MAR-05 RR:TC:SM 561016 BLS
James Caffentzis, Esq.
Fitch, King and Caffentzis
116 John Street
New York, New York 10038
RE: Country of origin marking of certain drill pipe with tool joints
Dear Mr. Caffentzis:
This is in reference to your letters dated May 20 and November 2, 1998, and fax of January 14, 1999, on behalf of Marubeni Tubulars, Inc., requesting a ruling concerning the country of origin marking of certain drill pipe with tool joints to be imported from China.
FACTS:
Alloy steel seamless plain end pipe and forged steel for tool joints of Japanese origin are imported into China. The pipe comes in approximately 30 foot lengths with outside diameters (OD) from 2.375" to 6.625" and inside diameters (ID) from 1.815" to 5.901". In China, both the outside diameter of the pipe end and the end face are machined to prepare the surfaces for friction welding.
The forged steel for tool joints comes in approximately 2 foot lengths. In China, these materials will be machined by turning the outside diameter and boring the inside diameter. The finished OD will range from 3.375" to 8.50" and finished ID will range from 1.75" to 4.75". This operation reduces the wall thickness by approximately 5 mm. The outside diameter of the weldneck (that portion of the pipe near the end to be welded to the 30 foot pipe) is turned down to the same diameter as that of the 30 foot pipe. Following this process, the tool joint is heat treated, oil quenched and tempered. Upon completion, the tool joints are threaded, internally for the “box” member and externally for the “pin” member. The last process performed on the tool joint consists of copper plating the pin and box threads.
At this point, both the pipe and tool joints are ready for attachment. This is accomplished by friction welding. The weld bead (excess metal) is removed and the
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weld zone is heat treated, air quenched and tempered. The finished pipe is inspected, measured and weighed, marked, and packed for exportation to the U.S.
You estimate that the value added in China is almost 50 percent. You also advise of two optional processes which may be performed in China which would increase the value to over 50 percent. The process identified as “hard facing” takes place after the tool joints are heat treated and consists of an application of tungsten carbide or a chromium-rich alloy by tungsten inert gas welding on the tool joint. The purpose of this operation is to protect the tool joint from wear. The other process, if performed, takes place after the drill pipe has been marked and involves the application of an internal plastic coating to the product. The plastic coating protects the pipe from corrosion and increases its hydraulic efficiency.
ISSUE:
What is the country of origin of the drill pipe when imported into the U.S.?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that,
unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such manner as to indicate to the ultimate purchaser in the
U.S. the English name of the country of origin of the article.
Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin within this part. For a good of a NAFTA country, however, the NAFTA Marking Rules will determine the country of origin.
A substantial transformation occurs when articles lose their identity and become articles having a new name, character or use. See United States v. Gibson-Thomsen Co., 27 CCPA 267 at 270 (1940), National Juice Products v. United States, 10 CIT 48, 628 F. Supp. 978 (CIT 1986). In the instant case, the issue to be resolved is whether the Japanese-origin plain end pipe and forged steel for tool joints undergo a substantial transformation as a result of the processing performed in China.
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In Headquarters Ruling Letter (HRL) 085575 dated March 7, 1990, aluminum drill pipe from the Soviet Union was imported into a second country where it underwent processing consisting of machining, threading, and hi flexing of the tubing and then attachment of tool joints of U.S-origin. Machining was performed on the ends to ensure concentricity within 0.001 inch, and the ends were then threaded. The steel tool joints were attached by a process which involved heating to approximately 750 degrees F., screwing on to the tubing, and then cooling with an external water spray. The cooling process caused shrinkage of the tool joint resulting in a predetermined tightness of fit with the tubing. Additional processing which included coating the surface of the aluminum drill pipe with an anti-abrasive epoxy material preparatory to use was performed in the U.S.
It was noted in that case that removal of one of the components would result in the destruction of the other component. Thus, the tool joint could be removed and reused, but only upon destruction (machining off) of the tubing; similarly, the tubing could be salvaged and reused, but such processing (heating and cooling of pipe end) would result in destruction of the tubing.
In HRL 085575 we concluded that the threading of the plain end sections of aluminum drill pipe and the permanent attachment of the steel tool joints resulted in a product that had a character distinct from that of the plain end sections of aluminum drill pipe. Therefore, we found that the aluminum drill pipe underwent a substantial transformation as a result of the processing in the second country. (See also HRL 082965 (November 30, 1989), where we held that Japanese drill pipe permanently joined by welding with tool joints in France or Venezuela was substantially transformed into a drill string assembly.)
The facts in the instant case are analogous to the facts in HRL 085575. After machining, the pipe and tool joint (produced from forged steel) are permanently attached by welding, which involves heat treatment, air quenching and tempering. Additional processing may include an application of tungsten carbide or a chromium-rich alloy welding to protect the tool joint from wear, and a plastic coating to protect the pipe from corrosion. We find that the processing in China, consisting of machining, boring, threading, heat treating, tempering, oil and air quenching, and friction welding results in a product, a drill string assembly, with a name, character and use distinct from the parts from which it was made. Accordingly, we hold that the forged steel for tool joints and the drill pipe undergo a substantial transformation in China. Therefore, the country of origin of the drill string assemblies is China.
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HOLDING:
Japanese-origin drill pipe and forged steel for tool joints are substantially transformed by operations in China which include machining, threading, heat treating, tempering, oil and air quenching, and friction welding. As a result, the country of origin of the completed drill string assemblies is China.
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
Commercial Rulings Division