HQ 0734113 - Country of origin marking of pitch-based, non-woven carbon fiber mats. 19 CFR 134.1(d); 19 CFR 134.35; substantial transformation; forming operations; finishing operations; milling; chopping; heat treating - United States International Trade Commision Rulings

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HQ 734113

October 1, 1992

MAR-2 CO:R:C:V 734113 RC

CATEGORY: MARKING

Mr. C.D. Hoertz
Ashland Petroleum Company
P.O. Box 391
Ashland, KY 41114

RE: Country of origin marking of pitch-based, non-woven carbon fiber mats. 19 CFR 134.1(d); 19 CFR 134.35; substantial transformation; forming operations; finishing operations; milling; chopping; heat treating

Dear Mr. Hoertz:

This is in response to your letter of March 29, 1991, requesting a ruling regarding the country of origin marking of pitch-based carbon fiber imported from Japan as a continuous non- woven mat to be further processed in the U.S. Specifically, you request that Customs rule it permissible for you to label the finished carbon fiber mats "Made in the U.S.A." following the domestic processing operations. Your original request presented two situations. After a meeting held at Customs Headquarters on January 15, 1992, you submitted samples of the mats as variously processed in the U.S. for examination.

FACTS:

Carbon fibers, which are pitch-based, are imported from Japan in plastic packaging in a continuous non-woven mat form, measuring 150-200 feet in length by 40 inches in width. The imported continuous non-woven fiber is purchased for approximately $6.00 /lb. In the U.S., your company will mill or chop and heat treat fiber mats to produce fiber products for various market uses. You have indicated that the intermediate processing operations you perform on the carbon fiber mats enables them to be used in some 18 non-exclusive markets, ranging from building reinforcement materials to anti-friction/static materials to thermal insulations, which require various strength, density, length and resistivity characteristics. The various carbon fiber products are sold for $8.00-9.50 /lb.

ISSUE:

Whether the domestic operations performed on the foreign carbon fiber substantially transform them for purposes of 19 U.S.C. 1304 and 19 CFR 134.35.

LAW AND ANALYSIS:

The marking statute, section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

The "ultimate purchaser" is generally defined, in section 134.1(d), (19 CFR 134.1(d)), as the last person in the United States who will receive the article in the form in which it was imported. The marking must be conspicuous to the ultimate purchaser.

The country of origin for marking purposes is defined at section 134.1(b), Customs Regulations (19 CFR 134.1(b)), to mean the country of manufacture, production, or growth of any article of foreign origin entering the U.S. 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 Part 134. Section 134.35, Customs Regulations (19 CFR 134.35), provides, in relevant part, that:

[a]n article used in the U.S. in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (1940). Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article within the contemplation of [the marking statute], and the article shall be excepted from marking.

Thus, a substantial transformation occurs when an article loses its identity and becomes a new article having a new name, character, or use. National Juice Products Association v. United States, 10 CIT 48, 628 F.Supp. 978 (1986), Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988). The question of when a substantial transformation occurs for marking purposes is a question of fact, to be addressed on a case by case basis. Uniroyal Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 1 Fed.Cir. 21, 702 F.2d 1022 (1983).

In the instant case, the imported fiber mats are characterized as low modulus carbon fibers and they remain so after the domestic heating. According to the Encyclopedia of Chemical Technology (Kirk and Othmer), there are two categories of carbon fiber: low modulus (moduli under 20,000,000 lb/in2) and high performance (moduli above 25,000,000 lb/in2). The specification sheet regarding the imported merchandise indicates a Young's Modulus (ASTM 3379) of 5,000,000 psi and after heat treatment 6,100,000 psi. These are relatively small changes in the Young's Modulus and not enough to change the categorization of the material.

Changes caused by the heat treatment performed in the U.S. in the carbon content and other elements (carbon - approximately 1%, all other elements - 0.75% maximum) are minor. Additionally, the U.S. heat treatment increases the conductive properties required by processors of carbon fiber. These changes in conductivity and subsequent processing, in terms of application, do not change the type of application, but only expand the number of applications within a general class and bring it into accordance with Ashland product specifications.

The chopping and milling operations are performed in the U.S. in order to facilitate the dispersal of the material in composite formulations. These operations are necessary to get the bulk material ready for use, but do not add considerable cost or result in physical change to the imported product. Once in its final state, it serves as a general purpose carbon fiber.

The carbon fiber mats are referred to as "carbon fibers" before importation and continue to be so named after the U.S. processing. Particular companies merely have particular trade names and designations for different forms and sizes. Thus, there is no change in name.

Furthermore, the bulk carbon fibers imported already heat treated have a carbon content of 96.32% and a tensile strength of 66,000 psi. Information received from Ashland indicates that the actual value added (no profit) in the U.S. for milling is $1.00/lb. and for chopping $1.21/lb. The value added is relatively minor compared to the imported product's cost of $6.00/lb.

Our understanding is based upon the findings of the Technical Branch, Operations Division Office of Laboratories and Scientific Services and also the National Import Specialist New York Seaport. These reports support our conclusion that the cutting, heating and other domestic processing in the U.S. affect the chemical and physical properties of the carbon fiber mats minimally and do not change the material in name, character, or use. Accordingly, we find that the domestic processing does not effect a substantial transformation. From this, it follows that the domestically processed carbon fiber mats remain articles of foreign origin subject to the marking requirements of 19 USC 1304 and Part 134, Customs Regulations.

In general, it would appear that the ultimate purchaser of the processed materials will be the entity which uses it to make the finished article for which the fiber mats are the raw material. It would appear that the processed mats would need to be marked until such time as they reach their ultimate purchaser, the manufacturer.

Given our conclusion that the processed carbon fiber mats are articles of foreign origin and subject to marking as such, it is clear that to designate these products as "Made in the USA" would be impermissible. It is noted that the standards for determining whether an article may be described as being of U.S. origin are derived from Section 5 of the Federal Trade Commission Act (15 USC 45), and that the Federal Trade Commission has principal responsibility for their enforcement.

HOLDING:

The country of origin marking "Made in the U.S.A." is not acceptable, because the non-woven mat carbon fibers imported from Japan are not substantially transformed by the processing in the United States. Accordingly, they are subject to the requirements of 19 U.S.C. 1304 and must be marked after U.S. processing to indicate Japan as the country of origin to the ultimate purchaser in the U.S.

Sincerely,

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