Applicability of the partial duty exemption under HTSUS subheading 9802.00.50 to stainless steel bars imported from Spain

HQ 555508 January 30, 1990 CLA-2 CO:R:C:V 555508 KAC CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.50 Mr. L. Klestadt Trans-World Shipping Corporation 53 Park Place New York, New York 10007 RE: Applicability of the partial duty exemption under HTSUS subheading 9802.00.50 to stainless steel bars imported from Spain Dear Mr. Klestadt: This in response to your letter of October 24, 1989, on behalf of Sovereign Metal Corporation, requesting a ruling on the applicability of subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to stainless steel bars imported from Spain. FACTS: Well over three years ago, Sovereign Metal imported square stainless steel bars 1 1/8 inch in diameter from Spain for sale in the U.S. Because the bars proved to be unsalable, Sovereign Metal has arranged with the Spanish mill to return the bars for further operations. The bars will be reduced to 1 inch in diameter by heating and drawing operations in Spain. Upon completion of the foreign operations the 1 inch in diameter square bars will be imported into the U.S. ISSUE: Whether the operations performed on the stainless steel bars in Spain will entitle the merchandise to the partial duty exemption in subheading 9802.00.50, HTSUS, when returned to the U.S. LAW & ANALYSIS: Articles returned to the U.S. after having been exported to be advanced in value or improved in condition by repairs or alterations may qualify for the partial duty exemption under HTSUS subheading 9802.00.50 provided the foreign operations do not destroy the identity of the exported articles or create new or different articles. See, Guardian Industries Corporation v. United States, 3 CIT 9 (1982). See also, A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1957), which held that when foreign processing creates a new article of commerce, the processing is not an alteration. The court in Dolliff & Company, Inc. v. United States, 81 Cust.Ct. 1, C.D. 4755, 455 F.Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979), found no merit to the argument that because the exported and imported articles were classifiable under the same tariff item the processing merely comprised an alteration and stated that this difference is immaterial where the foreign processing has created a new article. Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In the instant case, we are of the opinion that the foreign operations performed on the stainless steel bars do not constitute alterations within subheading 9802.00.50, HTSUS. The 1 1/8 inch diameter stainless steel bars are finished products when exported to Spain. However, the heating and drawing operations performed in Spain are further processing steps that create a new article. See, Headquarters Ruling Letter 047665 dated November 13, 1976, which held that drawing exported steel wire to small diameters constitutes "further processing" for purposes of item 806.30, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.60, HTSUS). The process of heating and drawing the bars, reducing their diameter from 1 1/8 inch to 1 inch, results in a 12 1/2 percent change in the bars size, which destroys the identity of the 1 1/8 inch stainless steel bar and creates the new 1 inch stainless steel bar. Contrary to the underlying premise of this tariff provision, the articles that are returned are not the same articles that were exported. HOLDING: On the basis of the information presented, it is our opinion that the foreign operations comprise further processing steps which create a new article. Accordingly, the stainless steel bars are not eligible for the partial duty exemption available under HTSUS subheading 9802.00.50 when returned to the U.S. Sincerely, John Durant, Director Commercial Rulings Division