Applicability of the partial duty exemption under subheading 9802.00.60, HTSUSA, to metals from Russia; further processing; tolling; scrap

HQ W557002 February 16, 1993  CLA-2 CO:R:C:S W557002 WAW CATEGORY: Classification TARIFF NO.: 9802:00.60 Ms. Stephanie Siegel, Esq. Davis, Graham & Stubbs Suite 500 1200 Nineteenth Street, N.W. Washington, D.C. 20036-2402 RE: Applicability of the partial duty exemption under subheading 9802.00.60, HTSUSA, to metals from Russia; further processing; tolling; scrap Dear Ms. Siegel: This is in response to your letter dated November 10, 1992, to the District Director in Baltimore, requesting a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), to nickel, cobalt and copper scrap which is shipped to Russia for tolling and returned to the U.S. for additional processing. Additional information, submitted directly to this office by your letters dated November 12, 1992 and January 7, 1993, were also considered in this ruling. FACTS: The importer, Sovereign Recycling International (''Sovereign"), intends to ship metal scrap (nickel, cobalt and copper) to Russia for a "beneficial tolling'' process. You state that the metal scrap is composed of miscellaneous machinery parts, castings, grindings, and turnings, which were used in a variety of industrial applications. The scrap is produced from U.S. articles. In Russia, the metal scrap undergoes a chemical process referred to as "beneficial tolling". This "tolling" process results in virgin metal. Sovereign states that this process is performed in Russia since there are no production facilities in the U.S. with the capability to perform this type of toll conversion. The virgin metal which is returned to the U.S. is in the form of cobalt ingots and nickel and copper cathodes, and these metals are then used in the production of new alloys in the U.S. In the case of nickel, he pure nickel  returned to Sovereign may be sold to the U.S. Mint, which then uses it in the production of coins. ISSUE: Whether the metal which is returned to the U.S. from Russia is entitled to the partial duty exemption under subheading· 9802.00.60-; HTSUSA. - .. LAW AND ANALYSIS: Subheading 9802.00.60, HTSUSA, provides a partial duty exemption for: [a]ny article of metal (as defined in U.S. note J(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 subheading 9802.00.60, HTSUSA, with duty only upon 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). In C.S.D. 84-49, 18_Cust. Bull. 957 (1983), we stated that: [f)or purposes of item 806.30, TSUS [the precursor provision to subheading 9802.00.60, HTSUSA], 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. U.S. Note J(d), subchapter II, Chapter 98, HTSUSA, provides, in pertinent part, that for purposes of subheading 9802.00.60, HTSUSA, the term "metal" covers the base metals enumerated in additional U.S. Note 1 to section XV, HTSUSA. As nickel, cobalt and copper are expressly enumerated in additional U.S. Note 1, we find that the metal scrap exported in this case is an eligible article of metal for purposes of subheading 9802.00.60, HTSUSA.  The Customs Service has consistently held that subheading 9802.00.60, HTSUSA, 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 Letter (HRL) 555096 dated July 7, 1989. Based on the information submitted, the scrap in this case is obtained from metal articles which were produced in the U.S. Thus, the metal scrap in the instant case is “manufactured or subjected to a process of manufacture” in the U.S., as required by subheading 9802.00.60, HTSUSA. As previously stated, in order to be considered "further processing," some operation must be applied to the metal which changes the shape or form of the metal or imparts new and different characteristics which become an integral part of the metal itself. See C.S.D. 84-49, 19 Cust. Bull. 957 (1983). Processing performed on an already completed article, incident to using it for the purpose intended, is not sufficient to constitute "further processing." Intelex Systems. Inc. v. United States, 59 CCPA 138, C.A.D. 1055 (1972). However, legislative history and judicial authority do not support a highly restrictive interpretation of the manufacturing operations necessary to qualify as "further processing." Firestone Tire & Rubber Company v. United States, 71 Cust. Ct. 63, C.D. 4474 (1973). We are of the opinion that the processes performed in Russia to the metal scrap of U.S.-origin clearly constitute "further processing" as enumerated in c.s.o. 84-49, supra at 963. Indeed, the nickel, cobalt and copper scrap which are imported into Russia undergo a chemical process whereby the fundamental characteristics and essential structure of the metals are altered. The scrap sent to Russia possesses no viable commercial function prior to the processing in Russia. However, the virgin metals returned to the U.S. in the form of cobalt ingots and nickel and copper cathodes can be used in the production of new metal articles. We wish to note that to receive the partial duty exemption, it will be necessary to satisfy the appropriate district director of Customs that the domestic further processing will be performed within a reasonable period of time after importation of the virgin metal in the form of cobalt ingots and nickel and copper cathodes. As we stated in Headquarters Ruling Letter (HRL) 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."  -4- It would appear that the processing of the virgin metal in the U.S. into coins is sufficient to satisfy the domestic ''further processing" requirement. The cutting, bending, shaping, and other operations necessary to complete the final article constitute further fabrication processes that finish the ingots, pellets or sheets by imparting new and different characteristics to the metal. See HRL 555629 dated August 3, 1990; 554965 dated September 61 1989; 543665 dated January 9, 1986. There is no requirement that the same person who exports the material, or the same person who imports the material, must perform the “further processing” in the U.S. The intention to further process the material in the U.S. must exist at the time of the exportation of the material from the U.S. This intention may be established from the overall circumstances of the transaction as evidenced by the certificate of registration (Customs Form 4455) See 19 CFR 10.9(a). Therefore, the U.S.-origin scrap metal which is sent to Russia for a "tolling" process and then further processed in the U.S., is entitled to classification under subheading 9802.00.60, HTSUSA, provided that the documentation requirements of 19 CFR 10.9 are met. However, as previously stated, the district or area director must be satisfied of the actual performance of further processing in the U.S. within a reasonable period of time. With regard to the issue of whether Sovereign is required to present a ROSNOIMPORT certificate at the time of entry for the nickel entering into the U.S., this issue is not within our jurisdiction. We recommend that you contact the Office of Foreign Assets Control and request a ruling from them. HOLDING: Based on the information submitted, we are of the opinion ·that the "tolling" of the U.S;-origin metal scrap material in ·Russia, and the subsequent processing of the virgin metal in the U.S., is sufficient to satisfy the ''further processing" requirements of subheading 9802.00.60,·HTSUSA. Therefore, the returned cobalt ingots and nickel and copper cathodes are entitled to classification under this tariff provision, 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