OT:RR:CTF:VS H302252 RMC
Alex Romero
A.F. Romero & Co. Customs Brokers
1749 Stergios Rd.
Calexico, CA 92231
Re: Subheading 9802.00.80, HTSUS; Steel Fence Posts; Section 232 Measures
Dear Mr. Romero:
This is in response to your letter, dated December 13, 2018, on behalf of Merchant Metals, Inc. (“MMI”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”), as well as the Section 232 measures, to proposed transactions involving steel fence posts imported from Mexico.
FACTS:
You state that MMI produces fence post assemblies. The production process begins with precut, U.S.-origin square steel tubing. MMI sends this precut tubing to a facility in Mexicali, Mexico, where it produces the final product. The Mexican operations involve welding a flange to the bottom of the tube, powder coating the tube and flange, and soldering a steel cap on the end of the tube. The steel cap is of Taiwanese origin and the flange is either of Mexican or U.S. origin. You state that the final product is a product of Mexico and is classified in subheading 7306.61.50, HTSUS.
You also state that, as a product of Mexico classified in subheading 7306.61.50, HTSUS, the merchandise is covered by actions taken by the United States Trade Representative pursuant to its authority under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862) (“Section 232 measures”). Accordingly, you ask whether MMI may avail itself of the duty allowance in subheading 9802.00.80, HTSUS, when the finished fence posts are imported into the United States and, if so, whether Section 232 measures will apply upon importation.
ISSUES:
Whether subheading 9802.00.80, HTSUS, is applicable to the steel fence posts assembled in Mexico and, if so, whether their entry under subheading 9802.00.80, HTSUS triggers liability for Section 232 duties.
LAW AND ANALYSIS:
Eligibility Under Subheading 9802.00.80, HTSUS
Subheading 9802.00.80 HTSUS, provides a duty allowance for:
[a]rticles . . . assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.
All three requirements of subheading 9802.00.80, HTSUS must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of 19 C.F.R. § 10.24.
19 C.F.R. § 10.14(a) states in part that:
the components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.
19 C.F.R. § 10.16(a) provides that the assembly operations performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing or the use of fasteners, and may be preceded, accompanied, or followed by operations incidental to the assembly.
Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 C.F.R. § 10.16(a). However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80 HTSUS, to that component. Id.
Here, the fabricated components at issue are the U.S.-origin steel pipes used to make the fence posts. The information provided shows that these square steel pipes will be cut to their proper length in the United States and will not require further processing in Mexico before assembly operations begin. As the finished fence post consists only of the powder coated steel pipe with a flange and cap attached, we find that the U.S.-origin steel pipe will be exported to Mexico “ready for assembly without further fabrication.” Furthermore, the U.S.-origin steel pipe will retain its form and shape when it is used to make the fence posts. Therefore, we also find that the steel pipe will not lose its physical identity as a result of the processing that occurs in Mexico.
The assembly itself will involve welding a flange to the bottom of the tube, powder coating the tube and flange, and soldering a steel cap on the end of the tube. As noted in 19 C.F.R. § 10.16(a), for purposes of subheading 9802.00.80, HTSUS, the assembly operations performed abroad may consist of any method used to join or fit together solid components, including welding and soldering. Furthermore, the “powder coating” process, which will involve spraying a protective coating onto the product, is an “operation incidental to the assembly process” pursuant to 19 C.F.R. § 10.16(b)(3), which provides for “[a]pplication of paint or preservative coating, including preservative metallic coating, lubricants, or protective encapsulation.”
Based on these facts, and assuming that all documentary requirements are met, the fence posts will be eligible for a duty allowance under subheading 9802.00.80, HTSUS, upon entry into the United States.
Liability for Section 232 Measures
U.S. Note 16(a) to subchapter III of chapter 99, HTSUS, sets forth the “ordinary customs duty treatment applicable to all entries of the iron or steel products of all countries other than of the United States, when such iron or steel products are classifiable in the headings or subheadings enumerated in subdivision (b) of this note.” Subdivision (b) states that the rates of duty set forth in subheadings 9903.80.01 and 9903.80.02 and subheadings 9903.80.05 through 9903.80.58, inclusive, apply to goods of “tubes, pipes and hollow profiles provided for in heading 7304 or 7306,” which includes the merchandise at issue in this case. The applicable rate of duty specified in subheading 9903.80.01, HTSUS, which applies to “[p]roducts of iron or steel provided for in the tariff headings or subheadings enumerated in note 16 to this subchapter, except products of Australia, of Argentina, of South Korea, of Brazil, of Turkey or any exclusions that may be determined and announced by the Department of Commerce,” is “[t]he duty provided in the applicable subheading + 25%.”
Because the Section 232 measures do not apply to “iron or steel products . . . of the United States,” we must first determine whether the steel fence posts under consideration will be of U.S. origin. While the NAFTA marking rules contained in 19 C.F.R. Part 102 will determine the country of origin for marking purposes, the substantial transformation test will determine the country of origin for purposes of the Section 232 measures. See, e.g., Headquarters Ruling (“HQ”) H301619, dated November 6, 2018 (“When determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, 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). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993).
In National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d 989 F.2d 1201 (Fed. Cir. 1993), the court held that hand tool components imported from Taiwan and used to make flex sockets, speeder handles, and flex handles were not substantially transformed in the United States. The court focused on the fact that the components had been cold-formed or hot-forged into their final shape before importation and their use was predetermined at the time of importation. The court stated that the fact that there was only one predetermined use of the imported articles did not preclude the finding of substantial transformation but that the finding would be based on a “totality of the evidence.”
Since the National Hand Tool case, CBP has held that simple machining of imported castings combined with a simple assembly does not result in a substantial transformation of imported castings. For example, in HQ 561297, dated June 2, 1999, CBP considered whether a substantial transformation occurred when imported raw castings were processed in the United States into receivers, which were then assembled into rifles. The U.S. processing of the raw castings to produce receivers included machining, heat treatment, drilling four holes, sandblasting, dipping the castings into a hot caustic solution, stamping, and final inspection. The receivers were then ready to be assembled into rifles. We noted that the raw castings had the shape, character and predetermined use of the finished receivers and merely required intermediate finishing operations. Accordingly, we held that the processing of the raw castings into receivers in the United States did not result in a substantial transformation. However, in HQ 561297, we also ruled that the processing of the raw castings into receivers and assembling them with other components to create finished rifles in the United States resulted in a substantial transformation creating a new article with a new name, character, and use. In the second step of the processing operation, highly trained machinists assembled 47 parts to produce the finished rifle. In finding that a substantial transformation had occurred, CBP considered the complexity of the assembly operation, the number of parts involved, and the need for trained technicians to meet very exacting specifications.
Here, you state that the steel fence posts will be of Mexican origin. However, we find that this case is analogous to the first step of the processing in HQ 561297, where the processing of the raw castings into receivers was insufficient to result in a substantial transformation. The processing that will occur here, which involves welding a flange to the bottom of the U.S.-origin tube, powder coating the tube and flange, and soldering a steel cap on the end of the tube, is similar in scope and complexity to the processing in the first step of HQ 561297, which involved machining, heat treatment, drilling four holes, sandblasting, dipping the castings into a hot caustic solution, stamping, and final inspection. This processing falls short of the complex assembly operations that were carried out in step two of HQ 561297, which were key factors in our finding that a substantial transformation had occurred in that step.
Moreover, as in the first step of HQ 561297, the imported metal component has the shape, predetermined use, and character of the finished product. With the exception of the flange and cap, the finished fence post has the same shape as the U.S.-origin steel tubing from which it is made. Furthermore, as the steel tubes are sent to Mexico as pre-cut components, the U.S. origin tubes will have a predetermined use at the time of importation, which is an important factor in determining whether a substantial transformation has occurred. See National Hand Tool Corp. v. United States, 16 C.I.T. at 312.
Additionally, the U.S.-origin steel tubes are the “very essence” of the steel fence posts. See Uniroyal, Inc. v. United States, 3 CIT 220, 225, 542 F. Supp. 1026, 1030 (1982) (holding that imported shoe uppers added to an outer sole in the United States were the “very essence of the finished shoe” and thus were not substantially transformed into a product of the United States); and National Juice Prods. Ass’n v. United States, 10 CIT 48, 61, 628 F. Supp. 978, 991 (1986) (holding that imported orange juice concentrate “imparts the essential character” to the completed orange juice and thus was not substantially transformed into a product of the United States). Based on the information provided, the finished fence post is simply the U.S.-origin steel tube with a cap on the top and a flange on the bottom. Under these circumstances, no change in character will occur when the U.S.-origin steel tubing is processed into finished fence posts in Mexico. Accordingly, the merchandise will be a product of the United States, and the Section 232 measures will not apply.
HOLDING:
Provided that all documentary requirements are met, the merchandise will be eligible for the partial duty exemption provided for in subheading 9802.00.80, HTSUS, upon importation.
As the merchandise will be a product of the United States, Section 232 measures will not apply.
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 CBP 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 the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch