CLA-2 CO:R:C:S
Mr. Bill Arther
Trans-World Fasteners, Inc.
P.O. Box 2205
Mobile, Alabama 36652-2205
RE: Steel; GSP; Substantial Transformation; Cutting to Length;
Roll Threading; Heat Treatment; Marking; 9802.00.60, HTSUS
Dear Mr. Arther:
This is in response to your letters of June 19, 1992, and
July 9, 1992, requesting information on the marking requirements
and dutiability of U.S.-origin steel exported to Mexico for
processing into B-7 studs.
FACTS:
In the United States, steel is cold drawn, quenched and
tempered, resulting in 4140 heated treated round bar to ASTM
A193. The steel is then exported to Mexico where it is sheared
or sawed to length (this varies from 1" to 20" in standards and
sometimes even longer), roll-threaded, heat treated, inspected
for certification and packed in boxes or crates.
You state that the heat treating process changes the core
hardness of the steel.
During a telephone conversation on September 15, 1992,
between you and a member of my staff, you stated that the B-7
steel studs are sold by your company to distributors and are
generally used in the petroleum/chemical market as flanges to
connect pipes.
ISSUES:
(1) Whether the B-7 studs produced in Mexico are eligible
for duty-free treatment under the Generalized System of
Preferences (GSP) or for a partial duty exemption under
subheading 9802.00.60, Harmonized Tariff Schedule of the United
States (HTSUS).
(2) Whether the steel imported from Mexico must be marked
"made in Mexico."
LAW AND ANALYSIS:
ELIGIBILITY UNDER SUBHEADING 9802.00.60, HTSUS
HTSUS subheading 9802.00.60 provides a partial duty
exemption for:
[a]ny article of metal (as defined in U.S. note 3(d) of this
subchapter) manufactured in the United States or
subjected to a process of manufacture in the United
States, if exported for further processing, and if the
exported article as processed outside the United
States, or the article which results from the
processing outside the United States, is returned to
the United States for further processing.
This tariff provision imposes a dual "further processing"
requirement on eligible U.S. articles of metal; one foreign, and
when returned, one domestic. Metal articles satisfying these
statutory requirements may be classified under this tariff
provision with duty only on the value of such processing
performed outside the U.S., provided the documentary requirements
of section 10.9, Customs Regulations (19 CFR 10.9), are met.
In C.S.D, 84-49, 18 Cust. Bull. 957 (1983) we stated that:
[f]or purposes of item 806.30, TSUS [the predecessor
tariff provision to HTSUS subheading 9802.00.60], the
term 'further processing' has reference to processing
that changes the shape of the metal or imparts new and
different characteristics which become an integral part
of the metal itself and which did not exist in the
metal before processing; thus, further processing
includes machining, grinding, drilling, threading,
punching, forming, plating, and the like, but does not
include painting or the mere assembly of finished parts
by bolting, welding, etc.
Under the facts presented, when the B-7 studs are returned
to the United States they are finished articles ready for sale
and are not subjected to "further processing" when returned to
this country. Accordingly, we find that only the first part of
the dual "further processing" requirement is satisfied, and the
steel will not be entitled to a partial duty exemption under
subheading 9802.00.60, HTSUS.
ELIGIBILITY UNDER THE GSP
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 in the BDC, is
equivalent to at least 35 percent of the appraised value of the
article at the time of entry. See, 19 U.S.C. 2463(b).
Mexico is a designated BDC. See, General Note 3(c)(ii)(A),
HTSUS. Therefore, the B-7 studs will receive duty-free treatment
if they are considered to be the "product of" Mexico and the 35%
value-content requirement is satisfied. Merchandise is
considered the "product of" a BDC if it either is wholly the
growth, product or manufacture of a BDC or has been substantially
transformed there into a new or different article of commerce.
19 U.S.C. 2463(b)(2). A substantial transformation occurs "when
an article emerges from a manufacturing process with a new name,
character, or use which differs from that of the original
material subjected to the process." The Torrington Company v.
United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).
Custom has long held that the operations in question do not
result in a substantial transformation. In Headquarters Ruling
Letter (HRL) 734186 dated October 24, 1991, we held that steel
pipe exported to Mexico where it is cut to length and threaded at
both ends and imported into the United States for use as nipples
does not constitute a substantial transformation. See also, T.D.
87-46 and T.D. 67-249(12) (cutting to length and threading of
steel pipe is not a substantial transformation and will not be
deemed to change its country of origin). Moreover, we have held
that heat treatment which is not extensive or complex, and does
not transform or narrow the uses of the article is not a
substantial transformation. See, HRL 555103 dated February 2,
19879 (solution quenching and annealing stainless steel bars and
wire rod, which maximizes softness, ductility, and corrosion
resistance in the steel, does not constitute a substantial
transformation, where steel retains its multi-functional utility,
the fundamental change occurs in the finished product cost), and
HRL 730648 dated August 14, 1987 (stainless steel pipe which is
annealed, restraightened and pickled is not substantially
transformed).
Thus, in keeping with Customs prior decisions, we find that
the roll threading, cutting to length and heat treatment of the
steel bars in Mexico does not result in a substantial
transformation of the U.S.-origin steel into a product of Mexico.
Therefore, the studs will not be entitled to duty-free treatment
under the GSP, upon importation into the U.S.
MARKING
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. As provided in section 134.32(m), Customs
Regulations (19 CFR 134.32(m)), products of the U.S. exported and
returned are specifically excepted from country of origin marking
requirements. If a U.S. product is sent abroad for processing,
the article remains a product of the U.S. excepted from the
country of origin marking requirements unless prior to its return
it is substantially transformed into an article of foreign
origin. If the U.S. product is substantially transformed, it
becomes an article of foreign origin and must be marked with its
country of origin.
In the instant case, since the B-7 studs are not
substantially transformed into a product of Mexico as a result of
the processing in that country, they remain "products of" the
U.S. and are exempt from the country of origin marking
requirements.
HOLDING:
Roll threading, cutting to length and heat treatment of
U.S.-origin steel in Mexico does not result in a substantial
transformation of that steel into a product of Mexico.
Accordingly, the B-7 studs will not be entitled to duty-free
treatment under the GSP, upon return to the United States.
Moreover, the studs will not be entitled to a partial duty
exemption under subheading 9802.00.60, HTSUS, because only the
first part of the "dual further processing" requirement is
satisfied. Therefore, the studs will be dutiable on their full
appraised value when imported into the United States. Finally,
the B-7 studs will be exempt from marking under section
134.32(m), Customs Regulations (19 CFR 134.32(m)).
Sincerely,
John Durant, Director
Commercial Rulings Division