MAR-2-05 RR:CR:SM 561745 CW
Thomas J. Lindmeier, Esq.
Suite 401, Regency One Building
10050 Regency Circle
Omaha, Nebraska 68114
RE: Modification of HRL 732883; country of origin marking of cast iron pipe fittings; substantial transformation; machining
Dear Mr. Lindmeier:
This is in reference to Headquarters Ruling Letter (HRL) 732883 dated August 1, 1990, which was issued to you on behalf of Central Plastics Company (Central), concerning the country of origin marking of certain castings to be imported and processed into pipe fittings.
We have reviewed HRL 732883 and believe that the portion pertaining to whether a substantial transformation results from the U.S. processing of the imported castings into unions 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 of the dialectrics and for certain pipes and 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 732883 was published on June 7, 2000, in the Customs Bulletin, Volume 34, Number 23.
The imported articles are unfinished malleable cast iron components of pipe fittings which as imported have no threading, beveled edges or other features beyond their rough shape. In their condition as imported, the components cannot be joined together to function as pipe fittings. From the imported castings, Central plans to manufacture pipe fittings known as unions and fittings known as dielectrics. Each three-piece union will be made from three imported castings: a nut, a head, and a tail. Each five-piece dielectric will
be made from two imported castings: a nut and a head, to which will be added a brass tail and nylon and rubber gaskets of domestic origin. Samples were
submitted. For the imported union components, a ruling is requested with respect to castings of between 1/4" and 3" in diameter. For the imported components of the dielectrics the ruling request covers dimensions from 1/2" to 2". To produce the union, a multi-station dial index boring and threading machine and a lathe are used. The inside diameter of the casting for the tail piece is bored, trued and threaded. Then the outside diameter of the tail piece is trued. The raised portion of the tail (the hub) is rounded and a groove created to accommodate a molded-on nylon gasket. The end of the tail piece is faced to create a flat surface at a right angle to the plane created by the machined inside diameter, and one end is bevelled. The head piece is processed by boring, facing, threading and tapping. The nut is finished by boring and threading. The head and nut of the dielectric fitting are processed from the imported castings in the same manner, using the same machinery.
Central has submitted detailed confidential cost data which demonstrate that the U.S. processing done by Central adds between [X] percent and [X] percent in direct manufacturing costs to the cost of the imported castings, depending upon the size of the fitting. These costs do not include sales commissions, transportation, and research and development engineering costs.
The castings are imported by Central for its own account directly from a sole foreign manufacturer, to be used only in the manufacture of unions and dielectrics. Central represents that the imported castings will not be sold to third parties, and suggests that this undertaking can be enforced because its name will be die engraved on each cast nut.
Are the imported castings substantially transformed by the U.S. processing such that Central is the ultimate purchaser?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin entering the U.S. shall be marked in a conspicuous manner as legibly, indelibly, and permanently as the nature of the article (or 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.
Section 134.1(d), Customs Regulations, defines "ultimate purchaser" as generally the last person in the U.S. who will receive the article in the form in which it was imported. Section 134.35(a), Customs Regulations, provides that an article 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 will be within the principle of the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940). Under these circumstances, the manufacturer who converts or combines the imported article into the different article will be considered the ultimate purchaser of the imported article, and the article shall be excepted from country of origin marking, although its outermost container must be marked.
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 tie 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 732883, Customs found that the machining operations that were performed on the imported forgings to create the finished unions and dielectrics are comparable 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 (Central) was the ultimate purchaser of the imported castings.
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 variously referred to as “castings” or as “unfinished cast iron components of pipe fittings.” This is also confirmed in Midwood, where the imported articles were referred to as “unfinished flange forgings,” “unfinished 180 degree elbow,” “flange in the rough,” or as “semi-finished articles.” More specifically in this case, the unions are made from three imported castings, a nut, head, and tail. The dialectrics are made from five pieces, a nut, head, brass tail, and nylon and rubber gaskets. However, while 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, the evidence of such a change in name is equivocal in this case. See Superior Wire, 867 F.2d at 1414.
With respect to the change in use and character, we note that the imported head and tail for the unions are at all times intended for use as pipe fittings 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 pipe fittings for the unions are machined to final dimension and subjected to a simple assembly, we do not believe that such operations amount to a change in character of the imported head and tail. Furthermore, we find that none of the three pieces are used separately and all three pieces work together as a unit. As the imported components for the unions do not undergo a change in name, character or use, it is our opinion that the U.S. processor is not the ultimate purchaser. Therefore, we find that the union pipe fittings processed in the U.S. from imported foreign castings, as described above, are required to be marked with the country of origin of the castings.
However, for the dialectrics, only the nut and head are imported. These components alone do not have the character of a dialectric. We find that
part of the essential character of the dialectric is imparted by the brass tail, which is a domestic component. Reexamining the inquirer’s submission, we note that the bras tail is made from brass bar stock on a spindle screw machine, by machining the outside, drilling and boring the inside, and then facing off the part in accord with the close tolerances set forth in a blueprint. A neoprene gasket and molded minlon insulator are added to insulate the tail, and the tail is then assembled with the imported components to form the dialectric. Accordingly, since both the tail which is domestic and the head are significant components of the dialectric and the insulating characteristics are imparted in the U.S. by domestic components, we find that in conjunction with the machining and assembly operations, the imported nut and head undergo a substantial transformation in the U.S.
Based upon the information provided, Customs finds that no substantial transformation results from the U.S. processing of the imported castings to create the pipe fittings known as unions. Therefore, the ultimate purchaser is the recipient of the completed pipe fittings. Accordingly, the union pipe fittings 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 732883 dated August 1, 1990, is hereby modified. However, Customs finds a substantial transformation of the two imported components when they are combined in the U.S. with domestic components to make dialectrics. Therefore, the dialectrics are not subject to country of orign marking requirements.
In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
John Durant, Director
Commercial Rulings Division