manufacturing campaign begins with the sodium salt and ends with the fungicide that does not contain a triazole moiety, we find that the 1,2,4-triazole sodium salt has been "processed into [an article] manufactured or produced in the United States", for purposes of subheading 9813.00.0520, HTSUS.

Note 2(b) of Subchapter XIII states that if any processing of such merchandise results in an article manufactured or produced in the United States, such merchandise may be admitted into the United States under subheading 9813.00.05 only on the condition that (i) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.

The merchandise imported by DuPont becomes part of the waste stream during the manufacturing campaign of a unique lot of finished fungicide. If a "valuable waste" and the requirements of Note 2(b) to Subchapter XIII are met, duties could be paid on the triazole sodium salt in lieu of exporting or destroying the triazole.

In C.S.D. 83-5 we gave consideration to several elements to determine whether merchandise is considered a valuable by-product as opposed to a waste for drawback purposes. These elements, which have been employed for TIB purposes, are the following: 1. The nature of the material of which the residue is composed. 2. The value of the residue as compared to the value of the principal product and the raw material. 3. The use to which it is put. 4. Its status under the tariff law, if imported. 5. Whether it is a commodity recognized in commerce. 6. Whether it must be subjected to some process to make it saleable.

As part of the ruling request in this instance, it is stated that ". . . current technology does not allow extraction of the new triazole compound from the waste stream [hence,] the process waste has no value. All such waste is collected and destroyed." Based on the aforesaid elements, the statement of DuPont, through counsel, and a stoichiometric breakdown of the waste stream generated by a typical manufacturing campaign, we are of the opinion that the 1,2,4-triazole is waste and not valuable waste. The nature of the waste streams containing the triazole is a slurry composed of, among other substances, water, carboxylic acids, organic and inorganic salts and acids, alcohols and, of course, 1,2,4-triazole, the disposal of which must be controlled. Clearly, the value of this slurry does not rise to comparison with the value of either the fungicide product or the triazole sodium salt that is imported. Since the slurry is, must be, disposed of in accordance with environmental regulations, there is no "use" of it in a Customs sense. Its status under the tariff law, if imported, is inconsequential under the circumstances. Whereas all that can be done with the slurry is to dispose of it under strictly controlled procedures, it appears to us that it is not a commodity recognized in commerce in any way other than as a hazardous substance. As such, the further processing to which it is subjected is not to make it saleable; indeed, it is not sold at all, but disposed of on-site under controlled procedures by DuPont. Consequently, we believe that the 1,2,4-triazole is "waste" within the scope of Note 2(b)(i), Subchapter XIII, Chapter 98, HTSUS.

Customs has interpreted the temporary importation under bond provisions as usually requiring direct identification of each particular article to show timely exportation, rather than reliance on accounting methods; however, in the case of commingled goods, Customs has approved the use of FIFO accounting records set forth in Schedule X, Appendix to 19 C.F.R. Part 181 and 19 C.F.R. § 191.41(b) and (c)(1). We are unable to approve of DuPont's accounting records inasmuch as you have not submitted copies of any demonstrating compliance with the foregoing Customs Regulations. Furthermore, in the scenario that you describe, all of the imported 1,2,4-triazole sodium salt is committed to the manufacturing process and the total amount of the fungicide produced in the process is actually known, which means, of course, that the amount of the imported triazole salt that ends up in the waste stream is also known. Thus, the imported 1,2,4-triazole sodium salt and the exported fungicide may be directly identified to the exclusion of FIFO methodology.

HOLDING:

The manufacture of 1,2,4-triazole sodium salt into a fungicide qualifies as a process under subheading 9813.00.05, HTSUS for temporary importation in the United States, under bond.

The 1,2,4-triazole that is flushed at the end of the manufacturing process is "waste" as that term is used in Note 2(b), subchapter XIII, chapter 98, HTSUS, and, as with the fungicide, must be exported or destroyed.

To the extent that application of the FIFO accounting procedure follows the examples as set forth in Schedule X, Appendix, 19 C.F.R. Part 181 and in 19 C.F.R. 191.14(b) and (c)(1), it will satisfy Customs requirements. Since no inventory records and an example of DuPont's proposed application of the FIFO method was provided, this decision should not be interpreted as approving the method employed by DuPont in the event that application departs from the examples set forth in the referenced regulatory provisions.

Sincerely,

William G. Rosoff, for
John Durant, Director
Commercial Rulings Division


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See also:

• Tariff No.: 2933.90.97 - Other compounds (excluding aromatic or modified aromatic) with nitrogen hetero-atom(s) only; nucleic acids and their salts
• Tariff No.: 9813.00.05 - Articles to be repaired, altered or processed (including processes which result in articles manufactured or produced in the United States)