MAR-2-05 CO:R:C:V 734167 NL
Michael H. Greenberg, Esq.
Sharretts Paley Carter & Blauvelt, P.C.
67 Broad Street
New York, NY 10004
RE: Country of Origin Marking - Impact Socket Blanks;
Substantial Transformation; 19 CFR 134.32(m); C.S.D. 89-121.
Dear Mr. Greenberg:
This is in response to your letter of May 13, 1991, in which
you request a prospective ruling concerning the country of origin
marking requirements for certain impact socket blanks.
FACTS:
The articles in question are high strength steel impact
sockets measuring from 1" to 14" in diameter. The manufacturing
operations are to be conducted by your client, Subcon Products,
Inc. (SPI). In the U.S., stainless steel bar stock will be used
to produce socket blanks. These U.S. operations will consist of
cutting the bars to length, machining the shapes to precise
length and outside diameter, centerizing (machining most of the
material from the center of the blank, precisely concentric with
its outside diameter), and inspecting. SPI proposes then to
transport the blanks to Israel for further processing as follows:
1) a proprietary electro chemical machining (ECM) process will be
used to make the square drive hole and hexagon of the socket to
precisely fit bolts and nuts; 2) an automatic drilling machine is
used to drill two holes to acommodate the retaining pin; and 3)
the pieces are washed and oiled. The pieces are then returned to
the U.S. for finishing. These steps include roll marking with
the piece's brand name, catalog number, and size, heat treatment
and tempering, coating with black oxide, and final inspection.
It is your position that the processing of the impact socket
blanks in Israel does not change their status as articles of U.S.
origin for country of origin marking purposes. As exported to
Israel they have already been manufactured to their inside and
outside diameters and length. While ECM is an important process
for creating the square and hexagonal configurations, it does not
result in changes in the shape or form of the unfinished sockets
exported from the U.S. You assert that throughout all the
processing steps there is no change in the article's
classification under the Harmonized Tariff Schedule of the United
States (HTSUS); subheading 8204.20.00 is the applicable provision
whether the sockets are unfinished, semifinished, or finished.
Finally, you represent the value of the article added in the U.S.
(both before and after processing in Israel), as accounting for
at least 75% of the value of the finished impact socket.
Accordingly, you urge a finding that the semifinished impact
socket, as imported from Israel, is eligible to be excepted from
country of origin pursuant to 19 CFR 134.32(m), as a product of
the U.S. exported and returned.
ISSUE:
Does the processing in Israel of the impact socket blank
produced in the U.S. effect a change in its country of origin?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
location as legibly, indelibly, and permanently as the nature of
the article (or 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. Section 134.1(b) provides in general that an
article's country of origin is the country in which it was
manufactured, produced, or grown. 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. A substantial transformation is said to occur if,
within the principle of the case of United States v. Gibson-
Thomsen Co., Inc. 27 C.C.P.A. 267 (C.A.D. 98)(1940), an article
emerges from processing having a new name, character, or use.
See, 19 CFR 134.35.
Section 134.32(m), Customs Regulations (19 CFR 134.32(m),
provides that articles which are products of the U.S. exported
and returned are excepted from the requirement of country of
origin marking. In this case, unless the unfinished sockets
produced in the U.S. are considered to have been substantially
transformed by processing in Israel, the semifinished sockets
will be eligible for exception from country of origin marking
pursuant to 19 CFR 134.32(m).
Upon consideration of the changes effected by the processing
steps in both the U.S. and Israel, it is the opinion of this
office that the unfinished impact socket does not acquire a new
name, character, or use as a result of processing in Israel. At
the time of its exportation to Israel the blank has already
achieved its fundamental name, character, and use as a socket,
having been sawed, turned, and centerized in the U.S. to its
essential dimensions, particularly with respect to outside
diameter and length. The processing in Israel does not change
the status of the article as a product of the U.S.
While the imparting of the square and hexagonal shapes in
the socket blank in Israel by ECM cannot be dismissed as
insignificant, or as mere finishing, this processing does not
effect a change sufficient to qualify as a substantial
transformation. The shaping effected by ECM and drilling is
essential to the functioning of the impact socket, but is not
sufficient to create an article with a new name, character, or
use. As pointed out in the submission, the conversion of the
socket blank from a producer's good to a consumer's good (the
finished socket) requires additional processing upon return of
the article to the U.S.; i.e., heat treatment and tempering,
black oxide coating, and final inspection. A complete conversion
of the socket blank into the finished impact socket in Israel
would be necessary to bring this article within the scope of
Midwood Industries v. United States, 313 F. Supp. 951 (Cust. Ct.
1970), which held that a manufacturer who effects such a
conversion is the ultimate purchaser of the producer's good
within the meaning of 19 U.S.C. 1304. The Midwood analysis does
not apply in this case.
The instant case is distinguishable also from a previous
ruling, HQ 731572 (July 25, 1989), published as C.S.D. 89-121, 23
Cust. Bull. & Dec. No. 45 (November 8, 1989), in which this
office evaluated the consequences for marking of certain
operations performed on forgings for sockets, socket wrench
extensions, and adapters. In that decision we ruled that
forgings which were subjected after importation to lathing,
drilling, centerless grinding, marking, heat treatment, sand
blasting, tumbling, plating, and painting, among other processes,
were substantially transformed such that the processor in the
U.S. was the ultimate purchaser of the forgings. Accordingly,
the forgings were excepted from country of orgin marking pursuant
to 19 CFR 134.35. We reasoned that the lathing, drilling, and
grinding, in particular, changed the imported rough forgings into
finished sockets by imparting essential characteristics and
enabling their use as sockets.
The critical operations at issue here, sawing, turning, and
centerizing, are those which create the unfinished article from
bar stock, and are conducted in the U.S. Only after this has
been accomplished does ECM and drilling take place in Israel.
Thus the extent of critical machining done is Israel is
significantly less that that considered in HQ 731572 which was
found to effect a substantial transformation. Moreover, as
previously found, this processing in Israel is performed on an
article which has already attained its essential character as a
socket. We are satisfied, in short, that there is no
inconsistency between our finding here and the conclusion reached
in HQ 731572, inasmuch as the extent of processing in the instant
case is substantially less, does not affect the fundamental
dimensions of the article, and results in no change in its name,
character, or use. As contended in the submission, an unfinished
socket is sent for processing in Israel into a semifinished
socket, and finally returned to the U.S. for conversion into the
finished article.
HOLDING:
Processing in Israel of the impact sockets does not change
their status as products of the U.S., and they may be excepted
from country of origin marking upon their return from Israel
pursuant to 19 CFR 134.32(m).
Sincerely,
John Durant
Director, Commercial
Rulings Division