Applicability of partial duty exemption under HTSUS subheading 9802.00.60 to high-purity gallium meta from France, gallium arsenide crystals; further processing; C.S.D. 84-49; Nassau Smelting

HQ W555621 June 17, 1991  CLA-2 CO:R:C:V W555621 CW CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.60 Mr. Ralph C. Meola Manager, Distribution Services Rhone-Poulenc, Inc. CN 5266 Princeton, New Jersey 08543-5266  RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.60 to high-purity gallium meta from France, gallium arsenide crystals; further processing; C.S.D. 84-49; Nassau Smelting  Dear Mr. Meola: This is in response to your letter of February 12, 1990, to the Regional commissioner of Customs, New York Region, requesting a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to high­ purity gallium metal products to be imported from France. Your letter was forwarded to this office for a direct response. We regret the delay in responding. Additional information, submitted directly to this office by your letter dated May 14, 1990, was also considered in this ruling. FACTS: You request a ruling on three separate scenarios involving the importation of high-purity gallium metal 6N and 7N (99.9999% and 99.99999% level of purity, respectively). In the first scenario, gallium me al 6N and 7N is imported by your company and sold to end users that manufacture gallium arsenide crystals by reacting the gallium metal with arsenic under temperature and pressure conditions. The crystals are then trimmed and shaped to proper diameter which produces scraps. The scraps, which are valuable for their gallium content, are purchased by Rhone­ Poulenc and sent to a U.S. toll manufacturer who subjects them to metallurgical and chemical processes to separate the gallium from the arsenic. The resulting product is gallium metal 4N (9?.99% l vel of purity). Rhone-Poulenc then exports the gallium metal 4N co a related company in France who processes the metal by a metallurgical and chemical process into gallium metal 6N or  2 7N. The gallium metal 6N and 7N is imported into the U.S. for processing into gallium arsenide crystals, and the processing cycle repeats itself. In the second scenario, gallium metal 6N and 7N is imported and sold to end users who manufacture gallium arsenide crystals which are then overlaid with other materials to create gallium arsenide wafers. During this process, epitaxial residues (95% plus gallium metal) are produced during the manufacture of various semi-conductor industry products, such as light emitting diodes (LEDs) and computer chips. The epitaxial residues are purchased by Rhone-Poulenc and sent to France where the residues are refined into gallium metal 6N or 7N which is returned to the U.S., and the process repeats itself. The third scenario is the same as the second, except that the epitaxial residues are obtained by Rhone-Poulec from domestic sources who never relinquish title to the residues. Your company makes all the exporting and importing arrangements, and the same processing is performed in France. ISSUE: Whether the high-purity gallium metal produced according to the above-described three scenarios is entitled to the partial duty exemption under HTSUS subheading 9802.00.60 when returned to the U.S. LAW AND ANALYSIS: HTSUS subheading 9802.00.60 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. Thus, this tariff provision imposes a dual "further processing" requirement on eligible metal articles: one foreign, and when returned, one domestic. Articles of metal satisfying these statutory requirements may be classified under HTSUS subheading 9802.00.60 with duty only on the value of such processing performed outside the U.S., upon compliance with the documentation requirements of section 10.9, Customs Regulations (19 CFR 10.9) (copy enclosed).  3 In c.s.o. 84-49, 18 cust.Bull. 957 (1983), we stated that: [f]or purposes of item 806.30, TSUS [the precursor provision to HTSUS subheading 980?..00.60], the term 'further processing' has reference to processing that changes the shape of the metal or imparts new and different character­ istics 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. U.S. Note 3(d), subchapter II, Chapter 98, HTSUS, provides, in pertinent part, that for purposes of HTSUS subheading 9802.00.60, the term "metal" covers the base metals enumerated in additional U.S. Note 1 to section XV, HTSUS. As gallium is expressly enumerated in additional U.S. Note 1, we find that the gallium products exported in this case are eligible articles of metal for purposes of HTSUS subheading 9802.00.60. It next must be determined whether the gallium metal 4N (first scenario) and the epitaxial residues (second and third scenarios) are "manufactured in the United States or subjected to a process of manufacture in the United States" prior to their exportation to France, as required by the statute. Both products are created as a result of operations performed on imported gallium metal 6N or 7N. The Customs Service has consistently held that HTSUS subheading 9802.00.60 is inapplicable to scrap obtained directly from processing foreign-made metal in the U.S. The requirement that scrap be a metal article "manufactured or subjected to a process of manufacture" in the U.S. is satisfied only if the metal article from which the scrap was obtained was initially manufactured or subjected to a process of manufacture in the U.S. See Headquarters Ruling Letters x554750 dated September 23, 1988, and 555096 dated July 7, 1989. Based on the information submitted, it is our opinion that the gallium metal 4N and epitaxial residues to be exported satisfy the above requirement. In all three scenarios, the imported gallium m al 6N and 7N is first reacted with arsenic to create gallium arsenide crystals. The subsequent trimming and shaping of the crystals to proper diameter result in scraps which, in the first scenario, are metallurgically and chemically processed to separate the gallium from the arsenic. The resulting gallium metal 4N, to the extent that, in this form, it may accurately be referred to as "scrap," clearly is not obtained directly from processing the imported gallium metal 6N and 7N. Similarly, the epitaxial residues are not obtained directly from processing the gallium metal 6N and 7N. The residues are  4 generated when the gallium arsenic crystals are overlaid with other materials in a process which creates gallium arsenide wafers. We further find that the gallium metal products satisfy the foreign "further processing" requirement as well as, when returned, the domestic "further processing" requirement. The processing performed in France to create high-purity gallium metal, and the subsequent reaction of the gallium metal with arsenic in the U.S.to create gallium arsenide crystals, clearly impart new and different characteristics which become an integral part of the gallium metal and which did not exist in the metal before processing. Accordingly, in regard to all three scenarios, the returned gallium metal 6N and 7N will be entitled to the partial duty exemption under HTSUS subheading 9802.00.60, provided the documentation requirements of 19 CFR 10.9 are met. Regarding the third scenario, the fact that the epitaxial residues may be obtained by Rhone-Poulenc from domestic sources who never relinquish title to the residues will not affect entitlement of the returned gallium metal to the benefits of this tariff provision. We wish to note that it will be necessary to satisfy the appropriate district director of Customs that the domestic further processing will be performed within a reasonable period after importation of the gallium metal 6N or 7N. As we stated in Headquarters Ruling Letter 055832 dated March 11, 1979, "[t]he mere likelihood that the metal would be further processed by a customer in the undetermined future leaves open the possibility that such further processing might not take place." You also ask whether the exported gallium metal 4N and epitaxial residues may be commingled in France with other gallium raw materials, presumably of foreign origin. A similar issue was raised in Nassau 'Smelting and Refining Co. v. United States, 13 CIT _,725 F.Supp. 544 (1989), which involved "ashy" copper wire of U.S. origin which was exported to Canada, melted in a furnace along with copper-derived from other sources, and then molded into copper cathodes which were imported into the U.S. The court upheld Customs determination that the substitution or commingling abroad of U.S. and foreign metal products precludes the application of this tariff provision to the returned articles made from the commingled metal products. The court stated that "…there is no indication that Congress intended to allow for...substitution under item 806.30, TSUS." Accordingly, any gallium products manufactured or subjected to a process of manufacture in the U.S. which are exported and commingled abroad with gallium products not subjected to such U.S. processing will preclude HTSUS subheading 9802.00.60 treatment to the returned metal articles.  5 In answer to your question concerning the records which must be maintained by the foreign processor for purposes of HTSUS subheading 9802.00.60, there are no special recordkeeping or documentation requirements beyond those specified in 19 CFR 10.9. For duty-rate purposes, the high-purity gallium metal is properly classifiable in subheading 8112.91.10, HTSUS, dutiable at the rate of 3.7% ad valorem. BOLDING: On the basis of the information submitted, it is our opinion that the high-purity gallium metal to be imported is entitled to classification under HTSUS subheading 9802.00.60, with duty only on the value of the foreign processing, upon compliance with the documentation requirements of 19 CFR 10.9. Sincerely, John Durant, Director Commercial Rulings Division