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HQ 225566

August 7, 1995

CON-9-04-R:C:E 225566 CC


Robert T. Novick, Esq.
Steptoe & Johnston
1330 Connecticut Avenue, N.W.
Washington, D.C. 20036-1795

RE: Temporary Importation under Bond for sulphur manufactured into phosphate products; subheading 9813.00.05, HTSUS; Wastes or By-Products, Note 2(b) to Subchapter XIII; FIFO accounting for commingled fungible merchandise

Dear Mr. Novick:

This is in response to your inquiry, on behalf of Occidental Chemical Corporation (OxyChem), requesting a ruling concerning the applicability of the Temporary Importation under Bond (TIB) provision of subheading 9813.00.05 of the Harmonized Tariff Schedule of the United States (HTSUS).


You state that OxyChem intends to import elemental sulphur, presently classifiable under subheading 2503.10.00, HTSUS, from one or more Canadian suppliers in order to manufacture phosphate products. OxyChem does not intend to sell these finished products or any of the imported sulphur in the United States.

Phosphate products are produced through the combination of phosphate rock and sulfuric acid. Under the process to be used by OxyChem, known as the "wet process," phosphate rock is charged into a reactor system, where it is mixed with a dilute solution of phosphoric acid, and fed into tanks. In these tanks, the slurry is reacted with sulfuric acid, produced by burning the imported sulphur, until the mixture reaches approximately 54 percent phosphoric acid. During this period, the slurry is vigorously agitated and maintained at a strict temperature of (XX) degrees to (XX) degrees Celsius for (X) to (X) hours. The slurry passes to a horizontal, rotating vacuum filter, where the phosphoric acid is separated from solid impurities, primarily phosphogypsum (PPG).

From this phosphoric acid, OxyChem produces three end products for export. The first, merchant grade phosphoric acid (MGA), is produced by clarifying and concentrating the phosphoric acid to approximately 54 percent P2O5. The second, superphosphoric acid (SPA), is produced by further refining and concentrating the phosphoric acid to approximately 70 percent P2O5. The third, DAP, is produced by reacting phosphoric acid with anhydrous ammonia. OxyChem currently has facilities to perform all of these operations in the United States.

From an input cost for sulphur, phosphate rock, and anhydrous ammonia of $(XXX) million, excluding the cost of inert materials, OxyChem can produce and sell $(XXX) million worth of MGA, SPA, and DAP, based on current prices for these products. As a result of this process, 4.2 million tons of PPG will be produced. Because the supply of PPG far exceeds demand, the vast majority of it is placed in stockpiles. Approximately 100,000 tons of PPG is intended to be sold domestically at a cost of $(X)-$(XX) per ton. Of the 2.5 million tons of sulfuric acid produced from the inputs described above, OxyChem could expect to sell approximately (XXX,000) tons of excess sulfuric acid at a market price of $(XX) per ton. Most of the sulfuric acid, approximately 2.34 million tons, is required for the production of phosphoric acid. No free sulphur will remain at the end of this process, having been consumed in the manufacture of the above-described products.

You state that you believe that the TIB and domestic molten sulphur used for the production of the phosphate products is fungible. You have listed, as the most important molten sulphur specifications, the following:

Sulphur Purity: (XX.X)% (min.)
Ash Content: (.XX)% (max.)
Carbon Content: (.XX)% (max.)
Free Acid Content (.XXX)% (max.)

You have also included, in an attachment, specifications listing the content in the molten sulphur of other trace elements, such as arsenic, selenium, and tellurium, that are supplied to OxyChem by each sulphur producer.

You have also supplied information concerning the inventory records OxyChem maintains to track commingling of domestic and TIB sulphur in storage. You state that OxyChem can provide evidence of the point TIB and non-TIB merchandise is actually physically commingled, and maintains an adequate inventory control system consistent with C.S.D. 88-1 and Schedule X of Part 181, 19 CFR.

Specifically, you state that OxyChem calculates its inventories, including both a TIB and non-TIB products in raw and finished forms. OxyChem can determine when and how much TIB sulphur was added to inventory by shipment and rail movement information. In addition, OxyChem can calculate the date and amount of product exported.


Whether the above-described operation qualifies as a process for purposes of temporary duty-free treatment under subheading 9813.00.05, HTSUS?

Whether the phosphogypsum (PPG) and sulfuric acid are considered by-products, requiring that they be exported or destroyed in accordance with Note 2(b) to Subchapter XIII?

Whether the TIBs may be canceled on a first-in-first-out (FIFO) basis upon exportation of the finished products when a portion of the finished product is manufactured from fungible domestic merchandise commingled with fungible TIB merchandise?


Subheading 9813.00.05, HTSUS, provides for temporary duty-free entry, under bond, for merchandise imported into the United States for the purpose of repair, alteration or processing, including processes which result in articles manufactured or produced in the United States. This provision requires that the imported merchandise be exported or destroyed within one year of the date of importation. See Subchapter XIII, U.S. Note 1(a). It is clear the operations described above qualify as a process under the subheading.

Note 2(b) of Subchapter XIII states that if any processing of such merchandise results in an article manufactured or produced in the United States, such merchandise may be admitted into the United States under subheading 9813.00.05 only on the condition that (I) a complete accounting will be made to the Customs Service for all articles, wastes and irrecoverable losses resulting from such processing; and (ii) all articles and valuable wastes resulting from such processing will be exported or destroyed under customs supervision within the bonded period; except that in lieu of the exportation or destruction of valuable wastes, duties may be tendered on such wastes at rates of duties in effect for such wastes at the time of importation.

The merchandise imported by OxyChem is also processed into phosphogypsum (PPG) and sulfuric acid. If considered valuable wastes and the requirements of Note 2(b) to Subchapter XIII are met, duties could be paid on the PPG and sulfuric acid, in lieu of exporting or destroying them. We have found, however, that the terms "by-products" and "wastes" are not synonymous for TIB purposes. See C.S.D. 82-109; HQ 214044, dated April 6, 1982, and C.S.D. 83-5, HQ 214273, dated August 13, 1982. Consequently, if the PPG and sulfuric acid are considered by-products, they must be exported or destroyed in accordance with Note 2(b) of Subchapter XIII to avoid breach of the TIB.

In C.S.D. 83-5 we adopted the consideration of several elements used to determine whether merchandise is considered a by-product as opposed to a waste for drawback purposes. These elements, which have been employed for TIB purposes, are the following: 1. The nature of the material of which the residue is composed. 2. The value of the residue as compared to the value of the principal product and the raw material. 3. The use to which it is put. 4. Its status under the tariff law, if imported. 5. Whether it is a commodity recognized in commerce. 6. Whether it must be subjected to some process to make it saleable.

Based on the these elements and a report by our Office of Laboratories and Scientific Services, we believe that PPG should be considered a by-product. PPG, whether or not purified or whether or not calcine, is a worldwide recognized product of commerce. PPG is used as a soil stabilizer and in North America as a fertilizer for soils deficient in sulphur. It is sold for use in Portland cement as a retarder. Occasionally, PPG is used to produce sulfuric acid, and phosphoric acid manufacturers having no nearby source of supply for sulfuric acid have used this process. In addition, PPG has been used in Europe and Japan as a building plaster. The PPG process produces sufficient volume of by-product to have potential commercial value. Despite the high level of impurities PPG contains, they are easily removed, although at a high cost when compared with the cost of production of natural calcium sulfate. Although the price differential of the PPG and the phosphate products ranges from $142 to $282, we do not believe that this factor, by itself, shows that PPG should be considered a waste, especially since all of the other pertinent factors indicate that PPG is a by-product.

Sulfuric acid is an intermediate that can be isolated and sold as a bona fide article of commerce. According to our Office of Laboratories and Scientific Services, the sulfuric acid which is not used in the manufacture of the phosphoric acid products should be considered a by-product of this process.

Consequently, based on the foregoing factors, we believe that both PPG and sulfuric acid are by-products in the manufacture of phosphate products by OxyChem.

You state that the sulphur, imported from Canada, will be commingled with domestic sulphur. You state that the sulphur is a fungible good, and as a practical matter, it is impossible for OxyChem to segregate the domestic and imported components. Consequently, you request that Customs cancel the TIBs on a FIFO basis, provided that OxyChem has on hand at all times a sufficient quantity of the merchandise to cancel all outstanding TIBs.

Concerning the issue of fungibility, you have submitted specifications regarding the purity of the molten sulphur and the impurities it contains. We, along with our Office of Laboratories and Scientific Services, have examined these specifications and find that the molten sulphur is fungible, provided that it is crude or unrefined. The Office of Laboratories and Scientific Services did note that refined, sublimated or precipitated products would not be fungible with the crude or unrefined sulphur.

You have also requested that if we find the sulphur is fungible, the TIBs be canceled on a FIFO basis. The Customs Service has interpreted the temporary importation under bond provisions as usually requiring direct identification of each particular article to show timely exportation. There have been exceptions, however, to the policy of requiring direct identification of each individual article covered by a TIB entry when direct identification of the imported merchandise was inconceivable because the physical identity of the imported merchandise and the ability to directly account for the imported merchandise was lost due to commingling. The FIFO method has been employed as one such exception. See C.S.D. 86-16, HQ 218370, dated December 9, 1985, in which TIBs were permitted to be canceled on a FIFO basis when fungible merchandise entered for consumption and merchandise entered under a TIB, under item 864.05, TSUS (presently subheading 9813.00.05, HTSUS), were commingled and sufficient merchandise was maintained in the commingled merchandise to cancel all outstanding TIBs.

According to your submissions, OxyChem's inventory control system is adequate to account for TIB and non-TIB merchandise, and you state it contains records consistent with those listed in C.S.D. 88-1 and Schedule X, Appendix to 19 CFR Part 181. Also, you state that OxyChem's records include those showing total fungible merchandise commingled, total TIB input commingled, the date of such commingling, the record of each input into the commingled material and the record of each withdrawal, the date on which each withdrawal is made, and the quantity withdrawn.

Based on the foregoing, Customs will cancel the TIBs on a FIFO basis, when OxyChem's records show by a strict FIFO record keeping system that the phosphate products, including the by-products attributed to a specific TIB receipt of sulphur, were exported timely. In addition, OxyChem must have on hand at all times a sufficient quantity of the merchandise to cancel all outstanding TIBs, and all other applicable requirements must be met.

We note that elemental sulphur from Canada is currently the subject of an antidumping duty order. While articles qualifying for treatment under subheading 9813.00.05, HTSUS, are not presently subject to the payment of antidumping duties, the bond submitted under the temporary importation procedures must be set in such an amount as to take into account the antidumping duties that would otherwise be collected if the conditions of the provision are not met. See 19 CFR 10.31(f) and HQ 223491 of March 30, 1992.


The manufacture of sulphur into phosphate products qualifies as a process under subheading 9813.00.05, HTSUS for temporary importation in the United States, under bond.

The sulfuric acid and phosphogypsum (PPG) which result from the manufacturing process are considered by-products, which must be exported or destroyed.

The FIFO method, as illustrated in Schedule X to the 19 CFR Part 181 Appendix, may be used for canceling the TIBs when the finished products are manufactured from fungible domestic merchandise commingled with fungible TIB merchandise, and sufficient merchandise is maintained in the commingled merchandise to cancel all outstanding TIBs.

The bond submitted under the temporary importation procedures must be set in such an amount as to take into account the antidumping duties that would otherwise be collected if the conditions of the provision are not met.


John Durant, Director

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