CLA-2:CO:R:C:G 081659 JAS

Katherine S. Nucci, Esq.
Dykema Gossett
1752 N Street, N.W.
Washington, D.C. 20036

RE: Country of Origin of Sheet Steel in Coils Hot Rolled in Canada From Slabs

Dear Ms. Nucci:

In letters, dated January 20, and October 31, 1988, you inquire as to the country of origin of steel sheets in coil which are hot rolled in Canada from slabs of Brazilian origin. There is no tariff classification issue presented. Our ruling follows.

FACTS:

You refer to the merchandise that enters the Customs territory from Canada as hot rolled steel sheet, in coils, ranging from .058 inch to .5 inch in thickness, and from 1,000 feet to 3,000 feet in length. After importation, the product is uncoiled, pickled and slit. It is then suitable for use in the automotive industry, the building trades, and in oil and natural gas exploration, among other uses.

The steel slabs that enter Canada are semifinished products rolled from ingots. They are A 607 grade 50 low alloy slabs ranging from 16 feet to 34 feet in length, from 30 inches to 48 inches in width, and from 6 inches to 14 inches in thickness. In Canada, they are reheated to rolling temperatures of between 2100 to 2300 degrees F and held there for approximately 2-1/2 hours. The slabs are then rolled to an intermediate thickness in a process called roughing. In this process, horizontal rolls reduce thickness between .8 inch to 1.6 inches, and vertical rolls reduce width up to 2 inches. In addition, the length is drastically increased as indicated. The product is then trimmed on both ends and

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finished rolled at a temperature of 1600 degrees F to final thickness, after which it is water cooled, then coiled. The processing operations are said to represent up to fifteen (15) percent value added.

ISSUE:

Does the described processing substantially transform the slabs, and make Canada the country of origin for tariff purposes?

LAW AND ANALYSIS:

In order for the steel slabs to have been considered substantially transformed in Canada, the record must establish that the processing there resulted in a product other than or materially different from the merchandise of foreign origin; that is, a new and different article must emerge from the processing, one having a new name, character or use. Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1908).

In general, semifinished steel products such as blooms and slabs have no commercial use and must be reworked. They are first cleaned to remove defects that might affect surface quality, and are thereafter converted to finished steel products such as plates and sheets by reheating and further hot working by rolling or forging coupled, in some instances, with cold-working operations that follow the secondary hot working.

Slabs cannot be used commercially because of their massive size. In addition, their larger grain size makes them very brittle. In this case, the processing operations in Canada result in a significant change in the shape and dimensions of the product, and render it commercially usable by equipment that will stamp, drawn or bend it. Moreover, while there is no change in chemistry, the hot rolling operations effect a significant change in the product's microstructure. The combination of hot rolling and controlled water cooling makes the grain size smaller and more uniform throughout the entire product. This improves hardness or ductility which is commer- cially significant.

The processing operations in Canada transform a semi- finished steel product known as a slab, with no commercial uses, to a finished steel product known as a plate or a sheet,

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with a variety of commercial applications. The identity of the product that enters the Customs territory has been fun- damentally changed. It is no longer the essence of the product that entered Canada.

HOLDING:

The described processing operations in Canada result in a product that is substantially transformed there, one having a new name, character and use. The articles entering the Customs territory are products of Canada for Customs purposes.


Sincerely,

John Durant, Director,
Commercial Rulings Division