Mr. Scott L. Johnston
Givens & Johnston, PLLC
950 Echo Lane
Houston, TX 77024
RE: The country of origin of the H-3 Perforating System
Dear Mr. Johnston:
In your letter dated December 2, 2022, on behalf of your client Hunting Titan, Inc., you requested a country of origin ruling determination. A brochure and pictures of the H-3 Perforating System were provided for our review.
You have identified the merchandise under consideration as Hunting's petroleum well downhole single-use appliance known as the H-3 Perforating Assembly (H-3). You have described the H-3 as "a short-format modular design disposable wireline explosive perforation tool. Being modular, it may be used individually or in end-to-end strings to precisely deliver shaped explosive charges to one or more locations to blast holes/perforations through well casing, casing cement, and into the subsurface strata in petroleum wells." You stated that "this request seeks guidance regarding the country-of-origin of a complete modular perforation system comprised of a carrier tube segment, a charge tube segment, plus all the inner electrical, electronic control, and steel components, and tandem connector with electrical signaling pass through." In its condition as imported into the United States and delivered to end users, the H-3 will be fully assembled and ready for use, but in an unarmed condition without the explosive compoments. As imported, the H-3 will be lacking the explosive shaped charges and interconnecting explosive detonation cord and detonator which are added at the well site.
The "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' within the meaning of this part."
The courts have held that a substantial transformation occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940); National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff'd, 989 F. 2d 1201 (Fed. Cir. 1993); Anheuser Busch Brewing Association v. The United States, 207 U.S. 556 (1908) and Uniroyal Inc. v. United States, 542 F. Supp. 1026 (1982).
However, if the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026, 1029 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). Substantial transformation determinations are based on the totality of the evidence. See Headquarters Ruling (HQ) W968434, date January 17, 2007, citing Ferrostaal Metals Corp. v. United States, 11 CIT 470, 478, 664 F. Supp. 535, 541 (1987).
As stated in HQ H325232 dated June 27, 2022, "When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable." The test for determining whether a substantial transformation has occurred 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. Texas Instruments, Inc. v. United States, 69 CCPA 151, 681 F.2d 778 (1982).
In this instance, the imported H-3 Perforating System/Assembly will be comprised of a carrier tube of German origin, a charge tube of Chinese origin, and an electronic and electrical control module and tandem sub connector with signal pass through of United States origin. Regarding the carrier tube, you indicated that Hunting will purchase 20' to 40' lengths of German origin steel tubing and export them to China to be processed. In China, the 20' to 40' tubes will be saw cut into shorter 22" to 30" lengths to create a carrier tube saw blank. The saw cut blanks will be machine threaded within their inside diameter to create a female threaded connection on each end, resulting in a machine blank. Seal bores will be machined into each end of the machine blank. An axial alignment slot will be milled into the ends of the machine blank, so that each H-3 unit made from the machine blank can be reliably oriented with the charge tube assembly. Pursuant to customer specifications, the machine blank will be further processed into a scalloped hollow carrier using a milling machine to remove material from one or more spots on its exterior to establish thin-walled areas corresponding with the shaped charge locations specified by the customer.
Regarding the charge tube, you indicated that Hunting will purchase 20' to 40' lengths of China origin thin-walled steel tubing material. In China, those tubes will be laser cut into shorter lengths from 20" to 28" to create a charge tube blank. The charge tube blanks will be precision Computer Numerical Control (CNC) laser cut to create holes and remove material in various shapes to create attachment spots for explosive detonation cord and precisely-shaped features providing for receptacle sockets to hold the shaped charges. A U.S. origin electrical end fitting assembly, housing the detonation triggering printed circuit board assembly (PCBA) electronics and switch mechanisms, is assembled into one end of the laser cut charge tube, a companion cap with a spring-loaded electrical connection pin is assembled onto the opposite end, and the two end caps are connected by a wire. With its end caps installed, the charge tube assembly is complete and ready for delivery to the well site in its unarmed condition.
Regarding the tandem connector, you indicated that Hunting will purchase lengths of China origin steel bar stock material. In China, the bar stock material will be saw cut into shorter 8" lengths to 12" to create a connector tandem connector blank. The tandem connector blanks will be machine threaded to create a male threaded connection on each end to create a tandem connector to engage the female threaded ends on the scalloped hollow carrier, allowing multiple H-3 perforating sections to be linked end-to-end into a multi-section assembly. The tandem connectors will be further assembled with the addition of O-rings and electrical connectors providing for the shaped charge electrical detonation signal to traverse multiple H-3 perforating tool assemblies.
Regarding the final H-3 Perforating System/Assembly, in China, charge tube assemblies will be
assembled together with scalloped hollow carriers to create a modular H-3 Perforating System Assembly unit. Also in China, protective end caps will be assembled onto an H-3 Perforating System Assembly unit and, where multiple units are to be assembled together, multiple H-3 Perforating System Assembly units are assembled together with one or more tandem connectors to create the final modular H-3 Perforating System Assembly unit.
In the opinion of this office, the manufacturing processes and assembly operations performed on the carrier tube, charge tube, and electronic and electrical control module and tandem sub connector in China are significant and substantially transform the individual components into a new and different article of commerce known as the H-3 Perforating System/Assembly. Therefore, the country of origin for the purposes of marking and Section 301 Trade Remedies will be China.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Ann Taub at [email protected].
Steven A. Mack
National Commodity Specialist Division