HQ 557992

January 23, 1996

CLA-2 RR:TC:SM 557992 AT

CATEGORY: Classification

TARIFF NO.: 8109.90.00; 9802.00.60,

Patrick D. Gill, Esq.

Rode & Qualey

295 Madison Avenue

New York, New York 10017

RE: Modification of C.S.D. 84-49; Classification and

applicability of partial duty exemption under HTSUS

subheading 9802.00.60 to zirconium tubes manufactured in

Germany of U.S. origin zirconium and returned to the U.S.

for further processing; \"further processing\".

Dear Mr. Gill:

This is in response to your letter dated May 27, 1994, and supplemental
information dated September 14, 1995, submitted on behalf of Siemens
Power Corporation (\"Siemens\"), requesting a ruling concerning the
classification and applicability of the partial duty exemption under
subheading 9802.00.60, HTSUS, to zirconium tubes imported into the U.S.
We regret the delay in responding.

FACTS:

According to your submission, Siemens intends to import into the U.S.,
zirconium tubes manufactured in Germany to be further processed and used
in the manufacture of nuclear fuel rods for nuclear reactors. You state
that there are three discreet processing steps performed sequentially in
the United States, Germany and the United States which lead to the
manufacture of the finished fuel rods.

First, in the U.S., zircon sand of United States origin is crushed,
blended and otherwise processed into a zirconium ingot. This ingot is
then forged, extruded and formed on a tube rocker into tube stock or
semifinished tubing, designated TREX. This TREX tubing is then exported
to Germany where it is subjected to three successive cold reductions
using the Pilger process. This process reduces both the diameter and
wall thickness of the tubing with a mandrel and a pair of rolls which
rotate continuously. The tubing is annealed between each cold reduction
and both inside and outside diameters etch cleaned with acid to remove
surface impurities and to reveal microscopic cracks in the surface of
the metal. After the third cold reduction, the tubing is straightened,
grit blasted, etched on the inside diameter, belt polished and cut to
final lengths consistent with the length of the fuel rods or elements
into which they will be finished. This is their condition upon return to
the U.S.

In the U.S., the imported zirconium tubes are further processed by
Siemens into fuel rods for nuclear reactors. First, the zirconium tubes
are cleaned, dried and inspected by Siemens. Then, lower end caps are
welded to the zirconium tubes using a tungsten inert gas welding process
in a purged chamber, making sure that the weld is free of moisture or
other contaminants, after which uranium pellets are inserted into the
tubes. Cleaned and inspected springs are then added to the lower-end
welded cap and the loaded fuel rods are inserted individually into high
pressured TIG welders. The fuel rods are then evacuated to remove air
and back filled with helium to the design pressure of the fuel rod.
Upper end caps, which have been cleaned and inspected, are then welded
onto the upper portion of the fuel rod. The finished fuel rods are
tested for defects, subjected to a radiographic examination by quality
control, and the integrity of both upper and lower welds is determined.
Minimum weld cover, contact between the upper end cap and the spring,
presence of foreign material, and visual appearance are checked during
this inspection. The fuel rods are then put through a final inspection
which includes verification of serial numbers, inspections for weld
color, autoclave finish, length, weld overhand, rod straightness, end
cap straightness, and visual appearance. Inspected rods are then placed
in storage trays to await release to bundle assembly by quality control.

You state that the process by which the zirconium end caps are welded to
the imported zirconium tubes to produce the finished fuel rods is known
as gas tungsten arc welding (\"GTAW\"), also known as TIG (tungsten
inert gas) welding. GTAW is a

process wherein coalescence of metals is produced by heating them with
an arc between a tungsten (nonconsumable) electrode and the work. The
weld is made by applying the arc so that the abutting work pieces are
melted and joined together as the weld metal solidifies. Although filler
metal may be added during the GTAW welding process, because this process
is used extensively for the welding of longitudinal seams of thin wall
stainless steel and alloy pressure pipe and tubing, generally filler
metal is not used, as is the case with the zirconium tubes.

You contend that the zirconium tubes manufactured in Germany from U.S.
origin Trex which are returned to the U.S. to be further processed and
used in the manufacture of fuel rods should be classified under
subheading 8109.90.00, HTSUS and are eligible for the partial duty
exemption under subheading 9802.00.60, HTSUS.

ISSUES:

1\. Whether the zirconium tubes, as imported, are articles of zirconium
or unfinished fuel elements for nuclear reactors or unfinished parts of
fuel elements

2\. Whether the zirconium tubes manufactured in Germany from U.S. origin
Trex which are returned to the U.S. to be used in the manufacture of
fuel rods, in the manner described above, qualify for a partial duty
exemption available under subheading 9802.00.60, HTSUS, when imported
into the U.S.

LAW AND ANALYSIS:

Proper Classification of the Merchandise

Merchandise is classifiable under the Harmonized Tariff

Schedule of the United States (HTSUS) in accordance with the General
Rules of Interpretation (GRIs). GRI 1 states in part that for legal
purposes, classification shall be determined

according to the terms of the headings and any relative section or
chapter notes, and provided the headings or notes do not require
otherwise, according to GRIs 2 through 6. Under GRI 2(a), an incomplete
or unfinished article is to be classified as the complete or finished
article provided it has the essential character of the complete or
finished article. The provisions of GRI 2(a) apply both to articles and
to parts of articles.

Tubes and pipes of specific base metals are provided for in provisions
of chapters 73, 74, 75, 76 and 78. However, there is no corresponding
provision in the HTSUS for pipes and tubes of zirconium. Heading 8109
provides for zirconium and articles thereof, including waste and scrap.

Heading 8401 covers, among other things, fuel elements (cartridges),
non-irradiated, for nuclear reactors, and parts thereof. The finished
fuel rods are classifiable in subheading 8401.30.00, HTSUS, a provision
for fuel elements (cartridges), non-irradiated, and parts thereof.
Although imported cut to length, the zirconium tubes are in an otherwise
bare configuration. They are without end caps and special attachments
for handling, and lack supports to keep them spaced apart and fixed in
place. Most importantly, they lack the uranium fuel in pellet form. For
these reasons, we agree with counsel\'s contention that, as imported,
the zirconium tubes lack the essential character, under GRI 2(a), either
of finished or complete fuel elements or of parts of such elements.

Applicability of subheading 9802.00.60

Subheading 9802.00.60, HTSUS, provides a partial duty exemption for:

\[any} 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 processing outside

the United States, is returned to the United States for

further processing.

This tariff provision imposes a dual \"further processing\" requirement
on eligible articles of metal; one foreign, and when returned, one
domestic. Metal articles satisfying these statutory requirements may be
classified under this tariff provision with duty only on the value of
such processing performed outside the U.S., provided the documentary
requirements of section 10.9, Customs Regulations (19 CFR 10.9), are
satisfied.

Pursuant to U.S. Note 3(d) of subchapter II, Chapter 98, the term
\"metal\" covers:

\(1\) the base metals enumerated in additional U.S. note 1

to section XV; (2) arsenic, barium boron, calcium,

mercury, selenium, silicon, strontium, tellurium, thorium, uranium and
the rare-earth elements; (3) and

alloys of any of the foregoing.

As the Trex material is an alloy of \"zirconium\", a base metal
enumerated in additional U.S. Note 1, Section XV, HTSUS, the Trex
material is an eligible article of metal for purposes of subheading
9802.00.60, HTSUS. Moreover, as the Trex is manufactured in the U.S.
from U.S. origin zirconium sand it satisfies the initial requirement
under this tariff provision that the metal must be manufactured in the
U.S. or be subjected to a process of manufacture in the U.S.

Clearly the processing operations performed in Germany to manufacture
the zirconium tubes (cold pilgering, annealing, etching, straightening,
blasting, polishing and cutting to length) constitutes sufficient
\"further processing\" so as to satisfy the foreign \"further
processing\" requirement of subheading 9802.00.60, HTSUS. See, HQ 556123
dated July 30, 1991 (holding that steel plates subjected to cutting, and
forming operations are considered \"further processing\" under
subheading 9802.00.60, HTSUS). See HQ 555103 dated February 2, 1989
(holding that a stainless steel article subjected to a heat treatment
process known as \"Solution (water) Quench, Annealed\" which was
designed to relieve rolling stress constituted a \"further processing\"
operation. In this case, as in the cited rulings, the processing
operations performed to the Trex impart new and different
characteristics to the Trex (they have changed in shape and form) which
did not exist in the Trex prior to the processing.

It next must be determined whether the domestic processing of the
zirconium tubes in the U.S. satisfies the domestic \"further
processing\" requirement of subheading 9802.00.60.

You assert that the GTAW operation which is performed in the U.S. by
Siemens to manufacture the fuel rods constitutes sufficient \"further
processing\" so as to satisfy the domestic \"further processing\"
requirement of subheading 9802.00.60, HTSUS.

In C.S.D. 84-49, 18 Cust. Bull. 957 (1983) we stated that:

\[f\]or purposes of item 806.30 TSUS \[the predecessor

tariff to HTSUS subheading 9802.00.60\], the term \'further

processing\' has reference to processing that changes the shape of the
metal or imparts new and different

characteristics 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).

You argue that the statement in C.S.D. 84-49, that \"the mere assembly
of finished parts by \..., welding, etc\" would not constitute \"further
processing\" is clearly in error, because there are some types of
welding operations, such as the GTAW operation performed in this case,
which do constitute further processing of the metal as required under
subheading 9802.00.60. We agree for the reasons stated below.

In Intelex Systems, Inc. v. United States, 59 CCPA 138, C.A.D. 1055
(1972), the court discussed the type of processing that would entail
\"further processing\". In the Intelex case, copper wire and insulating
paper were processed into lead-covered telephone cable and imported into
the U.S. on cable rolls. The cable was then merely strung on poles after
wire stripping and splicing operations. The issue presented was whether
the imported cable was \"returned to the U.S. for further processing,\"
within the meaning of paragraph 1615(g)(2)(B), Tariff Act of 1930, as
amended (a precursor provision of subheading 9802..00.80, HTSUS). The
court considered the words \"process\" and \"processing\" and stated
that:

\... its meaning must be controlled by the particular

context in which it is used here and the legislative

intent. Fleming v. Hawkeye Pearl Button Co.,

113 F. 2d 52, 57 (8th Cir. 1940). 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\' 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 \"subjected to a process of

manufacture\' as synonymous with \'processing\' A. F.

Burstrom v. United States, 44 CCPA 27, CAD 631 (1956),

and that the \'further processing\' referred to in

paragraph 1615(g)(2)(A) is a further manufacturing

process. (Court\'s emphasis).

The court stated that it did \"\...not think that the 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.

Unlike the court\'s finding in Intelex, we find that sufficient evidence
has been presented to support a finding that the GTAW operation which is
performed on the zirconium tubes, in this case, does constitute a
process of manufacture \"in a common or commercial sense\" in
satisfaction of the \"further processing\" requirement under subheading
9802.00.60.

The GTAW operation creates a physical change on the imported tubes by
melting them at the point of the weld. See, ASM Metals Reference Book,
Second Edition, published by the American Society for Metals, which
defines welding as \"joining two or more pieces of material by applying
heat or pressure, or both, with or without filler material, to produce a
localized union through fusion or recrystallization across the
interface\". Also, this fusion or recrystallization effects the
molecular characteristics of the zirconium tube at the point of the weld
in that

When a liquid (or pure molten) metal begins to solidify

or freeze, atoms begin to take up their positions in the

appropriate lattice at various spots or nuclei in the

molten metal. \...Eventually these arms meet arms of

neighboring crystals and no further growth outwards can

take place. The crystal then increases in size, within

its boundary, forming a solid crystal, and the junction

where it meets the surrounding crystals becomes the

crystal of grain boundary. Its shape will now be quite

unlike what it would have been if it could have grown

without restriction; hence it will have no definite

shape. A.C. Davies, The Science and Practice of Welding,

Eighth Edition, Volume 1.

The form of the zirconium tube also changes as a result of the GTAW
operation in that the point of the weld between the tube and the lower
and upper end cap can be viewed as a tiny casting itself.

As the amount of solid metal increases, of course, the

amount of liquid metal decreases proportionately, and the

grains grow larger and larger until they ultimately meet.

Where the grains meet produces a disarrayed arrangement

of atoms called a grain boundary which is naturally

irregular. \...The grain boundaries of an ingot which has

been cast in a cylindrical mold is much the same as in a

weld, and because of the similarity in the shape of its

grains, a fusion weld can be viewed as a tiny casting.

(Emphasis added). American Welding Society, Welding

Handbook, Seventh Edition, Volume 1, \"Fundamentals of

Welding\".

Based on the above considerations, we find that the GTAW operations
performed in the U.S. by Siemens, in the manner described above, to
manufacture nuclear fuel rods constitute \"further processing\" of the
imported zirconium tubes. Thus, the GTAW operation, as described above,
satisfies the domestic \"further processing\" requirements of subheading
9802.00.60, HTSUS. Accordingly, the imported zirconium tubes are
eligible for the partial duty exemption available under subheading
9802.00.60 provided the documentation requirements of 19 CFR 10.9 are
satisfied.

HOLDING:

Under the authority of GRI 1, the zirconium tubes, as described, are
provided for in heading 8109. They are classifiable in subheading
8109.90.00, HTSUS, as other articles of zirconium. The rate of duty is
5.1 percent ad valorem.

Based on our review of the information submitted, we find that the
processes performed in Germany to the U.S. origin Trex material satisfy
the foreign \"further processing\" requirement. In addition, the GTAW
operations performed in the U.S. to the

imported zirconium tubes, as described above, satisfy the domestic
\"further processing\" requirement for purposes of subheading
9802.00.60, HTSUS. Therefore, the imported zirconium tubes subjected to
the operations described above are eligible for the partial duty
exemption under this tariff provision with duty only upon the cost or
value of such processing performed outside the U.S., upon compliance
with the documentary requirements of 19 CFR 10.9.

C.S.D. 84-49 is modified in accordance with this ruling to reflect that
GTAW constitutes \"further processing\" for purposes of subheading
9802.00.60, HTSUS. Whether other types of welding operations, other than
GTAW, constitute \"further processing\" for purposes of subheading
9802.00.60, will be determined on a case-by-case basis.

A copy of this ruling letter should be attached to the entry documents
filed at the time this merchandise is entered. If the documents have
been filed without a copy, this ruling should be brought to the
attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

Tariff Classification

Appeals Division