HQ 224450: Magma Copper Company; 19 U.S.C. 1312; Smelting and Refining Bonded Warehouse; Class 7 Bonded Warehouse

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 224450

                          May 24, 1993

WAR-3-03-CO:R:C:E 224450 CB

CATEGORY:  Entry

James A. Geraghty, Esq.
Donohue and Donohue
26 Broadway
New York, NY 10004

RE:  Magma Copper Company; 19 U.S.C.  1312; Smelting and
     Refining Bonded Warehouse; Class 7 Bonded Warehouse

Dear Mr. Geraghty:

     This is in response to your letter of February 5, 1993 (your
file no. 1337-001) on behalf of Magma Copper Company requesting a
ruling.

FACTS:

     According to your letter, Magma Copper Company ("Magma") is
an integrated copper producer operating an underground mine and
processing facilities at San Manuel, Arizona.  Specifically,
Magma mines sulfide ore which it concentrates for smelting and
further processing.  Magma sells both copper cathode and rod
domestically and for exportation.  Also, the company imports
concentrates or anodes, as the case may be, to meet demand.

     In May of 1990, Magma's application for authorization to
establish a class 7 bonded warehouse at San Manuel was approved. 
The bonded area embraces the smelting, refining, and casting
facilities.  Magma has entered foreign copper concentrate for
smelting and refining to cathode, and has withdrawn cathode for
exportation to discharge the bond.  Magma proposes to enter
Mexican origin anode into its class 7 bonded warehouse for
refining into cathode and casting into rod.  The rod would be
withdrawn duty paid for consumption and thereafter further
processed into wire for exportation.

     It is your contention that there is nothing in the statute
or regulations which would prohibit further processing after
Magma engages in the smelting and/or refining activities required
for proper class 7 status.  
  
ISSUE:

     Whether the proposed rod facility qualifies as a class 7
warehouse?

LAW AND ANALYSIS:

     Briefly, the process that takes place in the San Manuel
plant is as follows:  Copper anode is introduced into the plant. 
The anode - which, according to your request is not fully refined
by the time it reaches the plant - is further refined in the
plant.  The copper is transferred from an anode at the positive
pole of an electric circuit, to the cathode at the negative pole. 
The copper is plated at the cathode and impurities settle to the
bottom of the refining cell.  Cathodes are then melted and the
molten copper is fed to a rotating vertical casting wheel which
produces a bar casting.  The bar moves through the rolling mill
where it is sequentially reduced in diameter and then pickled,
rinsed, waxed and coiled.  The coils are banded,, shrink wrapped,
weighted and loaded directly for shipment.  The raw material at
the beginning of the process is copper anode; the final end
product is rolled copper rod, a wrought product.

     The statute provides that "[a]ny plant engaged in smelting
or refining, or both, of metal-bearing materials as defined in
this section may, upon the giving of satisfactory bond, be
designated a bonded smelting or refining warehouse."  19 U.S.C.
 1312(a).  Subsection (f) of  1312 defines smelting and refining
as follows:

          [T]he term 'smelting or refining' embraces only
          pyrometallurgical, hydrometallurgical,
          electrometallurgical, chemical, or other processes - 

            (A) for the treatment of metal-bearing materials to
          reduce the metal content thereof to a metallic state in
          the course of recovering it in forms which if imported
          would be classifiable in chapters 71 through 83 of the
          Harmonized Tariff Schedule of the United States
          (HTSUS), as unwrought metal, or in the form of oxides
          or other compounds which are obtained directly from the
          treatment of materials provided for in chapter 26 of
          the [HTSUS], and

            (B) for the treatment of metal or metal waste and
          scrap to remove impurities or undesired components.

19 U.S.C.  1312(f)(2).  (Emphasis added.)
 
     The definition of smelting and refining sets forth three
requirements:  1) the qualifying procedure must be applied to 2)
the qualifying material for 3) the qualifying purpose.  Thus,
three questions are raised:  1)  Does the procedure applied to
the anode qualify under the statute?; 2)  Does the anode qualify
as a metal-bearing material under the statute?; and 3)  Is the
procedure applied for a qualifying purpose under the statute?

     Regarding the first question, the statutory definition of
"smelting or refining" includes electrometallurgical procedures
but qualifies their use to be limited to several described
purposes, none of which is a manufacture/production of wrought
products.  19 U.S.C.  1312(f)(2)(A) and (B).  Since the statute,
in its definition of "smelting or refining" operations, limits
such operations to certain named procedures, including
electrometallurgical procedures, can it be said that an electro-
metallurgical procedure employed to manufacture/produce a wrought
product is a smelting or refining procedure?  To answer in the
affirmative would signify a willingness to call a manufacture/
production process a "smelting or refining" procedure merely
because the manufacturing/production process employs an electro-
metallurgical method.  The process used at the San Manuel plant
is a manufacturing/production process, not a refining process.  

     The answer to the second question is "no".  The definition
of "metal-bearing materials" is, in pertinent part:  "unwrought
metal to be smelted or refined provided for in chapters 71
through 83 of the [HTSUS]."  19 U.S.C.  1312(f)(1).  While copper
anode is unwrought metal provided for in chapter 74, HTSUS, it is
not, as used in the San Manuel plant, unwrought metal to be
smelted or refined.  Smelting and refining are processes that are
precisely defined under the statute.  As explained below, the
process that takes place in the San Manuel plant is not a
smelting and/or refining process as defined in the statute; it is
a production process.  Therefore, the anode processed in the
plant is not "unwrought metal to be smelted or refined."  Rather,
it is unwrought metal to be manufactured or produced into copper
coils.  Consequently, the anode introduced into the San Manuel
plant does not qualify as metal-bearing material under the
statute.

     Finally, the answer to the third question is "no". 
Therefore, even if the answers to the two foregoing questions
were in the affirmative, the negative answer to the third
question defeats eligibility for class 7 warehouse status.  The
statute sets forth three acceptable purposes, or treatments, that
a process can achieve, if that process is to qualify under the
statute.  Two of these are set forth in  1312(f)(2)(A), and one
is set forth in  1312(f)(2)(B).  Smelting and refining involves  

various processes (pyrometallurgical, hydrometallurgical,
electrometallurgical, etc.) designed to:  1) reduce the metal
content of metal-bearing materials in the course of recovering it
(the metal) in unwrought metal forms classifiable (if imported)
in chapters 71 through 83 of the HTSUS; 2) reduce the metal
content of metal-bearing materials in the course of recovering it
in the form of oxides or other compounds which are obtained
directly from the treatment of materials provided for in chapter
26 of the HTSUS (ores, slag and ash); and 3) remove impurities or
undesired components from unwrought metal or metal waste and
scrap.  None of the foregoing three purposes, or three kinds of
treatments, describes the operation that takes place at the San
Manuel plant.

     First, the operation at San Manuel is not the reduction of
the metal content of metal-bearing materials in the course of
recovering the metal in unwrought forms that would be
classifiable (if imported) in the specified chapters of the
HTSUS.  While a final purification occurs in the further refining
of the copper anode during the initial refining phase, what is
produced ultimately, or what is "recovered," is a wrought metal
form - coiled copper rod.  We have been advised by our Office of
Laboratories and Scientific Services (Lab Services) that this
product is not an unwrought metal form; therefore, it would not
be classifiable as an unwrought metal in the specified chapters
of the HTSUS.  See Additional U.S. Note 2, Section 15 of the
HTSUS which excludes a rolled product from being considered
unwrought for tariff purposes.  Second, the operation at San
Manuel is not the reduction of the metal content of metal-
bearing materials in the course of recovering the metal in the
form of oxides or other compounds which are obtained directly
from the treatment of materials provided for in chapter 26 of the
HTSUS.  The finished product recovered, coiled copper rod, is not
an oxide or other compound as described in the statute.  Third,
the operation at San Manuel is not simply the removal of
impurities or undesired components from unwrought metal or metal
waste and scrap.  The San Manuel operation produces a wrought
form of copper metal, i.e. coiled copper rod.  Therefore, the
process employed in the San Manuel plant is not designed to
accomplish a qualifying purpose.  It is designed to manufacture
copper rod from unwrought copper anode.

     Based on the foregoing discussion, the process used at the
San Manuel plant does not qualify as a smelting and/or refining
procedure under the statute.  Although there is a refining phase
in the process, this does not alter the fact that the process
does not fall within the descriptions of the foregoing qualifying
purposes or treatments.  The refining phase of the operation is
only a part of the continuous production process.  
 
     You contend that there is nothing in the statute or
regulations which would prohibit further processing after Magma
engages in the smelting and/or refining activities required for
proper class 7 status.  Regarding the assertion that
manufacturing is not precluded in a class 7 warehouse, we believe
that the statutory and regulatory schemes governing bonded
warehouses clearly indicate that manufacturing is allowed in a
bonded warehouse only where a statute explicitly so specifies. 
Under 19 U.S.C.  1312, a warehouse can be designated as a
smelting and/or refining warehouse - nothing more or less. 
Subsection 1312(a) states the following:  "[a]ny plant engaged in
smelting or refining, or both, of metal-bearing materials . .
.may . . .be designated a smelting or refining warehouse."  The
operations permitted therefore in a class 7 warehouse are
smelting, or refining, or both smelting and refining.  The
statute continues with the following:  "[m]etal-bearing materials
may be entered into a bonded smelting or refining warehouse
without the payment of duties thereon and there smelted or
refined, or both, together with metal-bearing materials of
domestic or foreign origin."  The only operations specified are
smelting and/or refining.  The statute goes on to define smelting
and refining, as above, in a precise manner with no mention or
suggestion of manufacturing or production operations.  The
proposed operations are not permitted in a class 7 warehouse
because manufacturing/production operations are not authorized.

     It is also your position that because a part of the San
Manuel operation is a refining procedure, that is enough to
qualify the plant as a class 7 warehouse regardless of the
manufacturing process.  However, based on the above discussion,
there is no refining procedure carried on at the San Manuel plant
which falls within the language of the statute.  The initial
refining phase of the operation is not a basis for qualifying the
plant for class 7 warehouse status.  The refining phase is merely
an initial step in the continuous process of manufacturing coiled
copper rod.  The process used in the San Manuel plant, in effect,
merely borrows the final refining step that traditionally took
place in the traditional refinery and incorporates it into the
production operation carried on in the rod mill.  Magma would
have Customs accept the rod mill production operation as a
legitimate refining operation by merely adding this final
refining step.  

     Finally, you stated that "Nogales Customs approved the
application for the class 7 warehouse status which included the
rod facility within the fenced bonded area."  Customs is limited
by statute to approving class 7 bonds only for legitimate
smelting and/or refining operations.  Customs cannot approve a
class 7 bond for a manufacturing operation; thus, where Customs
has done so erroneously, it is obligated to correct the
situation.   
HOLDING:

     The proposed rod mill does not qualify as a class 7 bonded
warehouse because the operation is not a smelting or refining
operation as defined in 19 U.S.C.  1312; it is a prohibited
manufacture/production process.

                                   Sincerely,




                                   John Durant, Director
                                   Commercial Rulings Division