Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.60 to truck leaf spring assemblies from Mexico

HQ 555342 February 7, 1990 CLA-2 CO:R:C:V 555342 GRV CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.60 Mr. Richard G. Seley Rudolph Miles & Sons, Inc. Customhouse Brokers 4950 Gateway East P.O. Box 144 El Paso, Texas 79942 RE: Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.60 to truck leaf spring assemblies from Mexico Dear Mr. Seley: This is in response to your letters of March 20, and July 10, 1989, on behalf of Detroit Steel Products Co., Inc., requesting a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to truck leaf spring assemblies to be imported from Mexico. Additional information was forwarded directly to this office from Detroit Steel Products by letters dated January 19, and 25, 1990. FACTS: You state that U.S. origin flat bars of spring steel in 30- foot lengths will be shipped to Mexico for processing and assembly into truck leaf springs, which will then be returned to the U.S. for further processing. In Mexico, the exported bars will be subjected to the following operations: (1) cutting-to-length and hole-punching; (2) hot forging, to create the proper shape; (3) heat treating some 90% of the leaf spring parts; (4) shot peening; and, (5) assembly of the individual leafs into leaf springs. The assembled leaf springs will then be returned to the U.S. where they will be subjected to a process referred to as "presetting," which you assert changes the molecular structure in both the tension and compression surfaces of the assembled leaf springs by forming at ambient temperatures. Regarding the "presetting" operation, literature which you provided to us from the Society of Automotive Engineers, Inc. (SAE), describes it as one of three types of mechanical prestressing operations (the other two operations being stress peening and shot peening), which produce large increases in fatigue durability without increasing the size of the spring. An SAE chart illustrating the effect(s) of the various operations on spring assemblies shows that, within this trinity of mechanical prestressing operations, while stress peening produces the most dramatic compressive stresses, presetting also produces residual stresses. Thus, all three operations, either independently or in conjunction with each other, serve to increase the fatigue properties of a spring. Regarding "presetting" (the operation under consideration here), the descriptive literature states that it: produces residual compressive stresses in the tension surface and residual tensile stresses in the compression surface by forcing the leaves to yield or take a permanent set in the direction of subsequent service loading. While this operation is beneficial to fatigue life, its primary effect is the reduction of "settling" (load loss) in service. Presetting is usually done on the spring assembly. The SAE literature further states that the curvature of a leaf spring will be changed by mechanical prestressing. You also assert that while the preset operation does not change the load capacity of the springs, the free camber of the spring is permanently altered--the loaded height (height at a particular load) of the finished spring is affected--when it is subjected to presetting, and that the operation is very critical to the final spring performance (spring life and controlled loaded height). You state that the height of a spring will normally be reduced by approximately 1/4 inch after presetting. ISSUE: Whether "presetting" constitutes a sufficient process of manufacture to qualify as "further processing" within the meaning of HTSUS subheading 9802.00.60. 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 process- ing 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 HTSUS subheading 9802.00.60. Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055, 460 F.2d 1083 (1972), aff'g, 65 Cust. Ct. 306, C.D. 4093, 318 F.Supp. 515 (1970). Metal articles 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 19 CFR 10.9. In the Intelex case (a case decided under paragraph 1615(g)(2) of the Tariff Act of 1930, as amended, the precursor provision of TSUS item 806.30 and HTSUS subheading 9802.00.60), copper wire and insulating paper were foreign processed into lead-covered telephone cable and imported on cable rolls. The cable then was merely strung on poles after a wire stripping and splicing operation. The issue presented was whether the imported telephone cable was "returned to the U.S. for further process- ing," within the meaning of paragraph 1615(g)(2)(B). The court considered the words "process" and "processing" and stated that: ...its meaning [processing] must be controlled by the particular context in which it is used here and the legislative intent. (Citation omitted). When we look to the context of [paragraph] 1615(g)(2), we do not think that Congress had in mind that any and all kinds of 'processing' taking place upon return of an article to the United States would suffice to bring the article within the purview of that paragraph. Instead, we believe that the words 'further processing' relate to the kind of processing to which the article had been subjected before--namely, 'a process of manufacture,' as expressed in [paragraph] 1615(g)(2)(A). We continue of the view that Congress used the expression 'sub- jected to a process of manufacture' as synonymous with 'processing' (citation omitted), and that the 'further processing' referred to in [paragraph] 1615(g)(2) is a further manufacturing process. The court stated that it did "...not think that processes to which an already completed article were subjected, incident to using it for the purpose intended, were necessarily part and parcel of manufacturing processes performed on that article." (Court's emphasis). Therefore, finding no evidence that the operations performed in the U.S. on the imported telephone cable constituted a process of manufacture in any common or commercial sense, the court determined that the partial duty exemption was inapplicable to the imported cable. In C.S.D. 84-49, 18 Cust. Bull. 957 (1983) we stated that: [f]or purposes of item 806.30, TSUS, 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. In this case, we are satisfied that the "presetting" operation to be performed on the returned truck leaf springs constitutes "further processing" within the meaning of HTSUS subheading 9802.00.60. It is clear that presetting serves to both change the shape of the metal (the height of the truck leaf springs will be reduced by approximately a 1/4 inch) and to impart a different characteristic to the metal which did not exist before the processing--primarily by reducing the "settling" (load loss) in service of the spring and also by improving the fatigue life of the leaf spring by increasing its residual compressive stresses. Accordingly, provided the documentary requirements of 19 CFR 10.9 are met, the truck leaf spring assemblies will be eligible for HTSUS subheading 9802.00.60 treatment when returned to the U.S. HOLDING: On the basis of the described manufacturing process, we conclude that the "presetting" operation constitutes a sufficient process of manufacture to qualify as "further processing" within the meaning of HTSUS subheading 9802.00.60, and that the truck leaf spring assemblies will be eligible for the partial duty exemption available under that tariff provision, provided there is compliance with the documentary requirements of 19 CFR 10.9. Sincerely, John Durant, Director Commercial Rulings Division