HQ 555096: Application for Further Review of Protest No. 0410-7-000005 contesting the denial of item 806.30, TSUS, treatment to certain articles of stainless steel imported by Newmet Corp.

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 555096

                                    July 7, 1989

          CLA-2 CO:R:C:V 555096 DBI/CW

          CATEGORY:  Classification

          TARIFF NO.:  9802.00.60, HTSUS (formerly 806.30, TSUS)

          District Director of Customs
          Boston, Massachusetts 02222-1059

          RE:   Application for Further Review of Protest No. 0410-7-000005
                contesting the denial of item 806.30, TSUS, treatment to
                certain articles of stainless steel imported by Newmet
                Corp.

          Dear Sir:

                The above-referenced protest contests the decision by the
          Port Director of Customs, Bridgeport, Connecticut, to disallow
          entry under item 806.30, Tariff Schedules of the United States
          (TSUS) (now subheading 9802.00.60, Harmonized Tariff Schedule of
          the United States (HTSUS)), of certain articles of stainless
          steel imported by Newmet Corporation (protestant) during the
          period 1984-1986.

          FACTS:

                The record reflects that during the time period in question
          the protestant purchased processed stainless steel scrap
          (commercial scrap) from various scrap yards in the U.S.  The
          processed scrap was sent to facilities in Europe where it was
          processed into articles of stainless steel (e.g., stainless steel
          sheet), which were then returned to the U.S. for further
          processing.  The scrap which the scrap yards acquire and process
          into "commercial" scrap generally consists of two types --
          "obsolete scrap" (worn-out or discarded metal articles) and
          "industrial scrap" (leftover metal from manufacturing operations
          performed on metal articles).  A certain unknown portion of the
          scrap acquired by the U.S. scrap processors originate from metal
          articles manufactured abroad.  Scrap derived from U.S. and
          foreign-made metal articles are commingled at the scrap yards.

                Protestant's entry under item 806.30, TSUS, of the returned
          stainless steel articles was disallowed by Customs "since
          evidence that the steel scrap exported from the United States was
          wholly of U.S. origin was not present."  Importations by the
          protestant under item 806.30, TSUS, including the entries














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          encompassed by this protest, were the subject of an audit
          performed by the Regulatory Audit Division, Northeast Region.
          The results are reflected in an audit report dated August 11,
          1987 (1-87-86F-001), and are summarized, in part, as follows:

                    All of (the protestant's) scrap suppliers are
                public scrap yards.  Representatives of (the
                protestant) and the scrap facilities admit that
                they do not know the country of manufacture of the
                articles entering the scrapyards.  They acknowledge
                that some of the incoming scrap probably originated
                from articles which had been manufactured in foreign
                countries.  Since the country of manufacture of
                specific lots cannot be determined, there is no
                segregation of U.S.-manufactured steel from foreign
                steel in the scrap yards.

                Counsel for the protestant presents several arguments in
          support of the position that the processed stainless steel scrap
          purchased by the protestant from the U.S. scrap yards met all of
          the statutory requirements for the partial duty exemption set
          forth in item 806.30, TSUS.  Counsel states initially that the
          purchase orders issued by the protestant to the scrap yards for
          the processed scrap required that the scrap be of U.S. origin,
          and that the scrap yards certified each shipment of processed
          scrap as meeting the requirements of the statute.

                It is protestant's position that the stainless steel scrap
          met the requirements of the statute prior to the processing in
          the scrap yard.  Counsel maintains that obsolete or worn-out
          articles of stainless steel, which account for about 75 percent
          of the stainless steel scrap generated by scrap yards, should be
          regarded as being of U.S. origin, regardless of their original
          country of manufacture, by virtue of having been used in the U.S.
          for a considerable period of time.

                Moreover, it is protestant's position that industrial
          scrap, which accounts for the remaining 25 percent of the scrap
          generated by scrap yards, also conforms to the requirements of
          item 806.30, TSUS, even before its processing by the scrap yards.
          Counsel notes that, contrary to Customs position, neither item
          806.30, TSUS, nor its predecessor statute includes a requirement
          that the metal article be of U.S. origin.  The statute requires
          only that it be "manufactured in the United States or subjected
          to a process of manufacture in the United States."  Counsel
          concludes that any industrial scrap that may have been derived
          from foreign metal is a by-product of a U.S. manufacturing
          operation, and, therefore, qualifies under item 806.30, TSUS, as
          an article of metal "subjected to a process of manufacture" in
          the U.S.











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                Counsel further argues that the stainless steel scrap
          purchased by the protestant met the requirements of item 806.30,
          TSUS, since obsolete articles of stainless steel and newly
          created stainless steel by-products (industrial scrap) are
          substantially transformed in the scrap yards into a new and
          different product known as processed stainless steel scrap.  It
          is protestant's position that the extensive processing performed
          at the scrap yards results in stainless steel scrap that is
          different in name, character, and use, than the articles of
          discarded stainless steel (referred to by counsel as "junk") from
          which it is made.  Therefore, counsel concludes that all of the
          processed stainless steel scrap purchased by the protestant had
          been substantially transformed in the U.S. scrap yards into
          material of U.S. origin.

                Counsel states that even if the processing of stainless
          steel material by the scrap yards into commercial scrap did not
          result in a substantial transformation, there is no question that
          the industrial and obsolete scrap was "subjected to a process of
          manufacture" within the meaning of item 806.30, TSUS, which is
          all that the provision requires.  According to counsel, the scrap
          yard processes articles of metal into more valuable scrap.  It is
          explained that obsolete and industrial scrap obtained by scrap
          yards typically are weighed, analyzed, dismantled, sorted, sized,
          decontaminated, shredded, crushed, ripped, ground, inspected,
          upgraded, blended, baled, and packed.

                In summary, counsel maintains that what little imported
          metal may be processed by the scrap yards goes through at least
          two separate and independent processing operations prior to its
          export.  First, obsolete scrap is of U.S. origin by virtue of its
          lengthy use in U.S. commerce, and industrial scrap is the result
          of a process of manufacture.  Second, both categories of scrap
          are then further processed in the scrap yard.

          ISSUE:

                Whether the imported stainless steel articles subject to
          this protest are entitled to the partial duty exemption provided
          for in item 806.30, TSUS.

          LAW AND ANALYSIS:

                Item 806.30, TSUS (now subheading 9802.00.60, HTSUS)
          applies to:

                Any article of metal (except precious metal)
                manufactured in the United States or subjected to
                a process of manufacture in the United States, if












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                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 ....

          Articles satisfying these requirements are dutiable only on the
          cost or value of the processing abroad, upon compliance with
          section 10.9, Customs Regulations (19 CFR 10.9).

                We disagree with counsel's initial argument that obsolete
          metal articles manufactured abroad should be considered metal
          articles eligible for item 806.30, TSUS, treatment since they
          come to be of U.S. origin by virtue of the considerable time they
          have been used in U.S. commerce.  It is clear that this tariff
          provision does not apply to such articles because they have not
          been manufactured or subjected to a process of manufacture in the
          U.S., as required by the statute.

                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 metal initially obtained from
          processing the foreign metal in the U.S.  See ruling letters
          dated July 23, 1984 (HQ 553126), February 6, 1986 (HQ 553998),
          and February 26, 1986 (HQ 554013).

                Finally, we turn to a consideration of protestant's
          argument that obsolete and industrial scrap is substantially
          transformed in the scrap yards into a new and different product
          of U.S. origin (commercial scrap), or, at the very least, that
          obsolete and industrial scrap "is subjected to a process of
          manufacture" when it is converted to commercial scrap in the
          scrap yards.

                As protestant correctly points out, there is no express
          requirement in item 806.30, TSUS, that metal articles must be of
          U.S. origin to obtain the benefits of that provision.  However,
          we have used the term "domestic origin" in the context of item
          806.30, TSUS, to describe metal articles which have been
          manufactured or subjected to a process of manufacture in the U.S.
          Under item 806.30, TSUS, the "substantial transformation" test
          commonly used to determine country of origin is not used to
          determine whether an article has been manufactured or subjected












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          to a process of manufacture in the U.S., nor is it used to
          determine the sufficiency of the "further processing" required
          while abroad and upon reimportation into the U.S.  Thus, whether
          or not the processing of obsolete articles and industrial scrap
          into commercial scrap results in a substantial transformation
          (i.e., the creation of a new and different article of commerce
          having a new name, character, or use), the processing which the
          scrap undergoes must be analyzed to determine whether it is a
          manufacturing process.

                Customs does not consider processes such as the dismantling
          (by whatever means), shredding, crushing, ripping, and grinding
          of obsolete articles and industrial scrap to be manufacturing
          processes, whether or not accompanied by sorting, grading, or
          other similar activities to promote the stability or utility of
          the scrap.  Manufacturing begins once raw materials are
          available, and does not include reclamation activities undertaken
          with respect to obsolete and industrial scrap prior to the
          creation of raw materials for new manufacturing.  See ruling
          letter dated September 23, 1988 (HQ 554750).

                Therefore, with respect to obsolete scrap, the requirement
          that the scrap be a metal article manufactured or subjected to a
          process of manufacture in the U.S. is satisfied if the discarded
          article from which the obsolete scrap was obtained was
          manufactured or subjected to a final process of manufacture in
          the U.S.  Similarly, industrial scrap satisfies this requirement
          if the metal article from which the scrap was obtained was
          initially manufactured or subjected to a process of manufacture
          in the U.S.

          HOLDING:

               For the reasons set forth above, as protestant is unable to
          establish that all of the stainless steel scrap exported for
          further processing abroad was derived from metal articles
          manufactured or subjected to a process of manufacture in the
          U.S., we find that the imported stainless steel articles subject
          to this protest are not entitled to entry under item 806.30,
          TSUS.  Therefore, you are directed to deny the protest in full.

                                     Sincerely,




                                     John Durant
                                     Director, Commercial
                                     Rulings Division