Applicability of subheading 9802.00.50, HTSUS, to hot rolled steel dock parts from Canada; galvanizing; 554818; 555384; NAFTA; repair; alteration; Article 509; Article 307 of NAFTA; 19 CFR 181.64

HQ 558005 October 27, 1994 CLA-2 CO:R:C:S 558005 WAS CATEGORY: Classification TARIFF NO.: 9802.00.50 Mr. Brian Johnson Border Brokerage Company P.O. Box 3549 Blaine, WA 98231 RE: Applicability of subheading 9802.00.50, HTSUS, to hot rolled steel dock parts from Canada; galvanizing; 554818; 555384; NAFTA; repair; alteration; Article 509; Article 307 of NAFTA; 19 CFR 181.64 Dear Mr. Johnson: This is in response to your letter dated June 20, 1994, on behalf of Damm Galvanizing Inc., concerning the applicability of the duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), to hot rolled steel dock parts from Canada. FACTS: You state that the subject merchandise consists of hot rolled steel dock parts made entirely of U.S.-origin materials which are used to manufacture floating docks. Damm's client in the U.S. will export the hot rolled steel dock parts to Damm in Canada for galvanizing. The purpose of the galvanizing operation is to protect the metal from deterioration while in salt water. Upon completion of the galvanizing operation, Damm ships the parts back to the U.S. for assembly into docks. ISSUE: Whether U.S.-manufactured hot rolled steel dock parts exported to Canada for galvanizing are entitled to special tariff treatment under subheading 9802.00.50, HTSUS, when returned to the U.S. LAW AND 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 or complete duty exemption under subheading 9802.00.50, HTSUS, 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'd 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). Section 181.64, Customs Regulations (19 CFR 181.64), which implements Article 307 of the North American Free Trade Agreement (NAFTA), provides that goods returned after having been repaired or altered in Canada pursuant to a warranty, are eligible for duty-free treatment, provided that the requirements of this section are met. However, goods returned after having been repaired or altered in Canada other than pursuant to a warranty are subject to duty upon the value of the repairs or alterations using the applicable duty rate under the United States-Canada Free Trade Agreement, provided that the documentation and other requirements of this section are met. 19 CFR 181.64(a) defines "repairs or alterations" for purposes of NAFTA as follows: For purposes of this section, "repairs or alterations" means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States. We have consistently held that a galvanizing operation exceeds an alteration for purposes of subheading 9802.00.50, HTSUS. For instance in Headquarters Ruling Letter (HRL) 554818 dated August 25, 1989, steel tubing was exported to Mexico where it was pickled in an acid, treated with chemicals, and dipped in a bath of molten zinc. In that case, we stated that a foreign galvanizing process makes the steel articles into finished products with new and enhanced characteristics ready for their intended use as corrosion resistant materials. Accordingly, we held in that case that the galvanizing of steel tubes to be used for scaffolding constituted an operation which exceeded an alteration within the meaning of subheading 9802.00.50, HTSUS. See also HRL 555384 dated November 20, 1989 (Customs held that galvanizing of steel in Canada in order to render it resistant to salt water corrosion exceeded an alteration and precluded any exemption from duty under subheading 9802.00.50, HTSUS). Based on HRL 554818 and 555384, we are of the opinion that the process of galvanizing hot rolled steel dock parts in Canada does not constitute an acceptable "alteration" within the meaning of subheading 9802.00.50, HTSUS. The process of galvanizing the hot rolled steel dock parts does not constitute a "renovation" within the meaning of the above-stated Customs regulation, as the galvanizing operation creates an article which is commercially different from the good exported from the U.S. The galvanized hot rolled steel dock parts imported into the U.S. possess new and enhanced performance characteristics (salt water corrosion resistant) which prepares the parts for their intended use in floating docks. HOLDING: Based on the information provided, the process of galvanizing hot rolled steel dock parts in Canada does not constitute an acceptable "alteration" within the meaning of subheading 9802.00.50, HTSUS, because it results in a commercially different product with new and enhanced performance characteristics. Therefore, the hot rolled steel dock parts are not entitled to special tariff treatment under this provision, when returned to the U.S. Sincerely, John Durant, Director Commercial Rulings Division