MAR 2-05 RR:CR:SM W561799 MLR
Port Director
U.S. Customs Service
555 Battery Street San Francisco, CA 94126
RE: Application for Further Review of Protest No. 2809 91 100047 concerning stainless steel sheet; country of origin
Dear Sir:
This is in reference to the above referenced protest filed by Willkie, Farr & Gallagher, on behalf of Okura & Co., concerning the proper country of origin of certain entries of stainless steel sheet.
FACTS:
The entries covered by this protest are dated October 31, 1990, and December 3, 1990. On November 29, 1990, and January 2, 1991, redelivery notices were issued by your office. The above-referenced protest was filed on January 10, 1991, and application for further review was approved. The Protest Control Record in ACS indicates that your office inquired about the status of the protest. Evidently, the initial protest package was never received by our office, or was lost; accordingly, the protest was resubmitted on May 8, 2000.
The merchandise at issue in this protest consists of stainless steel sheet. The stainless steel material was produced in Japan and conforms to American Iron & Steel Institute (AISI) grade 304. The finish codes of the input materials correspond to those known in the industry as “2B” and “BA”. The protestant states that both raw materials are treated in the industry as general purpose cold rolled material finish, which is suitable for applications requiring a blurry finish such as home appliance uses. It is stated that both No. 2B finish and No. BA finish were classified as stainless steels that have not been further worked upon their importation from Japan to Singapore (the exact classifications were subheadings 7219.33-7219.35, Harmonized Tariff Schedule of the United States (HTSUS), depending on the thickness).
In Singapore, the 2B and BA material was made into mirror-surface No. 8 finish. The material was first inspected and the edges were deburred with a mechanical disk grinder to remove roughened ridges caused during cutting. The material was passed through a series of mechanical and manual polishers using successively finer abrasives. The surface of the 2B material was ground off with three types of stones, which involved 14 polishing passes. The edges and whole surfaces were passed separately three times each through stone grit No. 400. The edges and whole surfaces were then passed twice each through stone grits No. 800 and No. 1500. The thickness of the raw material was reduced by the multiple passes and was accomplished through a wet polishing process, which involved injecting water onto the surface of the material to prevent excessive heat generation and to rinse away abrasive metal chips and particles that may scratch the surface. The material was then inspected and subjected to a black felt polishing and acid treatment. It is stated that the nitric acid causes a chemical reaction that activates the material surface that readies the material for finer polishing that is required in the No. 8 finish. Aluminum oxide particles are required to make the surface more adaptable to finer polishing, and are amalgamated in the surface. Next, the material was subjected to a white felt polishing/glossing and acid treatment. The material was again inspected and subjected to rubber polishing which resulted in a No. 8 mirror finish. The surface gloss achieved is stated to equal that of glass mirrors and is referred to as “unbroken mirror” in the industry. It is stated to be a highly specialized construction material used in refined and decorative architectural applications, such as elevator cabs, lobby directories, column covers, and high-end department store fronts. The material was then PVC film laminated to protect its mirror finish. The finished material imported into the U.S. was classified as stainless steel that has been “further worked” under subheading 7219.90, HTSUS.
The protestant claims that the imported steel was a product of Singapore, and therefore entitled to entry without a certificate of exportation as Singapore is not a signatory to the voluntary restraints program.
ISSUE:
Whether the stainless steel is a product of Japan or Singapore.
LAW AND ANALYSIS:
With regard to country of origin, protestant asserts that the 2B and BA stainless steel sheet exported from Japan to Singapore, where it is made into mirror-surface No. 8 finish, is substantially transformed into a new and different article, resulting in a change in the country of origin of the imported merchandise.
The well-established test for determining whether a substantial transformation has occurred is derived from language enunciated by the court in Anheuser-Busch Brewing Association v. United States, 207 U.S. 556, 562 (1908), which defined the term "manufacture" as follows:
Manufacture implies a change, but every change is not manufacture and yet every change in an article is the result of treatment, labor and manipulation. But something more is necessary, as set forth and illustrated in Hartranft v. Wiegmann, 121 U.S. 609. There must be transformation; a new and different article must emerge, having a distinctive name, character or use.
Simply stated, a substantial transformation occurs “when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing.” See Texas Instruments, Inc. v. United States, 681 F.2d 778 (C.C.P.A. 1982).
The court in Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987), considered whether the importation of steel sheet, which was annealed and galvanized in new Zealand by a process known as “continuous hot-dip galvanizing” using full hard cold rolled steel sheet from Japan, was covered by the Arrangement Between the Government of Japan and the Government of the United States Concerning Trade in Certain Steel Products. In considering this issue, the court stated that the test to be applied was whether the “imported article underwent a ‘substantial transformation’ [in New Zealand] which results in an article having a name, character or use differing from that of the imported article,” and is “entitled to continued adherence.” Ferrostaal, 664 F. Supp. at 538, citing Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 1029-30 (CIT 1982). Specifically, with regard to the bilateral agreement designed to limit steel imports from Japan, the court stated that the standard rule for substantial transformation should be applied to determine whether the steel was covered. Id.
In New Zealand, the steel was galvanized which involved coating the steel with zinc to improve its resistance to rust, the steel was annealed to restore the ductility lost in the cold rolling process performed in Japan, and the steel was subjected to painting and other operations. The court looked at the nature of the operations and the effect on the properties of the materials. In performing the annealing, the court found that the while the process affected the distribution of carbon and nitrogen in the sheet, the actual chemical composition and dimensions were not changed. Next, as the temperature of the sheet was reduced during the annealing process, the sheet was then galvanized which began a process known as “alloying” which constituted a chemical change in the product. Id. at 539. The court found that the annealing and galvanizing processes resulted in a change in character by significantly altering the mechanical properties of strength and ductility and chemical composition of resistance to corrosion. Id. at 540. The court found a change in use as the two products were not interchangeable. The court also looked at the process as substantial in terms of the value added. The court also found a change in tariff classification. Accordingly, the court held that the changes from full hard cold-rolled steel sheet constituted a substantial transformation and the hot-dipped galvanized steel sheet was a new and different article of commerce. Id. at 541.
In Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff’d, 867 F.2d 1409 (Fed. Cir. 1989), the court also considered the origin of wire for purposes of a Voluntary Restraint Agreement. The Court of International Trade found no substantial transformation because while there was a name change from wire rod to wire, there was no character or use change when wire rod was drawn into wire. After the billet was used to make the rod, the rod was drawn up to three times in order to reduce the rod to a wire of a specific size. The court also noted that the courts have concentrated on a change in use or character, along with certain cross-checks, including value added, and the amount of processing. Id. at 478. The court made its decision based on an analysis of the effect on the metallurgical properties of wire rod, the fact that the wire rod specification is generally determined by reference to the end product for which the drawn wire will be used, the value added, and the amount of labor and capital investment. The court did not find the producers’ to consumers’ goods distinction as determinative whether a substantial transformation occurred. Id. at 1415.
The merchandise at issue in this protest consists of stainless steel sheet. The stainless steel material was produced in Japan and conforms to AISI grade 304. The finish codes of the input materials correspond to those known in the industry as “2B” and “BA”. Grade 304 steel is commonly used for kitchen sinks, food processing equipment, chemical and plant equipment, and architectural applications. See www.prodmet.com/inoxidables/stainless.htm.
We note that the specific processes performed in Japan to make the “2B” and “BA” steel were not provided. However, in general, stainless steel is made by continuously casting slabs that may be partially or fully surface ground before being charged to a reheating furnace, then hot rolled to plate or coil. After hot rolling, plates may be annealed and pickled to remove the high temperature oxide and associated chromium depleted layer. Cold rolling smoothes the steel surface with each succeeding pass through the rolling mill. The bulk of stainless produced is cold rolled to reduce the thickness by more than 50 percent and then reannealed. The coils are then given a final light skin pass on highly polished rolls of large diameter, which reduces the roughness only slightly but improves the luster, as well as the flatness of the coil. The resulting finish is "2B", the most common finish on stainless steels. See http://www.mccisc.com/tech9.htm. In essence, the material referred to as “2B” is cold rolled, heat treated, pickled, and passed on bright rolls. See http://www.aalco.co.uk/products/stain/rolled/data.htm; and http://www.emailmetals.com.au/atlas/techinfo/technotes/technotea.html.
The appearance of the finish is dominated by the cold rolling reduction, although many other factors affect the surface roughness. The most reflective mill finish is achieved by Bright Annealing in a reducing dry nitrogen/hydrogen atmosphere – also known as "BA" finish. The smooth surface developed by cold rolling is retained by the annealing atmosphere which prevents oxidation of the surface. The high reflectivity required may require a smoother starting surface prepared by surface grinding the coil before rolling. See http://www.mccisc.com/tech9.htm. The material referred to as “BA” or “Bright Annealed” is cold rolled and annealed to prevent scaling. The result is a bright, quite reflective finish, and very low hardness. The BA material is a general purpose cold rolled finish that can be used as is, or as a preliminary step to polishing. See http://www.dalsteelstainless.com.au/coil_index.htm.
Accordingly, based on the description above, the terms “2B” and “BA” are among the processes referred to as “surface” finishes or treatment. See http://wwwsoc.nacsis.ac.jp/jsce/eng/z&kdb/97/97no4/46-4-230-235-97.html. Furthermore, surface treatment on grade 304 2B or BA sheet materials allow the final product to have wide usage in many kinds of applications especially in elevator/escalator, door/cabinets, or building entrances fabrications. See http://www.deco-steel.com/p4.htm.
The protestant states that at this point, the Japanese “2B” or “BA” sheet material was shipped to Singapore where it was made into mirror-surface No. 8 finish. Detailed processing information of the operations performed in Singapore was provided by the protestant. We also note that “mirror Polished” or “No. 8 Polished” is stainless steel sheet that is cold rolled and mechanically polished to a surface finish of 800 grit or more and is often buffed to give a highly reflective surface. See http://www.aalco.co.uk/products/stain/rolled/data.htm; and
http://www.emailmetals.com.au/atlas/techinfo/technotes/technotea.html. No. 8 Finish is the most reflective finish that is commonly produced. The metal surface is essentially free of grit lines from preliminary grinding operations. This finish is most widely used for press plates, as well as for small mirrors and reflectors. See http://www.bosiometalspecialties.com/finishes_stainless.htm.
The protestant claims that the processes performed in Singapore are extensive; however, as detailed above, the processes to initially form the steel are more extensive and impart the mechanical features of the steel. The BA finish is in a state that is already quite reflective. While the uses of the No. 8 steel may allow the steel to be used in more decorative settings, it is our opinion that such a change in use is not substantial. The annealing occurs prior to the processing into No. 8 steel, unlike Ferrostaal above, which changed the mechanical features of the steel. The protestant states that the acid treatment causes a chemical reaction which allows the metal to be polished to a higher shine. It is our opinion that this is not the type of change that occurred in Ferrostaal, which affected the metal’s strength and ductility. Moreover, in National Hand Tool v. United States, 16 CIT 308, (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), the court found that heat treatment may result in changes to the microstructure of the material, but did not change the chemical composition of the material. We find that a similar situation is occurring in this case. The grade 304 of the steel is not changed by the polishing and grinding operations. As indicated above, the 2B material can be used as is, or can be used to produce materials of a higher shine. Accordingly, we do not find a change in character.
Protestant also claims that much value is added and lends support that the origin of the imported product should be Singapore. However, based on Ferrostaal and Superior Wire, while the court may examine additional factors, the primary consideration is whether there is a change in name, character and use. Protestant states that the steel is sold for almost twice the amount when it is exported from Singapore into the U.S., as compared to when it arrived in Singapore from Japan. However, we also note that the steel is also sold at a higher price after importation into the U.S., without any change. Accordingly, such mark-up does not appear to lend much support to a finding of substantial transformation. See also National Hand Tool (“this [value added] could lead to inconsistent marking requirements for importers who perform exactly the same processes … but sell at different prices”).
Protestant also claims that there is a change in tariff classification. We note that the change is only at the subheading level. Furthermore, while a change in tariff classification has been held to be supportive, it is not dispositive of whether a substantial transformation takes place. Superior Wire at 457. While the processes performed in Singapore may be more than just mere “finishing”, as asserted by protestant, the repeated drawing processes performed in Superior Wire also were not minor; however, no substantial transformation was found. Accordingly, as we do not find a substantial transformation as a result of the processing of the 2B and BA steel into No. 8 mirror steel in Singapore, the country origin of origin of the imported steel is Japan. Therefore, this protest should be denied.
HOLDING:
Based on the information presented, it is our opinion that the 2B and BA stainless steel imported from Japan to Singapore did not undergo a substantial transformation when it was made into No. 8 stainless steel. Accordingly, the country of origin of the imported stainless steel is Japan. Therefore, this protest should be denied.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director,
Commercial Rulings Division