MAR-2-05 RR:CR:SM 561103 KSG

Carl K. McLaughlin
Vice President & General Manager
Rossborough Manufacturing Co. L.P.
P.O. Box 38
33565 Pin Oak Parkway
Avon Lake, Ohio 44012-0038

RE: Magnesium; substantial transformation; granules; Article 509; NAFTA

Dear Mr. McLaughlin:

This is in response to your letter dated July 30, 1998, on behalf of Rossborough Manufacturing Co. L.P., requesting a binding ruling concerning the country of origin of imported magnesium granules.

FACTS:

Rossborough Manufacturing Co. L.P. is involved in the steel desulferization industry. Desulfurization is the process whereby sulfur is removed from molten iron prior to being further refined into steel. This process yields steel of higher strength that can be used at thinner gauges with greater formability. Desulfurization reagents are injected into molten iron in integrated steel making facilities that have blast furnaces and basic oxygen furnaces. The active ingredient in these reagents is magnesium granules that are blended with other raw materials to create finished reagent products. All products are custom blended to exact proprietary customer specifications. These blends are made up of finely divided powders and granules suitable for injection, typically -18 Mesh., which is a standard U.S. sieve size.

Magnesium ingot produced in Russia, Brazil, China or France would be made into granules in a second country. The magnesium would be ground in the second country and imported into the U.S. as granules. The grinding operation would include: 1) chipping the magnesium ingot down to a 3/8" x 1/8" x .020" pieces on custom built machines called chippers; 2) hammer milling the magnesium chips to the desired size on a common hammer mill; 3) running the pieces through a shaper that gives the granules their geometric configuration; 4) screening the shaped granules to size with vibratory screeners; and then packaging the granules according to DOT specifications.

You state that magnesium ingot is classified at subheading 8104.11.00, of the Harmonized Tariff Schedule of the United States ("HTSUS"), and that magnesium granules are classified at subheading 8104.30.00, HTSUS. You also state that magnesium ingot is not suitable for desulfurization and must be made into granules in order to be used. If the magnesium granules are mixed with other raw materials, this would occur in the U.S. You have asked (1) whether processing magnesium ingot into granules in a non-NAFTA country constitutes a substantial transformation, thereby rendering that country the country of origin of the granules; and (2)) if the magnesium is granulated in Canada or Mexico, whether the granules would be considered a product of such country under NAFTA.

ISSUES:

1. What is the country of origin of imported magnesium granules processed as described above in a non-NAFTA country from ingot produced in another non-NAFTA country? 2. If the magnesium is granulated in Canada or Mexico from ingot produced in a non-NAFTA country, what is the country of origin of the imported magnesium granules under the NAFTA Marking Rules?

LAW AND ANALYSIS:

1. Granulation in a non-NAFTA country

Section 304 of the Tariff Act of 1930, as amended, 19 U.S.C. 1304, provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its 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. Pursuant to 19 CFR 134.1(b), "country of origin" means the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin. See 19 CFR 134.35(a). A substantial transformation results when a new and different article emerges from the processing having a distinctive name, character and use. U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940). The question of when a substantial transformation occurs for marking purposes is a question of fact to be determined on a case-by-case basis.

Customs ruled in HRL 557046, dated May 17, 1993, that pure magnesium blended with other metals and made into magnesium alloy ingots are substantially transformed into a new and different article of commerce for the purposes of the GSP. The ruling noted that the Customs Office of Laboratories & Scientific Services indicated that the ingots are commercially different products than the pure magnesium.

Customs has held that cutting or bending materials to defined shapes or patterns which dedicates the resulting material to a specific use constitutes a substantial transformation. See HRL 557066, dated April 26, 1993, and HRL 559511, dated June 14, 1996. In addition, we have held that processing which transforms a multi-functional product into one suitable for more specific uses is indicative of a substantial transformation. See HRL 555247, dated January 11, 1990, and HRL 556356, dated February 24, 1992.

In this case, based on the information provided, we find that the processing of the magnesium ingot by chipping, hammer milling and shaping to give the granules a geometric configuration results in a substantial transformation. The processing changes magnesium ingot, which clearly has many uses, into granules with a specific shapes suitable for use as the active ingredient in desulferization reagents. Furthermore, there is little in the character of the magnesium ingot which suggests the ultimate shape and purpose of the granules. In our view, the granules are a separate and distinct article of commerce from the ingot from which they are made. As a result, the country of origin of the granules would be the country in which the ingot is substantially transformed into granules.

2. Granulation in Canada or Mexico

A good of a NAFTA country is defined in 19 CFR 134.1(g) as an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules. The NAFTA Marking Rules are defined in 19 CFR 134.1(j) as the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. The NAFTA Marking Rules are set forth at 19 CFR Part 102. Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining the country of origin under the Marking Rules. Paragraph (a) of this section states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

"Foreign material" is defined in 19 CFR 102.1(e) as "a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced." Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the magnesium ingots are of non-NAFTA origin. Since an analysis of sections 102.11(a)(1) and 102.11(a)(2) will not yield a country of origin determination, we look to section 102.11(a)(3).

Section 102.11(a)(3) provides that the country of origin is the country in which "each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20 and satisfies any other applicable requirements of that section...."

The magnesium granules appear to be classified at subheading 8104.30.00, HTSUS. The magnesium ingots appear to be classified at subheading 8104.11.00, HTSUS. The applicable tariff shift rule found in section 102.20(n) provides as follows:

HTSUS Tariff Shift and/or other requirements

8103.10-8113.00 .....A change to subheading 8103.10 through 8113.00 from any other subheading, including another subheading within that group; or

A change to any of the following goods classified in subheading 8103.10 through 8113.00, including from materials also classified in subheading 8103.10 through 8113.00: Matte; unwrought; powder except from flakes; flakes except from powder; bars except from rods or profiles; rods except from bars or profiles; profiles except from rods or bars; wire except from rod; plates except from sheets or strip; sheets except from plate or strip; strip except from sheets or plate; foil except from sheet or strip; tubes except from pipes; pipes except from tubes; tube or pipe fittings except from tubes or pipes; cables/ stranded wire/ plaited bands.

Since the magnesium granules undergo the requisite tariff shift, pursuant to 19 CFR 102.11(a)(3), the country of origin of the imported magnesium granules would be Canada or Mexico-- where the magnesium is granulated. HOLDING:

We find that the processing of magnesium ingots produced in a non-NAFTA country into granules in a second non-NAFTA country results in a substantial transformation. Pursuant to 19 CFR 134.1(b), the country of origin would be the country where the magnesium ingots are processed into granules.

Pursuant to 19 CFR 102.11(a)(3), the country of origin of the imported magnesium granules for NAFTA Marking purposes is Canada or Mexico-- the country in which the magnesium ingot is granulated.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise was entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,


John Durant
Director,
Commercial Rulings Division