HQ 555377

October 16, 1989

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

CATEGORY: CLASSIFICATION

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.

FACTS:

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.

ISSUES:

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.

LAW & ANALYSIS:

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.

HOLDING:

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.

Sincerely,

John Durant, Director

Commercial Rulings Division