United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1993 HQ Rulings > HQ 0545133 - HQ 0556194 > HQ 0555643

Previous Ruling Next Ruling


HQ 555643


April 26, 1991

CLA-2 CO:R:C:S 555643 CW

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Edward B. Ackerman, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, New York 10004

RE: Eligibility of certain foreign-made lock components which are heat treated and plated in the U.S. for subheading 9802.00.80, HTSUS, treatment; substantial transformation; Ferrostaal Metals Corp. v. U.S.; 555101

Dear Mr. Ackerman:

This is in response to your letters of April 12, 1990, and April 18, 1991, requesting a ruling on behalf of Schlage Lock Co. concerning the applicability of the partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to certain lock components which are heat treated and plated in the U.S., assembled into locksets in Mexico, and then returned to the U.S. Samples of the components, both before and after the U.S. processing operations, were submitted for examination.

FACTS:

Two cold rolled steel interior components of a deadbolt lock assembly are imported into the U.S. from Canada. In the U.S., your client subjects the components to various processes, including heat treatment and a zinc di-chromate plating process. The heat treatment consists of a combination of two processes --
hardening and tempering. Hardening involves heating the steel components to 1600 degrees F, which causes the steel to become entirely austenitic in structure, followed by "quenching" or rapid cooling, which causes the structure to transform from austenite into martensite. The next step, tempering, involves reheating the steel to between 300 and 750 degrees F, which causes the structure of the steel to change from martensite to a softer and tougher structure known as troostite.

The hardening operations increase the hardness and tensile strength of the steel, while the tempering operation reduces brittleness in the steel and removes internal strains within the
steel caused by the abrupt cooling in the quenching operation. The heat treatment is necessary so that the components will meet the torque requirements for deadbolt bars.

After the heat treatment, the steel components are subjected to a zinc di-chromate process. First, the steel undergoes a number of procedures, such as burnishing and alkaline electrolytic cleaning, to produce a clean, scale-free surface. Zinc metal is then cathodically deposited onto the metal surface to a thickness of approximately 10 microns (0.0004 inch) followed by immersion in a solution of chromate ions in an acid medium. The plating process preserves the components by deterring corrosion and affording a measure of mechanical protection.

The components are then exported to Mexico for assembly into locksets. When the locksets are returned to the U.S, you maintain that they are entitled to an allowance in duty under subheading 9802.00.80, HTSUS, for the cost or value of the two interior components that were heat treated and plated in the U.S. In this connection, you contend that the holding in Ferrostaal Metals Corp. v. United States, 664 F.Supp. 535, 11 CIT ___ (1987), supports the conclusion that the U.S. processing substantially transforms the two foreign lock components into products of the U.S.

ISSUE:

Whether the heat treatment and plating operations performed in the U.S. substantially transform the Canadian-made lock components into products of the U.S., thereby entitling them to a duty allowance under subheading 9802.00.80, HTSUS, when returned to the U.S. from Mexico as part of locksets.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.

A "product of the United States," for purposes of subheading 9802.00.80, HTSUS, is defined in section 10.12(e), Customs Regulations (19 CFR 10.12(e)), as:

...an article manufactured within the Customs territory of the United States and may consist wholly of United States components or materials, of United States and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.

According to section 10.14(b), Customs Regulations (19 CFR 10.14(b)), a substantial transformation:

...occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. The mere finishing or modification of a partially or nearly complete foreign product in the United States will not result in the substantial transformation of such product and it remains the product of a foreign country.

In Ferrostaal Metals Corp. v. United States, the court considered whether cold-rolled steel of Japanese origin which was annealed and galvanized in New Zealand by a process known as "continuous hot dip galvanizing" prior to its shipment to the U.S. was covered by the U.S.-Japan voluntary restraint arrangement concerning steel products. It was held that the steel was not covered by the arrangement since the annealing and galvanizing operations substantially transformed the Japanese- origin steel into a product of New Zealand. The annealing process, which relieves the deformation energy in the steel sheet, making it more ductile or formable and reducing defects, involved heating the steel to between 1050 and 1450 degrees F before cooling to 880 degrees F. While at 880 degrees F, the sheet was dipped in a pot of molten zinc to create a galvanized surface in which alloys were formed at the interface between the steel and zinc.

The court in Ferrostaal found that that the annealing significantly affected the character of the sheet by altering the ductility and strength of the steel, and that the zinc galvanizing affected the character of the steel by changing its
chemical composition and providing corrosion resistance. The court further concluded that the "continuous hot-dip galvanizing" process was substantial in terms of the value it added to the cold-rolled steel sheet (between 57 and 80%), and that substantial changes in the utility of the product resulted from the processing.

In light of the decision in Ferrostaal, we determined in Headquarters Ruling Letter (HRL) 555101 dated November 15, 1988, that certain foreign-made "blanks" in pin or socket form which were subjected to zone-annealing and gold electroplating operations in the U.S. were substantially transformed into products of the U.S. for purposes of subheading 9802.00.80, HTSUS. The annealed and plated articles were to be used as electrical contacts in articles assembled abroad. The zone annealing effected an irreversible metallurgical change in the blank by rendering it ductile, a condition necessry in order to crimp the contact to a wire, and the electroplating changed the chemical composition of the blank's surface to impede chemical oxidation and engagement wear.

The heat treatment and plating operations in the instant case, like the processes involved in Ferrostaal and HRL 555101, significantly affect the character of the lock components. By changing the structure of the cold-rolled steel first into austenite, then into martensite, and finally into troostite, the heat treatment increases the hardness and tensile strength of the steel and reduces its brittleness. The zinc di-chromate plating operations preserve the components by deterring corrosion and affording a measure of mechanical protection. Moreover, the cost information you have submitted indicates that the U.S. processing operations will add significant value to the lock components (between 33 and 50%).

Consistent with the holdings in Ferrostaal and HRL 555101, we find that the imported lock components which are subjected to the described heat treatment and plating operations in the U.S. are substantially transformed into new and different articles of commerce.

HOLDING:

Based on the information submitted, we conclude that the described heat treatment and plating operations performed in the U.S. on the imported steel lock components substantially transform the components into products of the U.S. Therefore, when assembled into locksets in Mexico and returned, the subject
lock components will be entitled to a duty allowance under subheading 9802.00.80, HTSUS, upon compliance with the applicable Customs Regulations (19 CFR 10.11-10.24).

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: