Applicability of HTSUS subheading 9802.00.60 to saw chain created by stamping and shortening.Further processing; Intelex; C.S.D. 84-49

HQ 555695 October 15, 1990 CLA-2 CO:R:C:V 555695 KCC CATEGORY: CLASSIFICATION TARIFF NO.: 9802.00.60 Mr. B.B. Nelson, Jr. President Nelson International, Inc. 201 E. City Hall Avenue, Suite 501 Norfolk, Virginia 23510 RE: Applicability of HTSUS subheading 9802.00.60 to saw chain created by stamping and shortening.Further processing; Intelex; C.S.D. 84-49 Dear Mr. Nelson: This is in response to your letter dated June 4, 1990, to the District Director, Norfolk, Virginia, on behalf of STIHL Inc., requesting a ruling concerning the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS), to saw chains imported from Switzerland. Your request was forwarded to this office for a reply. A sample of the saw chain was submitted for examination. A memorandum dated June 29, 1990, from the Chief, National Import Specialist Division, Branch 1, New York Seaport, was also considered in connection with this ruling. FACTS: STIHL will export U.S.-origin strip tool steel in coils to Switzerland for foreign processing operations. In Switzerland, the strip tool steel will be loaded into a stamping machine to create the Drive Link and Tie Strap 25 to 100 foot reels of saw chain. U.S.-origin steel will not be used in the production of the remaining two parts of the saw chain--the cutters and rivets. The saw chain will be returned to the U.S. where it will be sold to distributors, who will resell it to dealerships. Each dealership will shorten the saw chain according to their customer's specifications by removing the rivet between the chain links. ISSUE: Whether the saw chain will be eligible for the partial duty exemption available under subheading 9802.00.60, HTSUS, when imported into the U.S. 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 subject 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 this tariff provision with duty 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). Not all "processing" to which articles of metal can be subjected are significant enough to qualify as "further processing," within the purview of subheading 9802.00.60, HTSUS. Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055, 460 F.2d 1083 (1972), aff'd, 65 Cust.Ct. 306, C.D. 4093, 318 F.Supp. 515 (1970). In Intelex (a case decided under paragraph 1615(g)(2) of the Tariff Act of 1930, as amended, the precursor provision of item 806.30, Tariff Schedules of the United States (TSUS), 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 processing," 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 'subjected 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 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. We are of the opinion that the domestic operation to be performed on the returned saw chain does not constitute "further processing" within the meaning of the statute, as the saw chain imported is a completed article ready for its intended use as saw chain. In our opinion, taking the completed saw chain from a large reel and shortening it by removal of the rivet between chain links to conform to customers' specifications is not a process of manufacture in any common or commercial sense, but, rather, is performed incident to using the chain for the purpose intended. See, C.S.D. 84-49. As the saw chain does not satisfy the domestic "further processing" requirement of subheading 9802.00.60, HTSUS, it is not entitled to the partial duty exemption provided under this tariff provision. HOLDING: On the basis of the information and sample submitted, we conclude that the saw chain to be returned to the U.S. will not be subjected to "further processing" in the U.S., as required by subheading 9802.00.60, HTSUS, and, therefore, will not be eligible for the partial duty exemption provided for under this tariff provision. Sincerely, John Durant, Director Commercial Rulings Division