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HQ 226387





April 24, 1996

DRA-2-01-RR:IT:EC 226387 GOB

Category: DRAWBACK

Alfred J. D'Amico
President
Duty Drawback Service, Inc.
P.O. Box 398
Farmington, MI 48332-0398

RE: Drawback; Same kind and quality; 19 U.S.C. 1313(b); Steel - galvanized and galvannealed

Dear Mr. D'Amico:

This is in response to the ruling request submitted by you on behalf of Thyssen Steel Group ("Thyssen").

FACTS:

In a letter dated August 21, 1995, Thyssen submits that, under the terms of general drawback contract T.D. 81-74, two steels are the same kind and quality for purposes of drawback under 19 U.S.C. 1313(b). In that letter Thyssen states:

A producer of automotive stampings receives both domestic and imported, duty-paid steel sheet in coil. Both of the steels are coated and fall under the standard ASTM specification of ASTM A653/A653M-94. The imported steel is coated with a zinc/iron coating (galvanized/galvannealed) utilizing the hot dipped process. The coating weights may vary with each type of coating.

The market value of both steels is essentially the same and not affected by coating differences. Both steels would be classified under the same Harmonized Tariff Schedule number and be subject to the same rate of duty if both were imported. The imported and domestic steel can be used interchangeably by the automotive stampers, without any additional processing under appropriate circumstances.

In a letter dated September 13, 1995, you stated as follows in response to our request for additional information:

Both the imported and domestic steels referred to in that letter are coated with zinc. The imported steel is coated with zinc utilizing the hot-dipped process whereby the zinc chemically adheres to the iron in the steel and forms a chemical bond. The outer surface of the coating in this process is pure zinc. This steel is commonly referred to as galvanized steel and is found under the ASTM specification A653. The substituted steel is likewise coated with zinc. The difference between the imported and substituted steels is only that during the hot-dipped process to apply the zinc coating the steel itself is heated which causes the iron in the steel to form a chemical bond with the zinc throughout the coating. The steel is commonly referred to as galvannealed steel and is likewise found within ASTM specification A653.

ISSUE:

Whether the two steels (the imported merchandise to be designated and the merchandise that might be used in substitution for the designated merchandise) are of the same kind and quality for the purpose of 19 U.S.C. 1313(b).

LAW AND ANALYSIS:

Thyssen's Claims

In Thyssen's letter of August 21, 1995, it states:

- The producer can use the steels interchangeably without any additional processing steps.

- Both steels are classified under the same tariff item number (HTSUS), and subject to the same duty rate.

- The differences within the coatings are not determinative as to the market value which is essentially the same for both steels.

- Both coated steels fall with [sic] the same ASTM specification which makes no grade distinction.

We submit that under the terms of general drawback contract TD 81-74, the two steels are same kind and quality for drawback purposes.

Pertinent Statute

19 U.S.C. 1313(b) provides:

(b) Substitution for drawback purposes

If imported duty-paid merchandise and any other merchandise (whether imported or domestic) of the same kind and quality are used in the manufacture or production of articles within a period not to exceed three years from the receipt of such imported merchandise by the manufacturer or producer of such articles, there shall be allowed upon the exportation, or destruction under customs supervision, of any such articles, notwithstanding the fact that none of the imported merchandise may actually have been used in the manufacture or production of the exported or destroyed articles, an amount of drawback equal to that which would have been allowable had the merchandise used therein been imported, but only if those articles have not been used prior to such exportation or destruction; but the total amount of drawback allowed upon the exportation or destruction under customs supervision of such articles, together with the total amount of drawback allowed in respect of such imported merchandise under any other provision of law, shall not exceed 99 per centum of the duty paid on such imported merchandise. (Emphasis added.)

Determination

After a consideration of this issue, we determine that the two steels described supra, i.e., galvanized steel and galvannealed steel, are not of the same kind and quality for the purpose of 19 U.S.C. 1313(b).

In making this determination we have reviewed T.D. 81-74 and the pertinent ASTM specifications.

T.D. provides in part:

5. If the steel is coated or plated with a base metal, in addition to meeting the requirements for uncoated or unplated steel set forth in the parallel columns the drawback applicant agrees that the base-metal coating or plating on the duty-free or domestic steel used in place of the duty-paid steel will have the same composition and thickness as the coating or plating on the duty-paid steel. If the coated or plated duty-paid steel is within a SAE, AISI, ASTM specification, any duty-free or domestic coated or plated steel covered by the same specification or grade (if two or more grades are in the specification) is considered to meet this criterion for same kind and quality.

It is our determination that in order for the subject steels to meet the same kind and quality for the purpose of 19 U.S.C. 1313(b), the steels must be of the same: specification (i.e. ASTM specification), quality, grade, class, coating type, and coating designation.

The two subject steels are of different coating types and coating designations. See Table 1 on page 210 of the Standard Specification for Steel Sheet, Zinc-Coated (Galvanized) or Zinc-Iron Alloy-Coated (Galvannealed) by the Hot-Dip Process (A 653/A 653M; hereinafter referred to as "ASTM Specifications").

There are two coating types: zinc and zinc-iron alloy. The galvanized steel is of the zinc type and the galvannealed steel is of the zinc-iron alloy type. For this purpose, "coating type" has the same meaning as "composition" in item 5 of T.D. 81-74.

There are many different coating designations in Table 1. As Table 1 indicates, the fact that the two subject steels are not of the same coating type automatically indicates that the two subject steels have different coating designations, i.e., the two different coating types do not share any common coating designation. For this purpose, "coating designation" has the same meaning as "thickness" in item 5 of T.D. 81-74.

We do not have sufficient information to determine whether the two subject steels are of the same: (a) quality - see item 4.1 of the ASTM specifications; (b) grade - see Table 2 of the ASTM specifications; there are several grades within certain of the qualities; and (c) class - see Table 2 of the ASTM specifications; there are three classes within one of the grades. It is not necessary for us to make determinations with respect to quality, grade, and class in view of our determinations with respect to coating type and coating designation, supra.

Additionally, we note the following. Different types of coating, i.e., galvanized vs. galvannealed, produce significant changes in the appearance and properties of the coated steel sheet. For example, a galvannealed sheet has a silvery matte finish of low reflectivity, wheras a galvanized sheet has a spangled (frost-flower pattern) and bright surface. Also, galvannealed sheets generally have better paint-adherence properties than galvanized sheets. Further, galvannealed sheets are more brittle than galvanized sheets, and therefore tend to crack if severely bent. Finally, galvanized and galvannealed steels are used differently by the auto industry. These two types of coating cannot be used interchangeably by the auto-body parts producers for all applications.

HOLDING:

As detailed supra, the two steels described supra, i.e., galvanized steel and galvannealed steel, are not of the same kind and quality for the purpose of 19 U.S.C. 1313(b).

Sincerely,

Director
International Trade and Compliance

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