MAR 2-05 RR:CR:SM 561744 CW
Mr. Patrick H. Gray General Manager
Uni-Flange
5285 Ramona Blvd.
Jacksonville, Florida 32205
RE: Modification of HRL 734673; country of origin marking; cast iron flanges and fittings; machining; drilling; grinding; assembly; pipe fitting; substantial transformation
Dear Mr. Gray:
This is in reference to Headquarters Ruling Letter (HRL) 734673 dated December 17, 1992, which was issued to you regarding the country of origin marking requirements applicable to imported foreign castings which are processed in the U.S. into ductile iron adapter flanges.
We have reviewed HRL 734673 and believe that the portion pertaining to whether a substantial transformation results from the U.S. processing of the imported castings is incorrect. It is this aspect of the ruling that we are modifying for the reasons set forth below. The portion of the ruling relating to the applicability of the marking requirements for certain pipe fittings under 19 U.S.C. 1304(c) remains in effect.
Pursuant to section 625(c), Tariff Act of 1930, as amended (19 U.S.C. 1625(c)), notice of the proposed modification of HRL 734673 was published on June 7, 2000, in the Customs Bulletin, Volume 34, Number 23.
FACTS:
Two types of ductile iron adapter flanges were discussed in HRL 734673: flanges described as “Series 900, 1300 or 1350” and flanges described as “Series 200, 400, or 420.”
Series 900,1300 or 1350
Two rough castings are imported for each complete unit. Each casting is placed on a special grinding fixture and the mating surfaces are ground smooth. The castings then move to a three part drilling station, where three bolt holes are drilled in each casting. After this drilling, domestic galvanized fasteners are placed in the bolt holes, joining the two halves together. The assembled unit then goes to the cutting lathe, where two machining functions are performed.
First, a machine cut is performed to bring the inside surface to a totally smooth, cylindrical shape. Next, a special serrating tool is inserted into the lathe and the unit receives a series of machine serrations, to exacting standards, on its inside surface. After 100% gauging, the unit is epoxy coated. Additional connecting
hardware (domestic) is added.
Series 200, 400, or 420
A rough, one piece ductile iron casting is imported. This imported casting is placed on a lathe and the outside surface (rim) is machined smooth, followed by the face of the casting. Set screw holes are then drilled and tapped around the perimeter of the casting. Depending on the size, the number of set screw holes can range from 2 to 48. The casting is then placed on a special drilling fixture/template. Domestic set screws are then installed and the casting is epoxy coated.
You contend that the above-described products are excepted from country of origin marking by virtue of the substantial machining, fabrication, finishing, and assembly functions that are performed on each item; however, you intend to mark all containers.
ISSUE:
What are the country of origin marking requirements applicable to the finished ductile iron adapter flanges?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires, subject to certain specified exceptions, that every article of foreign origin imported into the U.S. shall be marked to indicate the country of origin to the ultimate purchaser in the U.S. Part 134, Customs Regulations (19 CFR part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. An ultimate purchaser is defined in section 134.1, Customs Regulations (19 CFR 134.1), as "the last person in the U.S. who will receive the
article in the form in which it was imported." The regulation further
provides that if an imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation. However, if the manufacturing process is merely a minor one which leaves the identity of the imported article intact, 19 CFR 134.1(d)(2) provides that the consumer or user of the article, who obtains the article after the processing will be regarded as the ultimate purchaser.
According to United States v. Gibson-Thomsen Company, Inc., 27 CCPA 267 (C.A.D.98), a U.S. manufacturer is considered to be an ultimate purchaser if a manufacturing process is performed on an imported item so that the item is
substantially transformed in that it loses its identity and becomes an integral part of a new article will a new name, character or use. The court determined that in such circumstances, the imported article is excepted from individual marking. Only the outermost container is required to be marked. See section 134.32(d) and 134.35(a), Customs Regulations (19 CFR 134.32(d), 134.35(a)).
In Midwood Industries v. United States, 64 Cust. Ct. 499, C.D. 4026, 313 F. Supp. 951 (1970), the Customs Court considered the effect of U.S. processing on the country of origin marking requirements of imported steel forgings. Although the edges of the forgings were legibly and conspicuously marked with the country of origin at the time of importation, the country of origin marking was obliterated or destroyed during the course of the domestic processing. The processes involved in finishing the imported articles included cutting, boring, facing, spotfacing, drilling tapering, threading, bevelling, heating and compressing. In certain instances, the flanges were subject to both heating and reducing one end in size and diameter by compression.
The court noted that the imported forgings were made as close to the dimensions of the ultimate finished form as possible. Nevertheless, the court stated that the products remained forgings unless and until converted by some manufacturer into consumers’ goods, that is, flanges and fittings. The court held that the imported forgings and the fittings and flanges made therefrom were different articles of commerce, and the importer/processor was the ultimate purchaser of the forgings.
In HRL 734673, Customs found that the machining operations that were performed on the articles described as the “Series 900, 1300 or 1350” are similar to those involved in Midwood, and determined that the U.S. processing constituted a substantial transformation. Thus, it was determined that the U.S. manufacturer was the ultimate purchaser of the imported castings. HRL 734673 made no decision regarding whether the processing performed to create the flanges described as the “Series 200, 400, or 420” resulted in a
substantial transformation as there was insufficient descriptive information concerning the U.S. processing.
The Customs Service has on a number of occasions expressed its views with respect to the decision in Midwood. More recently, on March 14, 2000, following notice and comment Customs stated, "It is Customs opinion that based on subsequent court decisions applying substantial transformation analysis, Midwood would be decided differently today". Accordingly, we announced that we would no longer be following the analysis in Midwood.
In view of the foregoing, we conclude that the issue of substantial transformation in this case must be decided in accordance with the facts presented applying the reasoning employed by the court in a number of decisions in this area, namely whether a change in name, character, or use has occurred. See Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (CIT 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983); National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993); Superior Wire v. United States, 669 F. Supp. 472 (CIT), aff’d, 867 F. 2d 1409 (Fed. Cir. 1989); National Juice Products Ass’n v. United States, 628 F. Supp. 978 (CIT 1986); Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987).
With respect to the change in name, we note in this case that the imported articles are referred to as “castings” while the finished articles are referred to as “flanges.” However, a change in name by itself is the least persuasive factor and is insufficient by itself to support a holding that there is a substantial transformation. See Superior Wire , 867 F.2d at, 1414.
With respect to the change in use and character, we note that the imported articles are at all times intended for use as flanges and imported in dimensions that are close to their finished form. These factual conclusions are in accord with the facts as adduced by the court in Midwood. While the unfinished flanges are machined to final dimension and subjected to a simple
assembly, we do not believe that such operations amount to a change in the article’s use or character.
Since we do not find a change in character or use, it is our opinion that the importer/U.S. processor is not the ultimate purchaser. Therefore, we find that the ductile iron adapter flanges described as “Series 900, 1300 or 1350 “ processed from imported foreign castings, as described above, will be required to be marked with the country of origin of the casting.
HOLDING:
Based upon the information provided, Customs finds that no substantial transformation results from the U.S. processing of imported castings to create ductile iron adapter flange series 900, 1300, or 1340. Therefore, the ultimate purchaser is the recipient of the completed steel flanges. Accordingly, the subject flanges processed from imported foreign castings, as described above, will be required to be marked with the country of origin of the imported castings. Consistent with this ruling, HRL 734673 dated December 17, 1992, is hereby modified.
In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
John Durant, Director
Commercial Rulings Division