MAR 2-05 CO:R:C:V 735048 LR
Mr. Peter L. Flemister
Assistant General Counsel
Allied Tube & Conduit Corporation
16100 South Lathrop Avenue
Harvey, Illinois 60426
RE: Country of origin marking; couplings; pipe fitting; cutting;
threading; bevelling; coating; attachment to conduit pipe;
assembly; substantial transformation
Dear Mr. Flemister:
This is in response to your request for a ruling submitted
on behalf of Canvil, Ltd. ("Canvil") and Allied Tube & Conduit
Corporation ("Allied") regarding the proper country of origin
marking for certain conduit couplings which are to be partially
manufactured in the U.S. and Canada. Samples were submitted.
FACTS:
Allied plans to have couplings partially fabricated in
Canada by Canvil from American raw materials and then returned to
the United States for final manufacturing. The sequence of
events necessary to complete this process, as stated in your
letter, are as follows.
Allied will purchase semifinished twenty-two (22) foot
length raw and galvanized conduit shells from American
manufacturers. The special carbon chemistry of these shells
is such that they can only be used to manufacture couplings
as opposed to conduit. These shells will be shipped to
Canvil in Canada where they will be cut to the proper length
to serve as conduit couplings. Depending upon the sizes of
the couplings, between eighty (80) and one hundred (100)
couplings will be made form each length of conduit shell.
The unfinished couplings will be threaded in Canada on the
inner diameter only, and then bevelled. The unfinished
couplings will then to returned to the United States to be
electro-galvanized or plated on the outer diameter into an
acceptable finished couplings. The finished couplings will
only be sold by Allied already coupled to ten (10) foot
lengths of electrical conduit. Allied will not sell the
finished couplings alone. Throughout this process Allied
will retain legal title to the couplings.
You ask what is the proper country of origin for these couplings
when they arrive in the United States and also when they are sold
by Allied as a finished product coupled to ten (10) foot lengths
of electrical conduit.
ISSUES:
1. Whether the U.S. conduit shells are substantially transformed
in Canada as a result of cutting, threading and beveling so as to
render Canada the country of origin of the couplings at the time
of importation.
2. Whether the imported couplings are subject to the special
pipe marking requirements.
3. Whether Allied substantially transforms the couplings after
importation so as to render it the ultimate purchaser.
LAW AND ANALYSIS:
1. Are the conduit shells substantially transformed by the
processing performed in Canada so as to render Canada the country
of origin at the time of importation?
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), requires, subject to certain specified exceptions, that
every article of foreign origin imported into the U.S. shall be
marked to indicate the country of origin to the ultimate
purchaser in the U.S. Part 134, Customs Regulations (19 CFR Part
134), implements the country of origin marking requirements and
exceptions of 19 U.S.C. 1304. Country of origin is defined in 19
CFR 134.1(b) as 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.
By definition, only merchandise which is "of foreign origin"
is subject to the requirements of 19 U.S.C. 1304. In other
words, products of U.S. origin are not required to be marked with
their country of origin. With certain exceptions not applicable
here, Customs has consistently ruled that since 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 U.S. product sent abroad for processing
remains a product of the U.S. and is not subject to the
requirements of 19 U.S.C. 1304 upon its reimportation unless the
article is first substantially transformed into an article of
foreign origin. In the present case, the first issue presented
is whether the U.S. materials are substantially transformed into
articles of Canadian origin as a result of the operations
performed in Canada.
A substantial transformation occurs when articles lose their
identity and become new articles having a new name, character or
use. See United States V. Gibson-Thomsen Co., 27 C.C.P.A. 267
(1940), National Juice Products Association v. United States, 10
CIT 48, 628 F.Supp. 978 (CIT 1986); Koru North American v. United
States, 701 F.Supp 229, 12 CIT 1120 (CIT 1988). The question of
when a substantial transformation occurs is a question of fact to
be determined on a case-by-case basis. Uniroyal Inc. v. United
States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 1 Fed.Cir. 21,
702 F.2d 1022 (1983).
In Midwood Industries v. United States, 64 Cust. Ct. 499,
C.D. 4026, 313 F. Supp. 951 (1970), a case involving the country
of origin marking requirements of imported steel forgings, the
Customs Court considered whether they were substantially
transformed by processing performed in the U.S. The processes
involved in finishing the imported articles included, cutting,
boring, facing, spotfacing, drilling tapering, threading,
bevelling, heating and compressing. The court found that the
processing substantially transformed the imported forgings into
fittings and flanges. Although the court based its decision in
part on the fact that the processing changed a producer's
forgings to a consumer's flange, the decision makes clear that
numerous machining operations were performed in the U.S. which
imparted essential characteristics to the forgings that enabled
them to be used as fittings and flanges. For example, there was
testimony that the rough forgings have no connecting ends and
therefore, cannot be used to connect pipes of matching size, the
essential purpose of fittings.
In C.S.D. 89-121, July 25, 1989, Customs construed Midwood
as requiring significant machining operations which change the
fundamental character of imported forgings for a finding of
substantial transformation. Operations such as lathing, drilling
and grinding were distinguished from cosmetic or minor processing
operations such as identification marking, and blasting, tumbling
and plating.
In the instant case, the operations performed in Canada
include cutting the conduit shells into 2-3 inch lengths,
threading the inner diameter and bevelling the ends. Although
there are some rulings involving one or more of these operations,
we have not previously ruled on whether these operations taken
together constituent a substantial transformation.
In Treasury Decision 87-46, Customs determined that
threading operations alone do not substantially transform pipe
fittings so as to change their country of origin. Customs found
that threading does not change the name, character or use of a
fitting, and that the operation is insubstantial in relation to
the nature of the operations needed to manufacture a fitting. In
Headquarters Rulings Letter ("HRL") 734186, October 24, 1991,
Customs determined that cutting steel pipe to lengths of between
12 inches and 120 inches is not a substantial transformation.
The decision notes that lengths of pipe cut to 12 inches or more
are considered pipe for classification purposes. However,
substantial transformation was found where additional machining
(including bevelling) was performed. In HRL 734883, August 1,
1990, Customs determined that unfinished malleable cast iron
components of pipe fittings which as imported have no threading,
bevelled edges or other features beyond their rough shape and
cannot be joined together as pipe fittings were substantially
transformed in the U.S. Numerous machining operations were
performed to achieve the final shape. In HRL 700022, October 27,
1972, Customs determined that based on Midwood, certain
unfinished fittings were substantially transformed by bevelling,
painting and marking them, rendering the U.S. processor the
ultimate purchaser.
In this case, based on these prior decisions, we find that
the coupling stock is substantially transformed in Canada as a
result of three operations performed there taken together. Prior
to such processing, the product lack those features which
characterize it as couplings, namely its proper dimensions,
finished ends, and threading. We find that taken together these
operations substantially transform the U.S. raw shells into
couplings which are products of Canada. We note that unlike the
pipe in HRL 734186 which was cut into lengths of greater than 12
inches and thus remained pipe for classification purposes, here,
the conduit is to be cut into lengths of approximately 2-3 inches
and results in a more significant change. In addition, the
processing involved here exceeds the processing that was involved
in HRL 700022.
2. Are the imported couplings are subject to the special pipe
marking requirements?
Section 207 of the Trade and Tariff Act of 1984 (19 U.S.C.
1304(c)), requires that all imported steel pipes and fittings of
foreign origin be marked with their country of origin by means of
die stamping, cast-in-mold lettering, etching or engraving.
Where it is technically or commercially infeasible to mark by one
of these methods, the article may be paint stencilled. Imported
articles which are classifiable as pipe fittings must be marked
in accordance with the requirements of 19 U.S.C. 1304(c). Iron
or steel tube or pipe fittings (for example, couplings, elbows,
sleeves) of iron or steel are classified under Heading 7307,
Harmonized Tariff Schedule of the United States. It appears that
the couplings in question would be classified under this heading;
if so, they would be subject to the special marking requirements
of 19 U.S.C. 1304(c).
3. Who is the ultimate purchaser of the imported couplings?
An ultimate purchaser is defined in section 134.1, Customs
Regulations (19 CFR 134.1), as "the last person in the U.S. who
will receive the article in the form in which it was imported."
The regulation further provides that if an imported article will
be used manufacture, the manufacturer may be the ultimate
purchaser if he subjects the imported article to a process which
results in a substantial transformation. However, if the
manufacturing process is merely a minor one which leaves the
identity of the imported article intact, 19 CFR 134.1(d)(2)
provides that the consumer or user of the article, who obtains
the article after the processing will be regarded as the ultimate
purchaser. Where a U.S. manufacturer substantially transforms an
imported article, such article is generally excepted from
individual marking; only the outermost container is required to
be marked. See 19 U.S.C. 1304(a)(3)(D), section 134.32(d) and
134.35, Customs regulations (19 CFR 134.32(d) and 134.35).
However, this exception is not applicable to imported steel
pipe fittings. 19 U.S.C. 1304(c) provides that, with two
exceptions not applicable here, "no exception from marking may be
made under 19 U.S.C 1304(a)(3) with respect to . . . pipe
fittings of steel, chrome-moly steel, or cast and malleable iron
each of which shall be marked with the country of origin by means
of die stamping, cast-in-mold lettering, etching, or engraving
(emphasis added). Although no marking exceptions apply, we have
ruled that if the importer is the ultimate purchaser, the marking
may appear in a location where it will be obliterated during the
U.S. processing. See HRL 728693, November 5, 1985.
In this case, after importation Allied will electro-
galvanize or plate the outer diameter into an acceptable finished
coupling. No details regarding the coating processes were
submitted. A substantial transformation may result where a
coating process changes the chemical composition of the product,
but not where the coating is only for the prevention of corrosion
and there is no such change. See National Hand Tool Corp. v.
United States, Slip Op. 92-61 (CIT April 27, 1992) (Taiwanese
hand tool components did not undergo a substantial transformation
when they were assembled and further processed in the U.S. by
heat treatment, electroplating with nickel and chrome, and other
processing. The court concluded that the character of the
articles remained unchanged after such processing. Neither the
heat treatment nor the plating changed the chemical composition
of the material); Ferrostaal Metals Corp.v. United States, 11 CIT
470 (1987); (cold-rolled steel sheet from Japan annealed and
galvanized in New Zealand by a process known as "continuous hot
dip galvanizing" was a product of New Zealand. Such processing
changed the character of the sheet by creating a mixed zinc-steel
surface which changed the chemical composition of the sheet and
by providing corrosion resistance).
In the present case, no information was submitted
demonstrating that the coating process to which the couplings are
subjected change the chemical composition of the fittings or
otherwise change their fundamental character.
In addition to coating, Allied attaches the coupling to ten
foot electrical conduit. You have advised us by telephone that
the couplings are merely threaded onto the conduit rather than
permanently attached. We find that the coupling does not lose
its separate identity when it is attached in a nonpermanent
fashion to electrical conduit.
Based on the information submitted, we find that the U.S.
processing does not substantially transform the couplings. As
such, we find that Allied is not the ultimate purchaser of the
couplings within the meaning of 19 CFR 134.35. Therefore, the
imported couplings must be marked with their country of origin
(Canada) in a manner which remains visible to subsequent
purchasers. Both at the time of importation and at the time of
sale by Allied, the couplings are considered products of Canada.
HOLDING:
For purposes of 19 U.S.C. 1304, the processing in Canada
substantially transforms the raw coupling stock into couplings of
Canadian origin. Assuming the couplings are classified as pipe
fittings of iron or steel, they are subject to the special pipe
marking requirements of 19 U.S.C. 1304(c) and must be marked by
one of the specified methods. Based on the information
submitted, we conclude that the domestic processing does not
render Allied the ultimate purchaser; as such, the name of the
country of origin (Canada) must remain visible to subsequent
purchasers.
Sincerely,
John Durant, Director
Commercial Rulings Division