OT:RR:CTF:VS H321969 CMR
Judith Lee, Esq.
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5306
RE: Country of Origin of Slide Gate Refractories used in Metallurgy or Metal Foundries (Top Plates, Gate Plates and Center Plates); Section 301 Trade Remedies
Dear Ms. Lee:
This is in response to your ruling requests, dated October 12, 2021, submitted on behalf of your client, Vesuvius USA Corporation (hereinafter, Vesuvius), regarding the country of origin of various styles of components of ladles and tundishes used in U.S. steel making and imported into the United States after processing in Mexico. You request a country of origin determination for purposes of Section 301 trade remedies duty assessment. Your two requests involve eight different styles of components, although one style is indicated to have two different style numbers. As the issue presented for all eight is the same, for simplicity, we will address all of the styles in this ruling.
Members of this office met with you via Microsoft Teams on January 4, 2022, to discuss the ruling requests. That discussion and your submissions were considered in reaching the decision set forth below.
FACTS:
Your client, Vesuvius, designs and manufactures components used in steel making or metal foundries for the casting of steel and other metals. Among the components Vesuvius produces are parts used in ladles, that is, the vessels that transport molten metal from furnaces to reservoirs that feed the casting machines. The articles at issue herein are parts used in a component part known as a slide gate assembly or system. You identify the parts at issue as slide gate refractories, but also refer to these parts as top plates, gate plates and center plates. These parts are identified as styles KK19517, KK21513, KK28104, KA67021, KA66304, KA61081, KA64325, KA67690, and KA71288. You indicate that your client imports these parts under subheading 6903.20, of the Harmonized Tariff Schedule of the United States (HTSUS), which provides for: “Other refractory ceramic goods (for example, retorts, crucibles, muffles, nozzles, plugs, supports, cupels, tubes, pipes, sheaths and rods), other than those of siliceous fossil meals or of similar siliceous earths: Containing by weight more than 50 percent of alumina (Al2O3) or of a mixture or compound of alumina and of silica (SiO2).”
To produce these components, materials are imported into Mexico from China, the United States and Germany. Certain materials are common for all types and styles of “refractory plates;” however, additional materials may be used depending upon which type and style of plate is to be produced. These “refractory plates” consist, at a minimum, of a Chinese-produced refractory ceramic plate within a German-produced steel frame (also known as “frame assembly”), held in place with U.S.-produced mortar and coated with U.S.-produced graphite. Some item numbers have additional components, such as a nozzle, zirconia insert, steel strap, binding clip or steel pins. The components are assembled in Mexico. Certain styles have nozzles attached which are produced in Mexico. Four styles have zirconia inserts, one of which is a product of the United States, while the rest are products of Mexico. One style may have a frame assembly produced in Germany or the United States. In addition, graphite coating from the United States is listed as a material in the production for some, though not all styles, but does appear to be used in the production of all.
The description of the processing of the top, gate and center plates set forth herein does not include every step for each style, but attempts to simplify the processing and present the most important elements of the processing and assembly which occurs in Mexico.
We note the Chinese-produced refractory ceramic plates, or inserts, are imported into Mexico as blanks, that is, shaped to their final dimensions. For three styles of the top plates, the refractory ceramic plates are formed so that the area where a portion of the plate is to be drilled to form a channel for molten liquid to pass through is apparent from the shape of the unfinished plate. A photograph of the Chinese-produced refractory ceramic plate, or insert, for style KA61081 was not available. However, we have no reason to believe it differs very much from the other top plate blanks.
You submit that the components imported into Mexico must undergo further processing prior to assembly of the components into the finished top plates, gate plates and center plates. For the four styles of top plates, this processing includes:
Stamping of the can, otherwise known as the frame assembly. The frame assemblies are ready-to-use, that is sized and shaped for the inserts they are to receive, at the time of importation into Mexico. The information stamped on the frame assembly is the work order for the refractory plate being processed. The work order is stamped on the frame so that the employees can better trace the work order throughout the assembly process.
Drilling of a hole in the refractory ceramic plate. The Chinese-produced refractory ceramic plates are imported into Mexico as formed blanks. As noted below, the area in which drilling is to be done and an insert is to be attached is readily apparent.
Assembly of the plate, or insert, with the frame assembly using mortar. For style KA64325, prior to the assembly of the plate with the frame assembly, a steel strap is placed around the edge of the ceramic plate and held in place by a banding clip.
For styles KA67690 and KA71288, a zirconia insert is attached with mortar to the ceramic plate and must set for 6 hours. It is our understanding that the zirconia inserts are drilled to form drainage channels at the factory in Mexico.
All styles are heated to allow the mortar to properly bond the components and become heat resistant. Any surface imperfections on the exposed side of the ceramic plate are ground down to create a smooth surface and the plates are heat treated to dry any non-chemical water. Style KA71288 has additional steps which include the application of a castable solution and use of a Nelson Stud Refractory Anchor. Finally, a graphite lubricant is applied to the exposed side of the finished refractory ceramic plates prior to packing.
With regard to the gate plates and center plates, styles KK19517, KK21513, KK28104, KA67021, and KA66304, the Mexican processing is substantially similar to that for the top plates. This processing includes:
Stamping of the can, or frame assembly which is ready-to-use at the time of importation into Mexico. As with the top plates, the information stamped on the frame assembly is the work order for the refractory plate being processed.
Processing of the refractory ceramic plate. The Chinese-produced refractory ceramic plates are imported into Mexico as formed blanks. As noted below, the area in which drilling is to be done or an insert or nozzle is to be attached is readily apparent. It appears that only three of the Chinese-produced refractory ceramic plates are drilled to form a drainage channel, as two appear to be imported into Mexico with openings already in the plates in which inserts will be placed.
For styles with nozzles, KK19517, KK21513, and KK28104, the nozzles are welded to the frame assembly. While not clear, it appears that the plates, or inserts, are assembled with the frame assemblies after the nozzles are welded to those assemblies. Style KK28104 also has a zirconia insert attached to the refractory ceramic plate using U.S.-produced mortar. It is our understanding that the zirconia insert is drilled to form a drainage channel at the factory in Mexico
For styles KA67021, and KA66304, the refractory ceramic plates are imported into Mexico with openings for the placement of inserts. The inserts are attached to the plates with mortar. The insert for style KA66304 is imported into Mexico from the United States with a hole already present in the insert. In some cases, the insert for this style will be produced in Mexico, instead of being imported from the United States. When the insert is produced in Mexico, we assume that it and the insert for style KA67021 are drilled to form drainage channels after attachment to the refractory ceramic plates and curing. It is unclear at which point in the assembly process, the plates with inserts are joined to the frame assemblies.
As with the top plates, the gate and center plates undergo heat treatment to allow the mortar to properly bond the components and become heat resistant. Any surface imperfections on the exposed side of the ceramic plate are ground down to create a smooth surface and the plates are heat treated to dry any non-chemical water. Finally, a graphite lubricant is applied to the exposed side of the finished refractory ceramic plates prior to packing.
ISSUE:
Whether the components of the top plates, gate plates and center plates are substantially transformed in Mexico as a result of the processing and assembly operations performed in Mexico.
LAW AND ANALYSIS:
The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(f), HTSUS. Among the subheadings listed in U.S. Note 20(f) is 6903.20.00, HTSUS.
When determining the country of origin for purposes of applying trade remedies under section 301, the substantial transformation analysis is applicable. The test for determining whether a substantial transformation will occur is whether 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, 69 C.C.P.A. 151 (1982). If the manufacturing or combining process is a minor one which leaves the identity of the article intact, a substantial transformation has not occurred, and the essence of the article is considered. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d 702 F.2d 1022 (Fed. Cir. 1983).
You submit that the processing and assembly operations in Mexico constitute a substantial transformation of the imported components into finished slide gate refractories. You contend that the processing of the components in Mexico enable the finished good to function as intended and change the character of the components. The banding, where applicable, and the insertion of the refractory plates into the frame assemblies ensure that cracks that may develop on the plates remain closed preventing leakage of molten metal and allowing the plates to continue functioning. The holes drilled into the refractory plates and zirconia inserts in Mexico, allow molten metal to flow through the plates and inserts, and enable the slide gate refractories to function as intended.
In addition, you contend that the assembly and processing in Mexico changes the end use of the components and that the Chinese-produced refractory plates do not have a pre-determined use at the time they are imported into Mexico. Specifically, you state:
In this case, although the imported refractory plates are generally intended for
use in the Slide Gate Refractories at the time of their import, their precise end use is not pre-determined. Identical plates imported into Mexico may be used in different configurations of certain Slide Gate Refractories, depending on the processing those imported plates undergo in Mexico. Even identical ladle plates may be given different uses in the same slide gate. One plate may
be fashioned into a top plate as described in this request, while its twin may be made into a gate plate as described in the accompanying request.
Finally, you argue that there is a change in name from refractory plates and their components to slide gate refractories.
In further support of your position, you assert that the processing and assembly in Mexico is carried out by specifically trained personnel and results in an average increase in value that may exceed 300 percent. You indicate that this increase in value is based upon a comparison of the value of the imported Chinese-produced blank plate to the value of the finished product produced in Mexico.
We believe the processing of the Chinese-produced refractory plates in Mexico is similar to the processing of the hand tools in National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). In National Hand Tool, the court held that mechanics’ hand tools, which were either cold-formed or hot forged in Taiwan into their final shape before processing in the United States were not substantially transformed by processing in the United States after importation. That processing included heat treatment, formation of the grips, cleaning by sandblasting, tumbling and/or chemical vibration, electroplating with nickel and chrome to resists rust and corrosion, and assembly for some of the sockets. The court stated that the heat treatment, electroplating and assembly in the United States did not change the character of the articles since each component was either hot forged or cold-formed into its final shape in Taiwan. Further, there was a pre-determined use of the goods after the forging in Taiwan
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (CIT 2016), the court interpreted the meaning of “substantial transformation.” The court reviewed the “name, character, or use” test utilized in determining whether a substantial transformation had occurred and noted, citing Uniroyal, Inc. v. United States, 3 CIT 220, 226, 542 F. Supp. 1026, 1031 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.” Energizer Battery at 1318. The court stated that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Id. at 1319, citing National Hand Tool Corp. v. United States, 16 CIT at 311-12 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
The Chinese-produced refractory plates have their final shape and have a pre-determined use at the time they are imported into Mexico. The processing in Mexico does not change their character or use. The same is true of the frame assemblies, inserts into the plates, and nozzles. A review of the processing in Mexico reveals that the key steps are the joining of the refractory plates to the frame assemblies, drilling of channel drains when necessary, and attaching inserts or nozzles, when applicable. The joining of the refractory plates with pre-formed frame assemblies by use of mortar is not a complex assembly operation. Nor do we view the drilling of necessary holes in the plates or plate inserts to be a complicated process. The same is true of welding nozzles to the frame assemblies or attaching inserts to the refractory plates. Grinding imperfections on the plates and lubricating with graphite are, in our view, minor finishing operations, similar to the sandblasting in National Hand Tool. Although you submit that the processing and assembly of the components imported into Mexico results in an average increase in value that may exceed 300 percent, that increase in value is based only upon a comparison of the value of the imported Chinese-produced blank plate to the value of the finished product produced in Mexico. We believe this comparison is not useful as it focuses only upon the Chinese-produced refractory plates and does not take into account the value of the other components imported into Mexico for the production of the finished slide gate refractories. Taking into consideration all of the information provided, we conclude that the processing and assembly operations which occur in Mexico do not constitute a substantial transformation.
That said, we must determine the origin of the finished slide gate refractories imported into the United States. In determining the origin in this case, we look to the essence of the articles. See Uniroyal, Inc., supra. We believe that the essence is imparted by the refractory ceramic plates from China. The plates form the shape of the good, comprise the greatest mass and, in most cases, are the most valuable component in terms of cost. The plates are the critical components in terms of the functioning of the slide gate refractories because of their shape, composition, and function, including being the major component to which other components, that is, the inserts and nozzles, are attached.
In the case of styles KA71288, KA67021, and KA66304, the inserts for the refractory plates have higher values than the refractory plates in which they are inserted. In addition, the inserts are the components through which the molten metal will flow in the finished good. In the case of style KA71288, the difference in value is not significant. In the case of styles KA67021 and KA66304, the inserts are just over 1½ times the value of the refractory plates, which is significant. However, value is just one consideration in determining the essence of the good for origin purposes. In considering the value of the components, we must take into account the source of the components and the economies of those sources. A cost comparison of a higher value component sourced from the United States or Mexico to a lower value component sourced from China, a much lower cost economy, may have little to no value in assessing the component’s true value in imparting the essence to a good due to the economic differences of the source countries and the unavoidable affect that has in comparing component costs. Thus, in this case, shape, composition and function appear to be the most relevant factors to consider in determining the component which is the essence of the good. While the inserts in KA71288, KA67021, and KA66304, ultimately function as the portion of the finished good through which the molten metal will flow, it is still the refractory plates from China which provides these goods with their shape and mass. Further, it is the refractory plates into which the inserts in styles KA71288, KA67021, and KA66304 are placed to provide the function of the finished slide gate refractories.
HOLDING:
Based upon the above analysis, for purposes of section 301 trade remedies duty assessment, the country of origin of the slide gate refractories at issue is China.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch