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HQ 555377

October 16, 1989

CLA-2 CO:R:C:V 555377 GRV/BJO


TARIFF NO.: 9802.00.60

Evan R. Berlack, Esq.
Arent, Fox, Kintner, Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339

RE: Applicability of partial duty exemption under HTSUS subhead- ing 9802.00.60 or duty exemption under GSP to heat exchangers from Mexico

Dear Mr. Berlack:

This is in response to your letters of June 27, 1988, and May 17, 1989, on behalf of Sundstrand Heat Transfer, Inc., re- questing a ruling on the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (HTSUS) (formerly item 806.30, Tariff Schedules of the United States (TSUS)), or the Generalized System of Preferences (GSP) to heat exchangers to be imported from Mexico. You also request advice concerning the proper tariff classification of the merchandise. No samples or photos of the merchandise were submitted for examination.


You state that the following U.S. materials will be exported to Mexico for processing into two types of heat exchangers: (1) coiled aluminum and copper sheet; (2) coiled stainless steel and copper tubing; (3) stainless steel and copper tubing cut to length; (4) aluminum, copper, stainless and galvanized steel brackets; (5) feeder parts (endcaps, manifold assemblies, etc.); and, (6) galvanized steel endplates.

In Mexico, the coiled aluminum and copper sheet will be cut into rectangular shapes and hole-punched to form "fins." The coiled stainless steel and copper tubing will be cut to length and some of the tubing will be bent into "U" shapes, approximate- ly six inches to eight feet in length, called "hairpins." The hairpins will be inserted into the holes in the fins until the appropriate number of fins are stacked on the hairpins. The brackets will be fitted on both ends of the hairpins over the fins, and the endcaps, i.e., feeder parts, will be soldered onto the open end of the hairpins. Finally, pieces of tubing will be fitted onto one or both ends of the heat exchangers for use as connectors to the particular units to which they will be attached.
You state that the heat exchangers, on return to the U.S., are producer goods which will be bought by manufacturers in the U.S. and further processed into finished consumer goods. Copper tubing heat exchangers will be used as parts of condensing units in refrigeration units and in air conditioners in homes and motor vehicles, while stainless steel tubing heat exchangers will be used in home heating units.

The U.S. processing performed on the refrigeration and air conditioning heat exchangers, i.e., the copper tubing heat ex- changers, consists of the removal of the endcaps on the hairpins and the brazing of adapter sleeves and additional tubing onto at least two exposed hairpin joints by the U.S. manufacturer. Brazing involves the application of heated flux to the connecting edges. (Approximately 35% have more than two joints brazed). Then the brackets on the heat exchanger will be mounted onto the particular refrigeration or air conditioning unit with screws, nuts or similar devices. Approximately 15% of the heat exchangers will have nut plates, clips or similar devices added to the flange holes in the U.S., and approximately 10% will be painted.

The processing performed by U.S. manufacturers on the home heating heat exchangers, i.e., the stainless steel tubing heat exchangers, consists of securing a "header" or hood to the end- plate on approximately 65% of the heating heat exchangers and sealing such headers with airtight gaskets. The manufacturer also clamps on flue pipe sections to the header on all heating heat exchangers, mounts a baffling system on almost all of the exchangers, and attaches a duct system. The heat exchanger is mounted onto the furnace with screws, nuts or similar devices.


I. Whether the heat exchangers to be imported from Mexico will be eligible for the partial duty exemption available under HTSUS subheading 9802.00.60.

II. Whether the heat exchangers to be imported from Mexico will be entitled to duty-free treatment under the GSP.

III. Whether the heat exchangers are classifiable under HTSUS chapter 73 or chapter 84 when entered into the U.S.


I. Applicability of HTSUS subheading 9802.00.60

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 process- ing 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 qualifying 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), aff'g, 65 Cust. Ct. 306, C.D. 4093, 318 F.Supp. 515 (1970). Metal articles satisfying these statutory requirements may be classified under HTSUS subheading 9802.00.60 with duty only on the value of such processing performed 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 TSUS item 806.30 and 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 then was 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 process- ing," 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 'sub- jected 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 stated 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. (Emphasis added).

The domestic operation to be performed on the returned heat exchangers includes brazing and other assembly steps, e.g., mounting the brackets of the exchangers onto the units with screws, nuts or similar devices. We understand that brazing is a welding operation used for the joining of pipes to fittings, carbide tips to tools, radiators, heat exchangers, electrical parts, and the repair of castings. See, Manufacturing Processes (8th ed.), by Amstead, Ostwald and Begeman (John Wiley & Sons; 1987), at pg. 159. In PRD 75-22, 9 Cust.Bull. 787 (November 11, 1975), we held that cutting finished cable or welding several lengths together to fit the various sizes specified by the customer cannot be regarded as "further processing." Also, we have stated that assembly operations, such as welding, solder- ing, bolting, or force fitting would not satisfy the requirements of the statute. Headquarters Ruling Letter 025776 (February 14, 1973). Following these precedents, we are of the opinion that the steps comprising the domestic operation essentially consti- tute assembly processes and do not, either individually or collectively, constitute a process of manufacture within the meaning of HTSUS subheading 9802.00.60. As the heat exchangers do not satisfy the domestic "further processing" requirement of HTSUS subheading 9802.00.60, they are not entitled to the partial duty exemption provided under this tariff provision. II. Applicability of the GSP

Under the GSP, eligible articles which are imported directly into the customs territory of the U.S. from a designated benefi- ciary developing country (BDC) may receive duty-free treatment if the sum of 1) the cost or value of materials produced in the BDC, plus 2) the direct costs of the processing operation in the BDC, is equivalent to at least 35% of the appraised value of the article at the time of entry. See 19 U.S.C. 2463(b).

If an article is produced or assembled from materials which are imported into the BDC, the cost or value of those materials may be counted toward the 35% value-content minimum only if they undergo a double substantial transformation in the BDC. See 19 CFR 10.177.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See The Torrington Co., v. United States, 764 F.2d 1563, 1568 (Fed.Cir. 1985), citing Texas Instruments Incorporated v. United States, 681 F.2d 778, 782 (CCPA 1982).

You claim that the coiled aluminum and copper sheet, and the coiled stainless steel and copper tubing, will undergo a double substantial transformation in Mexico. Specifically, you state that unrolling, cutting into rectangular shapes, and hole-punch- ing the aluminum and copper sheet substantially transforms the sheet, and results in a new and different article of commerce known as "fins," and that unrolling, cutting to size, and bending the stainless steel and copper tubing substantially transforms the tubing into an intermediate article of commerce known as "hairpins." You state that fins and hairpins are sold separately by numerous manufacturers, and have submitted invoices which you identify as evidencing the sale of these articles. You further state that the fins and hairpins are themselves substan- tially transformed when combined with each other and the remain- ing imported materials to form the finished heat exchangers.

In general, cutting or bending materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length and/or width which does not render the article suitable for a particular use, constitutes a substantial transformation. For example, in HQ 055684, dated August 14, 1979, Customs ruled that those components of a water cooler gas absorption refrigeration unit which were formed by cutting to length, cleaning, and bending imported steel tubes into the component shapes and configurations, or by cutting to length, flattening, and drilling holes into imported tubing, were substantially transformed constituent materials for GSP purposes, while those imported tubes which were simply cut to length and assembled into the final article were not. Based on that ruling, cutting to length and bending the stainless steel and copper tubing into "U" shapes to form hairpins, or bending the already cut-to-length tubing into the hairpin shape, constitutes a substantial transformation. Similarly, cutting to rectangular shape and hole-punching coiled stainless steel and copper sheet to form fins of the requisite dimensions substantially transforms the imported sheet. The evidence submitted that the fins and hairpins have been sold separately establishes that they are articles "of commerce." See Torrington, at 1570 (shipment on two occasions of the intermedi- ate article to a related company is adequate evidence that the articles are articles of commerce for GSP purposes). The result of the assembly of the fins and hairpins with other components is to create a new article of commerce, a heat exchanger, with a distinct character and use that is not inherent in any of its separate components. Cf. T.D. 86-7. Although the final assembly of the heat exchanger does not appear to be exceedingly complex, in view of the overall processing that is done in Mexico, including the fabrication of the fins and hairpins, we do not believe that this is the minimal, "pass-through" operation that should be disqualified from receiving the benefit of the GSP. See HQ 071620, dated December 24, 1984 (in view of the overall processing done in the BDC, materials are determined to have undergone a double substantial transformation, although the second transformation is a relatively simple assembly process which, if considered alone, would not confer origin); C.S.D. 85- 25, 19 Cust. Bull. 544 (1985). Accordingly, we find that the hairpins and fins are substantially transformed constituent materials, and that their cost or value, therefore, may be counted toward the 35% value-content requirement of the GSP.

Your submission indicates that the cost or value of the hairpins and fins, by itself or in addition to the direct costs of the processing operations, exceeds 35% of the appraised value of the heat exchangers. The heat exchangers classified as described below are eligible for duty-free treatment if imported directly from Mexico, except those classified under subheading 8415.90.00, HTSUS (articles from Mexico classified under this tariff provision are not eligible for GSP treatment). Accordingly, those heat exchangers which are imported directly from Mexico, with the exception noted, shall receive duty-free treatment under the GSP upon entry to the U.S.

III. Classification of the two types of heat exchangers

For legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes. See, HTSUS General Rule of Interpretation (GRI) 1. Moreover, where goods are prima facie classifiable under two or more headings, the heading which provides the most specific description shall be preferred to headings providing a more general description. See, HTSUS GRI 3(a). Regarding the stainless steel tubing heat exchangers, you state they will be used in the U.S. as parts of gas fired home heating furnaces. Additional data you submitted by letter dated March 31, 1989, indicates that the temperature of flue gases exiting the furnace is too high to capture waste heat that would normally go up the chimney. To lower this temperature, gases from the furnace's primary heat exchanger pass through the tubes of a secondary heat exchanger and exhaust these flue gases into the furnace vent system. The furnace's supply air blower directs the cooled house return air over the tubes of the second- ary heat exchanger which transfers the heat to the incoming air.

HTSUS heading 7322 covers air heaters and hot air distribu- tors (including distributors which can also distribute fresh or conditioned air), not electrically heated, incorporating a motor- driven fan or blower, and parts thereof, of iron or steel. Heading 8479 covers machines and mechanical appliances having individual functions, not specified or included elsewhere in this chapter.

Explanatory notes, which provide guidance in interpreting the HTSUS at the international level, indicate that air heaters of heading 7322 are self-contained heaters that consist mainly of a combustion chamber (with burner) or a grate, a heat exchanger (tube assembly, etc.) which transfers the heat given off by the combustion gases passing through it to the air travelling along its outer surface, and a motor-driven fan or blower. Generally, these heaters are furnished with an exhaust flue for burnt gases. The notes state further that heading 7322 covers identifiable parts of air heaters (heat exchangers, nozzles, direct diffusion conduits, dampers, grilles, etc.).

Pursuant to GRI 3(a), the stainless steel heat exchangers are provided for in heading 7322. They are classifiable in HTSUS subheading 7322.90.0000 as parts of air heaters. Products of Mexico are dutiable under this tariff provision at the rate of 3.7% ad valorem, but are eligible for duty-free entry under the GSP.

Regarding the copper tubing heat exchangers, you provide no data on how they function. However, copper tubing heat exchang- ers solely or principally used in the U.S. as parts of condensers in refrigeration units (as opposed to the compression type refrigerating units themselves whose condensers are heat exchang- ers), are classifiable as other refrigeration condensing units not exceeding 746 W, that are parts of refrigerators, freezers and other refrigerating or freezing equipment, in HTSUS subhead- ing 8418.99.0005. Articles from Mexico classified under this tariff provision are dutiable at the rate of 2.9% ad valorem, but are eligible for GSP treatment. You state that copper tubing heat exchangers are also used to change the temperature and humidity of air in air conditioners. Those heat exchangers used solely or principally as parts of automotive air conditioners are classifiable in HTSUS subheading 8415.90.0040, while those used solely or principally as parts of home air conditioners are classifiable in HTSUS subheading 8415.90.0090. The rate of duty in both cases is 2.2% ad valorem.


On the basis of the information submitted, we conclude that the heat exchangers to be returned to the U.S. will not be sub- jected to further processing in the U.S., as required by HTSUS subheading 9802.00.60, and, therefore, will not be eligible for the partial duty exemption provided for under that tariff provision.

The stainless steel tubing heat exchangers are classifiable in HTSUS heading 7322.90.0000, dutiable at the rate of 3.7% ad valorem. The copper tubing heat exchangers solely or principally used as parts of condensers in refrigeration units are classifi- able in HTSUS subheading 8418.99.0005, dutiable at the rate of 2.9% ad valorem. The copper tubing heat exchangers solely or principally used as parts of automotive air conditioners are classifiable in HTSUS subheading 8415.90.0040, while those solely or principally used as parts of home air conditioners are classi- fiable in HTSUS subheading 8415.90.0090, both dutiable at the rate of 2.2% ad valorem.

Those heat exchangers which are classified under subheadings 7322.90.00 and 8418.99.00, HTSUS, and processed as described herein, are entitled to duty-free treatment under the GSP. Those heat exchangers which are classified under subheading 8415.90.00 are not eligible for GSP treatment.


John Durant, Director

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