MAR-2-05 CO:R:C:V 734091 RSD
Vincent Bowen, Esq.
Three Lafayette Centre
Wilke, Farr, & Gallagher
1155 21st Street, N.W.
Washington, D.C. 20036-3384
RE: Country of origin of mirror polished stainless steel,
substantial transformation, finishing, polishing; 19 CFR 134.1;
HQ 080139
Dear Mr. Bowen:
This is in response to your letter dated March 25, 1991, on
behalf of your client, Okura & Co. (America) Inc. (Okura),
regarding the country of origin of mirror-polished stainless
steel, processed in Japan and Singapore. At the time the request
was made, stainless steel sheet produced in Japan was subject to
the steel voluntary restraint agreements. Although these
agreements are no longer in effect, you have advised that you
still would like a ruling in this matter. We have received a
sample of a sheet of stainless steel with a 2B finish and a sheet
of stainless steel which has been polished to a No. 8 mirror
finish for our consideration. This case was referred to the
National Import Specialist for steel products for her comments.
You have also requested that certain information in the ruling be
given confidential treatment. The confidential information is
bracketed and will not be disclosed in copies of this ruling made
available to the public. We regret the delay in responding to
your request.
FACTS:
AISI Grade 304 cold-rolled stainless steel sheet with either
a No. 2B finish or a BA finish is produced in Japan and sent to
Nippon Metal Services (NIMS) in Singapore, where it is polished
to a No. 8 mirror surface finish. The descriptive literature
from NIMS indicates that the mirror finish Grade 304 stainless
steel sheet ranges in thickness from 0.8 to 3.0 mm, with a width
of less than 1524 mm, and in lengths of less than 8000 mm.
Although you have submitted no information regarding what is
involved in making the stainless steel in Japan, the National
Import Specialist for steel products, provided us with the
following information: stainless steels contain at least 10
percent chromium, with or without the addition of other elements,
and have a principal use in applications requiring resistance to
oxidation and/or corrosion. Type 304 stainless steel falls
within that group of steels known as austenitic stainless steel.
Because stainless steels are sensitive to thermal and mechanical
operations, the control of which is complicated by the varying
effects of different chemical combinations, they require care
during fabrication. The production of stainless steel,
therefore, requires exacting steel making practices. Stainless
steel sheets are produced from semifinished slabs. The slabs are
surface conditioned by grinding or turning. Sheets produced on
continuous mills from slabs are rolled into coils and are
further processed by annealing (heat treating), descaling and
cold reducing to a specified thickness. They are then further
annealed and descaled. Coils or lengths cut from coils may then
be subject to light cold-rolling for a finish on dull or bright
rolls.
The making of the stainless steels begins with the
particular type of melting methods used for stainless steels and
proceeds through the semifinished stage, the hot-rolled stage and
through to the cold-rolled stage. Great care is taken to
preserve a good surface during the heating, cleaning, and rolling
processes so that the final surface will have good stainless
quality. During the cold-rolling stage, the required thickness
and strength is achieved. A "skin pass" between highly polished
rolls produces one of the more frequently used rolled surfaces.
You contend that converting the sheets of stainless steel
with a 2B or BA finish into the stainless steel sheets with a No.
8 finish is a multi-step process, which involves a great deal of
skilled labor and is also very capital intensive. You describe
the processing as follows: the first step in this processing is a
raw material inspection in which the stainless steel sheets are
thoroughly checked for surface defects such as scratches, pits,
streak flaws, and chatter marks. Taper gauges and various other
instruments are used in this inspection because visual inspection
only reveals prominent surface defects. The edges of the sheet
of stainless steel are then deburred with a mechanical disk
grinder to remove roughened ridges caused during the cutting of
the sheet.
In the next step, the surface of the 2B sheets is ground
off with three types of stones which have a progressively lower
level of abrasion. A total of 14 polishing passes are involved
in this step. The edges and whole surfaces are passed separately
three times each through stone grit No. 400. The edges and whole
surfaces are then passed twice each through stone grits No. 800
and No. 1500. The thickness of the sheets are reduced by the
multiple passes used in this stage. This step is accomplished
through a unique "wet polishing" process not believed to be
available in the United States. Specifically, water is
continuously injected onto the surface of the raw material to
prevent excessive heat generation and to rinse away abrasive
metal chips and particles that may scratch the surface.
An intermediate inspection is then conducted to ensure that
any correctable surface impairments discovered in the original
examination have been corrected; and to determine whether the
use of the abrasive stone resulted in new scratches or other
flaws.
Removing the surface with the abrasive stones leaves a
rough marred pattern on the new surface. This is corrected by
black wool felt polishers treated with an abrasive chemical
compound. The whole surface of both sheets undergoes two passes
during this step, which takes ten minutes. This procedure is
accomplished by a wet polishing technique in which water, nitric
acid and aluminum oxide particles are continuously injected
between the polisher and the material. Again the water reduces
friction and prevents a heat reaction that activates the
material surface. Surface activation readies the material for
finer polishing that is required for the No. 8 finish. Aluminum
oxide particles are required in the No. 8 finish.
The steel is next polished to a semi-finished surface using
white wool felt treated with a less abrasive chemical compound.
Seventeen passes and 50 minutes are required for this step. It
is during this stage that the stainless steel begins to take on
its glossy mirror-like finish. The wet polishing process using
water, nitric acid, and aluminum oxide particles is repeated
during this step. This is followed by a second intermediate
inspection to detect fine defects such as seams, fine pits, and
scratches. The surface is then glossed to a No. 8 mirror finish
with a specially made rubber sheet designed for this process. A
third intermediate inspection is conducted to ensure that there
are no defects. This is followed by another inspection by a team
leader. The product is next laminated with PVC strips to protect
its mirror finish from corrosion, fading, scratching and damage
during storage, shipment, and machining in the U.S. to the end
use. The majority of the No. 8 finish sheets are covered with
two laminated strips. The sheet is cut and packaged for export.
It takes a minimum of 161 minutes to put the No. 8. mirror
polished finish on the stainless steel sheets with the 2B finish
and 105 minutes to put the No. 8 polished finish on the stainless
steel sheets with the BA finish. All of the machinery used
during this processing is used exclusively in the production of
the No. 8 mirrored surface stainless steel sheet imported by
Okura and is not capable of producing any other type of finish.
There are no high productivity methods available. NIMS
purchases the 2B and BA stainless steel sheets for [$ ]
per metric ton and sells the finished No. 8 sheets to Okura for
[$ ] per metric ton, which equals about a [ ] increase in
the cost. The product is then sold in the U.S. to ultimate
purchasers for a higher price. The processing of the sheets of
stainless steel results in a change of tariff classification from
a "non-further worked" category to a "further worked" category
under the Harmonized Tariff Schedule of the United States for
steel production operations of substantial magnitude.
AISI Steel Products Manual, Stainless and Heat Resisting
Steels, December, 1974 (including Supplementary Information,
March, 1979), indicates that the No. 8 finish is one of several
polished finishes that can be applied to stainless steel. It is
the most reflective finish that is commonly produced. It is free
of grit lines, and it is widely used for press plates, as well as
small mirrors and reflectors. We have also reviewed the samples
and note that the sample stainless steel sheet with the No. 8
finish is highly reflective with a mirror like appearance. The
sample stainless sheet with the 2B finish also is somewhat
reflective, but it is much duller than the No. 8 finish and is
not as smooth and could not be said to be a mirror.
ISSUE:
Are the sheets of stainless steel with a BA or 2B finish
substantially transformed by the processing done in Singapore
which applies a No. 8 mirror polished finish to the stainless
steel sheets?
LAW AND ANALYSIS:
Country of origin means the country of manufacture,
production, or growth of any article of foreign origin entering
the U.S. (19 CFR 134.1). A commodity's country of origin for
U.S. tariff purposes is the country in which the last substantial
transformation took place. A substantial transformation occurs
when, as a result of processing, a new article of commerce is
created. In Uniroyal, Inc. v. United States, 3 CIT 220, 542
F.Supp. 1026, aff'd 1 Fed. Cir 21, 702 F.2d 1022 (1983), the
Court of International Trade emphasized two factors for
determining when an article was substantially transformed. One,
a substantial transformation occurs when an article has a name,
character or use different than that possessed by the article as
it originally entered the country. Two, a substantial
transformation will not result from manufacturing or combining
processes that are in minor nature and leave the identity of the
imported article intact. A comparison of the processing
performed in the various countries is also pertinent.
In HQ 080139, May 28, 1987, Customs ruled that the polishing
of stainless steel was a minor processing operation which did not
substantially transform the article because the identity of the
material was not altered. Counsel for the importer contends that
the processing completed in this case should not be considered
ordinary polishing because of the extensive and complex
processing involved in applying the No. 8 finish. In this case,
sheets of stainless steel are exported from Japan into Singapore
where they are given the mirror polished finish. Although the
processing may be complex involving considerable time, skill, and
complicated machines, the basic character of the stainless steel
does not change. The commodity is still a sheet of stainless
steel. The Court of International Trade has stated in National
Hand Tool Corp. v. United States, Slip Op. 92-61, April 27, 1992,
that character is defined:
"as one of the essential of structure, form materials
or function that together make up and us[ually]
distinguish the individual." Webster's Third New
International Dictionary (1981).
The importer has not shown that the underlying chemical,
physical, and mechanical properties or structure of the stainless
steel was changed by the polishing operation in Singapore.
Although the article does have a somewhat different appearance,
it is only a change in its surface. The article remains a sheet
of stainless steel. We have carefully reviewed the samples
submitted and note that the major difference in appearance
between the 2B and No. 8 stainless steel is a matter of degree.
The 2B sample also is somewhat reflective but is much duller than
No. 8 finish. The effect of the No. 8 finish is just an
alteration of the veneer of the stainless steel sheet. Such
cosmetic changes in metal products are generally not considered
significant in light of predetermined qualities and
specifications of the stainless steel sheets. See Superior Wire
v. United States 11 CIT 608, 669 F.Supp. 472, aff'd, 7 Fed.Cir.
431, 867 F.2d 1409 (1989). We also note that there is no change
in the shape or form of the sheets of stainless steel.
Although there might be a change in the use of the stainless
steel sheets, it is not the kind of change in use that would
establish that the product was substantially transformed. The
use of the stainless steel is changed only to a minor degree.
Both before and after polishing, the stainless steel can perform
the same physical function. Although buyers of the No. 8
stainless steel sheet may buy it partly for its reflective
properties and its appearance, the buyers are also purchasing it
for the other inherent properties of the stainless steel. This
is illustrated by the fact that if customers only wanted a
reflective surface, they could buy other reflective products such
as mirrored glass. They are also buying the product because of
the other attributes of the stainless steel. The finish is only
one of several factors used in ordering stainless steel. These
other factors include the grade, condition (hot-rolled, cold-
rolled, etc.) dimensions, form (plate, sheet, and strip). The
grade of steel is especially significant because it relates to
the durability of the product.
It is contended that the No. 8 stainless steel has very
limited specialized use by architects on the front of buildings
and that it is too expensive to be used in another way. There
has been no showing that BA or 2B stainless steel could not be
used in the same way except that architects and builders find the
No. 8 finished stainless steel to be more aesthetically pleasing.
However, the polishing does not change the functional capability
of the stainless steel. In other words the products can be used
interchangeably, and grade 304 stainless steel can be put to the
same structural function whether it has a 2B, BA or No. 8 finish
applied to it. We cannot accept that because there is a
particular aesthetic preference for the No. 8 finish, there is a
change in use. Under such a view any finishing or cosmetic
change in the appearance of an article which creates an aesthetic
preference would amount to a change in use for substantial
transformation purposes.
We note that in a brochure submitted by the importer, the
product is described as stainless steel for construction that can
be given different exterior finishes such as mirror finish,
chemicolor, etching art, gp finish, and desta. The main use of
this product remains that of sheets of stainless steel for
construction. Putting on the No. 8 finish on the sheets of
stainless steel is only an enhancement of an already commercially
identifiable product.
There is also no real change in the name of the article.
The article will primarily be called a sheet of stainless steel.
The fact that it has a mirror polish finish applied to it does
not change the name of the article any more than changing the
color of an article would.
Counsel also deals at length about the complexity of the
polishing process, and the increase in the value of the product
to establish it is substantially transformed. Although the
processing may be complex and add significant value, these are
secondary criteria which are not dispositive of a substantial
transformation. See C.S.D. 91-7 (no substantial transformation
of jewelry as a result of electroplating despite added value.)
See also HQ 733604 February 15, 1991 (complexity of the
processing is a factor to consider but not determinative as to
whether replacement automotive glass was substantially
transformed when it was installed). Moreover, the processing
involved in polishing the steel in Singapore is far less involved
than the making of the cold rolled stainless steel in Japan. See
Uniroyal Inc. v. United States, supra
Likewise, a change in a tariff classification, while
supportive of a substantial transformation does not itself
demonstrate that the processing has resulted in a substantial
transformation. See Belcrest Linens v. United States, 6 CIT 204
---F.Supp. (1983), aff'd, 2 Fed.Cir. 105, 741 F.2d 1368
(1984), concerning the change in tariff classification
consideration.
Accordingly, despite the complex processing that may have
been done to the 2B and BA finished stainless steel sheets to put
on the No. 8 mirror polished finish, the products do not lose
their identity and remain sheets of stainless steel. There has
been no distinctive change in name, character, or use of the
product. Therefore, we find that the grade 304 sheets of
stainless steel are not substantially transformed by the
processing in Singapore and their country of origin is Japan.
HOLDING:
The processing in Singapore of putting a No. 8 mirror
polish finish on sheets of grade on 304 stainless steel with a 2B
or a BA finish is not a substantial transformation. The country
of origin of the stainless steel sheet is Japan.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: Area Director
New York Seaport
Att: NIS Division
Paula Illardi