Applicability of partial duty exemptions under HTSUS subheadings 9802.00.50 or 9802.00.60 to oil well drill slips created by sanding and facing the flutes and grooves of the cast wedges and heat treating, phosphate plating and painting.Dolliff;completed articles;C.S.D. 84-49;036081; 038193;555536;555103;T.D. 56166

HQ 555562 November 26, 1990 CLA-2 CO:R:C:V 555562 GRV CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.50; 9802.00.60 Mr. John W. Cain Cain Customs Brokers, Inc. 421 Texano P.O. Box 150 Hidalgo, Texas 78557 RE: Applicability of partial duty exemptions under HTSUS subheadings 9802.00.50 or 9802.00.60 to oil well drill slips created by sanding and facing the flutes and grooves of the cast wedges and heat treating, phosphate plating and painting.Dolliff;completed articles;C.S.D. 84-49;036081; 038193;555536;555103;T.D. 56166 Dear Mr. Cain: This is in response to your letters of January 6, and 11, and October 30, 1990, on behalf of 3D Border Industries, requesting a ruling on the applicability of subheading 9802.00.50 or 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to drill slips for oil well casing equipment to be imported from Mexico. Photographs and samples of the merchandise were submitted for examination. FACTS: U.S.-cast steel wedges with flutes and grooves shaped to specification will be shipped to Mexico for processing into drill bit assemblies--those parts of oil well casing equipment used to hold packers and other extraction equipment inside a casing to keep it from moving. In Mexico, the steel wedges first will be sanded on a belt sander to smooth rough edges, after which the grooves, flutes and inner curved surface of the wedge will be faced to specification by cutting tools on a lathe. The wedges are then returned to the U.S. where they are heat treated, phosphate plated and painted. ISSUE: Whether the U.S.-cast steel wedges will qualify for the partial duty exemption under either HTSUS subheading 9802.00.50 or 9802.00.60 when returned to the U.S. LAW AND ANALYSIS: HTSUS subheading 9802.00.50 provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles entitled to this partial duty exemption are dutiable only upon the value of the foreign repairs or alterations, upon compliance with the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8). However, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended use prior to the foreign processing, Guardian Industries Corp. v. United States, 3 CIT 9 (1982), as "repairs and alterations are made to completed articles and do not include intermediate processing operations which are performed as a matter of course in the preparation or the manufacture of finished articles." Dolliff & Company, Inc., v. United States, C.D. 4755, 81 Cust.Ct. 1, 455 F.Supp. 618 (1978), aff'd, C.A.D. 1225, 66 CCPA 77, 599 F.2d 1015 (1979) (Court's emphasis). As the steel wedges in this case are not completed articles when exported, but require intermediate processing to render them finished articles, they are not entitled to the duty exemption under this tariff provision. 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. This tariff provision imposes a dual "further processing" requirement on eligible, U.S. articles of metal--one foreign, and when returned, one domestic. Metal articles satisfying these statutory requirements may be classified under this tariff provision with duty only on the value of such processing performed outside the U.S., provided the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9), are met. In C.S.D. 84-49, 18 Cust.Bull. 957 (1983) we stated that: [f]or purposes of item 806.30, TSUS [the predecessor tariff provision to HTSUS subheading 9802.00.60], the term 'further processing' has reference to processing that changes the shape of the metal or imparts new and different characteris- tics 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. We have previously ruled that the operations of machining (metal cutting), plating and significant heat treating operations each constitute "further processing" operations for purposes of HTSUS subheading 9802.00.60, as the first operation changes the shape of the metal and the latter two operations impart new and different characteristics to the metal which did not exist in the metal before processing. (Regarding machining, see, Headquarters Ruling Letters (HRLs) 036081 dated December 26, 1974 and 038193 dated January 23, 1975; regarding heat treating, see, HRLs 555536 dated October 29, 1990, and 555103 dated February 2, 1989, and; regarding plating, see, T.D. 56166, 99 Treas.Dec. 233 (1964)). In this case, the steel wedges are eligible articles of metal for purposes of HTSUS subheading 9802.00.60. The operations of sanding and facing performed abroad, taken as a whole, impact upon the metal itself and, following our previous rulings, are deemed to constitute "further processing" within the ambit of the statute. Further, an examination of the samples submitted shows that these operations impact the metal itself. The heat treating and plating operations to be performed on the drill slips when they are returned to the U.S. similarly constitute "further processing" for purposes of this tariff provision, as each operation will impart new and different characteristics to the metal which did not exist in the metal before processing. As the manufacturing operations performed abroad and on return to the U.S. are sufficient to satisfy the dual further processing requirements the statute imposes on the U.S. articles of metal, the drill slips will be eligible for the partial duty exemption under HTSUS subheading 9802.00.60 when returned to the U.S. HOLDING: On the basis of the information and samples submitted, the drill slips to be imported are eligible for the partial duty exemption under HTSUS subheading 9802.00.60, provided the documentary requirements of 19 CFR 10.9 are met, as the operations performed abroad and in the U.S. constitute "further processing" within the ambit of the statute. Sincerely, John Durant, Director Commercial Rulings Division