Applicability of partial duty exemption under HTSUS subheadings 9802.00.80 and 9802.00.50 to refined vegetable oils; crude; degumming; bleaching; deodorizing

HQ 557283 August 18, 1993 CLA-2 CO:R:C:S 557283 MLR CATEGORY: Classification TARIFF NO.: 9802.00.80; 9802.00.50 Mr. Ricardo Gonzalez 5250 Coffee Port Road P.O. Box 3727 Brownsville, TX 78521 RE: Applicability of partial duty exemption under HTSUS subheadings 9802.00.80 and 9802.00.50 to refined vegetable oils; crude; degumming; bleaching; deodorizing Dear Mr. Gonzalez: This is in reference to your letter of April 19, 1993, requesting a ruling on behalf of your customer regarding the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to refined vegetable oils from Mexico. FACTS: Your customer plans to ship U.S.-origin crude oil to Mexico where it is refined or degummed to make the product free of humidity and fatty acids. It will also be bleached or "colored out", and deodorized. Then, the resulting refined vegetable oil will be packaged and shipped to the U.S. You question whether duty on the imported product is payable on the full value of the refined oil less the cost of the crude, or "in essence, qualif[ies] the transaction as 9802." ISSUE: Whether the refined vegetable oils qualify for the partial duty exemption available under subheading 9802.00.80 or 9802.00.50, HTSUS, when returned to the United States. LAW AND ANALYSIS: Since you question whether duty is payable on the full value of the refined oil less the cost of the crude, we assume you are referring to subheading 9802.00.80, HTSUS. Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: [a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting. All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24). Section 10.14(a), Customs Regulations {19 CFR 10.14(a)}, states in part that: [t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components. Section 10.16(a), Customs Regulations {19 CFR 10.16(a)}, provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners. Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 CFR 10.16(a). However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c). As stated in 19 CFR 10.16(a), an acceptable assembly operation involves the joining of solid components. Because oil is not a solid component and the refining operations are not assembly processes, the partial duty allowance under subheading 9802.00.80, HTSUS, is not applicable in this instance. Another 9802 provision is subheading 9802.00.50, HTSUS. It provides for a partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by repairs or alterations, provided the foreign operation does not destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff treatment is precluded where the exported articles are incomplete for their intended purpose prior to the foreign processing and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this partial duty exemption are dutiable only upon the cost or value of the foreign repairs or alterations when returned to the U.S., provided the documentary requirements of section 10.8, Customs Regulations (19 CFR 10.8), are satisfied. In Headquarters Ruling Letter (HRL) 082425 dated December 1, 1988, we considered whether refining U.S.-origin crude oil in Canada, and returning it to the U.S. in the form of gasoline was considered an alteration. It was held that the refining of crude oil is more than a mere alteration, but involves a process which turns the crude oil into an entirely new and commercially different product. Furthermore, the crude oil was incomplete for its intended use and the processing was held to be a necessary step in the processing of gasoline. For these same reasons we find that the refining operation in Mexico exceeds an alteration, thereby precluding tariff treatment under subheading 9802.00.50, HTSUS. HOLDING: On the basis of the information provided, it is our opinion that refining oil in Mexico is not considered an assembly operation nor an alteration. Therefore, the partial duty allowances under subheadings 9802.00.80 and 9802.0050, HTSUS, are inapplicable and the refined vegetable oil will be dutiable upon its full value when it is returned to the U.S. We are unaware of any other tariff provisions for which a reduced duty rate would be allowed. Sincerely, John Durant, Director