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 > 1995 HQ Rulings > HQ 558677 - HQ 558835 > HQ 558825

Previous Ruling Next Ruling
HQ 558825




February 9, 1995

CLA-2 CO:R:C:S 558825 MLR

CATEGORY: MARKING

Mr. Les Whitver
Quanex Corporation
Gulf States Tube Division
P.O. Box 952
Rosenberg, Texas 77471

RE: Country of origin marking of small diameter carbon and alloy seamless condenser, heat exchanger, boiler, superheater and mechanical tubes; tube hollows; cold drawing; annealing; normalizing; tempering

Dear Mr. Whitver:

This is in response to a letter received from Mr. Lynn E. Branan dated October 4, 1994, requesting a ruling regarding the country of origin marking of certain drawn tubing.

FACTS:

Gulf States Tube Division of Quanex Corporation ("Gulf") contemplates purchasing foreign hot rolled tube hollows (generally from Germany or France) and cold drawing them to different sizes in the U.S. The country of origin marking may be on bundle tags or be paint stencilled on the tube hollows, depending on their size. The foreign tube hollows will meet specification no. TH 201S, and are basically described as follows. The outside diameters ("O.D.") are: .840", 1.050", .1315", 1.660", 1.900", 2.2375", 2.875", 2.5", 3.5", 4.0", and 4.5". The wall thickness of the tube hollows ranges from .109" to .250" (some may go up to .350"). The tube hollows will be purchased as either a non-alloy or an alloy hot finish seamless tube or pipe depending on the chemical analysis (the chemical composition of the steel is indicated in table 2 of specification TH 201S). It is also stated that no mechanical properties are specified except the hardness of the tubing shall not exceed 90 HRB.

The tariff classifications provided for the imported tube hollows are expected to be as follows: subheading 7304.39.00, Harmonized Tariff Schedule of the United States (HTSUS), for circular seamless non-alloy pipe and tubes, black with O.D. less than 38.1 millimeters (mm); subheading 7304.39.00, HTSUS, for circular seamless non-alloy pipe and tubes, black with O.D. less than 38.1 mm up to 114.3 mm and wall thickness less than 6.4 mm; subheading 7304.59.80, HTSUS, for circular seamless alloy pipe and tube with O.D. of 38.1 mm of less; subheading 7304.59.81, HTSUS, for circular seamless alloy pipe and tube with O.D. of over 38.1 mm up to 114.3 mm and wall thickness less than 6.4 mm; and subheading 7304.59.60, HTSUS, for heat resisting (5 percent Cr) pipe and tube.

The cold drawing first involves pickling and lubing, and then passing the tube hollow through a die one or two times (to reduce and control the O.D.) and over a mandrel (on the inside of the tube). Each cold draw pass can amount to a 25-45 percent reduction of area; however, sometimes two cold draw passes are required depending on the starting shell size and finished size desired. After cold drawing, the tube will be annealed or normalized and tempered depending on the grade and specifications desired. It is stated that this heat treatment removes the cold work that has been introduced into the tubes during cold drawing. (Cold working stiffens the structure and makes it hard and not ductile.) The annealing or normalizing and tempering also recrystallizes the metal structure and develops the required mechanical properties (tensile, yield, hardness and ductility etc.).

Depending on the grades, the finished tubes can be applied to the following American Society for Testing Materials (ASTM) specifications: A179 (seamless cold-drawn low-carbon steel heat-exchanger and condenser tubes); A209 (seamless carbon-molybdenum alloy-steel boiler and superheater tubes); A213 (seamless ferritic and austenitic alloy-steel boiler, superheater, and heat-exchanger tubes); A334 (seamless and welded carbon and alloy-steel tubes for low-temperature service); A200 (seamless intermediate alloy-steel still tubes for refinery service); A199 (seamless cold-drawn intermediate alloy-steel heat-exchanger and condenser tubes); A192 (seamless carbon steel boiler tubes for high-pressure service); A210 (seamless medium-carbon steel boiler and superheater tubes); A519 (seamless carbon and alloy steel mechanical tubing); and A556 (seamless cold-drawn carbon steel feedwater heater tubes). The various specifications listed set forth the chemical composition required. These basically correlate to the chemical composition of the imported tube hollows set forth in table 2 of specification TH 201S. The hardness specifications range from 72-100 HRB.

The tariff classifications provided for the finished cold drawn products for condenser, heat exchanger, boiler, superheater and mechanical tubing are: subheading 7304.39.00, HTSUS, for carbon; subheading 7304.59.20, HTSUS, for alloy; and subheading 7304.59.20, HTSUS, for heat resisting (5 percent Cr).

ISSUE:

Whether the foreign tube hollows cold drawn in the U.S. are substantially transformed.

LAW AND ANALYSIS:

The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304) provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940). Special marking requirements for certain tubes and pipes are set forth at 19 U.S.C. 1304(c).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations {19 CFR 134.1(b)}, defines "country of origin" as 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 the marking laws and regulations.

For country of origin marking purposes, a substantial transformation of an imported article occurs when it is 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. In such circumstances, 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.

Gulf claims that the tube hollows undergo a substantial transformation in the U.S. because, as imported, they are dedicated for use to be cold drawn to smaller sizes, and they generally will not meet the final specifications desired because their dimensions, surface finish, and mechanical properties are not in compliance. Furthermore, it is stated that annealing or normalizing and tempering recrystallizes the metal structure and develops the required mechanical properties.

In regard to drawing processes, in Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987), aff'd 867 F.2d 1409 (Fed. Cir. 1989), it was held that drawing wire from wire rod through a multi-stage process did not constitute a substantial transformation of the wire rod, even though the physical properties of the wire rod, and therefore its use, were affected as a result of the processing. The court found that while the wire rod and processed wire had different names and identities in the industry, they were essentially different stages of the same product. The wire that emerged from the drawing process was stronger and more round than the wire rod; however, because these properties of the wire, which affected the use to which it could be put, were predetermined by the chemical content of the rod and the cooling process used in its manufacture, the court found that wire drawn from the rod was not a new and different product, but the last stage in the processing of the same product. The lower court found that because the "parameters" of the strength characteristic of the final product were metallurgically predetermined in the fabrication of the rod, no significant change in character or use was found to have occurred as a result of the cold-drawing process. 669 F. Supp. 472, 480. In support of its finding that the final product was predetermined by the metallurgy of the rod, the Federal Circuit noted that if the rod was produced improperly for its intended application, the wire would be incapable of making the product suitable for such use.

In regard to annealing and galvanizing processes, in Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987), the court considered whether the country of origin of cold-rolled steel sheet manufactured in one country was changed by annealing and galvanizing (continuous hot-dip galvanizing) it in another. The court found that strength and ductility constituted important characteristics of the steel and that annealing significantly affected the character by dedicating the sheet to uses compatible with the strength and ductility of the steel. The court also found that substantial changes in the use of the steel sheet occurred as a result of the continuous hot-dip galvanizing process. In particular, the court noted that the annealing and galvanizing processes resulted in a change in character by significantly altering the mechanical properties and chemical composition of the steel sheet. Inasmuch as the continuous hot-dip galvanizing process effected changes in the name, character and use of the processed steel sheet, the court held that the country in which the processes were performed became the country of origin of the processed sheet.

However, it is important to note that the court in Ferrostaal did not hold that either the annealing or the galvanizing process alone caused the substantial transformation of the steel sheet, but determined that the multiple manufacturing processes effected the requisite changes necessary for a finding of a substantial transformation. This distinction was recognized in Headquarters Ruling Letter (HRL) 555247 dated January 11, 1990, which held that annealing stainless steel hot bands in the U.S. Virgin Islands to create stainless steel sheet and plate did not substantially transform the hot bands into "products of" the insular possession for purposes of General Note 3(a)(iv), HTSUS.

Under prior Customs rulings, whether annealing results in a substantial transformation has generally depended upon the extent of the heat treatment, in terms of the effect on the steel's mechanical properties and uses. Customs has ruled that if the heat treatment alters its mechanical properties to a significant extent, transforming a multifunctional article into one suited for specific uses, or transforming an article suitable for one use into one suitable for another, then the product is substantially transformed. See HRL 951473 dated April 24, 1992 (cold-rolled steel sheet, meeting ASTM A366 specification, annealed, hot-dipped galvanized, and then painted with a de-oxidizing mixture (passivation), then meeting ASTM A527 specification, was found to be substantially transformed).

Conversely, a heat treatment which is not extensive or complex, and does not transform or narrow the uses of the article is not a substantial transformation. See HRL 555103 dated February 2, 1989 (solution (water) quenching and annealing stainless steel bars and wire rod, which maximized softness, ductility, and corrosion resistance in the steel, did not constitute a substantial transformation, where the steel retained its multifunctional utility); and HRL 730648 dated August 14, 1987 (stainless steel pipe which was annealed, restraightened, and pickled was not substantially transformed).

Several other rulings have also addressed processes similar to those at issue here. In HRL 555736 dated July 2, 1991, hot-rolled steel coils were subjected to a pickling process, the pickled hot bands were then processed through a cold reversing mill to reduce the thickness from 50 to 80 percent so as to create a surface finish that can be processed successfully on a hot-dip metallic coating line. The steel then proceeded to a continuous hot-dip coating line where the steel was annealed and hot-dipped into a protective anti-corrosive metal coating such as zinc or an aluminum-zinc alloy (i.e., this process is known as galvanizing). The galvanized steel strip then proceeded to an organic coating or prepaint line capable of applying a two-coat paint system. Upon completion of all the above-described operations, the steel strip met ASTM standards A792 and A792M. Based upon the rationale in Ferrostaal, a substantial transformation was found because the steel was subjected to a continuous hot-dip galvanizing operation which made it less strong but more ductile, the distribution of carbon and nitrogen was affected, and the steel was protected against corrosion.

In HRL 084538 dated July 26, 1989, cold finished steel bars were made from hot rolled carbon steel bars in Canada. In Canada, the processes included acid cleaning, rinsing, dipping in lime, baking, and drawing once through a tungsten carbide die, after which it was tested, straightened, and cut to length. The processing increased the tensile strength of the bars and reduced its cross-sectional area between 4 to 21 percent. The cold finished steel bars were then suitable for machining into cogs, gears, fasteners, automotive parts, plumbing fixtures, and other parts, as well as for subsequent heat treatment, or in their finished condition in the construction industry. It was found that the reduction in cross-sectional area was minimal and was in the nature of a finishing process which imparted the final dimensional tolerances and consistency of mechanical properties, and did not dedicate the product to a use or uses for which it was unsuited in its condition as hot rolled bar. In addition, while the processing increased the tensile strength of the cold finished bar, the parameters of the strength increase were metallurgically predetermined in the creation of the steel billet and very specifically through the fabrication of the hot rolled bar. Therefore, it was held that no significant or material change in character or use occurred in the hot rolled bar as a result of the drawing operation; accordingly, no substantial transformation occurred in Canada.

Lastly, in HRL 558831 dated January 31, 1995, certain wire was considered, which was mechanically descaled, cold drawn through a series of dies, annealed to restore its original structure, and cleaned and coated with a lubricant. Relying on Superior Wire, it was held that because the properties of the imported wire rod dictated the final form of the finished wire, no substantial transformation occurred.

We believe that the rationale in Superior Wire is controlling as to whether a substantial transformation occurs when the imported tube hollows are cold drawn in this case. As in Superior Wire, we find that the imported hollows dictate the final forms of the finished products, and the chemical compositions and hardness specifications of the imported tube hollows predetermine their final use. Although the tube hollows are also annealed, we find that this operation, as it is stated, basically removes the cold work that has been introduced. Accordingly, since the operations performed in the U.S. appear to be in the nature of finishing operations, we do not find that they constitute a substantial transformation. Therefore, Gulf States is not the ultimate purchaser and the finished tubes will be required to be marked in accordance with 19 U.S.C. 1304(c) with the country in which the hollows were manufactured. According to 19 U.S.C. 1304(c), paint stencilling is an appropriate method of marking. The marking requirements may also be satisfied by tagging the bundles of the small diameter product which has been determined to include fittings that have a nominal diameter of one-fourth inch or less, and pipe with an inner diameter of 1.9 inches or less. T.D. 86-15.

HOLDING:

Based upon the information provided, we find for purposes of 19 U.S.C. 1304, the processing in the U.S. of the imported tube hollows in the manner set forth above does not constitute a substantial transformation; therefore, the finished tubes will require marking with the country in which the hollows were manufactured.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling

See also: