Applicability of partial duty exemption under HTSUS subheading 9802.00.60 to silver nickel alloy coiled sheets produced in [X] from U.S. silver nickel alloy scrap and returned to the U.S.

HQ H245922 January 17, 2014 OT:RR:CTF:VS H245922 FP CATEGORY: Classification [X] [X] 444 East 82nd Street 14th Floor, East Tower New York, NY 10028 RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.60 to silver nickel alloy coiled sheets produced in [X] from U.S. silver nickel alloy scrap and returned to the U.S. Dear Mr. [X]: This is in response to your request dated August 7, 2013, on behalf of [X] (the “Importer”), requesting a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to silver nickel alloy coiled sheets produced in [X] from silver nickel alloy scrap. Your request also raises a secondary issue concerning “furnace metal” that is present in the [X] melting and casting operations. Subsequently, your client submitted additional information to illustrate the metal manufacturing processes described below and samples of different customer applications for the importer’s metal product and the resulting scrap by-product. FACTS: The importer operates a metal service center in [X], that specializes in non-ferrous alloys. Based on the information submitted, the importer proposes to obtain scrap silver nickel alloy from two sources: (a) the U.S. scrap market, and (b) the importer’s manufacturing customers. Concerning purchases in the U.S. scrap market, the importer states that it will ensure that the dealer is aware of CBP’s definition of U.S. scrap metal and that it will be certified as U.S. scrap. Concerning scrap obtained from the importer’s customers, you state that it will have been subject to the manufacturing processes at the importer’s [X] mill, which will be further described below, before additional processing at the customer’s facilities into finished products. The importer intends to export the scrap to a [X] mill in [X], where it will be melted and cast into silver nickel alloy into coil sheet form prior to importation into the U.S. To minimize contact between the importer’s U.S. metal and other metals, the [X] plant at [X] will keep U.S. scrap shipped by the importer segregated in its inventory from metal acquired from other sources until the importer places an order for coiled sheet metal, and then will run the importer’s scrap alone though one of its melting furnaces and casting lines until the importer’s order is completed. [X] will not run other scrap of unknown origin through the production line until the importer’s consignment has totally cleared the system. Thus, the exposure of the importer’s U.S. scrap to other metal at the [X] plant will be kept to an absolute minimum. However, according to your submission, in these furnaces, the importer’s U.S. scrap is unavoidably exposed to what is known in the volume metals casting industry as “furnace metal”. Furnace metal is a certain amount of metal that must remain melted permanently in the furnace for as long as the furnace is operating, to avoid “thermal shock”, which occurs when part of the furnace becomes significantly hotter or colder than another, causing the furnace walls to crack. Furnace metal remains in the melting furnace before, during and after the importer’s scrap has been processed. For safety reasons, it is necessary to maintain a furnace fully heated, with a full charge of furnace metal, even when there is no demand for metal to run through the casting line. Furnace metal is considered a permanent fixture, and included in the company’s balance sheet as part of equipment and machinery, rather than inventory, under accounting rules. It is not included in inventory because it is not poured off and sold as casting product. After importation, the importer states that at its metal mill the coil metal will undergo further processing, including running the coils through [X]. Further, as illustrated by the samples the importer provided, its U.S. customers will subject the importer’s metal product to further manufacturing processes that may include cutting to length, stamping, bending, grinding, welding, and punching holes to produce coins, knives, electronic connectors and musical instruments, among other finished goods. A significant amount of metal scrap is leftover from the manufacturing operations performed on the importer’s intermediate metal product. We are issuing this ruling on the basis that the importer’s stated processes are correctly described for purposes of applicability of subheading 9802.00.60. ISSUE: Whether the partial duty exemption under subheading 9802.00.60, HTSUS, is applicable to the returned sheet coils derived from scrap produced in the U.S. Whether exposure of segregated U.S. metal scrap to “furnace metal” during foreign processing operations prevents the resulting cast metal coils from entry 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(d) of this subchapter) manufactured in the United States or subject 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 is applicable when an article of metal manufactured or subject to manufacture in the U.S. and, when it meets the dual “further processing” requirement. 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, CBP Regulations (19 CFR 10.9). Eligible metals Articles of “metal” for purposes of subheading 9802.00.60, HTSUS, are defined in U.S. note 3(e), subchapter II, Chapter 98, HTSUS, 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 3 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. Base metals are further enumerated in additional U.S. note 3, section XV, HTSUS, which provides that: [f]or the purposes of the tariff schedule, the term “base metals” embraces aluminum, antimony, beryllium, bismuth, cadmium, chromium, cobalt, copper, gallium, germanium, hafnium, indium, iron and steel, lead, magnesium, manganese, molybdenum, nickel, niobium (columbium), rhenium, tantalum, thallium, tin, titanium, tungsten, vanadium, zinc and zirconium. (Emphasis added). Accordingly, the imported silver nickel alloy is an article of metal for purposes of subheading 9802.00.60, HTSUS. “Manufactured or subject to a process of manufacture” in the United States We have consistently ruled that scrap metal is eligible under subheading 9802.00.60, HTSUS, if the metal article from which the scrap was obtained was manufactured in the U.S. or subjected to a final process of manufacture in the U.S. See, Headquarters Ruling Letter (HRL) 555557 dated April 15, 1991. In HRL 557690, dated April 7, 1994, imported steel sheets from Germany were produced from melting U.S.-origin stainless steel scrap. CBP found that the requirement that the metal articles from which the scrap was obtained were manufactured, or subject to a process of manufacture, in the U.S., was satisfied by a certification from the U.S. scrap supplier which indicated that the stainless steel scrap metal sold was of U.S. origin. HRL 555096, dated July 7, 1989, concerned the applicability of item 806.30, TSUS [precursor to 9802.00.60, HTSUS], to imported stainless steel sheet produced from processed scrap (commercial scrap) purchased from U.S. junk yards and sent abroad. CBP noted that the scrap which scrap yards acquired and processed into “commercial” scrap generally consisted of two types – “obsolete scrap” (worn-out or discarded metal articles) and “industrial scrap” (leftover metal from manufacturing operations performed on metal articles). A certain unknown portion of the scrap acquired by the U.S. scrap processors originated from metal articles manufactured abroad. Scrap derived from U.S. and foreign-made metal articles were commingled at the scrap yards. CBP noted that: "[w]e also do not concur with counsel’s contention that industrial scrap (leftover metal such as punchings, turnings and grindings) derived from the processing of imported metal qualifies as a metal article under item 806.30, TSUS. The Customs Service has consistently held that this tariff provision is inapplicable to scrap obtained directly from processing foreign-made metal in the U.S. In order for scrap to be eligible under the statute where foreign metal is involved, the scrap must be obtained from processing metal initially obtained from processing the foreign metal in the U.S." (Emphasis added.) Therefore, in HRL 555096 it was stated that with respect to “obsolete scrap”, the requirement that the scrap be a metal article manufactured or subject to a process of manufacture in the U.S. was satisfied if the discarded article from which the obsolete scrap was obtained was manufactured or subject to a final process of manufacture in the U.S. Similarly, industrial scrap satisfied this requirement if the metal article from which the scrap was obtained was initially manufactured or subject to a process of manufacture in the U.S. HRL 555096, id. CBP does not consider processes such as dismantling, shredding, and crushing of scrap to be a manufacturing process, whether or not accompanied by sorting, grading, or other similar activities to promote the salability or utility of the scrap. Manufacturing begins once raw materials are available and does not include reclamation activities undertaken with respect to previously-used materials prior to the creation of raw material for new manufacturing. See, HRL 555691 dated May 10, 1991. Thus, the various types of scrap will be considered an “article of metal” eligible under subheading 9802.00.60, HTSUS, only if the metal articles from which the scrap was obtained were manufactured or subject to a final process of manufacture in the U.S. Scrap obtained in the U.S. scrap market The importer claims that for scrap purchased in the U.S. scrap market, its dealer would be made aware of CBP’s definition of U.S. scrap metal and would certify that the scrap complies with this requirement. While the importer has not provided specific facts about purchased scrap, consistent with our position in HRL 557690, supra, both “industrial scrap” and “obsolete scrap” purchased in the U.S. scrap market may be eligible under subheading 9802.00.60, provided the dealer can attest that the metal article from which the scrap was obtained was initially manufactured, or subject to a process of manufacture, in the U.S. Therefore, scrap obtained in the U.S. scrap market will be considered an “article of metal” for purposes of subheading 9802.00.60, HTSUS, provided the port director is satisfied that the metal articles from which the scrap was obtained were manufactured in the U.S. or subject to a process of manufacture in the U.S. The scrap which is obtained as a by-product of the importer’s own processing involves metal coils from [X] that undergo various processes to alter the size, shape and characteristics of the metal to meet customer application requirements. These processes include: rolling, to alter its shape and thickness; annealing, to alter hardness and ductility, relieve internal stresses and improve homogeneity; and slitting, to alter width to specifications. We consider that rolling and annealing constitute substantial processes, such that the imported metal articles have been subjected to a process of manufacture in the U.S. Consistent with our position HRL 555096, supra, scrap obtained from the importer’s own milling operations meets the requirement that the metal articles from which the scrap was obtained were manufactured, or subject to a process of manufacture, in the U.S., and, therefore, would be eligible under subheading 9802.00.60. Scrap obtained from the importer’s manufacturing customers It is claimed that scrap obtained from the importer’s customers has already been subject to the manufacturing processes at the importer’s [X] mill, including rolling, annealing and slitting, which have been described above, before additional processing at customer’s facilities into finished products. The scrap which is obtained as a by-product of the importer’s own processing involves metal coils from [X] that undergo various processes to alter the size, shape and characteristics of the metal to meet customer application requirements. These processes include: rolling, to alter its shape and thickness; annealing, to alter hardness and ductility, relieve internal stresses and improve homogeneity; and slitting, to alter width to specifications. We consider that rolling and annealing constitute substantial processes, such that the imported metal articles have been subjected to a process of manufacture in the U.S. New York Ruling Letter (NYRL) N018085, dated October 26, 2007, which you cite in support of the importer’s position, concerned aluminum coils, manufactured in Greece, which after importation to the U.S., were cut to size prior to resale to U.S. customers that subsequently manufactured the custom cut sheets into tool boxes by operations such as stamping, bending, welding, punching holes, hemming, and attaching hardware. As a result of the tool box manufacturing process, aluminum scrap was produced, which was sold to the aluminum supplier in Greece where it was melted down and used in the production of aluminum coils to be shipped back to the U.S. Similar to the instant situation, in that case, the metal article from which the scrap was obtained (the tool boxes) was initially manufactured or subjected to a process of manufacture in the U.S. (aluminum coils cut into sheets). We concur with your assertion that this type of scrap would constitute “industrial scrap” derived from further processing into finished products of metal articles initially obtained from the importer’s processing of foreign metal in the U.S. Consistent with our position in HRL 555096, supra, scrap obtained from the importer’s manufacturing customers would constitute an "article of metal" for purposes of subheading 9802.00.60, HTSUS. Dual “further processing” requirement This tariff provision imposes a dual “further processing” requirement on eligible articles of metal-one foreign, and when returned, one domestic. In C.S.D. 84-49, 18 Cust. Bull. 957 (1983), we stated that: [f]or purposes of item 806.30, TSUS [precursor to 9802.00.60, HTSUS], 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. As described above, the importer intends to export scrap to [X], where it would melt the scrap alloy and run it through a continuous casting apparatus to produce silver nickel alloy sheet metal in large coils prior to exportation to the U.S. The importer’s metal will be segregated throughout the process and will only be exposed to a minimum amount of furnace metal considered part of the melting furnace. The metal returned from [X] in coiled form will be subject to manufacturing processes undertaken at the importer’s [X] plant in the U.S. and thereafter further manufacturing at the importer’s customer facilities. From the information provided to us, we find that these operations change the size, shape and characteristics of the metal, as described in C.S.D. 84-49, and constitute ‘further processing’ within the meaning of subheading 9802.00.60. Furnace metal Your request raised a secondary issue concerning "furnace metal" that is present in the [X] melting and casting operations. According to your submission, U.S. scrap will be melted into silver nickel alloy and cast into coil sheet form in [X]. As described above, the exposure of U.S. scrap to other metal at the [X] plant will be kept to an absolute minimum, however, it will be unavoidably exposed to what is known in the volume metals casting industry as “furnace metal”, required to be maintained in melting furnaces for their continued and safe operation. We have previously considered situations where aluminum and steel scrap sent abroad for analogous melting and casting operations was eligible under subheading 9802.00.60, HTSUS. The U.S. metal in each of these instances necessarily was exposed to furnace metal as a result of the way melting furnaces operate in the volume metals casting industry. See, HRL 557690 and NYRL N018085, supra. Therefore, we find that exposure to furnace metal during foreign operations do not render the returned metal ineligible within the meaning of subheading 9802.00.60. HOLDING: On the basis of the information submitted, we find that the imported silver nickel alloy coils may be considered an “article of metal” for purposes of subheading 9802.00.60, HTSUS. The eligible imported coils, even if exposed abroad to furnace metal, will be entitled to entry under subheading 9802.00.60, HTSUS, provided that: Importer has fully complied with the documentary requirements of 19 CFR §10.9 and, For scrap purchased in the U.S. scrap market, the dealer must certify to CBP’s satisfaction that the metal article from which the scrap was obtained was initially manufactured, or subjected to a process of manufacture, in the U.S. 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 official handling the transaction. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch