Applicability of subheading 9802.00.60, HTSUS, to steel blanks; cutting, precision grinding, heat treating;C.S.O. 84-49; 555536; 554965

HQ W556725 September 14, 1992  CLA-2 CO:R:C:S W556725 LS CATEGORY: Classification TARIFF NO.: 9802.00.60 Mr. Rudy A. Pina  R.A. Pina & Associates, Inc. P.O. Box 2496 Nogales, Arizona 85628 RE: Applicability of subheading 9802.00.60, HTSUS, to steel blanks; cutting, precision grinding, heat treating; C.S.O. 84-49; 555536; 554965 Dear Mr. Pina: This is in response to your letter of April 23, 1992, on behalf of Besly Products Corp., which was forwarded to us through Customs New York Seaport office, requesting a ruling concerning the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to steel "blanks" imported from Mexico. Samples of the unfinished blank after the processing performed in Mexico and the finished steel tap following the processing performed in the U.S. were submitted. FACTS: Besly Products Corp. plans to export steel in the form of coils and rods to Mexico where the following operations will be performed, resulting in "blanks": The steel will be cut to specific lengths. The outside diameter of the blanks will be ground to the desired diameter. One end of the blank will be subjected to a square grinding operation, resulting in a square-type shape. The other end of the blank will be formed into a pointed shape, known as a "rough male center." This operation is performed by the same machine which cuts the steel to length. The blanks are heat treated in order to strengthen or harden the steel.  The blanks are inspected, packed, and shipped to the U.S. In the U.S., the blanks will be transformed into finished taps, which are cutting tools, by means of the following four precision machining operations: flute grinding; thread grinding; spiral point grinding; and chamfer grinding. Each operation is performed by different specialized machinery, and requires the employment of highly skilled workers. As a result of each operation, the tools are brought within a very precise tolerance. Finally, the taps are marked and packaged for sale. ISSUE: Whether the steel blanks will be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, when imported into the U.S. from Mexico. 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 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 eligible articles of metal--one foreign, and when returned, one domestic. Metal articles satisfying these statutory requirements may be classified under subheading 9802.00.60, HTSUS, with duty payable only on the value of such processing performed outside the U.S., provided there is compliance with the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9). In C.S.D. 84-49, 18 Cust. Bull. 957 (1983), we held that: [f)or purposes of item 806.30, TSUS (the predecessor tariff provision to subheading 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. The operations performed in Mexico of cutting the steel to length, grinding the outside diameter, square grinding, and heat treating constitute sufficient "further processing" so as to satisfy the foreign processing requirement of subheading 9802.00.60, HTSUS. Both grinding operations affect the shape of the metal and, therefore, qualify as "further processing." See T.D. 66-181(1), 101 Treas. Dec. 51 (1966) (cutting to length operations constitute a "further processing"); Headquarters Ruling Letter (HRL) 555536 dated October 29, 1990 (heat treatment of surgical instruments which hardened the instruments and changed the mechanical and chemical attributes of the metal was a "further processing" within the meaning of subheading 9802.00.60, HTSUS). The four precision machining operations performed upon the blanks in the U.S. to transform them into finished taps also satisfy the domestic "further processing" requirement of subheading 9802.00.60, HTSUS. All of these operations clearly change the shape of the steel blanks and impart new and different characteristics which become an integral part of the metal. See HRL 554965 dated September 6, 1989 (threading and beveling or chamfering of pipe satisfied the domestic processing requirement of subheading 9802.00.60, HTSUS). HOLDING: Based upon the information submitted, we find that the processes to be performed in Mexico to form the steel blanks, and the operations which take place upon the return of the blanks to the U.S., constitute "further processing" within the meaning of subheading 9802.00.60, HTSUS. Therefore, the steel blanks will be entitled to the partial duty exemption under this tariff provision, upon compliance with the docv entary requirements of 19 CFR 10.9. Sincerely, John Durant, Director Commercial Rulings Division