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HQ H019448




December 21, 2007

OT:RR:CTF:VS H019448 KSG

CATEGORY: CLASSIFICATION

Mark D. Herlach and Christer L. Mossberg
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, D.C. 20004

RE: Subheading 9802.00.60; “further processing” requirement; uranium

Dear Mr. Herlach and Mr. Mossberg:

This is in reference to your letter of October 26, 2007, on behalf of Westinghouse Electric Company (“WEC”) requesting a binding ruling concerning the eligibility for classification in subheading 9802.00.60 of the Harmonized Tariff Schedule of the United States (“HTSUS”) of certain enriched uranium metal in fuel rods.

A conference was held at Headquarters concerning this case. An additional submission dated December 19, 2007, was also considered as part of this file.

FACTS:

You state that uranium is unique because one of its isotopes, U-235, is fissionable. The fissionability of U-235 allows uranium to be fabricated into nuclear weapons. To prevent the proliferation of such weapons, you state that the International Atomic Energy Agency and individual countries closely track uranium exports and imports by using safeguard obligation codes that must be identified on shipping and recordkeeping documents. You state that under the obligation code mechanism, each country receives a specific safeguard obligation code. You also state that the transfer of enriched uranium metal is subject to specific conditions and safeguards designated as U.S. obligations under bilateral agreements between countries participating in the nuclear fuel cycle. You state that these agreements ensure that the uranium exported from a particular country is transferred only to a party for use approved by that exporting country without the ability to change the country code designation. The Department of Energy and the Nuclear Regulatory Commission (“NRC”) also use this country of origin obligation code approach to track the use and transfer of uranium.

Uranium metal has only one commercial use, as fuel for nuclear reactors. The goal of the commercial nuclear fuel cycle is to suspend the uranium metal in a form that makes it usable for the production of electricity. “Suspension” of the uranium metal refers to the form in which uranium metal’s fissionable isotype, U-235, is contained during each processing step in the nuclear fuel cycle.

You state that the enriched uranium metal involved in this case is of U.S.-origin. This U.S.-origin enriched uranium metal in the form of enriched uranium hexafluoride is exported abroad where it is processed and housed in fuel rods which will then be imported and processed into fuel assemblies. Abroad, the processing includes: 1) converting the uranium hexafluoride to uranium dioxide powder; 2) pelletizing the uranium dioxide powder; (3) inserting the pelletized enriched uranium metal in UO2 form into zirconium tubes; and 4) welding the end caps onto the ends of the tubes. The fuel rods will then be shipped for importation into the U.S.

After the initial inspection and testing steps have been completed, spacer heads are welded onto fuel rods containing the pellets. Counsel states that one of the critical steps undertaken in the U.S. processing at WEC is the nuclear welding of the spacer heads. Nuclear welding, an electric resistance weld of a spacer head onto a uranium-containing fuel rod, is designated as a special process by the NRC because of the critical function that the nuclear welds perform in stabilizing the fuel assembly structure. The welded spacer heads integrate the components of the fuel assembly and keep them stable within the demanding and extreme conditions of the nuclear reactor core. Nuclear welds have very specific design requirements and are performed by the most experienced operators at the U.S. facility. The actual welding takes several hours per fuel assembly. The U.S. facility also does other processing to complete the fuel assembly, which must be conducted with great precision.

ISSUE:

Whether the imported goods are eligible for a partial duty exemption under subheading 9802.00.60, HTSUS.

LAW AND ANALYSIS:

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

[A]ny article of metal (as defined in U.S. Note 3(e) 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 qualifying metal articles: one foreign, and when returned, one domestic. However, not all “processing” to which articles of metal can be subjected are significant enough to qualify as “further processing,” within the purview of subheading 9802.00.60, HTSUS. See Intelex Systems, Inc. v. United States, 460 F.2d 1083 (CCPA ;1972). In C.S.D. 84-49, 18 Cust. Bull. 957 (November 15, 1983) Customs stated that:

For purposes of item 806.30, 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.

Pursuant to U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS, for purposes of subheading 9802.00.60, 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 uranium. Therefore, the imported goods are eligible articles of metal as defined in U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS.

In Headquarters Ruling Letter (“HRL”) 557992, dated January 23, 1996, Customs held that zirconium tubes for nuclear reactors were eligible for a partial duty exemption under subheading 9802.00.60, HTSUS. Zircon sand of U.S. origin was processed in the U.S. into tube stock or semi-finished tubing. This product was then exported to Germany, where it underwent three successive cold reductions using the Pilger process, straightening, grit blasting, etching on the inside diameter, belt polishing and cutting to final length consistent with the length of the fuel rods or elements into which they were finished. In the U.S., the imported zirconium tubes underwent various processing, including welding of the zirconium end caps to the tubes by a process known as gas tungsten arc welding (“GTAW”). This was a process wherein coalescence of metals was produced. CBP held that the GTAW operation performed in the U.S. satisfied the domestic “further processing“ requirement of subheading 9802.00.60, HTSUS.

The issue presented in this case is whether the dual processing requirement is satisfied in this case.

The foreign processing that occurs in this case, the further processing of the enriched uranium hexafluoride into uranium dioxide powder, compression into pellets, and insertion into zirconium fuel rods, imparts new and different characteristics which become an integral part of the metal itself which did not exist before the processing. Accordingly, we find that the foreign processing requirement in subheading 9802.00.60, HTSUS, is satisfied in this case.

Counsel contends that the domestic processing in this case is similar to HRL 557992 in that like the GTAW operation, the nuclear welding process changes the shape and characteristics of the fused metal at the point of the weld where the molten metal fusion recrystallizes the molecules of the metal at the grain boundary. We concur with counsel on this point. We further note the uniqueness of the imported product, which involves an extraordinary degree of precision for public safety reasons, the designation of this process as a special process subject to NRC requirements, and the amount of time and skill level involved in the U.S. processing. Accordingly, we find that the domestic “further processing” requirement in subheading 9802.00.60, HTSUS, is satisfied in this case.

HOLDING:

The imported fuel rods are eligible for a partial duty exemption under subheading 9802.00.60, HTSUS, provided the documentary requirements of 19 CFR 10.9 are satisfied.

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 official handling the transaction.

Sincerely,

Monika R. Brenner
Chief, Valuation & Special Programs Branch

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