HQ 0089814 - Steel Drill Rods Manufactured in Canada from Raw Tubing of Japanese Origin; Country of Origin; Substantial Transformation; United States-Canada Free-Trade Agreement - United States International Trade Commision Rulings

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HQ 089814

OCTOBER 8 1991

CLA-2:CO:R:C:M 089814 JAS

CATEGORY: CLASSIFICATION

TARIFF NO.: None

Mr. Frank M. Murphy
John V. Carr & Sons, Inc.
P.O. Box 33479
Detroit, Michigan 48216

RE: Steel Drill Rods Manufactured in Canada from Raw Tubing of Japanese Origin; Country of Origin; Substantial Transformation; United States-Canada Free-Trade Agreement

Dear Mr. Murphy:

In your letter of June 13, 1991, on behalf of Longyear Canada, Inc., North Bay, Ontario, you inquire as to the country of origin of steel drill rods manufactured in Canada from tubing of Japanese origin. There is no issue of tariff classification. Our ruling follows.

FACTS:

The product entering Canada is AISI grade 1541 seamless hollow steel tubing you refer to as blanks. The tubing comes in lengths of 9 4/5 and 19 7/10 feet, and has a typical inside midbody diameter of 2 7/16 inches and a typical midbody wall thickness of 5/32 inch. Both ends of each tube have a wall thickness of 3/16 inch. This is their condition as entered into Canada.

In Canada, the tubes are inspected for straightness and concentricity, then machined on each end to form what you describe as rotary shouldered end connections. These are male and female threaded ends or joints which are computer control threaded to specific tolerances.

The male end of each tube is then heated to a controlled depth at 800 degrees C for a matter of seconds, then immediately cooled by quenching. The close tolerance threading of the ends coupled with the heat treatment imparts maximum strength to insure water-tight joints. This same heating/cooling process is
then applied to that area of the tube 200 mm. beyond the male threaded end and to the outside wall of the female end. The controlled heating/cooling is designed to transform the ferrite and pearlite microstructure of the tube to martensite which is much harder. These processes alter the mechanical properties of the tube midbody and the ends by increasing thread hardness while minimizing brittleness. This maximizes wear-resistance and maximizes the tube's useful life. For example, as entered into Canada, the tube end that will become the male end measures 26 on the Rockwell C hardness scale, but after the heat treatment it measures 50 on the Rockwell C scale. The described processing in Canada adds approximately 25% to the cost or value of the Japanese tubing.

The resulting products are proprietary drill rods in the CQ or CHD series, now commercially known as Wireline Drill Line. In operation, lengths of these drill rods are screwed together and diamond drill bits attached to form drill string assemblies used in mineral exploration. Because these drill rods are not used in oil and natural gas drilling applications, they are not required to meet A.P.I. specifications for oil country tubular goods.

ISSUE:

Whether the described processing in Canada substantially transforms raw tubing of Japanese origin into drill rods which are products of Canada.

LAW AND ANALYSIS:

In order for the tubing of Japanese origin to be considered substantially transformed by the described processing as to be regarded as a product of Canada for tariff purposes, the evidence must show that the processing results in a product other than or materially different from the merchandise entering Canada. That is, a new and different article of commerce must emerge from the processing, one having a new name, character or use. Anheuser- Busch Brewing Association v. United States, 207 U.S. 556 (1908).

As to character and use, there must be evidence that the processing in Canada transforms the Japanese tubing in such a way that it is no longer the essence of the finished drill rod. In this case, the metallurgy of the Japanese tubing is said to limit its use to being finished into special high durability, abrasion-resistant pipe. However, the computer-controlled heat treatment significantly changes the microstructure of the steel in the threaded joints and the midbody of the pipe, and imparts the specific quality of surface hardness required for its intended end use application. This specialized use is indicative of a change in the character of the pipe.

HOLDING:

The described processing of Japanese tubing in Canada, as described, results in a new and different article of commerce which is considered a product of Canada upon entry into the Customs territory of the United States.

This ruling applies both for country of origin marking purposes and for purposes of any applicable steel restraints. However, because the described processing does not appear to effect the required change in tariff classification, we are unable to conclude that the drill rod or drill pipe qualifies as an originating good under the United States-Canada Free-Trade Agreement.

Sincerely,

John Durant, Director
Commercial Rulings Division

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