HQ 555165: Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.60 to lantern parts to be imported from Mexico

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 555165

                          June 26, 1989

CLA-2 CO:R:C:V 555165 GRV

CATEGORY:  CLASSIFICATION

TARIFF NO.:  9802.00.60

Leslie Alan Glick, Esq.
Porter, Wright, Morris & Arther
1233 20th Street, N.W. - 4th Floor
Washington, D.C.  20036-2395

RE:  Applicability of partial duty exemption under HTSUS subhead-
     ing 9802.00.60 to lantern parts to be imported from Mexico

Dear Mr. Glick:

     This is in response to your letters of October 19, 1988, and
March 21, 1989, on behalf of American Lantern Company, requesting
a ruling on the applicability of subheading 9802.00.60, Harmo-
nized Tariff Schedule of the United States (HTSUS) (formerly item
806.30, Tariff Schedules of the United States (TSUS)), to lantern
parts to be imported from Mexico.  Two complete sets of lantern
parts, reflecting the condition of the parts as exported and
imported, and a fully assembled lantern, were submitted for
examination.  You also provided a narrative description of the
various operations to be performed on the component parts.

FACTS:

     You state that brass sheet stock of U.S. origin is processed
in the U.S. into approximately twelve to twenty or more--depend-
ing on the lantern style--raw lantern component parts.  The
rough, unfinished brass components will then be exported to
Mexico, where certain processing operations will be performed on
the components, after which they will be returned to the U.S. for
additional processing and final assembly operations.

     The processing operations to be performed on selected
components in Mexico are described as follows:

     (1)  the corner posts are bent or swaged into a compound
          curve, which irreversibly affects the metal's memory;
     (2)  all components are rough-cut buffed with a linen cloth
          buffing wheel and an abrasive compound to smooth the
          edges of the stamped components and strip oxidation
          from the brass.  This operation removes, on average,
          0.0002 inch from the flat metal surfaces and "smears"
          the metal surface of the components to eliminate
          surface imperfections.  Sufficient metal is removed so
          as to be clearly visible with the naked eye;
     (3)  all components are color buffed with a linen cloth
          buffing wheel without an abrasive compound to bring
          out the polished brass finish;
     (4)  all components are degreased by dipping them into a
          triac compound; and
     (5)  all components are painted with a clear marine enamel
          and baked.

     Upon return to the U.S., certain of the components undergo
additional operations which you describe as follows:

     (1)  certain parts are riveted together;
     (2)  the hexagonal top plate is eyeletted, two other compo-
          nents are grommetted, and a few of the components are
          swedged together.  The insertion of the eyelets and
          grommets expands and stretches the metal of the hole
          through which the eyelet or grommet is inserted; and
     (3)  the various components are assembled into the final
          fixture and packaged.

     You state that these domestic operations constitute further
processing because the components are not returned in a completed
state, inasmuch as they have no commercial or other application
except as parts to be incorporated into a specific lantern style.
Further, you state that where sets of components are involved,
the double processing requirement of HTSUS subheading 9802.00.60
is satisfied where some parts of the set undergo processing in
each of the two countries.

     With the exception of the corner posts, the lantern parts
assembled into the finished lantern in the U.S. have the same
shape as when they were exported to Mexico.

ISSUE:

     Whether the metal lantern parts to be imported from Mexico
will be eligible for the partial duty exemption available under
HTSUS subheading 9802.00.60.

LAW & ANALYSIS:

     As you know, the HTSUS superseded and replaced the TSUS,
effective January 1, 1989.  TSUS item 806.30 was carried over
into the HTSUS without change as subheading 9802.00.60.  This
tariff provision 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.  (Emphasis
     supplied).

HTSUS subheading 9802.00.60 imposes a dual "further processing"
requirement on metal articles:  one foreign, and when returned,
one domestic.  However, not all "processing" to which articles of
metal can be subjected are significant enough to qualify as
"further processing," within the purview of HTSUS subheading
9802.00.60.  Intelex Systems, Inc. v. United States, 59 CCPA 138,
C.A.D. 1055, 460 F.2d 1083 (1972).  Metal articles satisfying
these statutory requirements may be classified under HTSUS
subheading 9802.00.60 with duty only on the value of such
processing done outside the U.S., upon compliance with section
10.9, Customs Regulations (19 CFR 10.9).

     In the Intelex case (a case decided under paragraph
1615(g)(2) of the Tariff Act of 1930, as amended, the precursor
provision of 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 was then
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 held 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 character-
     istics 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.

     You cite ruling letter 055377 (March 12, 1979) in support of
your contention that because the lantern parts will be incomplete
for their intended purpose when returned to the U.S., the
operations to be performed in the U.S. to place the lanterns into
a finished state necessarily constitute further processing for
purposes of HTSUS subheading 9802.00.60.  Ruling 055377 posed the
following question:  "Under item 806.30, TSUS, can the metal
article in its returned condition be used for its intended
purpose, or does it require further processing to place it in a
condition that would advance it toward completion and its final
purpose?"  In that case, the drilling of holes in a grapple
yarder in the U.S. was found adequate to meet the requirements of
further processing under TSUS item 806.30, as the process
constituted a significant process that advanced the articles
toward completion to serve the purpose intended.  However, ruling
055377 should not be construed to mean that if a returned metal
article is in an incomplete state, any kind of processing in the
U.S. that advances it toward completion will serve to satisfy the
HTSUS subheading 9802.00.60 domestic "further processing"
requirement.  As stated in the Intelex case, the returned metal
article must be subjected to "a process of manufacture."

     You also cite ruling letter 053633 (January 5, 1978) as
supporting your assertion that the domestic operations to be
performed in the instant case qualify as "further processing."
You specifically direct our attention to that portion of the
ruling which held that affixing two handle parts to a blade by
drilling and tapping two holes in the blade and then driving in
two machine screws may be considered as further processing under
TSUS item 806.30.

     We are of the opinion in the instant case that the steps
comprising the domestic operation do not, either individually or
collectively, constitute a process of manufacture in a common or
commercial sense.  The operations performed on the returned
components consist of riveting certain parts together, inserting
eyelets in the hexagonal top plate, inserting a grommet through
holes of two components to join them together, "swedging"
together a few parts, and assembling all parts into the finished
lantern.  The sample set of lantern parts to be exported to
Mexico reflect that the holes into which the rivets, eyelets, and
grommmets are to be inserted are punched or drilled prior to the
parts' exportation to Mexico.  This clearly distinquishes the
present case from ruling 053663, where the processing operation
under consideration involved the drilling and tapping of two
holes into a knife blade followed by the driving of screws into
the holes.  Moreover, in regard to your contention that the
insertion of the eyelets and grommets impacts on the metal by
expanding and stretching the metal of the holes through which
they are inserted, we are unable to confirm from our analysis of
the relevant lantern parts that this process changes the shape of
the metal in any way or imparts any new or different
characteristics to the metal.  In fact, we should note that the
samples submitted indicate that the eyelets are inserted into the
top plate prior to its exportation to Mexico.

     The riveting, eyeletting and grommetting operations, and the
remaining processes to be performed in the U.S. -- "swedging"
certain parts together and final assembly of all parts -- are all
essentially assembly operations.  As previously stated, in C.S.D.
84-49 we held that the mere assembly of finished parts by
bolting, welding, etc., does not qualify as further processing
under TSUS item 806.30.

     As the operations to be performed in the U.S. on the
returned lantern parts do not, in our opinion, satisfy the
domestic further processing requirement, it is unnecessary for us
to consider whether the lantern parts will be further processed
in Mexico.

HOLDING:

     On the basis of the information and samples submitted, we
conclude that the returned lantern parts will not be subjected to
further processing in the U.S., as required by HTSUS subheading
9802.00.60.  Therefore, these parts will not be eligible for the
partial duty exemption provided for in this tariff provision, and
will be dutiable on their full value when imported into the U.S.

                          Sincerely,




                          John Durant, Director
                          Commercial Rulings Division