Applicability of partial duty exemption under HTSUS subheadings 9802.00.50 and 9802.00.60 to certain components of oil field equipment from Mexico

HQ 556421 March 19, 1992 CLA-2 CO:R:C:S 5556421 RAH CATEGORY: Classification TARIFF NO.: 9802.0050; 9802.00.60 Mr. Philip Freeman Cain Customs Brokers, Inc. 421 Texano P.O. Box 150 Hidalgo, Texas 78557 RE: Applicability of partial duty exemption under HTSUS subheadings 9802.00.50 and 9802.00.60 to certain components of oil field equipment from Mexico Dear Mr. Freeman: This is in response to your letter of November 20, 1991, requesting a ruling on the eligibility of certain components of oil field equipment from Mexico for a partial duty exemption under subheading 9802.00.50 or 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS). FACTS: You state that your client plans to begin importing from Mexico several types of components of oil field equipment to be used in packers, bridge plugs, and other down-hole equipment. The products in question are made from steel tubing, bars, or rods which are manufactured in the United States and exported to Mexico for processing. The processing procedures performed in Mexico on these various steel components include: shaping and/or cutting to length on lathe or saw; heat treating; drilling holes; deburring machined pieces on the grinder; marking pieces with order and item numbers; slotting machined pieces (milling operation); drilling and tapping machined pieces (milling operation); dry- holing pieces (an operation similar to sandblasting) to texture the threads and to remove thread burrs. - 2 - You specifically seek a ruling on the applicability of subheading 9802.00.50 or 9802.00.60, HTSUS, to the following components of oil field equipment processed from United States steel: 1. Mandrel 12 N 4527 2. Snap Ring P 702417 3. Cap 70 U 5705 4. Element Mandrel 12 P 70235 5. Core Service Tool 40 G 379 6. Core Service Tool Assembly 40 G 370 7. Collet Wedge 12 P 70233 8. Collet Wedge 12 P 5926 9. Support Ring 12 P 5923 10. Support Ring 12 P 70232 Components of PLS Packer 11. Spring Housing 12 P 70312 12. Spring Housing 12 P 5976 13. Wedge 12 P 70254 14. Inner Sleeve 70 U 5706 Subsurface Assembly ISSUE: Whether the above described components qualify for the partial duty exemption available under subheading 9802.00.50 or 9802.00.60, HTSUS, when returned to the United States. 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 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. - 3 - 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 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. In the instant case, only one of the fourteen items in question satisfies the dual "further processing" requirement of subheading 9802.00.60, HTSUS. First, the operations performed in Mexico to item one (Mandrel 12 N 4527) include shaping the cut pieces of steel tubing according to specifications on the lathe, drilling holes in the pieces and deburring with the grinder. These procedures clearly constitute "further processing" as enumerated in C.S.D. 84-89, supra at 963. Secondly, the mandrels are returned to the United States for chromium plating. Electroplating with nickel, brass or chrome is an operation sufficient to comply with the "further processing" requirements. Headquarters Ruling Letters (HRL) 553860 dated October 22, 1985, and 556080 dated August 27, 1991. With regard to items two through fourteen, we find that only the first part of the dual "further processing" requirement is satisfied. The processing performed in Mexico on those items comprises "further processing" steps which are specifically outlined in C.S.D. 84-49, supra. This processing is performed on unfinished goods (steel tubing cut to length and/or heat treated in the United States) which leads to completed oil field equipment (mandrels, snap rings, caps, core service tools, collet wedges, support rings, spring housing and inner sleeve). Nevertheless, the partial duty exemption under subheading 9802.00.60 is not afforded to those items because the second part of the dual "further processing" criteria is not met. The record reflects that no "further processing" of items two through fourteen is performed upon their return to the United States from Mexico. You also inquire regarding the applicability of subheading 9802.00.50, HTSUS, to the items in question. That subheading provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced or improved in condition by means of repairs or alterations. Such articles are dutiable only upon the value of the foreign repairs or altera- tions, provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. However, - 4 - entitlement to this tariff treatment is precluded in circum- stances where the operations performed abroad destroy the identity of the articles or create new or commercially different articles. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Tariff treatment under subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use prior to the foreign processing. Guardian; 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, 82, 599 F.2d 1015, 119 (1979). In applying the above criteria to this case, we conclude that the exported steel components (steel tubing rods and bars cut to length and/or heat treated) are not "completed articles" since they were clearly unsuitable for, and, in fact, incapable of their intended use in the United States as various types of oil field equipment for use in packers, bridge plugs and other down-hole equipment. Accordingly, none of the fourteen items is eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States. HOLDING: Item one is entitled to the partial duty exemption available under subheading 9802.00.60, HTSUS, when returned to the United States, upon compliance with the documentation requirements of 19 CFR 10.9. Items two through fourteen do not qualify for sub- heading 9802.00.60, HTSUS, treatment as they are not subjected to "further processing" when returned to the United States. Moreover, none of the items is entitled to the partial duty exemption under subheading 9802.00.50, HTSUS, as the exported steel components are incomplete for their intended use. Sincerely, John Durant, Director Commercial Rulings Division