CLA-2 CO:R:C:S 558825 MLR
Mr. Les Whitver
Quanex Corporation
Gulf States Tube Division
P.O. Box 952
Rosenberg, Texas 77471
RE: Country of origin marking of small diameter carbon and alloy
seamless condenser, heat exchanger, boiler, superheater and
mechanical tubes; tube hollows; cold drawing; annealing;
normalizing; tempering
Dear Mr. Whitver:
This is in response to a letter received from Mr. Lynn E.
Branan dated October 4, 1994, requesting a ruling regarding the
country of origin marking of certain drawn tubing.
FACTS:
Gulf States Tube Division of Quanex Corporation ("Gulf")
contemplates purchasing foreign hot rolled tube hollows
(generally from Germany or France) and cold drawing them to
different sizes in the U.S. The country of origin marking may be
on bundle tags or be paint stencilled on the tube hollows,
depending on their size. The foreign tube hollows will meet
specification no. TH 201S, and are basically described as
follows. The outside diameters ("O.D.") are: .840", 1.050",
.1315", 1.660", 1.900", 2.2375", 2.875", 2.5", 3.5", 4.0", and
4.5". The wall thickness of the tube hollows ranges from .109"
to .250" (some may go up to .350"). The tube hollows will be
purchased as either a non-alloy or an alloy hot finish seamless
tube or pipe depending on the chemical analysis (the chemical
composition of the steel is indicated in table 2 of specification
TH 201S). It is also stated that no mechanical properties are
specified except the hardness of the tubing shall not exceed 90
HRB.
The tariff classifications provided for the imported tube
hollows are expected to be as follows: subheading 7304.39.00,
Harmonized Tariff Schedule of the United States (HTSUS), for
circular seamless non-alloy pipe and tubes, black with O.D. less
than 38.1 millimeters (mm); subheading 7304.39.00, HTSUS, for
circular seamless non-alloy pipe and tubes, black with O.D. less
than 38.1 mm up to 114.3 mm and wall thickness less than 6.4 mm;
subheading 7304.59.80, HTSUS, for circular seamless alloy pipe
and tube with O.D. of 38.1 mm of less; subheading 7304.59.81,
HTSUS, for circular seamless alloy pipe and tube with O.D. of
over 38.1 mm up to 114.3 mm and wall thickness less than 6.4 mm;
and subheading 7304.59.60, HTSUS, for heat resisting (5 percent
Cr) pipe and tube.
The cold drawing first involves pickling and lubing, and
then passing the tube hollow through a die one or two times (to
reduce and control the O.D.) and over a mandrel (on the inside of
the tube). Each cold draw pass can amount to a 25-45 percent
reduction of area; however, sometimes two cold draw passes are
required depending on the starting shell size and finished size
desired. After cold drawing, the tube will be annealed or
normalized and tempered depending on the grade and specifications
desired. It is stated that this heat treatment removes the cold
work that has been introduced into the tubes during cold drawing.
(Cold working stiffens the structure and makes it hard and not
ductile.) The annealing or normalizing and tempering also
recrystallizes the metal structure and develops the required
mechanical properties (tensile, yield, hardness and ductility
etc.).
Depending on the grades, the finished tubes can be applied
to the following American Society for Testing Materials (ASTM)
specifications: A179 (seamless cold-drawn low-carbon steel heat-exchanger and condenser tubes); A209 (seamless carbon-molybdenum
alloy-steel boiler and superheater tubes); A213 (seamless
ferritic and austenitic alloy-steel boiler, superheater, and
heat-exchanger tubes); A334 (seamless and welded carbon and
alloy-steel tubes for low-temperature service); A200 (seamless
intermediate alloy-steel still tubes for refinery service); A199
(seamless cold-drawn intermediate alloy-steel heat-exchanger and
condenser tubes); A192 (seamless carbon steel boiler tubes for
high-pressure service); A210 (seamless medium-carbon steel boiler
and superheater tubes); A519 (seamless carbon and alloy steel
mechanical tubing); and A556 (seamless cold-drawn carbon steel
feedwater heater tubes). The various specifications listed set
forth the chemical composition required. These basically
correlate to the chemical composition of the imported tube
hollows set forth in table 2 of specification TH 201S. The
hardness specifications range from 72-100 HRB.
The tariff classifications provided for the finished cold
drawn products for condenser, heat exchanger, boiler, superheater
and mechanical tubing are: subheading 7304.39.00, HTSUS, for
carbon; subheading 7304.59.20, HTSUS, for alloy; and subheading
7304.59.20, HTSUS, for heat resisting (5 percent Cr).
ISSUE:
Whether the foreign tube hollows cold drawn in the U.S. are
substantially transformed.
LAW AND ANALYSIS:
The marking statute, section 304, 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 will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article. Congressional intent in
enacting 19 U.S.C. 1304 was "that the ultimate purchaser should
be able to know by an inspection of the marking on the imported
goods the country of which the goods is the product. The evident
purpose is to mark the goods so that at the time of purchase the
ultimate purchaser may, by knowing where the goods were produced,
be able to buy or refuse to buy them, if such marking should
influence his will." United States v. Friedlaender & Co. Inc.,
27 CCPA 297, 302, C.A.D. 104 (1940). Special marking
requirements for certain tubes and pipes are set forth at 19
U.S.C. 1304(c).
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 the meaning of the marking laws and
regulations.
For country of origin marking purposes, a substantial
transformation of an imported article occurs when it is used in
the U.S. in manufacture, which results in an article having a
name, character, or use differing from that of the imported
article. In such circumstances, the manufacturer or processor in
the U.S. who converts or combines the imported article into the
different article will be considered the "ultimate purchaser" of
the imported article.
Gulf claims that the tube hollows undergo a substantial
transformation in the U.S. because, as imported, they are
dedicated for use to be cold drawn to smaller sizes, and they
generally will not meet the final specifications desired because
their dimensions, surface finish, and mechanical properties are
not in compliance. Furthermore, it is stated that annealing or
normalizing and tempering recrystallizes the metal structure and
develops the required mechanical properties.
In regard to drawing processes, in Superior Wire v. United
States, 669 F. Supp. 472 (CIT 1987), aff'd 867 F.2d 1409 (Fed.
Cir. 1989), it was held that drawing wire from wire rod through a
multi-stage process did not constitute a substantial
transformation of the wire rod, even though the physical
properties of the wire rod, and therefore its use, were affected
as a result of the processing. The court found that while the
wire rod and processed wire had different names and identities in
the industry, they were essentially different stages of the same
product. The wire that emerged from the drawing process was
stronger and more round than the wire rod; however, because these
properties of the wire, which affected the use to which it could
be put, were predetermined by the chemical content of the rod and
the cooling process used in its manufacture, the court found that
wire drawn from the rod was not a new and different product, but
the last stage in the processing of the same product. The lower
court found that because the "parameters" of the strength
characteristic of the final product were metallurgically
predetermined in the fabrication of the rod, no significant
change in character or use was found to have occurred as a result
of the cold-drawing process. 669 F. Supp. 472, 480. In support
of its finding that the final product was predetermined by the
metallurgy of the rod, the Federal Circuit noted that if the rod
was produced improperly for its intended application, the wire
would be incapable of making the product suitable for such use.
In regard to annealing and galvanizing processes, in
Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT
1987), the court considered whether the country of origin of
cold-rolled steel sheet manufactured in one country was changed
by annealing and galvanizing (continuous hot-dip galvanizing) it
in another. The court found that strength and ductility
constituted important characteristics of the steel and that
annealing significantly affected the character by dedicating the
sheet to uses compatible with the strength and ductility of the
steel. The court also found that substantial changes in the use
of the steel sheet occurred as a result of the continuous hot-dip
galvanizing process. In particular, the court noted that the
annealing and galvanizing processes resulted in a change in
character by significantly altering the mechanical properties and
chemical composition of the steel sheet. Inasmuch as the
continuous hot-dip galvanizing process effected changes in the
name, character and use of the processed steel sheet, the court
held that the country in which the processes were performed
became the country of origin of the processed sheet.
However, it is important to note that the court in
Ferrostaal did not hold that either the annealing or the
galvanizing process alone caused the substantial transformation
of the steel sheet, but determined that the multiple
manufacturing processes effected the requisite changes necessary
for a finding of a substantial transformation. This distinction
was recognized in Headquarters Ruling Letter (HRL) 555247 dated
January 11, 1990, which held that annealing stainless steel hot
bands in the U.S. Virgin Islands to create stainless steel sheet
and plate did not substantially transform the hot bands into
"products of" the insular possession for purposes of General Note
3(a)(iv), HTSUS.
Under prior Customs rulings, whether annealing results in a
substantial transformation has generally depended upon the extent
of the heat treatment, in terms of the effect on the steel's
mechanical properties and uses. Customs has ruled that if the
heat treatment alters its mechanical properties to a significant
extent, transforming a multifunctional article into one suited
for specific uses, or transforming an article suitable for one
use into one suitable for another, then the product is
substantially transformed. See HRL 951473 dated April 24, 1992
(cold-rolled steel sheet, meeting ASTM A366 specification,
annealed, hot-dipped galvanized, and then painted with a de-oxidizing mixture (passivation), then meeting ASTM A527
specification, was found to be substantially transformed).
Conversely, a heat treatment which is not extensive or
complex, and does not transform or narrow the uses of the article
is not a substantial transformation. See HRL 555103 dated
February 2, 1989 (solution (water) quenching and annealing
stainless steel bars and wire rod, which maximized softness,
ductility, and corrosion resistance in the steel, did not
constitute a substantial transformation, where the steel retained
its multifunctional utility); and HRL 730648 dated August 14,
1987 (stainless steel pipe which was annealed, restraightened,
and pickled was not substantially transformed).
Several other rulings have also addressed processes similar
to those at issue here. In HRL 555736 dated July 2, 1991,
hot-rolled steel coils were subjected to a pickling process, the
pickled hot bands were then processed through a cold reversing
mill to reduce the thickness from 50 to 80 percent so as to
create a surface finish that can be processed successfully on a
hot-dip metallic coating line. The steel then proceeded to a
continuous hot-dip coating line where the steel was annealed and
hot-dipped into a protective anti-corrosive metal coating such as
zinc or an aluminum-zinc alloy (i.e., this process is known as
galvanizing). The galvanized steel strip then proceeded to an
organic coating or prepaint line capable of applying a two-coat
paint system. Upon completion of all the above-described
operations, the steel strip met ASTM standards A792 and A792M.
Based upon the rationale in Ferrostaal, a substantial
transformation was found because the steel was subjected to a
continuous hot-dip galvanizing operation which made it less
strong but more ductile, the distribution of carbon and nitrogen
was affected, and the steel was protected against corrosion.
In HRL 084538 dated July 26, 1989, cold finished steel bars
were made from hot rolled carbon steel bars in Canada. In
Canada, the processes included acid cleaning, rinsing, dipping in
lime, baking, and drawing once through a tungsten carbide die,
after which it was tested, straightened, and cut to length. The
processing increased the tensile strength of the bars and reduced
its cross-sectional area between 4 to 21 percent. The cold
finished steel bars were then suitable for machining into cogs,
gears, fasteners, automotive parts, plumbing fixtures, and other
parts, as well as for subsequent heat treatment, or in their
finished condition in the construction industry. It was found
that the reduction in cross-sectional area was minimal and was in
the nature of a finishing process which imparted the final
dimensional tolerances and consistency of mechanical properties,
and did not dedicate the product to a use or uses for which it
was unsuited in its condition as hot rolled bar. In addition,
while the processing increased the tensile strength of the cold
finished bar, the parameters of the strength increase were
metallurgically predetermined in the creation of the steel billet
and very specifically through the fabrication of the hot rolled
bar. Therefore, it was held that no significant or material
change in character or use occurred in the hot rolled bar as a
result of the drawing operation; accordingly, no substantial
transformation occurred in Canada.
Lastly, in HRL 558831 dated January 31, 1995, certain wire
was considered, which was mechanically descaled, cold drawn
through a series of dies, annealed to restore its original
structure, and cleaned and coated with a lubricant. Relying on
Superior Wire, it was held that because the properties of the
imported wire rod dictated the final form of the finished wire,
no substantial transformation occurred.
We believe that the rationale in Superior Wire is
controlling as to whether a substantial transformation occurs
when the imported tube hollows are cold drawn in this case. As
in Superior Wire, we find that the imported hollows dictate the
final forms of the finished products, and the chemical
compositions and hardness specifications of the imported tube
hollows predetermine their final use. Although the tube hollows
are also annealed, we find that this operation, as it is stated,
basically removes the cold work that has been introduced.
Accordingly, since the operations performed in the U.S. appear to
be in the nature of finishing operations, we do not find that
they constitute a substantial transformation. Therefore, Gulf
States is not the ultimate purchaser and the finished tubes will
be required to be marked in accordance with 19 U.S.C. 1304(c)
with the country in which the hollows were manufactured.
According to 19 U.S.C. 1304(c), paint stencilling is an
appropriate method of marking. The marking requirements may also
be satisfied by tagging the bundles of the small diameter product
which has been determined to include fittings that have a nominal
diameter of one-fourth inch or less, and pipe with an inner
diameter of 1.9 inches or less. T.D. 86-15.
HOLDING:
Based upon the information provided, we find for purposes of
19 U.S.C. 1304, the processing in the U.S. of the imported tube
hollows in the manner set forth above does not constitute a
substantial transformation; therefore, the finished tubes will
require marking with the country in which the hollows were
manufactured.
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are 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