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HQ 226152

July 23, 1996

DRA-4/CON-9-04/WAR-3-01/FOR-2-03-RR:IT:EC 226152 PH


Kenneth G. Weigel, Esq.
Carol A. Rafferty, Esq.
Kirkland & Ellis
655 15th Street, NW.
Washington, D.C. 20005

RE: Welding of Electrical Sheet Steel Coils to Change Size; 19 U.S.C. 1313(j)(3); 19 U.S.C. 3333(a)(2)(A); Article 303:6(b) of NAFTA; 19 CFR 181.45(b)(1); Drawback; Temporary Importation under Bond; Foreign Trade Zones; Modification of Ruling HQ 225368

Dear Mr. Weigel and Ms. Rafferty:

This is in response to your letters of April 19 and December 19, 1995, and January 23, 1996, on behalf of Pinnacle Steel Processing, Inc., requesting reconsideration of ruling HQ 225368, dated February 1, 1995. Our response to your request follows.


According to the April 18, 1994, letter in which you initially requested a ruling on this matter, your client in this matter processes domestic and imported flat-rolled alloy steel in master coils that are uncoiled, slitted and then recoiled. The imported steel is to be used in cores for electrical transformers. Prior to its arrival at your client's facilities, the steel (both imported and domestic) is already dedicated to this specific end use. Your client uncoils the steel, slits the master coil sheet with a slitting blade to various widths as ordered by customers, recoils the steel, and exports the narrower coils to third countries. You stated that once your client's customers receive the steel in coil, they will cut the steel in coil into various lengths and use it to manufacture articles.

You stated that your client will process various types and thickness of steel. In slitting the steel, your client will remove the edges and the top and bottom ends of the steel which will result in waste, estimated at approximately 5 percent of the weight of the coil. The steel in coil will be held in inventory by your client until there is an order for that particular width. Then, depending on the order, all or part of a coil will be slit. Your client will either retain the remainder of the coil, if there is sufficient product remaining to use to satisfy future orders, or if the width remaining is insufficient for this purpose, dispose of the remaining steel.

In a letter dated January 10, 1995, you informed this office that on certain occasions your client will weld together steel from two coils to obtain a larger coil as requested by the customer. It is the ruling on this issue (i.e., regarding the welding of steel from two coils) that you request to be reconsidered.

In ruling 225368 we held, in pertinent part, that:

... [T]he welded coils do not qualify for same condition drawback under NAFTA; but, they do qualify for unused merchandise drawback under 19 U.S.C. ?1313(j). ... The NAFTA duty deferral rules ... do apply to the welded coils. ... The welded coils would be subject to NAFTA Article 303 restrictions [when the proposed welding operation is carried out in a foreign trade zone].

In your letters requesting reconsideration of the above holding, you state that:

... [O]n occasion a customer will request a coil of shorter length than the master (wide-width) coil, leaving the remainder of the master (wide-width) coil too small for use. In these instances [your client] must weld the ends of two or more of these shorter coils together, to provide a larger/more standard size coil generally required by its customers.

Additionally, if a portion of the steel in the master (wide-width) coil is damaged or defective ... [your client] must remove the damaged portion and join the coil back together.

While it is possible to simply wrap the ends of the coils together (instead of welding), for safety reasons it is preferable to weld the two pieces together into a continuous coil. Wrapping the ends together will usually hold them intact, but on occasion the ends may come apart while on the customer's machines causing a possible hazard.

You describe the reason for the welding as follows:

Electrical steel sheet is sold by the pound or kilogram and packaged in coils. ... [C]ustomers order only the amount required for a specific project. Generally, customers order the largest package (i.e., coil) of electrical steel capable of use on their steel cutting machines, but no more than is required for the project. ... This [i.e., customer orders for only the amount of electrical steel needed for a particular project] causes [your client] to repackage the steel received in a master coil, and this repackaging sometimes leaves a smaller portion of the coil. Thereafter, [your client] must join these pieces of the master coil into a larger (longer) coil.

You describe the type of welding as follows:

[Your client] precision cuts the ends of two pieces of steel that are to be joined [and] then plasma welds (melts) the ends together. There is no overlapping of the ends. As the sample shows [two samples were provided; see description below], the welding is not intended to be a permanent joining of the two coils. It is simply to hold the two pieces together in one package for use on the cutting machines of [your client's] customers so that the machine[s] can continue in [their] operation. The welding is an operation that connects one piece to another so that the web of steel continues to flow through the machine. In theory, [your client] could tape or otherwise affix the two smaller pieces together, but such wrapping or taping may come undone during the customer's cutting operation. After the cutting, the customer will scrap those pieces with the welded segment.

As noted above, you provided two samples of welded pieces of coil (two samples were necessary because the first sample separated at the weld, apparently during transportation to this office). The samples consist of pieces of grey metal, approximately 10 inches wide and less than 0.02 inch thick. The ends which are welded together appear to be cut at a 90 degree angle from the sides. There is no overlap of the pieces welded together. The weld appears to be very insubstantial and easily broken (as noted above, the weld in one of the samples apparently broke in transportation to this office). The weld is consistent with a purpose of temporarily holding the two pieces of coil together (i.e., there is a clear "break" between the two pieces and light can even be seen in places between the two pieces), as described above.


Whether the steel coils described in ruling HQ 225368, subject to welding operations as described in the FACTS portion of this ruling, are in the "same condition", under section 203 of the NAFTA Implementation Act (19 U.S.C. 3333) and 19 CFR 181.45(b), as the imported steel coils (which are not so welded)? LAW AND ANALYSIS:

Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act (Public law 103-182; 107 Stat. 2057, 2086; 19 U.S.C. 3333), provides for the treatment of goods subject to NAFTA drawback. Under section 3333(a), such goods mean any good other than, among other things--

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph--

(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good[.] ...

The Customs Regulations issued under the authority of the NAFTA Implementation Act (see above) specifically provide for the availability of drawback on the exportation of merchandise to a NAFTA country (for effective dates of the provisions in these regulations, see 19 CFR 181.41). Under 19 CFR 181.45(b), a good imported into the United States and subsequently exported to Canada or Mexico in the same condition is eligible for drawback under 19 U.S.C. 1313(j)(1) without regard to the limitation on drawback provided for in 19 CFR 181.44 (i.e., that such drawback may be granted only on the lesser of the total duties paid or owed on the importation into the United States or the total amount of duties paid on the exported good on its subsequent importation into Canada or Mexico). Paragraph (b)(1) of section 181.45 provides that:

For purposes of this subpart, a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good:

(i) Mere dilution with water or another substance;

(ii) Cleaning, including removal of rust, grease, paint or other coatings;

(iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint;

(iv) Trimming, filing, slitting or cutting;

(v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or

(vi) Testing, marking, labeling, sorting or grading.

In ruling HQ 225368, no detailed description of the welding operation was provided or described (i.e., the operation was simply described as "weld[ing] together steel from two coils"). As described above, we now have a far more complete description of the welding process. Furthermore, since the issuance of ruling 225368, Customs has thoroughly considered the effect of welding on merchandise, albeit for purposes of another Customs issue.

In Customs Service Decision (C.S.D.) 84-49, Customs had taken the position that the term "further processing", for purposes of item 806.30, TSUS (the predecessor to subheading 9802.00.60, HTSUS), did not include "the mere assembly of finished parts by ..., welding, etc." The merchandise involved in C.S.D. 84-49 was aluminum can bodies imported into the United States to be assembled with easy-opening can ends by a welding operation. Under subheading 9802.00.60, when "[a]ny article of metal ... 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" duty is limited to the value of the processing outside the United States.

In a notice published under 19 U.S.C. 1625(c)(1) in the Customs Bulletin and Decisions, vol. 29, no. 51, p. 56 (December 20, 1995), Customs advised that it was "reconsidering its position that a welding operation [regardless of its type or complexity] does not constitute further processing' for purposes of subheading 9802.00.60, HTSUS". Customs stated that it was proposing to modify C.S.D. 84-49 to reflect that certain welding ("such as gas tungsten arc welding ... used in the assembly of nuclear fuel rods") constitutes "further processing" for purposes of the subheading. Customs stated that:

Whether other types of welding operations ... constitute "further processing" for purposes of subheading 9802.00.60, HTSUS, will be determined on a case-by-case basis.

In a notice published in the Customs Bulletin and Decisions, vol. 30, no. 7, p. 52 (February 14, 1996), Customs gave notice that it was modifying C.S.D. 84-49, as described above.

The above-described Customs positions and actions are not precedential for this case (because the issue involved in subheading 9802.00.60, HTSUS, is whether the operation is "further processing" in the United States and the issue involved for purposes of NAFTA drawback under 19 U.S.C. 3333(a)(2)(A) and 19 CFR 181.45(b)(1) is whether the merchandise is in the "same condition"). However, the positions and actions do demonstrate that there are different kinds of welding operations (see also, e.g., McGraw-Hill Encyclopedia of Science & Technology, vol. 19, pp. 416-424 (1987)), and that the effect of welding operations on Customs issues, at least in the described instance, will be determined on a case-by-case basis. Furthermore, there is another published Customs position in regard to the predecessor of subheading 9802.00.60, HTSUS, which is helpful in the analysis of the welding operation described in this case.

In Protest Review Decision (P.R.D.) 75-22, Customs considered the applicability of item 806.30, TSUS (the predecessor to subheading 9802.00.60, HTSUS) to the "cabling" of insulated wire returned to the United States after processing abroad. The "cabling" operation was described as winding insulated conductors with one strand of bare conductor after which the triplex cable could be cut to proper lengths or several lengths could be welded together. Customs held that item 806.30 was inapplicable and that the "cabling" was not "further processing" as required by item 806.30. In regard to the cutting or welding involved, Customs stated:

Cutting the finished cable or welding several lengths together to fit the various sizes of reels specified by the customer is nothing more than supplying the proper quantity of the finished product to the customer and cannot be regarded as "further processing." [Emphasis added.]

We conclude that the welding operation in this case is the same. This welding operation, clearly used in the packaging of the coils of steel in sizes as ordered by customers, is "nothing more than supplying the proper quantity of the finished product to the customer." We note that you state that, rather than using the segments of steel coil which are welded, customers scrap the cut piece with the welded segments. The welding operation in this case meets the description in 19 CFR 181.45(b)(1)(v) of "[p]utting up in measured does, or packing, repacking, packaging or repackaging."

Accordingly, the coils that are welded together as described in this ruling are in the same condition, for purposes of 19 U.S.C. 3333(a)(2) and 19 CFR 181.45(b), as the imported coils which are not so welded. As such, the coils that are welded together are subject to the same treatment, under NAFTA, as that described in ruling HQ 225368 for the slitted coils. That is, such coils (welded together as described in this ruling) may qualify for full same condition drawback under section 203(a)(2) of the NAFTA Implementation Act (19 U.S.C. 3333(a)(2)) and 19 CFR 181.45(b); they may qualify for non-NAFTA temporary importation under bond (TIB) under U.S. Note 1(a), Subchapter XIII, Chapter 98, HTSUS, 19 U.S.C. 3333(a)(2), and 19 CFR 181.45(b); and they may qualify for withdrawal from a foreign trade zone (FTZ) for exportation (if they were so welded in the FTZ) without being subjected to the limitation in section 203(b)(5), NAFTA Implementation Act (19 U.S.C. 81c(a)).

This does NOT mean that any welding operation may be performed on imported merchandise without its losing its status as "same condition", for purposes of 19 U.S.C. 3333(a)(2) and 19 CFR 181.45(b). Such determinations must be made on a case-by-case basis.


The steel coils described in ruling HQ 225368, subject to welding operations as described in the FACTS portion of this ruling, are in the "same condition", under section 203 of the NAFTA Implementation Act (19 U.S.C. 3333) and 19 CFR 181.45(b), as the imported steel coils (which are not so welded). Such welded steel coils qualify for full same condition drawback under NAFTA and the NAFTA duty deferral rules do not apply to the welded steel coils for TIB and FTZ purposes (see ruling HQ 225368 and the LAW AND ANALYSIS portion of this ruling).


Ruling 225368, February 1, 1995, MODIFIED.


Director, International

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