OT:RR:CTF:VS H310108 EGJ
Peter Quinter
Gray Robinson
333 S.E. 2nd Ave., Suite 3200
Miami, FL 33131
RE: Country of Origin Marking of Certain Hydraulic Couplings
Dear Mr. Quinter:
This is in response to your letter, dated March 30, 2020, filed on behalf of RYCO Hydraulics, Inc. (“RHI”), requesting a prospective ruling on the country of origin of metal hydraulic couplings. RHI is seeking a country of origin determination for the purposes of marking.
FACTS:
RHI manufactures hydraulic and industrial hoses and fittings. Its products are used in a range of different applications, such as in forestry, mining, construction, and agriculture. You state that the subject merchandise consists of metal hydraulic couplings. The finished couplings are made up of three major components: an insert, a ferrule, and a nut. In your ruling request, you note that RHI sources all of its raw materials for the couplings from Germany.
You have asked us to make a country of origin determination under three different manufacturing scenarios. In the first scenario, the source material is steel tube which is cut to length in Poland. In the second scenario, the source material is steel coil which is formed into blanks in Poland. In the third scenario, the nut and the ferrule are formed into blanks in Poland, but the insert is formed into a blank in China. You have provided us with a picture of the three individual components, as well as the finished product, which is provided below:
You have provided us with the two manufacturing processes for each component and for the finished couplings. We have set forth each manufacturing process below:
Scenario One – Steel Tube as Source Material
The Ferrules
RHI sources steel tube from Germany, and then ships it to Poland. In Poland, the tube is cut to length. Then, RHI ships the cut tubes to China, where workers place the tubes into a machine which forms them into their final shape. Next, workers place the ferrules into a turning machine which shapes the internal profile cut. Then the ferrules are annealed using a heat treatment. Finally, the ferrules are plated and finished.
The Inserts
RHI sources steel tube from Germany, and then ships it to Poland for processing. In Poland, workers cut the tube to length. Then, the tubes are shipped to China where they are placed into a machine which forms them into their final shapes. Next, the formed blanks are placed into a rolling machine and rolled. You note that 85% of the inserts are straight and do not require bending. These inserts are sent directly to plating, while the remaining 15% are placed into a bending machine and bent. The bent inserts are then sent to plating, which is the final step of the manufacturing process.
The Nuts
Similar to the other two processes, RHI sources steel tubes from Germany and ships them to Poland for processing. In Poland, the tubes are cut to length. Then, RHI sends the cut tubes to China. In China, the tubes are placed into a machine which forms them into their final shape. Next, workers place the nuts into a tapping machine which threads them. Finally, the nuts are plated and finished.
To assemble the finished metal coupling, the process will either be automated or manual. In the manual process, a worker will take one insert and push it through one ferrule. Then, the worker will screw the nut onto the end of the insert, which will secure the three components together. Then, the ferrule is pressed into the other components to form the finished coupling. In the automated process, machines will form the three components into a finished coupling. The couplings are then packaged and prepared for export to the United States.
Scenario Two – Steel Coil as Source Material
The Ferrules
RHI sources steel coil from Germany and ships it to Poland. In Poland, workers feed the coil into a machine which cuts the coil into billet and forms a ferrule blank into the shape of the finished ferrule. The ferrule blanks are shipped to China for further processing. In China, workers place the ferrule blanks into a turning machine which cuts the internal profile. Next, the ferrules are heat treated, plated, and finished.
The Inserts
Similar to the ferrules, RHI sources the steel coil from Germany and ships it to Poland. In Poland, the coil is fed into a machine which cuts a billet and forms an insert blank in the final shape of the insert. Then, the insert blanks are shipped to China for further processing. In China, the insert blanks are placed into a rolling machine and rolled. Approximately 85% of the inserts are straight and do not require bending. The remaining 15% are sent to a bending machine, where they are bent. Afterwards, all of the inserts are plated and finished.
The Nuts
Just like the other two processes, RHI ships the steel coil from Germany to Poland. In Poland, a worker places the coil into a machine where it is cut and formed into a nut blank. The nut blanks are shipped to China, where a worker places them into a tapping machine and they are threaded. Then, the nuts are plated and finished.
The final assembly of the finished metal coupling is the same as Scenario One. After the metal couplings are assembled, they are packaged and shipped to the United States.
Scenario Three – Steel Coil and Steel Tube as Source Material
The Ferrules – Steel Coil
Here the production of the ferrules is the same as in Scenario Two. RHI sources steel coil from Germany and ships it to Poland. In Poland, the coil is cut and formed into the ferrule blanks. Next, the blanks are shipped to China where they have internal profiles cut on a turning machine. Then, they are heat treated, plated, and finished.
The Inserts - Tube
The production of the inserts is the same here as in Scenario One. RHI sources steel tube from Germany, and then ships it to Poland for processing. In Poland, workers cut the tube to length. Then, the tubes are shipped to China where they are formed into insert blanks. Then, they are rolled, after which some of them are bent. All of the inserts are then plated and finished.
The Nuts – Steel Coil
Again, the process here is the same as for the nuts under Scenario Two. Using steel coil sourced from Germany, the facility in Poland cuts the coil and forms it into blanks. The nut blanks are shipped to China, where they are placed into a tapping machine and threaded. Then, the nuts are plated and finished.
The final assembly of the coupling under Scenario Three is the same as for Scenarios One and Two. It is undisputed that the metal couplings are classified under subheading 7307.92.30 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “Tubes or pipe fittings (for example, couplings, elbows, sleeves), of iron or steel: Threaded elbows, bends and sleeves: sleeves (couplings).”
ISSUE:
For Scenarios One, Two, and Three, what is the country of origin of the metal hydraulic couplings for the purposes of marking?
LAW AND ANALYSIS:
The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. § 1304) provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place 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 United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. § 1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co. Inc., 27 C.C.P.A. 297, 302, C.A.D. 104 (1940).
The country of origin marking requirements and the exceptions of 19 U.S.C. § 1304 are set forth in Part 134, Customs Regulations (19 C.F.R. Part 134). Section 134.1(b), Customs Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” 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” within the meaning of the marking laws and regulations. A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, and use which differs from the original material subjected to the process. United States v. Gibson Thomsen Co., 27 C.C.P.A. 267 (C.A.D. 98) (1940); Texas Instruments, Inc. v. United States, 681 F.2d 778, 782 (1982). We have set forth our analysis for both proposed scenarios below.
The first question presented is whether tubes cut to length in Poland are substantially transformed when they are shipped to China for further processing. The processing involves pressing the tubes into their final shape, threading them, plating them, and then assembling the three major components into a hydraulic metal coupling.
In Nat’l Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992) (“Nat’l Hand Tool”), the U.S. Court of International Trade (“CIT”) examined CBP’s country of origin marking determination for certain hand tools. The tools at issue were flex sockets, speeder handles, and flex handles, which were all used for tightening and loosening nuts and bolts. The components of each finished tool were either cold-formed or hot-forged in Taiwan into their final shape before being exported to the United States, except for the speeder handle bars which were reshaped by a large power press after importation. Once in the United States, some of the components were heat-treated to meet certain federal standards. The grip components of the flex handles were knurled, and all of the components were electroplated with nickel and chrome to resist rust and corrosion. Finally, the components were assembled into the finished hand tools.
Examining the name prong of the substantial transformation analysis, the CIT noted that the names of each component part remained the same even after the processing and assembly in the United States. In one example, the court noted that “when the lug, or ‘G-head’, component of [the] flex handle imported from Taiwan was shown, plaintiff’s witness called it a ‘G-head’ … [and] where the lug component is attached to a completed flex handle, the witness also called it a ‘G-head.’” Id. at 311.
Turning to the character prong of the test, the CIT determined that the character of the articles remained unchanged after heat treatment, electroplating, and assembly. Id. at 311. The CIT noted that the form of the components remained the same as each component was either hot-forged or cold-formed into its final shape in Taiwan. With regard to use, the court noted that the use of each component was predetermined at the time of importation. Each component was intended to be incorporated into a specific hand tool. The court determined that since there was no substantial change in name, character, or use – there was no substantial transformation of the articles after importation into the United States.
In Headquarters Ruling Letter (“HQ”) 735048, dated October 27, 1993, our office examined whether U.S. origin metal shells were substantially transformed into metal couplings. In that ruling, we noted that the metal shells were cut to length, threaded in the interior, and then beveled into their finished shape as couplings. The couplings were then sent back to the United States, where they were electro-galvanized or plated on the outer diameter into finished couplings. In this ruling, we noted that threading alone generally does not constitute a substantial transformation, nor does cutting pipe to length. See T.D. 87-46, 21 Cust. Bull. 139 (1987), and HQ 734186, dated October 24, 1991, respectively. Considering the processing on the metal shells, we determined that the cutting to length, beveling, and threading of the shells substantially transformed the shells into couplings. We determined that the shells had a new name, character, and use as couplings. We further determined that the finishing operations in the United States did not substantially transform the couplings as the processing was minor and their end use was predetermined. See also New York Ruling Letter (“NY”) N311454, dated May 1, 2020 (steel duct elbows imported from China were not substantially transformed when they were coated with a protective material in the U.S.) and NY N308095, dated December 12, 2019 (pipe wrench components forged in Vietnam were not substantially transformed in China where they were combined, milled, plated, and finished).
In Scenario One at issue, you state that tubes will be shipped from Germany to Poland, where they will be cut to length. The cut tubes will then be sent from Poland to China for processing into the three major component parts of the couplings. These parts will then be assembled together in China into the finished metal couplings. We find that the pressing, forming, threading, plating, and assembly operations in China will substantially transform the cut tubes into finished metal couplings. The finished couplings will have a different name, character, and use than the cut tubes. For these reasons, we find under Scenario One that the country of origin for marking purposes will be China.
In Scenario Two, you state that the steel coil will be shipped from Germany to Poland. In Poland, the coil will be cut and formed into the shape of an insert, ferrule, and nut blanks. Like the metal shells in HQ 735084, we take the view that the steel coil will be substantially transformed when it is cut and formed into the shape of the inserts, ferrules, and nuts. These blanks will then be shipped to China for threading, plating, and then assembly into the finished metal couplings. Like the forgings in Nat’l Hand Tool, we find that the blanks are not substantially transformed by the threading, plating, and assembly operations in China. Rather, they have a predetermined end use as components of a metal coupling when they are formed in Poland. For all of these reasons, we find that the country of origin for marking purposes under Scenario Two is Poland.
In Scenario Three, two out of the three major components are formed into their final shape in Poland. The third component – the insert – is formed into its final shape in China. We find that the nut blank and the ferrule blank are not substantially transformed in China when they are machined, threaded, plated, or combined together with the insert into the metal coupling. The nut blank and the ferrule blank have a predetermined end use when they are shipped to China for use as metal couplings. As two out of the three major components are not substantially transformed in China, we find that the country of origin for marking purposes under Scenario Three is Poland.
Please note that special country of origin marking requirements apply to certain pipe and pipe fittings. Under 19 U.S.C. 1304(c)(1), pipes of iron, steel, or stainless steel, and pipe fittings of steel, stainless steel, chrome-moly steel, or cast and malleable iron are required to be individually marked with the country of origin by means of die stamping, cast-in-mold lettering, etching, engraving, or continuous paint stenciling. One of these five prescribed methods must be used to mark the article, unless, because of its nature, it is technically or commercially infeasible to do so. In such case, the article may be marked by an equally permanent method of marking or, in the case of small diameter pipe, tubes, and fittings, by tagging the containers or bundles. See 19 U.S.C. § 1304(c)(2).
HOLDING:
Based on the facts of this case, under Scenario One (blanks formed in China), we find that the country of origin is China.
Under Scenario Two (blanks formed in Poland), we find that the country of origin is Poland.
Under Scenario Three (two blanks formed in Poland and one formed in China), we find that the country of origin is Poland.
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 this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch