MAR-2-05 RR:TC:SM 559871 MLR
Laurence J. Lasoff, Esq.
John B. Brew, Esq.
Laura A. Svat, Esq.
Collier, Shannon, Rill & Scott, PLLC
3050 K Street, N.W.
Suite 400
Washington, D.C. 20007
RE: Country of origin marking for stainless steel
forgings from Mexico, Italy and Germany; substantial
transformation; Midwood; NAFTA; Article 509
Dear Mr. Lasoff, Mr. Brew, and Ms. Svat:
This is in reference to your letter of May 28, 1996,
requesting a ruling on behalf of your client, concerning
the country of origin marking of stainless steel flanges,
imported from Mexico, Germany, and Italy.
FACTS:
You state that your client imports stainless steel
forgings (also referred to as unfinished stainless steel
flanges), classifiable under 7307.21.10, Harmonized Tariff
Schedule of the United States (HTSUS), from Mexico,
Germany, and Italy into the U.S. In the U.S., the
forgings are machined into stainless steel flanges,
classifiable under subheading 7307.21.50, HTSUS. You
state that stainless steel flanges are generally
manufactured using alloys such as 304/304L and 316/316L.
The five general types of flanges, normally ranging in
size from « to 30 inches, include (i) weld neck flanges
(used for butt-weld line connections), (ii) threaded
flanges (used for threaded line connections), (iii) slip-on and lap joint flanges (used with stub end/butt-weld
line connections), (iv) socket weld flanges (used with fit
pipe into machine recessions), and (v) blind flanges (used
to seal off lines).
In producing a finished stainless steel flanges, you
state that the entire forging is machined, which includes
machining the backside, faceside, outside diameter, and
bore, and drilling the bolt holes.
ISSUE:
What are the country of origin marking requirements
applicable to the finished stainless steel flanges?
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 (or its
container) imported into the U.S. shall be marked in a
conspicuous place as legibly, indelibly and permanently as
the nature of the article (or its container) 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. Part 134, Customs Regulations (19 CFR Part
134) implements the country of origin marking requirements
and exceptions of 19 U.S.C. 1304.
I. Stainless Steel Forgings Imported from Mexico
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 this
part; however for a good of a NAFTA country, the
NAFTA Marking Rules will determine the country of
origin. (Emphasis added.)
Section 134.1(j), Customs Regulations (19 CFR
134.1(j)), provides that the "NAFTA Marking Rules" are the
rules promulgated for purposes of determining whether a
good is a good of a NAFTA country. A "good of a NAFTA
country" is defined in 19 CFR 134.1(g) as an article for
which the country of origin is Canada, Mexico, or the U.S.
as determined under the NAFTA Marking Rules set out at 19
CFR Part 102.
Section 102.11, Customs Regulations (19 CFR 102.11),
sets forth the required hierarchy for determining whether
a good is a good of a NAFTA country for marking purposes.
Paragraph (a) of this section states that the country of
origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic
materials; or
(3) Each foreign material incorporated in that good
undergoes an applicable change in tariff
classification set out in section 102.20 and
satisfies any other applicable requirements of
that section, and all other applicable
requirements of these rules are satisfied.
In this case, the applicable rule is 19 CFR
102.11(a)(3). The finished flanges are stated to be
classifiable under subheading 7307.21.50, HTSUS. The
applicable change in tariff classification for headings
7301-7307 set out in section 102.20(n), Section XV,
Chapters 72 through 83, provides:
7301-7307 ... A change to heading 7301 through 7307
from any other heading, including another heading
within that group.
It is stated that the imported forgings are
classifiable under subheading 7307.21.10, HTSUS.
Therefore, the imported forgings will not undergo the
requisite tariff shift, and 19 CFR 102.11(b) of the
hierarchial rules must be applied, which in pertinent part
provides that:
Except for a good that is specifically described in
the Harmonized System as a set, or is classified as a
set pursuant to General Rule of Interpretation 3,
where the country of origin cannot be determined
under paragraph (a), the country of origin of the
good:
(1) Is the country or countries of origin of the
single material that imparts the essential
character of the good ...
When determining the essential character of a good under
19 CFR 102.11, 19 CFR 102.18(b)(1) provides that only
domestic and foreign materials that are classified in a
tariff provision from which a change is not allowed shall
be taken into consideration. Section 102.18(b)(1)(iii),
Customs Regulations (19 CFR 102.18(b)(1)(iii)), provides
that if there is only one material that is classified in a
tariff provision from which a change in tariff
classification is not allowed, then that material will
represent the single material that imparts the essential
character to the good under 19 CFR 102.11.
Pursuant to 19 CFR 102.18(b)(1)(iii), the single
material that imparts the essential character of the
finished flange is the forging. Accordingly, the country of
origin of the finished stainless steel flange is the country
of origin of the forging, which is Mexico.
II. Stainless Steel Forgings Imported from Italy and
Germany
In regard to the stainless steel forgings imported from
non-NAFTA countries which are finished into flanges in the
U.S., you contend that the finished flanges are not being
marked with their country of origin as required by U.S. law.
In order for the country of origin of the flanges to be
considered the U.S., the work or material added to the
forgings in the U.S. must effect a substantial
transformation. 19 CFR 134.1(b).
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,
and the article is excepted from marking and only the
outermost container is required to be marked. See 19 CFR
134.35(a).
You contend that imported forgings which are machined
in the U.S. are not substantially transformed in the U.S.
when they are made into flanges. In Midwood Industries,
Inc. v. United States, 64 Cust. Ct. 499, 313 F. Supp. 951
(1970), imported rough steel forgings were subjected to
several machining processes by the U.S. importer/processor
such as boring, facing, spot facing, drilling, tapering,
threading, beveling and heating and compressing. The court
pointed out that the rough forgings have no commercial use
in their imported condition because the forgings are used to
connect pipes of a matching size and in their imported
state, the forgings had no connecting ends. It was
determined that the importer/processor was the ultimate
purchaser of the forgings since he substantially transformed
them and the resulting finished flanges and fittings did not
have to carry country of origin marking.
You claim that Midwood is no longer valid law and is
not applicable to the facts presented. You note that the
NAFTA Marking Rules were intended to codify existing country
of origin marking practice on articles imported from any
country as indicated in Customs notice of proposed
rulemaking issued at 59 FR 141 (January 3, 1994), and
further clarified at 60 FR 22,312 (May 5, 1995). In 61 FR
28932, 28933 (June 6, 1996), in connection with the Final
Rule for Determining the Country of Origin of a Good for
Purposes of Annex 311 of the North American Free Trade
Agreement, Customs decided that the proposal to extend
Section 102 to all trade, as reflected in the May 5, 1995,
notice of proposed rulemaking, should not be adopted as a
final rule at this time. Therefore, the NAFTA Marking Rules
do not apply for purposes of country of origin marking
determinations from non-NAFTA countries, and the duly
promulgated NAFTA Marking regulations which do not codify
the Midwood decision, is only applicable for purposes of
determining when a good is a good of a NAFTA country.
The next question to be resolved is whether Midwood is
still applicable to the facts presented. Customs, in
setting forth its rationale for the NAFTA Marking Rules and
in examining Midwood stated that it did not believe that a
court is bound to follow the reasoning of Midwood because
the court's decision involved the manufacturing processes of
only one single company and did not determine whether these
processes were generally prevalent throughout any segment of
the industry in the U.S. See 60 FR 22,315. However, after
notice and comment in the Federal Register, the NAFTA
Marking Rules set forth at 19 CFR Part 102 were not adopted
for all trade, and the Midwood decision, while questioned in
subsequent court decisions, has not been overruled.
Accordingly, to the extent that forgings are not imported
from a NAFTA Party, the NAFTA Marking Rules will not apply.
In the absence of other information that the flanges being
imported from non-NAFTA countries are undergoing operations
that are different from the processes performed in Midwood,
the Midwood case still will be applicable for determining
the country of origin marking requirements. Therefore,
steel flanges processed from forgings of Italian or German
origin, as described above, will not require any country of
origin marking for Customs purposes.
HOLDING:
Based upon the information provided, for the forgings
imported from Mexico, pursuant to 19 CFR 102.18(b)(1)(iii),
the country of origin of the finished stainless steel
flanges is the country of origin of the forging, which is
Mexico. For the forgings imported from Italy or Germany,
pursuant to 19 CFR 134.35(a), the ultimate purchaser of the
forgings is the U.S. processor. Accordingly, steel flanges
processed from forgings of Italian or German origin, as
described above, will not require any country of origin
marking for Customs purposes.
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
Tariff Classification Appeals
Division