HQ 0734673 - Country of origin marking; cast iron flanges and fittings; machining; drilling; grinding; assembly; pipe fitting; substantial transformation - United States International Trade Commision Rulings

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HQ 734673

December 17, 1992

MAR 2-05 CO:R:C:V 734673 LR

CATEGORY: MARKING

Mr. Patrick H. Gray
General Manager
Uni-Flange
5285 Ramona Blvd.
Jacksonville, Florida 32205

RE: Country of origin marking; cast iron flanges and fittings; machining; drilling; grinding; assembly; pipe fitting; substantial transformation

Dear Mr. Gray:

This is in response to your letter dated May 28, 1992, regarding the country of origin marking of imported ductile iron adapter flanges.

FACTS:

Ductile Iron Adapter Flange as described on commercial invoice as "Series 900, 1300 or 1350".

You import two rough castings for each complete unit. Each casting is placed on a special grinding fixture and the mating surfaces are ground smooth. The castings then move to a three part drilling station, where three bolt holes are drilled in each casting. After this drilling, domestic galvanized fasteners are placed in the bolt holes, joining the two halves together. The assembled "unit" then goes to the cutting lathe, where two machining functions are performed. First, a machine cut is performed to bring the inside surface to a totally smooth, cylindrical shape. Next, a special serrating tool is inserted into the lathe and the unit receives a series of machine serrations, to exacting standards, on its inside surface. After 100% gauging, the unit it epoxy coated. Additional connecting hardware (domestic) is added.

Ductile Iron Adapter Flange as described on commercial invoice as "Series 200/400/420"

A rough, one piece ductile iron casting is imported. This casting is then placed on a lathe and the outside surface (rim) is machined smooth, followed by the face of the casting. Set screw holes are then drilled and tapped around the perimeter of the casting. Depending on the size, the amount of set screw holes can range from 2 to 48. The casting is then placed on a special drilling fixture/template, and both holes are in the face of the case. Domestic set screws are then installed and the casting is epoxy coated.

You contend that the above-described products are excepted from country of origin marking by virtue of the substantial machining, fabrication, finishing, and assembly functions that are performed on each item; however, you intend to mark all containers.

ISSUE:

Whether the castings which are processed in the manner described above, may be marked with the country of origin on the container in lieu of the article itself.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires, subject to certain specified exceptions, that every article of foreign origin imported into the U.S. shall be marked to indicate the country of origin to the ultimate purchaser in the U.S. Part 134, Customs Regulations (19 CFR part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. An ultimate purchaser is defined in section 134.1, Customs Regulations (19 CFR 134.1), as "the last person in the U.S. who will receive the article in the form in which it was imported." The regulation further provides that if an imported article will be used manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation. However, if the manufacturing process is merely a minor one which leaves the identity of the imported article intact, 19 CFR 134.1(d)(2) provides that the consumer or user of the article, who obtains the article after the processing will be regarded as the ultimate purchaser.

According to United States v. Gibson-Thomsen Company, Inc., 27 CCPA 267 (C.A.D.98), a U.S. manufacturer is considered to be an ultimate purchaser if a manufacturing process is performed on an imported item so that the item is substantially transformed in that it loses its identity and becomes an integral part of a new article will a new name, character or use. The court determined that in such circumstances, the imported article is excepted from individual marking. Only the outermost container is required to be marked. See 19 U.S.C. 1304(a)(3)(D), section 134.32(d) and 134.35, Customs regulations (19 CFR 134.32(d), 134.35).

In Midwood Industries v. United States, 64 Cust. Ct. 499, C.D. 4026, 313 F. Supp. 951 (1970), the Customs Court considered the effect of U.S. processing on the country of origin marking requirements of imported steel forgings. Although the edges of the forgings were legibly and conspicuously marked with the country of origin at the tie of importation, the country of origin marking was obliterated or destroyed during the course of the domestic processing. The processes involved in finishing the imported articles included, cutting, boring, facing, spotfacing, drilling tapering, threading, bevelling, heating and compressing. The court found that the marking was sufficient because the processing substantially transformed the imported forgings into fittings and flanges. As such, the court found the U.S. processor was the ultimate purchaser of the imported merchandise and that the removal of the marking during processing was acceptable.

Although the court based its decision in part on the fact that the processing changed a producer's forgings to a consumer's flange, the decision makes clear the numerous machining operations were performed in the U.S. which imparted essential characteristics to the forgings that enabled them to be used as fittings and flanges. For example, there was testimony that the rough forgings have no connecting ends and therefore, cannot be used to connect pipes of matching size, the essential purpose of fittings.

In T.D. 87-46, Customs determined that threading operations alone do not substantially transform pipe fittings so as to change their country of origin. Customs found that threading does not change the name, character or use of a fittings, and that the operation is insubstantial in relation to the nature of the operations needed to manufacture a fitting. In C.S.D. 89-121, July 25, 1989, Customs construed Midwood as requiring that significant machining operations which change the actual dimensions of imported forgings into those of the finished article must be undertaken before a finding of substantial transformation may be reached. Operations such as lathing, drilling and grinding, which changed the fundamental character of the imported articles were distinguished from cosmetic or minor processing operations such as identification marking, and blasting, tumbling and plating. See also HRL 732883, August 1, 1990 (extensive U.S. machining operations of imported cast iron components of pipe fittings constituted a substantial transformation).

In this case, the machining operations that are performed on the imported articles described as "ductile iron adapter flanges series 900, 1300 or 1350" are similar to those involved in Midwood. As in Midwood, the castings are imported in a rough condition with a significant amount of machining to be done to enable them to be used as flanges. While the imported castings resemble the size and shape of the finished articles, they are not yet machined to the actual dimensions. In order to achieve the shape and dimensional requirements, they are subjected to numerous machining operations and assembly which change the fundamental character of the imported articles from castings to flanges.

We find that such processing, which involves lathing, grinding and drilling, coupled with assembly, constitutes more than minor machining operations and substantially transforms the imported castings into articles with a new name, character or use. As such, we find that the U.S. processing constitutes a substantial transformation and, for this reason, the U.S. manufacturer is the ultimate purchaser.

Although in these circumstances, the imported articles would ordinarily be excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D), 19 CFR 134.32(d) and 19 CFR 134.35, this is not the case with respect to imported iron and steel pipe fittings. In this regard, 19 U.S.C. 1304(c) provides that, with two exceptions not applicable here, no exception from marking may be made under subsection (a)(3) of this section with respect to pipes of iron, steel or stainless steel, to pipe fittings of steel, stainless steel, chrome-moly steel, or case and malleable iron each of which shall be marked with the country of origin by means of die stamping, cast-in-mild lettering, etching, or engraving.

Therefore, if the imported articles are classifiable as pipe fittings, they must be marked in accordance with the requirements of 19 U.S.C. 1304(c). However, in view of the fact that the importer is the ultimate purchaser, the marking may appear in a location where it will be obliterated during the U.S. processing. See HQ 728693, November 5, 1985.

With respect to the imported articles described as "ductile iron adapter flange series 200/400/420", less domestic processing is performed and we do not have enough information to determine whether it is enough to constitute a substantial transformation. Before and after samples, a detailed description of each process and cost information associated with the domestic processing are needed before we can make a decision regarding the marking of these articles.

HOLDING:

For purposes of 19 U.S.C. 1304, the domestic processing of the imported articles described as "ductile iron adapter flange series 900, 1300 or 1340" constitutes a substantial transformation and the U.S. importer/manufacturer is considered the ultimate purchaser. If these articles are classified as pipe fittings, they may be marked in a location were the country of origin marking will be obliterated during the U.S. processing. If they are not classified as pipe fittings, marking of the containers in lieu of the articles themselves is sufficient. No determination is made regarding the other imported articles.

Sincerely,

John Durant, Director

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