CLA-2 CO:R:CV:G: 085575 JLV
TARIFF NO.:
John C. L. Guyer, Esq.
Reynolds International, Inc.
6603 West Broad Street
Richmond, Virginia 23261
RE: Aluminum drill pipe extruded in one country and threaded
and assembled with steel tool joints in another country;
country of origin; substantial transformation
Dear Mr. Guyer:
In a letter of September 6, 1989, as supplemented by a
letter of February 2, 1990, on behalf of Reynolds
International, Inc., a wholly owned subsidiary of Reynolds
Metals Company, you request a ruling on the country of origin
of aluminum drill pipe that originates in the Union of Soviet
Socialist Republics (Soviet Union), but is processed in
another country prior to importation into the United States.
This letter is our decision on the issue.
FACTS:
The operations performed in the Soviet Union consist of
extrusion and heat treatment. Hollow ingots of aluminum alloy
are extruded on a "piercing" extrusion press. The piercing
extrusion press is a press that has a movable mandrel, the
manipulation of which allows the production of tubing with
varying wall thicknesses. In this case, by controlling the
movement of the mandrel and the rate at which the ingot is
forced through the extrusion dies, tubing with a "heavy" end
is produced. A heavy end is similar to an external upset
forged end on steel tubing because it reduces stress at the
ends where the pipes are to be joined, and allows for the
threading operations while maintaining a constant inner wall
thickness along the length of the tubing. After extrusion,
the seamless heavy end tubing is heated, quenched in a liquid,
and "stretched" to obtain maximum structural integrity.
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The tubing will then be exported to a third country and
will undergo several processes before importation into the
United States. The processing performed in the third country
consists of machining, threading, and hi-flexing of the
tubing, and then attachment of tool joints. Machining is
performed on the ends to ensure concentricity within 0.001
inch; the ends are then threaded with six modified Acme
threads per inch (RH) on a 3/8-inch taper per foot; the
threaded area and the area within ten inches of the threaded
area are then peened to relieve any stress rises and metal
fatigue that may have occurred during threading.
At this point the tubing is completed and ready for the
attachment of steel tool joints. The tool joints, forged in
the United States from special alloy steel and machined
(cleaned and threaded) in Scotland, are either a "box"
(internal threading) or "pin" (external threading) joint which
fits over the threaded ends of the tubing. These tool joints
are described as a "shrink-fit" type, based on a super-shrink
grip type of tool joint. During the assembly of the tubing
and joint, each tool joint is heated to approximately 750
degrees F., screwed onto the tubing, and then cooled
immediately with an external water spray. As the tool joint
cools, the threads, counterbore, land area and gauging
shoulder shrink to a predetermined tightness. During this
process, the inside of the tubing is cooled by water to
prevent heat transfer from the joint to the tubing. After
cooling, the tubing and joint are hydrostatically tested to
ensure the tightness of fit.
The aluminum drill pipe, after attachment of the tool
joints, requires additional processing before it can be used.
The additional processing consists of shot-peening the inner
surface of the pipe and coating of this surface with an anti-
abrasive epoxy material, and will be performed in the United
States.
Although tool joints may be removed, only one of the
components (tubing or tool joints) may be reused. If the
tubing is to be reused, the tool joint is destroyed (machined
off) during the removal. If the tool joints are to be reused,
the mechanical properties of the aluminum tubing (heating and
cooling of pipe end) are destroyed by the heating process.
You state that, depending on the price of aluminum, the
processing in the third country will add approximately 40 to
50 percent of the total value of the aluminum drill pipe.
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This includes, of course, the cost of the tool joints which
represents 62 percent of the processing costs. You conclude,
however, that the multi-step processing and the value added by
the processing in the third country are sufficient to result
in a substantial transformation of the tubing produced in the
Soviet Union. In support of this conclusion, you also note
that the extruded seamless tubing, although identifiable as
tubing for aluminum drill pipe rather than for any other use,
is merely a "producer's product" which is made into a
"consumer's product" by the processing in the third country.
The country of origin, in your opinion, would be the country
in which the further processing takes place.
ISSUE:
Whether heavy end, seamless aluminum alloy tubing is
substantially transformed when processed by machining,
threading, and hi-flexing, and then fitted with tool joints?
LAW AND ANALYSIS:
In a ruling of March 13, 1985 (file 075174), we held that
the upsetting, grinding, threading, and attaching a coupling
to plain end steel tubing does not substantially transform the
tubing. However, in a ruling of February 12, 1988 (file
080101), we held that the friction welding of tool joints to
seamless drill pipe does substantially transform the pipe.
The principal distinction between the two rulings concerns the
permanent change in the character of the tubular product.
Furthermore, the nature of the welding process (and subsequent
heat treatment of the weld) was said to add approximately 200
percent to the cost of the drill pipe. In a ruling of
November 21, 1985 (file 553739), we held that general purpose
pipe was substantially transformed when processed by a
quenching and tempering, upsetting of the ends, threading, and
adding a coupling. In that case, however, it was the heat
treatment that imparted the tensile and yield strengths that
were required for a specific industry application, and,
consequently, changed the character and use of the pipe.
A substantial transformation takes place when the
processing of an article results in a new and different
article which has a new name, character, or use. Anheuser-
Busch Brewing Association v. United States, 207 U.S. 556
(1908). As we concluded in our ruling of March 15, 1985, the
finishing of the ends (threading) of OCTG inner tubing does
not result in a product other than finished OCTG inner tubing.
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For the reasons expressed in that ruling, the machining and
threading of the aluminum drill pipe would not, of itself,
result in a substantial transformation. The character or use
of the pipe has not changed. The extruded aluminum drill
pipe, prior to the machining and threading of the ends, has
the metallurgical and physical properties necessary for the
pipe to be described and known as aluminum drill pipe. It is
not a general-purpose seamless aluminum pipe or tubing which
is changed in name, character or use by the processing.
Although the assembly of the tool joint to the drill pipe
appears to be similar to the assembly of a coupling to the
tubing in our ruling of March 15, 1985 (file 075174), we
distinguish the two types of processing operations and the
character of the articles resulting from the operations.
First, the process is more critically demanding in time and
technique. It requires heating of each joint and cooling of
each end of the aluminum drill pipe during assembly.
Replacement of these tool joints cannot practicably be
performed in a field operation, although we understand that,
when threaded tool joints were regularly used on steel drill
pipe (today the industry generally uses tool joints that have
been friction welded to the steel drill pipe), they were often
attached in the field by means of heating the joint and
cooling the pipe before assembly. The contraction of the
heated joint ensured a tight bond. Tool joints on steel drill
pipe, however, were also removed and replaced in the field.
We distinguish the processing in issue and conclude that
the entire processing constitutes a substantial transforma-
tion. The assembly cannot be reduced to its individual
components without the loss of the use of either the tool
joints or the aluminum tubing. We also note that the assembly
requires an additional process before the drill pipe is ready
for use. The interior of the pipe must be coated with a
molecular-bonded anti-abrasive epoxy material to protect the
aluminum pipe from corrosion. Therefore, even if a tool joint
were removed in the field, the drill pipe would not be used in
regular service until the inner surface were recoated. It is
our understanding that this coating, because of the nature of
the bonding requirements and equipment needed, is not
practicably performed by a field operation.
Secondly, the tool joints on the ends of the aluminum
drill pipe must also be able to withstand all the stresses of
the drilling operations. They are not just connectors such
as, for example, the single coupling attached to the tubing in
our ruling of March 15, 1985, or the single coupling attached
to the rigid electrical conduit of our ruling of February 24,
1986 (file 076950).
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Furthermore, tool joints are a relatively costly
component in the drill string assembly. In this case, for
example, a pair of tool joints costs approximately 40 percent
the cost of a 29-foot section of 5-inch aluminum pipe. As
stated earlier, the assembly of steel tool joints to aluminum
drill pipe requires a more specialized procedure and results
in a more permanent combination than does the assembly of a
coupling to conductor tubing or conduit tubing. Although the
name and use of the plain-end aluminum drill pipe does not
appear to have changed significantly, the character of the
resulting article is different: it is pipe with a permanent
tool joint on each end, and the joints are necessary
functional component that must withstand the stresses of the
drilling operation.
Therefore, we conclude that, under the facts of this
case, the threading of the plain-end sections of aluminum
drill pipe and the attachment of the steel tool joints results
in a product that has a character distinct from that of the
plain-end sections of aluminum drill pipe.
HOLDING:
Plain-end aluminum tubing, extruded from hollow ingots in
the Soviet Union and then machined, threaded, and assembled
with steel tool joints in another country, is substantially
transformed by this processing. Therefore, the resulting
articles are products of the second country and are subject to
the rate of duty applicable to products of the country in
which the machining, threading, and fitting with steel tool
joints is performed.
Sincerely,
John Durant, Director
Commercial Rulings Division
6cc: AD NY Seaport
2cc: Chief, CIE
1cc: Director, Trade Ops
1cc: Durant
1cc: Reading File
1cc: AC, CO
1cc: NIS John Fitzgerald (118)
LIBRARY: valentin
FILE NAME: 085575