OT:RR:CTF:VS JMV H308208
Jason M. Waite, Esq.
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt
303 Peachtree Street, N.E.
Suite 2980
Atlanta, Georgia 30308
RE: Country of origin marking for imported castings incorporated into
different types of regulators, transducers, and valve positioners; substantial transformation, assembly, 19 CFR 134.35(a)
Dear Mr. Waite:
This is in reference to Headquarters Ruling Letter (“HQ”) 561405, issued to Marsh Bellofram Corp. (“MB”) on October 23, 2001, concerning the country of origin marking for imported castings incorporated into different types of regulators, transducers, and valve positioners. In that ruling, U.S. Customs and Border Protection (“CBP”) found the imported castings were substantially transformed when combined with the U.S. components in the United States to make the finished pressure controlling devices and therefore, the imported castings were excepted from having to be individually marked with their country of origin. CBP based this decision, in part, on HQ 561745, dated July 20, 2000, which was rescinded on September 19, 2000. See 34 Cust. Bull. & Dec., No. 39, 40-41, September 27, 2000. Therefore, we hereby modify HQ 561405 to remove reference to HQ 561745. The finding of HQ 561405 that the imported castings are substantially transformed in the United States and are excepted from marking requirements is unaffected.
On November 11, 2020, CBP published its proposed modification of HQ 561405 in the Customs Bulletin, Volume 54, Number 44, pursuant to section 625(c), Tariff Act of 1930, (19 U.S.C. 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub.L. 103-182, 107 Stat. 2057, 2186 (1993). No comments were received in response to the proposed modification of HQ 561405.
FACTS:
The imported products that are the subject of HQ 561405 are castings, which are incorporated in five types of finished products: spring-loaded regulators, dome-loaded regulators, pilot-operated regulators, transducers and valve positioners. MB makes several different models within each of these general categories of products. Each model may have different engineering features that allow for varying applications. However, HQ 561405 only discussed the finished products in terms of the five general categories.
REGULATORS
Certain of the castings MB imports are used in the manufacture of pressure-limiting devices called regulators. MB described their use as follows: a supply pressure on one side of a nozzle is reduced to a preset output pressure by compressing a control load, often exerted by a range spring, to produce a force equal to and opposite to the force the output pressure exerts on the other side of a diaphragm assembly. Functionally, when there is an imbalance between the output pressure and the control load, there is a corresponding reaction in the diaphragm and nozzle assemblies. If the output pressure rises above the pressure set by the control load, the diaphragm seat is Iifted from the plug, venting the excess pressure to the atmosphere until equilibrium is reached. If the output pressure drops below the pressure set by the control load, the control load mechanism acts through the diaphragm assembly unseating the nozzle plug and allowing the supply pressure to flow through the nozzle to the down stream port increasing the output pressure.
Typical applications for the type of pneumatic pressure regulators that MB produces include: medical ventilators, robotic balancing arms, vibration isolation systems, tank blanketing systems, inert gas purging, air motors, natural gas engines, and burner controls.
SPRING-LOADED REGULATORS
MB imports castings for use in 11 types of regulators that fall into three distinct categories. The majority of MB’s regulators are spring loaded. In a spring-loaded regulator, the control load is set by a range spring. MB has provided a process sheet describing what must be done to produce a representative Type 41 spring-loaded regulator. The imported casting in the Type 41 is called the bonnet. In the United States, two are holes tapped in the bonnet, and it is combined with a U.S.-produced bushing. In making the Type 41 regulator, a second casting of U.S. origin called the body is used. This casting is sanded, reamed, has holes tapped in it, and is center drilled. Other components in the Type 41, such as the knob, must be assembled with a nut before being ready for use in producing the finished regulator. Another process sheet describes the individual packaging of a pipe plug, which is provided separately with each Type 41 regulator. The last process sheet applies to a particular part number, and it describes the steps necessary to produce the finished regulator.
The process to produce the finished regulator includes positioning the diaphragm assembly, spring and spring guide onto the body; then positioning the bonnet before removing temporary build pins and driving and applying torque to four build screws. The assembled regulator then undergoes performance checking in accordance with quality control specifications. This entails visual checks, leakage tests, setting supply pressure and then recording output pressure to ensure that the device is performing with the critical precision that is demanded of it. Following the testing, the device is prepped for painting. Lubricant is also applied to the threads of the knob before it is installed in the regulator. Labels are subsequently attached.
DOME-LOADED REGULATORS
The second type of regulator that MB makes is called a dome-loaded regulator. These regulators are controlled through the use of dome-pressure transmitted through a diaphragm to provide the desired output pressure. MB provided an assembly diagram which includes a parts instruction diagram from the booklet provided with a sample Type 75 dome-loaded regulator. The diagram indicates that there are two imported castings used in making the Type 75 regulator--the body assembly, and a spacer. It also shows that there are many other parts involved in the production of the instrument. We understand that all of these other parts are of U.S. origin.
In the United States, the imported body casting in the Type 75 regulator is fitted with a set assembly 0-ring using special lubricant. Then a screen, a pintle-ring, and a rubber gasket are all set into the body. Finally, another O-ring and baffle guide as well as a baffle plate assembly are installed in the body. The other imported casting, a spacer, is machined, has a hole drilled in it and is sanded and washed to ready it for assembly.
The Type 75 regulator also includes a domestically sourced casting, the bonnet. This casting has a center hole tapped in it, while another component, a piston, must be machined, drilled cut and washed before being ready for use in making the finished regulator. A diaphragm is incorporated into the Type 75 regulator. Making the diaphragms is a complex process that entails forming fabric and elastomers according to specifications, then combining them, shaping them and incorporating them onto a diaphragm assembly that can be built into a Type 75 regulator. The process of producing the finished regulator includes: installing the lower diaphragm assembly after applying 0-ring lube to the lip seal, installing the spacer, installing the upper-diaphragm assembly in perfect alignment, positioning the bonnet, and then installing six build screws. The assembled regulator then undergoes performance checking in accordance with quality control specifications. This entails visuals checks, leakage tests, and setting supply pressure, then recording the output pressure to ensure that the device is performing with the critical precision that is demanded of it. Following the testing, the device is painted and labels are subsequently applied.
PILOT-OPERATED REGULATORS
MB also manufactures pilot-operated regulators that utilize an atmospheric reference capsule to create a pilot pressure on the topside of the diaphragm. The Type 10 and Type 20 regulators are pilot operated. One of the imported castings in the Type 10 regulator, called the body, is drilled and tapped in several places before it is painted. It is then placed in a fixture where a seat is pressed into the body. This processing is necessary as detailed in the particular part’s process sheet, to prepare the body casting for use in the production of the finished Type 10 regulator.
Another imported casting used in making the Type 10 regulator, the spacer, is inspected and painted. A third imported casting, the housing, must be drilled and tapped, before being painted. Then a seat ring is pressed into the housing and a pintle is inserted through the seat ring into the spring slot where the spring is fastened to the housing. A bleed screw is also installed into the housing after it has been assembled with an O-ring, a silencer and an orifice disk. This processing is necessary to prepare the housing for the final assembly of the finished regulator.
A domestically-sourced casting, the bonnet, also undergoes painting, and it has a bushing pressed into it before the capsule is assembled into it. The capsule consists of a top shell and a bottom shell that are both heat-treated before they are used. The top shell has a shaft screw welded to it before the bottom shell is welded to it in three places. The capsule as prepared is tested for leakage. The diaphragm production method sheet describes the formula used to make the necessary fabric and elastomer combination and the dimensions it is formed into. Then the diaphragm is assembled with a piston upper, piston lower, seat, two washers and a staking operation. When the diaphragm assembly is completed, it is specially taped for packaging protection while awaiting final assembly.
The processing necessary to produce the finished Type 10 regulator includes positioning the diaphragm assembly in the body assembly. A coil spring is then placed in the housing assembly. The bonnet assembly is then attached to a gasket using an air driver and four build screws. The assembled regulator then undergoes performance checking in accordance with quality control specifications. This entails visual checks, leakage tests, and setting supply pressure, then recording output pressure to ensure that the device is performing with the critical precision that is demanded of it.
TRANSDUCERS
Another product that MB makes is called a transducer. Transducers are used as a means to convert an electrical signal to a proportional pneumatic pressure. The use of a transducer allows a computerized control system to react to changes in a process. Like regulators, transducers provide a desired output pressure by comparing the actual output pressure to the commanded output pressure and adjusting the actual output pressure as required. Typical applications for electro-pneumatic transducers are position control, chemical processing, louver/damper control, variable pitch fans, breaking systems, pulp bleaching, and porous media test systems.
While regulators use a range spring or pilot pressure to create the control load against which output pressure is balanced on the opposite side of a diaphragm assembly, transducers utilize electrical input signals to operate the nozzle and the diaphragm and maintain a set output pressure. MB imports castings for use in three transducers--the Type 1000, 1001, and 2000.
You indicate that the Type 1000 transducer is representative of all of the transducers, but it is generally one of the least complex and least expensive of the transducers. You have attached a detailed assembly diagram of the Type 1000. The drawing shows the castings that are used in the Type 1000, and also shows that many other parts are necessary for the production of these devices. One of the imported castings in the Type 1000, the housing, is repeatedly drilled and tapped to specifications before it is subject to an assembly operation described on the process sheet for part number 232-802-000-048. Another imported casting, the spacer has an eyelet pressed into it. A domestically-sourced casting, the body, is drilled and tapped to specification before being placed in a fixture where a seat is pressed into it. Then a pintle with a half-ball is placed into the body. Finally, a spring is assembled into the body. This necessary processing, as detailed in a process sheet, is to prepare the body casting for use in producing the finished Type 1000.
MB has also included the detailed process sheets describing the preparation of a magnet assembly, coil-pin assembly, heat-treated flexure spring, and coil/spring assembly. The Type 1000 also requires that a diaphragm be made using the method sheet formula. The diaphragm is assembled with a large piston, small piston, seat, two washers and a staking operation, and then coined to a specified depth using an air press. The worm, orifice, the relay, and tubing are subject to processing and or subassembly before they are prepared for assembly into the Type 1000 transducer. You state that the final assembly process alone is highly complex and involves the precise combination of the several other subassemblies that are produced. Finally, the Type 1000 undergoes extensive testing.
VALVE POSITIONERS
Valve positioners are devices which receive a pneumatic command signal at the input port and thus provide an output pressure signal to an actuator until the positioner receives mechanical feedback that the actuator has reached a position proportional to the pneumatic command signal. MB imports castings for use in two valve positioners, the Type 80 and Type 86. The Type 80 gets mechanical feedback through an extension spring or a flat coiled rotary spring. The Type 86 gets mechanical feedback through a mechanical arm or a universal coupling.
An assembly diagram and a part list/diagram from the booklet that comes with the Type 80 valve positioner shows the castings that are used in building the Type 80. The drawings also show that many other parts are necessary for the construction of these devices. One of the imported castings in the Type 80, the bonnet, is machined and painted and then assembled to a signal spacer equipped with a diaphragm. The signal spacer itself is drilled, sanded, has specific dimension holes tapped and sunk in it, and is painted. Another imported casting, the housing, is drilled and reamed to specification. It is then painted, an orifice is put into it, and tube and eyelets pressed into it. A third imported casting in the Type 80, the body, has holes of a specific dimension tapped in it, and is painted before being fitted with a seat, a pintle to which a half ball is affixed, a spring and pipe plugs. The seat must be prepared for use by crimping a nozzle in it. The baffle must be painted. A manifold must be reamed and tapped to specification and then have a plug pressed into it before being painted.
An included method sheet describes the process of producing the diaphragm that must be incorporated into the finished Type 80. Making diaphragms entails forming fabric and elastomers according to specification and then combining them, shaping them and incorporating them onto a diaphragm assembly that can be built into a type 80. The diaphragm assembly involves the preparation of rubber according to precise formulas, and then assembling the rubber diaphragm into a fixture with a washer using a press.
After all of these component parts have themselves have been prepared for assembly into the finished Type 80, a subassembly of the valve positioner is built using the body assembly, spring, housing, bonnet assembly, build screws and the clevis assembly. The baffle and the manifold are attached to each other before being mounted to the valve positioner subassembly. The finished product then undergoes careful testing.
MB has also provided its opinion as to how the imported castings should be classified under the Harmonized Tariff Schedule of the United States (“HTSUS”). For purposes of this ruling, we are assuming that your proposed classification of the articles is correct. You indicate that the regulators, transducers and valve positioners are classifiable under subheading 9032.81.00, HTSUS and the imported castings specifically designed for use with particular regulators, transducers or valve positioners are classifiable in subheading 9032.90.60, HTSUS, which is currently 9032.90.61.
ISSUE:
Whether the imported castings are substantially transformed when they are used to produce regulators, transducers, and valve positioners in the United States as described above.
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 United States shall be marked to indicate the country of origin to the ultimate purchaser in the United States 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 United States 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 that 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 Sections 134.32(d) and 134.35(a), Customs Regulations (19 CFR §134.32(d), 19 CFR 134.35(a)).
If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred and an appropriate marking must appear on the imported article so that the consumer can know the country of origin. See Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982). Assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See C.S.D. 80-111, C.S.D. 85-25, and C.S.D. 90- 97.
The court noted in Uniroyal that the imported article, an upper, in its condition as imported, was a complete shoe (except for the absence of an outsole) that had “already attained its ultimate shape, form and size” and was “the very essence of the completed shoe.” The other factors considered by the court included the time involved in the combining process, the significantly less costly nature of the combining process and that five highly skilled operations were involved in making the upper while only one highly skilled operation was necessary to attach the upper and the outsole.
The finished products involved in this case fall into three basic categories: regulators, transducers and valve positioners. Within these basic categories there are various models, each of which may perform different functions and may be used in different applications. Although the processes involved in producing the various regulators, transducers, and valve positioners described in the ruling request differ to a certain extent, it appears that their production basically involves the use of one or more imported castings that usually are processed in the United States through different types of machining and various other operations before they are combined through an assembly process with U.S. made components to produce the finished products.
In HQ 732940 dated July 5, 1990, CBP considered water pump assemblies comprised of 6-8 components including a casting, bearing, impeller, hub, seal, mounting gasket, and in some cases, a spacer, and tubes or plugs which were assembled in the United States Although the assembly process was not exceedingly complex, and in one instance a Taiwanese-origin casting was used to produce the water pump, which remained visible after assembly, a substantial transformation was found. The rational given was that most of the important components of the water pump were of U.S. origin, and the foreign casting was permanently attached to the other components. See also HQ 732350 dated June 23, 1989, regarding imported transducers (i.e., microphones and receivers) which were wired to a faceplate in the United States along with a signal processing circuit, and were then cemented into a shell to create hearing aids. The transducers were considered substantially transformed and excepted from individual country of origin marking pursuant to 19 CFR 134.35 as they lost their separate identity and were merged into a new and different article (a hearing aid) when they were securely attached to the faceplate.
In National Hand Tool v. United States, 16 CIT 308, (1992) aff’d 989 F.2d 1201 (Fed. Cir. 1993), a country of origin marking case, certain hand tool components used to make flex sockets, speeder handles, and flex handles, were imported from Taiwan. The components were cold-formed or hot-forged into their final shape prior to importation, with the exception of speeder handle bars, which were reshaped by a power press after importation. The grip of the flex handles were also knurled in the United States, by turning the grip portion of the handle against a set of machine dies that formed a cross-hatched diamond pattern. The components were subjected to a heat treatment, which increased the strength of the components, sandblasting (a cleaning process), and electroplating (enabling the components to resist rust and corrosion). After these processes were completed, the components were assembled into the final products, which were used to loosen and tighten nuts and bolts.
The Court of International Trade decided the issue of substantial transformation based on three criteria, i.e., name, character, and use. Applying these rules, the court found that the name of the components did not change after the post-importation processing, and that the character of the articles similarly remained substantially unchanged after the heat treatment, electroplating and assembly, as this processing did not change the form of the components as imported. The court further pointed out that the use of the articles was predetermined at the time of importation, i.e., each component was intended to be incorporated in a particular finished mechanic's hand tool. 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. Based on this test, the court concluded that the processing in the United States did not effect a substantial transformation of the foreign hand tool components.
Based largely on the National Hand Tool Corp. v. United States case, CBP in several recent rulings has determined that simple machining of imported castings combined with a simple assembly did not result in a substantial transformation of the imported castings. For example, in HQ 560399, dated May 14, 1998, a variety of iron and stainless steel pump castings from Finland were imported into the United States for further processing. In the United States, the processing of the imported pump castings included turning, boring and/or milling, drilling and/or tapping, balancing and testing. In making its decision, CBP noted that, upon importation into the United States, the castings were not rough, generic forms but had the same shape as the finished pump parts. CBP further noted that the casting already had the essential characteristics of finished pump parts at the time of importation. Therefore, CBP found that the imported castings did not lose their identity and become an integral part of a new article.
In HQ 561297, dated June 2, 1999, CBP considered whether a substantial transformation resulted when imported raw castings were processed in the United States into receivers, which were then assembled into rifles. The U.S. processing of the raw castings to produce receivers included machining, heat treatment, drilling four holes, sandblasting, dipping the castings into a hot caustic solution, stamping, and final inspection. The receivers were then ready to be assembled into rifles. CBP noted that the raw castings had the shape, character and predetermined use of the finished receivers and merely required intermediate finishing operations. Accordingly, CBP held that the processing of the raw castings into receivers in the United States did not result in a substantial transformation.
However, in HQ 561297, CBP also ruled that the processing of the raw castings into receivers and assembling them with other components to create finished rifles in the United States resulted in a substantial transformation creating a new article with a new name, character, and use. The factors considered were the complexity of the assembly operation, the number of parts involved, and the need for trained technicians to meet very exacting specifications.
In our opinion, the instant case is analogous to HQ 561297, in that initial processing of the imported castings (e.g., machining, drilling) by itself would not constitute a substantial transformation. However, the processing of the imported raw castings coupled with their assembly with other components manufactured in the United States to create the finished products in the United States results in a substantial transformation of the imported castings, creating a new article with a new name, character, and use.
Moreover, we believe that facts of this case are distinguishable from the National Hand Tool case and HQ 560399 because the imported castings do not impart the essential character to the finished products. In this case, most of the imported castings need extensive processing before they can be assembled with various U.S.-produced components to make the finished regulators, transducers, and valve positioners. In the National Hand Tool case, the imported castings comprised the only significant components used to make the finished articles. In contrast, in this case, other significant components of U.S. origin are used to make to make the final products. Although it is clear that the imported castings are significant components, we note that the finished products are complex and that a number of other components (including U.S. origin castings) besides the foreign castings are incorporated into the finished transducers, regulators and valve positioners. Consequently, we believe that the imported castings do not constitute the essence of the finished products. We also find it significant that, except for the imported castings, all of the components in these devices are made in the United States.
Based on the diagrams and the process sheets submitted with the ruling request, the assembly operations appear to be fairly complex while in National Hand Tool and HQ 560399, the assembly was not particularly complex. In National Hand Tool the assembly consisted largely of putting together only a few pieces. The assembly of the finished products in this case is a multi-step process which appears to be far more intricate and involved than the assembly that was performed in National Hand Tool. The regulators also contain more components than the products in National Hand Tool. For example, according to a diagram submitted, one of the simpler devices, the Type 41 Regulator, consists of 13 individual components. Certain of the other devices contain more components. All of the individual components must be assembled together to produce the finished regulating devices.
In building the finished regulating devices, the imported castings are drilled, tapped, and machined to exact specifications so that the particular devices can effectively regulate flow. The process may also include pressing components into the castings, positioning springs and spring guides, applying torque to screws, and aligning various other components. In addition, much of the processing done in the United States consists of producing subassemblies such as diaphragm assemblies, pintle assemblies, coil and spring assembly baffles, manifolds, which are then incorporated into the finished products. To make the subassemblies, imported and domestic castings are used. These subassemblies must be carefully prepared before the final assembly to make the finished control devices can proceed. In turn, these subassemblies then must be combined carefully together to make the finished products.
Several of the components in these control devices appear to be quite tiny in addition to being delicate and intricate. This means that during the assembly process workers must use care to make a number of fine and precise adjustments and alignments to the components such as fitting springs and bushings to ensure that the finished products function properly. We are mindful of the fact that these are sophisticated devices, which are designed to precisely regulate flow. Therefore, they must be put together carefully in order to function properly. As a result, it appears that the technicians that perform the assembly operations must be highly trained and skilled.
Accordingly, we find that the imported castings are substantially transformed when combined with the U.S. components in the United States to make the finished pressure controlling devices. Therefore, under 19 CFR 134.35(a), the imported castings are excepted from having to be individually marked with their country of origin.
HOLDING:
Based upon the information provided, it is our opinion that the imported castings will undergo a substantial transformation in the United States, when they are processed and combined with other U.S. origin components to form the finished pressure-control devices. Therefore, the imported castings incorporated into the regulators, transducers, and valve positioners are excepted from the marking requirements of 19 U.S.C. 1304 and only the outermost containers in which MB receives the imported castings are required to be marked to indicate the country of origin of the castings. This ruling is limited to the specific factual circumstances and models of regulators, transducers and valve positioners discussed herein. HQ 561405 is hereby MODIFIED in accordance with the above analysis.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Craig T. Clark, Director
Commercial and Trade Facilitation Division