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HQ 563308




September 6, 2005

MAR-2-05 RR:CR:SM 563308 EAC

CATEGORY: MARKING

Mr. Frederick P. Waite
Ms. Kimberly R. Young
Vorys, Sater, Seymour and Pease LLP
1828 L Street, NW
Eleventh Floor
Washington, DC 20036-5109

RE: Country of origin and applicability of subheading 9802.00.60, HTSUS, to atomized magnesium from China

Dear Mr. Waite and Ms. Young:

This is in response to your letter, dated July 1, 2005, requesting a ruling on behalf of your client concerning the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (“HTSUS”), to atomized magnesium imported from China. You additionally request a determination as to the country of origin marking requirements applicable to the imported atomized magnesium. We have also considered the information provided in your electronic message of August 25, 2005.

FACTS:

It is stated that pure magnesium ingots of U.S.-origin will be shipped to China where they will be converted into atomized magnesium. The atomizing process consists of melting the magnesium ingots and passing a stream of molten magnesium through a gas nozzle where a pressurized inert gas converts the stream into a spray of molten magnesium. The sprayed magnesium particles solidify quickly as they fall into an atomization chamber and are collected in powder containers. The atomized powder is packaged in drums for return shipment to the United States. The Chinese processor will only use U.S.-origin ingots to produce the atomized magnesium.

The atomized magnesium will be imported into the United States from China in drums containing random mixtures of differently sized particles. In the United States, the atomized magnesium will be subject to an intricate screening, separation, classifying, testing, and inspection system which makes use of piezoelectric screening and laser particle analysis and which serves to segregate the particles of different sizes. After the screening and sorting operations are complete, custom-made batches of atomized magnesium powders will be mechanically blended together. In order to make a mixture suitable for its intended use, it is stated that this blending process requires the precise selection and combination of differently sized atomized magnesium particles. The blended atomized magnesium is thereafter sold to unaffiliated companies that subject the magnesium to additional operations that result in a separate product. These companies blend the magnesium with other ingredients and then subject the blended material to a drying and molding process that forms the material into the required shape and condition for its ultimate use.

ISSUES:

Whether the atomized magnesium qualifies for the partial duty exemption under subheading 9802.00.60, HTSUS, upon return to the United States.

What is the country of origin of the imported atomized magnesium?

LAW AND ANALYSIS:

Subheading 9802.00.60, HTSUS

Subheading 9802.00.60, HTSUS, provides a partial duty exemption for certain metal articles that are manufactured or subjected to a process of manufacture in the United States, exported for further processing, and returned for further processing in the United States. Under subheading 9802.00.60, HTSUS, duty is assessed only on the cost or value of the foreign processing, provided that the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9), are satisfied.

Pursuant to U.S. Note 3(e) of Subchapter II, Chapter 98, HTSUS, for purposes of subheading 9802.00.60, HTSUS, the term "metal" covers: (1) the base metals enumerated in Note 3 to Section XV, HTSUS; (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. The base metals enumerated in Note 3 to section XV, HTSUS, include magnesium. Because the returned product in this case is made from magnesium ingots, the returned product is considered an eligible article of metal under U.S. Note 3(e) of Subchapter II, Chapter 98, HTSUS.

The magnesium ingots in this case are produced in the United States. However, this tariff provision imposes a dual "further processing" requirement on qualifying metal articles: one foreign, and when returned, one domestic. Not all "processing" to which articles of metal may be subjected is significant enough to qualify as "further processing" within the purview of subheading 9802.00.60, HTSUS.

In Intelex Systems, Inc. v. United States, 59 C.C.P.A. 138, C.A.D. 1055 (1972), the court stated that processing performed on an already completed article, incident to using it for the purpose intended, is not sufficient to constitute “further processing” for purposes of item 803.60, Tariff Schedules of the United States (“TSUS”) [the predecessor tariff provision to subheading 9802.00.60, HTSUS]. Also relevant is C.S.D. 84-49, 18 Cust. Bull. 957 (November 15, 1983), in which CBP stated:

For purposes of item 803.60, TSUS, [the precursor provision], 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 does 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 China, the magnesium ingots are converted into atomized magnesium by melting the magnesium ingots and passing a steam of molten magnesium through a gas nozzle where a pressurized inert gas converts the stream into a spray of molten magnesium. The particles solidify, are collected in powder containers, and are packaged in drums for return to the United States. We find that such operations satisfy the initial further processing requirement of subheading 9802.00.60, HTSUS, because the operations change the shape of the metal ingots and impart new characteristics upon the metal that become an integral part of the metal itself and which do not exist before processing.

After return to the United States, the atomized magnesium is subject to a screening, separation, classification, testing, and inspection system that segregates magnesium particles of different sizes. After the screening and sorting is complete, custom-made batches of atomized magnesium powder are mechanically blended together. The blended atomized magnesium is thereafter sold to unaffiliated companies that subject the atomized magnesium to additional blending, drying, and molding operations.

In determining whether such operations satisfy the domestic further processing requirement, we initially note that there is no requirement under subheading 9802.00.60, HTSUS, that the same person who exported the material, or the same person who imported the material must perform the further processing in the United States. See, for example, Headquarters Ruling Letter (“HRL”) 557656 dated February 23, 1994. However, the importer must satisfy the port director of the actual performance of further processing within the United States.

Accordingly, we find that the domestic operations of blending, drying, and molding into a separate distinct product constitutes further processing within the United States for purposes of subheading 9802.00.60, HTSUS, because the atomized magnesium particles are subsumed into a product with a distinct shape and the operations performed impart new and different characteristics that become an integral part of the metal. See, for example, HRL 557528 dated December 17, 1993 (domestic further processing requirement under subheading 9802.00.60, HTSUS, was satisfied when certain pellets were injection molded and magnetized in the U.S. to form magnets because the thermal injection molding process changed the shape of the product and the magnetic coating imparted new and different characteristics which became an integral part of the metal) and HRL 555291 dated April 10, 1989 (blending imported alloy products with raw aluminum to produce metal stock for use in the manufacture of finished aluminum products satisfied the domestic further processing requirement for purposes of subheading 9802.00.60, HTSUS).

Country of Origin

Section 304 of the Tariff Act of 1930 (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. §1304 was that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. “The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. §1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of the marking laws and regulations. A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use that differs from that of the original material subjected to the process. Texas Instruments v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982).

In HRL 561103 dated January 20, 1999, magnesium ingot produced in Russia, Brazil, China, or France was ground into granules in a second country. The grinding operation entailed: (1) chipping the magnesium ingot down to 3/8” x 1/8” x .020” pieces on custom built machines called chippers; (2) hammer milling the magnesium chips to the desired size on a common hammer mill; (3) running the pieces through a shaper that gave the granules their geometric configuration; (4) screening the shaped granules to size with vibratory screeners; and (5) packaging the granules according to DOT specifications. Based upon these facts, CBP held that the processing of the magnesium ingot (in a non-NAFTA country) by chipping, hammer milling and shaping to give the granules a geometric configuration resulted in a substantial transformation. In support of this determination CBP stated that the granules were separate and distinct articles of commerce from the ingot from which they were made and that the operations performed changed the magnesium ingot, which has many uses, into granules that possessed a specific shape suitable for use as the active ingredient in desulferization reagents.

In consideration of HRL 561103, we find that the magnesium ingots in this case are substantially transformed in China when converted into atomized magnesium in the manner set forth above. In making this determination, we note that the atomized magnesium possesses a new name, its character is changed from an ingot into a powder, and that it has been converted for use in specific applications. Therefore, the country of origin of the atomized magnesium upon return to the United States will be China.

HOLDING:

Based upon the facts of this case, we find that the atomized magnesium returned to the United States from China qualifies for the partial duty exemption under subheading 9802.00.60, HTSUS, provided the documentary requirements of 19 CFR 10.9 are satisfied. Please be advised that entitlement to the partial duty exemption under subheading 9802.00.60, HTSUS, is contingent upon the importer being able to satisfy the port director of the actual performance of further processing within the United States.

We additionally find that the magnesium ingots are substantially transformed when processed into atomized magnesium in China. Therefore, the country of origin of the atomized magnesium when imported into the United States will be China.

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 CBP officer handling the transaction.

Sincerely,

Monika R. Brenner, Chief

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