HQ 0085575 - Aluminum drill pipe extruded in one country and threaded and assembled with steel tool joints in another country; country of origin; substantial transformation - United States International Trade Commision Rulings

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HQ 085575

March 7, 1990

CLA-2 CO:R:CV:G: 085575 JLV

CATEGORY: CLASSIFICATION

TARIFF NO.:

John C. L. Guyer, Esq.
Reynolds International, Inc.
6603 West Broad Street
Richmond, Virginia 23261

RE: Aluminum drill pipe extruded in one country and threaded and assembled with steel tool joints in another country; country of origin; substantial transformation

Dear Mr. Guyer:

In a letter of September 6, 1989, as supplemented by a letter of February 2, 1990, on behalf of Reynolds International, Inc., a wholly owned subsidiary of Reynolds Metals Company, you request a ruling on the country of origin of aluminum drill pipe that originates in the Union of Soviet Socialist Republics (Soviet Union), but is processed in another country prior to importation into the United States. This letter is our decision on the issue.

FACTS:

The operations performed in the Soviet Union consist of extrusion and heat treatment. Hollow ingots of aluminum alloy are extruded on a "piercing" extrusion press. The piercing extrusion press is a press that has a movable mandrel, the manipulation of which allows the production of tubing with varying wall thicknesses. In this case, by controlling the movement of the mandrel and the rate at which the ingot is forced through the extrusion dies, tubing with a "heavy" end is produced. A heavy end is similar to an external upset forged end on steel tubing because it reduces stress at the ends where the pipes are to be joined, and allows for the threading operations while maintaining a constant inner wall thickness along the length of the tubing. After extrusion, the seamless heavy end tubing is heated, quenched in a liquid, and "stretched" to obtain maximum structural integrity.

The tubing will then be exported to a third country and will undergo several processes before importation into the United States. The processing performed in the third country consists of machining, threading, and hi-flexing of the tubing, and then attachment of tool joints. Machining is performed on the ends to ensure concentricity within 0.001 inch; the ends are then threaded with six modified Acme threads per inch (RH) on a 3/8-inch taper per foot; the threaded area and the area within ten inches of the threaded area are then peened to relieve any stress rises and metal fatigue that may have occurred during threading.

At this point the tubing is completed and ready for the attachment of steel tool joints. The tool joints, forged in the United States from special alloy steel and machined (cleaned and threaded) in Scotland, are either a "box" (internal threading) or "pin" (external threading) joint which fits over the threaded ends of the tubing. These tool joints are described as a "shrink-fit" type, based on a super-shrink grip type of tool joint. During the assembly of the tubing and joint, each tool joint is heated to approximately 750 degrees F., screwed onto the tubing, and then cooled immediately with an external water spray. As the tool joint cools, the threads, counterbore, land area and gauging shoulder shrink to a predetermined tightness. During this process, the inside of the tubing is cooled by water to prevent heat transfer from the joint to the tubing. After cooling, the tubing and joint are hydrostatically tested to ensure the tightness of fit.

The aluminum drill pipe, after attachment of the tool joints, requires additional processing before it can be used. The additional processing consists of shot-peening the inner surface of the pipe and coating of this surface with an anti- abrasive epoxy material, and will be performed in the United States.

Although tool joints may be removed, only one of the components (tubing or tool joints) may be reused. If the tubing is to be reused, the tool joint is destroyed (machined off) during the removal. If the tool joints are to be reused, the mechanical properties of the aluminum tubing (heating and cooling of pipe end) are destroyed by the heating process.

You state that, depending on the price of aluminum, the processing in the third country will add approximately 40 to 50 percent of the total value of the aluminum drill pipe.

This includes, of course, the cost of the tool joints which represents 62 percent of the processing costs. You conclude, however, that the multi-step processing and the value added by the processing in the third country are sufficient to result in a substantial transformation of the tubing produced in the Soviet Union. In support of this conclusion, you also note that the extruded seamless tubing, although identifiable as tubing for aluminum drill pipe rather than for any other use, is merely a "producer's product" which is made into a "consumer's product" by the processing in the third country. The country of origin, in your opinion, would be the country in which the further processing takes place.

ISSUE:

Whether heavy end, seamless aluminum alloy tubing is substantially transformed when processed by machining, threading, and hi-flexing, and then fitted with tool joints?

LAW AND ANALYSIS:

In a ruling of March 13, 1985 (file 075174), we held that the upsetting, grinding, threading, and attaching a coupling to plain end steel tubing does not substantially transform the tubing. However, in a ruling of February 12, 1988 (file 080101), we held that the friction welding of tool joints to seamless drill pipe does substantially transform the pipe. The principal distinction between the two rulings concerns the permanent change in the character of the tubular product. Furthermore, the nature of the welding process (and subsequent heat treatment of the weld) was said to add approximately 200 percent to the cost of the drill pipe. In a ruling of November 21, 1985 (file 553739), we held that general purpose pipe was substantially transformed when processed by a quenching and tempering, upsetting of the ends, threading, and adding a coupling. In that case, however, it was the heat treatment that imparted the tensile and yield strengths that were required for a specific industry application, and, consequently, changed the character and use of the pipe.

A substantial transformation takes place when the processing of an article results in a new and different article which has a new name, character, or use. Anheuser- Busch Brewing Association v. United States, 207 U.S. 556 (1908). As we concluded in our ruling of March 15, 1985, the finishing of the ends (threading) of OCTG inner tubing does not result in a product other than finished OCTG inner tubing.

For the reasons expressed in that ruling, the machining and threading of the aluminum drill pipe would not, of itself, result in a substantial transformation. The character or use of the pipe has not changed. The extruded aluminum drill pipe, prior to the machining and threading of the ends, has the metallurgical and physical properties necessary for the pipe to be described and known as aluminum drill pipe. It is not a general-purpose seamless aluminum pipe or tubing which is changed in name, character or use by the processing.

Although the assembly of the tool joint to the drill pipe appears to be similar to the assembly of a coupling to the tubing in our ruling of March 15, 1985 (file 075174), we distinguish the two types of processing operations and the character of the articles resulting from the operations. First, the process is more critically demanding in time and technique. It requires heating of each joint and cooling of each end of the aluminum drill pipe during assembly. Replacement of these tool joints cannot practicably be performed in a field operation, although we understand that, when threaded tool joints were regularly used on steel drill pipe (today the industry generally uses tool joints that have been friction welded to the steel drill pipe), they were often attached in the field by means of heating the joint and cooling the pipe before assembly. The contraction of the heated joint ensured a tight bond. Tool joints on steel drill pipe, however, were also removed and replaced in the field.

We distinguish the processing in issue and conclude that the entire processing constitutes a substantial transforma- tion. The assembly cannot be reduced to its individual components without the loss of the use of either the tool joints or the aluminum tubing. We also note that the assembly requires an additional process before the drill pipe is ready for use. The interior of the pipe must be coated with a molecular-bonded anti-abrasive epoxy material to protect the aluminum pipe from corrosion. Therefore, even if a tool joint were removed in the field, the drill pipe would not be used in regular service until the inner surface were recoated. It is our understanding that this coating, because of the nature of the bonding requirements and equipment needed, is not practicably performed by a field operation.

Secondly, the tool joints on the ends of the aluminum drill pipe must also be able to withstand all the stresses of the drilling operations. They are not just connectors such as, for example, the single coupling attached to the tubing in our ruling of March 15, 1985, or the single coupling attached to the rigid electrical conduit of our ruling of February 24, 1986 (file 076950).

Furthermore, tool joints are a relatively costly component in the drill string assembly. In this case, for example, a pair of tool joints costs approximately 40 percent the cost of a 29-foot section of 5-inch aluminum pipe. As stated earlier, the assembly of steel tool joints to aluminum drill pipe requires a more specialized procedure and results in a more permanent combination than does the assembly of a coupling to conductor tubing or conduit tubing. Although the name and use of the plain-end aluminum drill pipe does not appear to have changed significantly, the character of the resulting article is different: it is pipe with a permanent tool joint on each end, and the joints are necessary functional component that must withstand the stresses of the drilling operation.

Therefore, we conclude that, under the facts of this case, the threading of the plain-end sections of aluminum drill pipe and the attachment of the steel tool joints results in a product that has a character distinct from that of the plain-end sections of aluminum drill pipe.

HOLDING:

Plain-end aluminum tubing, extruded from hollow ingots in the Soviet Union and then machined, threaded, and assembled with steel tool joints in another country, is substantially transformed by this processing. Therefore, the resulting articles are products of the second country and are subject to the rate of duty applicable to products of the country in which the machining, threading, and fitting with steel tool joints is performed.

Sincerely,

John Durant, Director

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