Applicability of subheading 9802.00.60, HTSUS, to coppersheets produced from scrap obtained from manufacturingoperations in the U.S.; HRL 555096

HQ 560430 June 30, 1997 CLA-2: RR:TC:SM 560430 BLS CATEGORY: Classification TARIFF NO.: 9802.00.60 Port Director 10 Causeway Street Boston, MA 02222-1059 RE: Applicability of subheading 9802.00.60, HTSUS, to copper sheets produced from scrap obtained from manufacturing operations in the U.S.; HRL 555096 Dear Sir: This is in reference to a letter dated April 15, 1997, on behalf of Waterbury Rolling Mills, Inc. ("WRM"), requesting a ruling that certain copper sheets imported from Germany are eligible for the partial duty exemption under subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS). We understand that entries of the subject merchandise are currently being filed at your port FACTS: WRM imports from Germany copper sheets which are either refined copper sheets or copper alloy sheets. Depending on the requirements of the purchaser in the U.S., WRM will subject these copper sheets to a variety of manufacturing processes including slitting, annealing, milling, rolling and leveling. During each of these processes, a certain amount of scrap is generated in the manufacturing process. WRM collects the scraps into segregated groups of refined copper or copper alloy for shipment back to the manufacturer in Germany. Upon return to the manufacturer, the merchandise is subject to a process of manufacture which will produce copper sheets of refined copper or copper alloy depending on the scrap furnished by WRM. The German manufacturer then returns the copper sheets to WRM at a price which consists of only the tolling charge for processing the scrap into sheets. - 2 - ISSUE: Whether the scrap-generated copper sheets are eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, upon importation into the U.S. LAW AND ANALYSIS: Subheading 9802.00.60, HTSUS, 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). It is WRM's position that the scrap resulting from the various stages of manufacture of the copper sheets in the U.S. is an "article of metal ...manufactured in the U.S. or subjected to a process of manufacture in the U.S." Therefore, WRM is of the opinion that upon importation, the copper sheet made from the scrap is eligible for the partial duty exemption under subheading 9802.00.60, HTSUS. WRM argues that this position is mandated by the statutory language and Customs' prior rulings. Headquarters Ruling Letter (HRL) 555096 (July 7, 1989), cited by WRM in support of its position, concerned the applicability of item 806.30, Tariff Schedules of the United States (TSUS) (predecessor to subheading 9802.00.60, HTSUS), to imported stainless steel articles produced from processed scrap purchased from U.S. junk yards and sent abroad. In that case, we stated that industrial scrap (leftover metal from manufacturing operations performed on metal articles) satisfies the requirement under subheading 9802.00.60 that the scrap be a metal article manufactured or subjected to a process of manufacture in the U.S., if the metal article from which the scrap was obtained was initially manufactured or subjected - 3 - to a process of manufacture in the U.S. We also stated the following, which may serve to clarify Customs position: We also do not concur with counsel's contention that industrial scrap (leftover metal such as punchings, turnings and grindings) derived from the processing of imported metal qualifies as a metal article under item 806.30, TSUS. The Customs Service has consistently held that this tariff provision is inapplicable to scrap obtained directly from processing foreign-made metal in the U.S. In order for scrap to be eligible under the statute where foreign metal is involved, the scrap must be obtained from procesing (sic) metal initially obtained from processing the foreign metal in the U.S. (Emphasis added.) The scrap in this case is generated in the U.S. from metal (refined copper or copper alloy sheets) produced in Germany. Accordingly, it is Customs position that the copper sheets produced in Germany from scrap generated in the U.S. from processing the foreign-made metal (also copper or copper alloy sheets) are not eligible for the partial duty exemption under subheading 9802.00.60, HTSUS. We do not find the case of Ferrostaal Metals v. United States, 664 F. Supp. 535 (CIT 1987), to be suportive of WRM's position. The issue in that case was whether certain processing (annealing and galvanizing) of steel products in New Zealand resulted in a substantial transformation of Japanese-origin steel for purposes of determining whether the resulting product was covered by the U.S.-Japan voluntary restraint arrangement. (It was held that the steel was not covered by the arrangement since the annealing and galvanizing operations substantially transformed the Japanese- origin steel into a product of New Zealand). Whether or not a material such as the German copper sheets has been "substantially transformed " in the U.S. is not an issue in determining eligibility under subheading 9802.00.60. The sole question is whether the exported metal product was "manufactured" or subject to a "process of manufacture" in the U.S. Consistent with our position in HRL 555096, we find that the copper scrap, which is a by-product of the imported metal sheets that were subjected to a manufacturing process in the U.S., does not, itself, meet the subheading 9802.00.60 criteria of being an article of metal which was "manufactured in the United States - 4 - or subject to a process of manufacture in the United States" before exportation back to Germany to be made into more sheets of copper. HOLDING: Scrap from foreign-made metal processed is not considered a metal article "manufactured in the United States or subjected to a process of manufacture in the United States." Therefore, copper or copper alloy sheet produced in Germany from scrap generated by the processing of foreign-made metal in the U.S. is not eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, when imported into the U.S. Please provide a copy of this decision to Stephen J. Leahy, Esq., Leahy & Ward, 63 Commercial Wharf, Boston, MA 02110. Sincerely, John Durant, Director Tariff Classification Appeals