OT:RR:CTF:VS H301723 JK
Port Director
U.S. Customs and Border Protection
Port of Houston
2350 N. Sam Houston Parkway W, Suite 900
Houston, TX 77024
RE: Protest No. 530118100223, Generalized System of Preferences, Hammer Lock Unions
Dear Port Director:
This is in response to your referral of the Application for Further Review of Protest No. 530118100223, filed by counsel on behalf of Oilfield Components, Inc. (Oilfield), against your decision to liquidate two entries of hammer lock unions without benefit of preferential tariff treatment under the Generalized System of Preference (GSP). We note that the protest was timely filed. In reaching our decision, we have considered additional information submitted by counsel on July 23, 2019 and August 16, 2019.
FACTS:
The imported merchandise at issue are hammer lock unions. According to Oilfield’s counsel, a hammer lock union is a type of pipe fitting that allows for quick connection and release. Oilfield’s hammer lock unions all include at least three components: a male joint, female joint and wing joint. In the case of hammer lock unions designed to work with high pressure fluids, a rubber gasket is also included. Hammer lock unions are commonly used in the oil industry and for treating iron because of their ability to be quickly made up or broken down.
The subject merchandise was imported in various sizes under two entries made on June 15, 2017 and June 22, 2017. The entry summaries identified that the merchandise was imported under four different invoices. On October 16, 2017, Oilfield made a prior disclosure that the classification declared in these entries for the subject merchandise, subheading 8431.39.0050, Harmonized Tariff Schedule of the United States (HTSUS) (free) was incorrect and that the correct classification was subheading 7307.99.5060, HTSUS (4.3%). Subsequently, Customs and Border Protection (CBP) issued a rate advance due to the increased duty rate on the corrected classification of the subject merchandise on October 27, 2017, and liquidated both entries on November 17, 2017. On April 3, 2018, Oilfield filed this protest against the liquidation of the entries, making a preferential claim for duty-free treatment under the GSP.
The subject merchandise is composed of raw alloy steel, rubber and coating materials. According to Oilfield’s counsel, all of the materials used to manufacture the subject merchandise are claimed to be of Indian origin, and the entire manufacturing process takes place in India. Indian origin steel bars are first cut to length. The cut section is then forged into a rough shape. The rough forging is then heat treated and machined into finished form. After the machining, the resulting product is marked, phosphated, painted, assembled, pressure tested and packaged.
In support of its protest, Oilfield’s counsel submitted the following documents: four certificates of origin and four invoices covering the two subject entries of the hammer lock unions, purchase orders and invoices for the steel, rubber, and coating materials, and a summary breaking down the cost of materials and processing costs associated with the production of the hammer lock unions. In response to our request for additional information, Oilfield provided flow charts illustrating the manufacturing process, drawings and specifications of the subject merchandise, additional invoices, and bills of material identifying the country of origin of each material. Finally, Oilfield also submitted a notarized affidavit from the Director of Oilfield Equipment Private Limited, the manufacturer/exporter of the hammer lock unions, attesting to the country origin of the materials and the manufacturing process undertaken in India.
The bill of materials indicates that the hammer lock unions were manufactured from raw steel material composed of either A105 specification carbon steel or AISI-4130 grade alloy steel, polyurethane coating material, and nitrile rubber material for certain sizes and models. The submitted invoices indicate that the steel, rubber and coating materials were purchased by Oilfield Equipment Private Limited in Vadodara, India from various manufacturers located in India. For instance, a February 4, 2017 invoice shows the purchase of 12.765 MT of “MS Round Bar – 100mm grade 1008” from Kadvani Steels in Rajkot, India; a March 3, 2017 invoice shows the purchase of 750 pieces of nitrile rubber material Satindarpal Rubber Products Pvt. Ltd. in Valsad, India; and a June 3, 2017 invoice shows the purchase of the coating material from Aditya Coatings in Vadodara, India.
ISSUE:
Whether the imported merchandise at issue, consisting of hammer lock unions from India, were eligible for preferential tariff treatment under the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or manufacture of a designated beneficiary developing country (BDC) which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of (1) the cost or value of materials produced in the BDC, plus (2) the direct costs of the processing operations performed in the BDC, is equivalent to at least 35 percent of the appraised value of the article at the time of entry into the U.S. See 19 U.S.C. 2463(a)(2)(A).
Here, during the period in which the subject merchandise was imported, India was a designated BDC for GSP purposes. See General Note 4(a), HTSUS (2017).
The “product of” requirement means that to receive duty-free treatment, an article either must be made of materials “wholly the growth, product or manufacture of” the BDC, or if made of materials imported into the BDC, those materials must be substantially transformed in the BDC into a new and different article of commerce. See 19 CFR 10.176(a). A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982).
In this case, the subject hammer lock unions are claimed to be wholly the growth, product or manufacture of the BDC, i.e., India. The hammer lock unions are manufactured from raw alloy steel, rubber and coating material, all of which are claimed to be of Indian origin. All of the processing to manufacture the hammer lock unions is also claimed to have occurred in India. In this case, upon filing of this protest, the importer submitted certificates of origin for its entries showing the country of origin of the subject merchandise to be India. A manufacturer’s affidavit was also submitted attesting to the Indian origin of the raw materials. The invoices and purchase orders for the raw materials indicate that they were sourced from various manufacturers in India. We find that the submitted documentation supports the protestant’s claim that the hammer lock unions are “wholly the growth, product or manufacture” of India. However, no production records from the Indian manufacturers were submitted. In Headquarters Ruling Letter (HQ) H241889 dated March 20, 2017, the protestant submitted, among other documents, production records as evidenced by batch sheets to support the claim that its imported copper hydroxide was eligible for preferential tariff treatment under the U.S.-Peru Trade Promotion Agreement (PTPA). Based on these records and other documentation, which included a detailed Certificate of Origin, notarized affidavit, purchase orders and invoices, CBP found that the imported copper hydroxide was wholly produced in Peru and therefore eligible for preferential tariff treatment under the PTPA. In this case, since no such production records were submitted, we therefore cannot find that the subject merchandise was wholly the growth, product or manufacture of India. See 19 C.F.R. 10.176(c) (“merchandise which is wholly the growth, product, or manufacture of a BDC…shall normally be presumed to meet the requirements set forth in this section”).
In the alternative, although we cannot find that the subject merchandise was wholly produced in India, we find that the processing that occurred to the raw materials was sufficient to result in a substantial transformation. CBP has previously held that processing a steel rod or bar into an engine valve by way of shearing, tumbling, heating, solutioning of carbides, extruding and forging is considered a substantial transformation. See HQ 563131 dated February 11, 2005. In this case, Oilfield’s production of the hammer lock unions from raw steel in India includes processing such as forging, heat treatment, machining, phosphating, painting and assembly. The article that emerges from these processes has a new name, character and use that differs from the raw materials that compose it. Therefore, we find that these processes result in a substantial transformation of the hammer lock unions into a “product of” India.
With regard to the 35% value-content requirement, if the subject merchandise is “wholly the growth, product or manufacture” of India, we may presume that this requirement has been met. However, as we have not been provided with production records from the Indian manufacturers, we cannot make this finding.
Nonetheless, we find that the protestant has provided sufficient information to show that the 35% value-content requirement has been met. According to the material and production cost information provided by the protestant, the value of the direct processing costs occurring in India alone well exceeds 35% of the appraised value of the subject merchandise, ranging anywhere between 49% to 79%, depending on the item’s specific size or model. According to the submitted documentation, these direct processing costs consist of labor costs performed in India for cutting, forging, transport, machining, marking, phosphating, painting and assembly, which may be included as direct costs of processing under the GSP. See 19 C.F.R. 10.178(a)(1). Based on the direct costs of processing occurring in India alone, we find that the 35% value-content requirement has been satisfied in this case. See Treasury Decision (“T.D.”) 76-100, dated March 30, 1976 (stating that “the 35 percent criterion can be satisfied entirely by the cost or value of materials produced in the beneficiary developing country, the direct costs of processing operations, or any combination of the two”); see also HQ W563490, dated May 18, 2007 (citing T.D. 76-100 and concluding that material costs alone are sufficient to satisfy the 35% value-content requirement).
Finally, the merchandise at issue must have been “imported directly” to the United States to qualify for preferential tariff treatment under the GSP. The record indicates that the “imported directly” requirement is not in dispute. As a result, based on the facts before us, we find that the subject merchandise qualifies for duty-free treatment under the GSP.
HOLDING:
The protest in this case should be granted. The hammer lock unions at issue qualify for preferential tariff treatment under the GSP.
In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division