MAR 05: RR:CR:SM 561353 JLV/BLS
TARIFF NOS.: heading 7408
Port Director
U.S. Customs Service
135 High Street
Hartford, CT 06103
RE: Request for Internal Advice; country of origin marking of certain wire used in making electrodes; Superior Wire; Ferrostaal Metals; heading 7408; NAFTA; Article 509
Dear Sir:
This is in reference to a letter from counsel dated March 17,1999, and subsequent communications, on behalf of The Wire Works, Inc. ("Wire Works"), requesting a ruling concerning the country of origin marking of certain copper wire imported from Mexico, Germany and Korea.
FACTS:
Wire Works is a Connecticut corporation that manufactures high precision electrode wire sold for Electrical Discharge Machining ("EDM") equipment. The electrode wire is used in precision machining of metal, accurate to plus or minus one ten-thousandths of an inch.
Traditional metal machining cuts a desired pattern on a workpiece by means of milling or grinding techniques in which a cutting device touches the metal workpiece. However, cutting or machining metal with an EDM machine does not require contact with the metal workpiece. Thus, the EDM method uses electrical energy from a power source to create a "spark" between an EDM electrode and the piece of metal to be cut. The EDM electrode allows a spark with a temperature of 8,000 to 12,000 degrees Celsius to be generated that effectively cuts metal without touching it. The cutting is done by the heat generated by the "spark" or what is known as the "discharge" from the EDM electrode. This high temperature "spark" or "discharge" melts the metal and vaporizes it away in a very controlled and precise manner (accurate to plus or minus one ten-thousandth of an inch) that ordinary materials cannot do. An EDM wirecut machine uses a continuously-spooling conducting wire as the electrode to cut away the metal on the workpiece.
The material used by Wire Works to produce the EDM electrode wire is typically brass wire composed of 63 percent copper and 37 percent nickel [although Wire Works lists this alloying material as “nickel,” all brass wires for EDM applications are described in trade literature as containing “zinc” as the alloying metal; as such, for purposes of this ruling, we will consider the brass wire to consist of copper and zinc in the above-stated percentages]. The material ("EDM wire") has a diameter of approximately one millimeter and is shipped in coils ranging from 11 Ibs. to about 44 Ibs. As represented to Customs, the EDM wire is dedicated for use as an EDM electrode wire. Currently, the EDM wire is imported from Mexico. However, Wire Works has also purchased the EDM wire from suppliers in Germany, Korea and the U.S. A short length of 0.9 mm EDM wire and a short length of 0.25 mm electrode wire were submitted.
Processing performed in the U.S.
1. Drawing and Cleaning
During this first step in production of the electrode wire, the EDM wire (having a diameter of about 1.0 mm) is drawn through upwards of 25 diamond dies to reduce the diameter to about 0.25 mm. This smoothes and polishes the surface of the wire which is critical to the EDM process. The wire is cleaned during the drawing process to ensure against the formation of imperfections that can create stress points or cracking in the final EDM electrode wire.
As a result of this "coldworking" process, the "tensile strength" (wire's resistance to stretching) of the electrode is doubled. This is important for an EDM electrode wire because high tensile strength is needed to maintain straightness and geometric accuracy in precision wire EDM cutting and to reduce electrode breaks.
However, the increased tensile strength reduces conductivity by 20% and this effect undermines the ability of the EDM electrode wire to transmit high levels of heat due to the high temperature spark it generates to cut metal. “Conductivity" in this case is the rate the wire "conducts" or transmits heat. Therefore, additional steps are required to restore this property of the wire after the coldworking process.
2. Annealing
As a result of the foregoing processes, cracking and breaking could occur if the electrode wire is not further treated. Therefore, the metal is further treated by a process known as "annealing." Annealing or tempering the electrode wire is done by a heat treatment under a controlled atmosphere within a very narrow temperature range. The annealing effectively relieves the stresses caused from the coldworking by reducing the tensile strength of the metal approximately 10 percent, resulting in an EDM electrode wire that has the conductivity and hardness and strength required for wire EDM machines.
After annealing the EDM electrode wire is further cleaned to remove any drawing fluid or dirt that would impair conductivity or cutting speed, or foul the metal workpiece. The final EDM electrode wire is then precisely spooled on a variety of reels to prevent overlaps, snags or pinches that could cause breakage of the electrode wire during the cutting process on a wire EDM machine.
ISSUE:
What are the country of origin marking requirements for the imported EDM wire from Mexico, Germany and Korea?
LAW AND ANALYSIS:
EDM Wire of Mexican Origin
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 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.
The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the NAFTA, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103 182,107 Stat. 2057) (December 8, 1993) and the regulations set forth in 19 CFR Parts 102, 134. Section 134.1(b) (19 CFR §134.1(b)) of the regulations defines "country of origin" as follows:
* * * 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"; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 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. Section 134.1(g) defines a “good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.
Part 102 of the regulations (19 CFR Part 102), sets forth the NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country. Section 102.11 of the regulations (19 CFR §102.11) sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides the following:
(a) 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 requirements of these rules are satisfied.
Since the EDM wire is neither wholly obtained or produced in a single country nor produced exclusively from domestic materials, §102.11(a)(1) and (2) are not applicable. Therefore, it must be determined whether, pursuant to §102.11(a)(3), the Mexican origin wire undergoes the change in classification required in the specific tariff rule set forth for the good under 19 CFR 102.20. In order to make this determination, it is necessary first to determine the classification of the EDM wire and the electrode wire.
Both the EDM wire and the EDM electrode wire are drawn copper products in coils. Note 1(f) to Chapter 74, HTSUS, assigns, in pertinent part, the following meaning to the term “wire”:
(f) Wire
Rolled, extruded or drawn products, in coils, which have a uniform solid cross section along their whole length in the shape of circles, ovals, rectangles (including squares), equilateral triangles or regular convex polygons (including "flattened circles" and "modified rectangles", of which two opposite sides are convex arcs, the other two sides being straight, of equal length and parallel).***
HTSUS heading 7408 provides for copper wire. The tariff provisions within heading 7408 provide for copper wire made from different copper alloys, not coated or plated, as follows:
7408 Copper wire
* * * * *
Of copper alloys:
7408.21.00 00 Of copper-zinc base alloys (brass)
7408.22 Of copper-nickel base alloys (cupro-nickel) or
copper-nickel-zinc base alloys (nickel silver)
7408.22.10 00 Coated or plated with metal .
7408.22.50 00 Not coated or plated with metal
7408.29 Other:
7408.29.10 00 Coated or plated with metal
7408.29.50 00 Not coated or plated with metal
The EDM wire imported from Mexico is a drawn product that satisfies the definition for wire in Note 1(f) and meets the terms of HTSUS heading 7408 (subheading dependent on a determination of the specific alloy). Further, the sample product submitted by Wire Works is a copper-zinc base alloy within the meaning of HTSUS subheading 7408.21. Note 1(b) to Chapter 74 and Subheading Note 1(a) to Chapter 74, HTSUS. As stated by the importer, the EDM wire is suitable only for further drawing into a finished electrode wire. The EDM wire is classifiable under the provision for copper wire, of copper-zinc base alloys (brass), in HTSUS 7408.21.
The finished electrode wire is achieved by additional drawing and annealing. The finished product, wound onto spools, also satisfies the definition for copper “wire” in Note 1(f) to Chapter 74. The finished product, based on the importer’s statements, is suitable for use only as an electrode wire for EDM wirecut machines. However, inasmuch as it is a drawn product, in coils, with a uniform solid cross-section along the whole length in the shape of a circle, the good satisfies the terms of HTSUS heading 7408. Furthermore, we note that the definition in Note 1(f) does not include the following condition that is found in other definitions (for bars and rods, profiles or plates sheets, strip and foil) in Note 1 to Chapter 74:
* * * provided that they have not thereby assumed [do not assume] the character of articles or products of other headings”
Therefore, it would appear that the definition for wire and the heading text for wire in Chapter 74 includes all forms of copper wire when presented in coils.
However, we must also consider the possible application of Note 1(f) to Section XV, HTSUS, and Note 2 to Section XVI, HTSUS. Note 1(f) to Section XV excludes from classification in Section XV “Articles of section XVI (machinery, mechanical appliances and electrical goods).” Note 2 to Section XVI provides for the classification of parts of machines of Section XVI. Inasmuch as EDM wirecut machines are classifiable in HTSUS subheading 8456.30, parts of EDM wirecut machines, if Note 2 to Section XVI is applicable, would be classifiable in HTSUS subheading 8466.93.
We believe that the exclusion in Note 1(f) to Section XV does not apply because the electrode wire is not “machinery, mechanical appliances or electrical goods.” Note 1(f) does not exclude goods which could be considered as “parts” of such machinery, mechanical appliances or electrical goods. In this respect, we point out that the HTSUS has been clear as to the exclusion of “parts” elsewhere in the HTSUS. For example, in the exclusionary Note 3(k) to Chapter 71, the exclusion specifically identifies “machinery, mechanical appliances or electrical goods, or parts thereof, of Section XVI.” (Emphasis added.) Therefore, the legal text of Note 1(f) to Section XV, which is narrower in scope, was not intended to exclude certain products which, although they could be considered as “parts” by virtue of their use, are clearly defined in the provisions of Section XV.
The electrode wire, when used in an EDM machine, is used as the electrode or source for the electrical discharge. However, in its coiled condition on the spool, it is a wire, just as the EDM wire, imported from Mexico, is a wire. The electrode wire, although used for a specific application, falls within the unrestricted definition in Note 1(f) to Chapter 74 as a coiled wire product.
Assuming, for purposes of this analysis, that the electrode wire could be considered a “part” for purposes of classification in HTSUS heading 8466, we have competing provisions. Note 2 to Section XVI appears to direct classification of parts of machines of Chapters 84 and 85. However, in this case we also have unrestricted language as to the classification of a named product, copper wire. We believe that, in such cases, Additional U.S. Rule of Interpretation 1(c) provides us with the necessary guidance:
ADDITIONAL U.S. RULES OF INTERPRETATION
1. In the absence of special language or context which otherwise requires—
* * * * *
(c) a provision for parts of an article covers products solely or principally used as a part of such articles but a provision for "parts" or "parts and accessories" shall not prevail over a specific provision for such part or accessory; * * *
In this case, HTSUS heading 7408 is not a residual provision for articles of copper. It is a specific provision for copper wire that is defined in Note 1(f) to Chapter 74. The finished electrode wire, even if we were to consider that it is a “part,” is specifically described by the definition for wire. The definition for copper wire is not subject to any conditions such as those found in other definitions of copper products in Chapter 74. The exclusion in Note 1(f) to Section XV is not applicable. Therefore, notwithstanding Note 2 to Section XVI, we believe that Additional U.S. Note 1(c) controls and a provision for parts of an article shall not prevail over a specific provision for such part. In this case the electrode wire would be classifiable in HTSUS heading 7408 as “copper wire.”
Therefore, for purposes of applying the NAFTA country of origin marking rule, the EDM wire imported by Wire Works and the electrode wire that is drawn by Wire Works in the United States are both classified in heading 7408, HTSUS. The specific tariff rule for these goods is set out in section 102.20(n) (Section X\/: Chapters 72 through 83) of the regulations, as follows:
A change to heading 7408 from any other heading, except from heading 7407.
The imported articles do not undergo the requisite tariff shift. Section 102.11(b)(1) provides that, where the country of origin cannot be determined by Section 102.11(a), the country of origin of the good is the country of origin of the single material that imparts the essential character to the good. The country of origin of the EDM wire is Mexico. Therefore, under the NAFTA marking rules, the country of the electrode wire is also Mexico, and the product must be marked accordingly.
EDM Wire of German or Korean Origin
In order to ascertain the marking requirements for EDM wire of non-NAFTA origin, we must determine whether the processing in the U.S. results in a substantial transformation of the imported good. See section 134.1 (b), Customs Regulations (19 CFR §134.1(b)), above. The case of United States v. Gibson Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940), provides that an article used in manufacture in the U.S. which results in an article having a name, character or use differing from that of the imported constituent article will be considered substantially transformed. In such circumstances, the U.S. manufacturer will be considered the ultimate purchaser. The imported article will be excepted from the marking requirements and only the outermost container is required to be marked. (See 19 CFR §134.35, above.) The issue of whether a substantial transformation occurs is determined on a case by case basis.
In determining whether the particular processing operations constitute a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. See, Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
In Superior Wire v. United States, 669 F. Supp. 472 (1987), a , 867 F.2d 1409 (1989), a case frequently cited in Customs administrative decisions, wire rod in coils was shipped to Canada where it was drawn into wire. The resulting product had various applications, but was primarily used for concrete sewer pipe reinforcement. The tensile strength of the final product was increased by approximately 30 to 40 percent as the rod was reduced in cross-sectional area by about 30 percent and was elongated. The evidence indicated that the final product was also “cleaner, smoother, less springy, less ductile, and cross sectionally more uniform." The Court of International Trade determined that the drawing operation did not result in a substantial transformation, pointing out that the properties of the wire rod and its uses were determined by the chemical content of the rod and the cooling processes used in its manufacture, and that the “wire rod dictates the final form of the finished wire." While noting that the commercial names of the product were different, the court stated that this factor "has rarely been dispositive”, and viewed the wire rod and wire as “different stages of the same product."
In affirming the lower court's decision, the U.S. Court of Appeals for the Federal Circuit dismissed Superior's argument that because wire is “cleaner, smoother ... and cross sectionally more uniform" than the wire rod, it had a different character, and found these changes to be primarily cosmetic “in the light of the predetermined qualities and specifications of the wire rod." The court further pointed out that the end use of the wire rod is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawn wire will be used, and that it appeared that if the rod was improperly produced for its intended application, the wire drawing process was incapable of making the product suitable for such use. See also National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff'd, 989 F.2d 1201 (Fed. Cir. 1993) where the Court of International Trade held that certain imported hand tool components cold formed or hot- forged into their final shape before importation did not undergo a substantial transformation as a result of the U.S. processing. As in Superior Wire, the court found relevant that the use of the articles was predetermined at the time of importation.
Customs has relied on the court's rationale in Superior Wire in a number of prior rulings. See, e.g., Headquarters Ruling Letter (HQ) 555705 dated August 26, 1991 (drawing of copper wire, whereby the wire is reduced through a multi stage process from a diameter of approximately .064 in. to a diameter ultimately of approximately .005 in. did not constitute a substantial transformation for purposes of Generalized System of Preferences (GSP); and HQ 560660 dated April 9, 1999 (drawing of glass preform in the U.S. into optical fiber does not result in a substantial transformation of the preform, as the optical characteristics (including attenuation, dispersion, single or multi mode, and wave length) of the optical fiber which will be drawn from the preform are determined by the imported article.
The importer relies upon Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987), for its contention that the annealing process is an important factor in determining whether a substantial transformation has occurred in this case.
In Ferrostaal Metals, the court held that "hot dip galvanizing" full hard cold rolled steel sheet substantially transformed the steel sheet. The process involved two steps: annealing, undertaken to restore the steel's ductility lost in previous cold rolling, and galvanizing, or dipping the steel in a pot of molten zinc, thus changing the steel's chemical composition to improve its resistance to rust.
It is important to note that the court in Ferrostaal did not hold that either the annealing or the galvanizing alone constituted a substantial transformation, but determined that the multiple manufacturing processes effected the requisite changes necessary for a finding of a substantial transformation. Thus, under Customs rulings decided subsequent to Ferrostaal, whether annealing alone results in a substantial transformation has generally depended upon the extent of the heat treatment, in terms of processing time, complexity, the effect on the steel's mechanical properties and uses, and the capital costs and value added by the treatment.
Thus, Customs has held that annealing which is not extensive or complex, and does not transform or narrow the uses of the article is not a substantial transformation. See HQ 555103 dated February 2, 1989 (solution quenching and annealing stainless steel bars and wire rod, which maximizes softness, ductility, and corrosion resistance in the steel, does not constitute a substantial transformation, where steel retains its multi functional utility); and HQ 554592 dated April 11,1988 (an annealing process designed to merely restore ductility to steel is distinguishable from an annealing operation designed to upgrade a product by radically altering the tensile and yield strengths of the original product, the latter constituting a substantial transformation).
In HQ 557200 dated May 17, 1993, the issue was whether there was a double substantial transformation of aluminum rod for purposes of the 35% value content requirement under the GSP. The aluminum rod, measuring 3/8 inches in diameter, was imported into Mexico from the U.S. for the purpose of producing insect screening. In Mexico, the aluminum rod was reduced from 3/8 inches in diameter to 0.187 inches in diameter through a drawing process, which involved forcing the wire through a diamond die in eight different reduction steps. The wire was then drawn from 0.187 inches to 0.064 inches in a second drawing machine in seven different reduction operations. The wire rod then underwent an annealing process (heat treatment) to relieve the stress as a result of the drawing process. After the annealing process, the wire underwent 16 different reductions from 0.064 inches to 0.011 inches or 0.0085 inches, depending upon customer specification. The wire was then wound onto spools. A final heat treatment was applied to the wire to alleviate stress from the previous drawing process.
In HQ 557200, Customs held that that the character and use of the aluminum rod was not changed by the drawing/heating process, and that accordingly, at this stage the processing did not result in a substantial transformation of the aluminum rod (Customs did find a single substantial transformation in the weaving stage where the wire was woven by machine into aluminum insect screening).
Similarly, we find that the drawing/annealing process in this case does not result in a change in character or use of the imported wire. Thus, the chemical and other attributes of the finished EDM electrode wire, i.e., its character, are predetermined by the qualities and specifications of the imported EDM wire. The annealing process does not appear to be a major process, as it is designed to merely restore ductility to the EDM electrode wire, and thus is distinguishable from an annealing operation designed to upgrade a product by radically altering the tensile and yield strengths of the original product. Further, as in Superior Wire, supra, the imported wire in this case is dedicated to use as an EDM electrode, and dictates the final form of the finished product. Thus, the EDM wire and EDM electrode wire are "different stages of the same product.” We also note that in National Hand Tool, supra, the court dismissed as a basis for a substantial transformation the value of the processing, stating that the substantial transformation test utilizing name, character and use criteria should generally be conclusive in country of origin marking determinations, and that this finding must be based on the totality of the evidence.
Consequently, based on application of the criteria of name, character and use, we find that the drawing and annealing processes in the U.S. do not result in a substantial transformation of the imported EDM wire. Therefore, the country of origin of the EDM electrode wire will be either Korea or Germany, the country of origin of the imported EDM wire, and the product must be marked accordingly.
HOLDING:
1) EDM wire imported from Mexico does not undergo the applicable tariff shift under 19 CFR §102.20 when processed into EDM electrode wire in the U.S. Therefore, the country of origin of the completed electrode wire will be Mexico, the country of origin of the imported EDM wire, and the product must be marked accordingly.
2) EDM wire imported from Korea or Germany does not undergo a substantial transformation as a result of the drawing and annealing processes in the U.S. Therefore, the country of origin of the completed electrode wire will be either Korea or Germany, the country of origin of the imported EDM wire, and the product must be marked accordingly.
Please advise the internal advice applicant of this decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.
Sincerely,
Myles B. Harmon
Acting Director
Commercial Rulings Division