HQ 953674 - Steel Sheet in Coils Recovery Annealed and Galvanized in Mexico from Full Hard Cold Rolled Steel; Corrosion- Resistant Steel Sheet, ASTM A 446 Grade E, ASTM A 792 Grade 80; Recovery Annealing, Recrystalization Annealing; Substantial Transformation; Country of Origin; Ferrostaal Metals Corp. v. United States, 11 CIT 470 (1987), HQ 953414 - United States International Trade Commision Rulings

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HQ 953674

DECEMBER 14, 1993

CLA-2:CO:R:C:M 953674 JAS

CATEGORY: CLASSIFICATION

TARIFF NO.: None

Mr. Vincent Bowen, Esq.
Willkie Farr & Gallagher
1155 21st. St,N.W.
Washington, D.C. 20036-3384

RE: Steel Sheet in Coils Recovery Annealed and Galvanized in Mexico from Full Hard Cold Rolled Steel; Corrosion- Resistant Steel Sheet, ASTM A 446 Grade E, ASTM A 792 Grade 80; Recovery Annealing, Recrystalization Annealing; Substantial Transformation; Country of Origin; Ferrostaal Metals Corp. v. United States, 11 CIT 470 (1987), HQ 953414

Dear Mr. Bowen:

In your letter of February 5, 1993, supplemented on May 5, 1993, on behalf of Duferco Ltd., U.S.A., you inquire as to the country of origin of certain corrosion-resistant steel sheet processed in Mexico from steel sourced in the United States, Argentina and the Czech Republic (formerly Czechoslovakia).

We addressed the country of origin of annealed and galvanized cold-rolled sheet of commercial quality (A-526) and lock-forming quality (A-527) in HQ 953414, dated April 12, 1993.

FACTS:

The merchandise entering Mexico is full hard cold-rolled steel sheet in coils. It is processed in Mexico into corrosion- resistant structural quality steel sheet conforming to either ASTM A-446 Grade E (zinc coated) or ASTM A-792 Grade 80 (aluminum-zinc coated). These grades, with their high yield and tensile strengths, are suitable for use in roofing and siding for buildings and similar structural uses.

In Mexico, the sheet is uncoiled, cleaned and the sides trimmed. The sheet is then passed through two heating zones where it is heated to a maximum temperature of 600 degrees C (1112 degrees F) for 25 seconds, and through two cooling zones where the temperature is reduced to 880 degrees F. You describe this as a pre-heating that brings the steel to the approximate - 2 -
temperature of the coating materials to be applied and insures that the coating material adheres to the steel. The controlled heating also insures that the steel does not reach annealing temperatures which would significantly reduce its strength and hardness and make it unsuitable for structural applications. After the controlled heating, the steel is dipped into a bath either of molten zinc in a galvanizing process or a mixture of zinc and aluminum.

You indicate that in both cases the chemical composition of the steel is unaffected by the processing. The grain structure is not recrystallized and the atomical pattern or the distribution of carbon, nitrogen and other elements is the same after the processing as before. The processing is said to result in virtually no change in the steel's hardness, yield and tensile strength. Upon completion of the described processing the steel is tested to insure uniform application of the coating, and a chromate preservative is applied, after which the steel is recoiled. This is the condition of the merchandise as imported.

You contend that because the described processing only provides a corrosion-resistant coating, and the steel's sole use in structural applications remains unchanged, the processing does not substantially transform the steel into a product of Mexico for tariff purposes.

ISSUE:

Whether the heat treating and coating of full hard cold rolled steel sheet, as described, effect a substantial transformation for tariff purposes.

LAW AND ANALYSIS:

In order for the full hard cold rolled steel of U.S., Argentine and Czech origin to be considered substantially transformed in Mexico, so as to be regarded as a product of Mexico for tariff purposes, the evidence must show that the processing in Mexico results in a product other than or materially different from its constituent components. 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). There must be evidence to show that the processing in Mexico transforms the U.S., Argentine and Czech steel in such a way that it is no longer the essence of the zinc coated and aluminum-zinc alloy-coated steel sheet that enters the Customs territory.

The full hard cold rolled steel that enters Mexico is SAE/ AISI carbon steel grades 1006 and 1008 that has not been heat treated. The commercial uses of steel in this condition are negligible. The steel becomes useful only after it is heat - 3 -
treated in some way. The heat treating and coating of full hard, cold rolled steel sheet was considered by the Court in Ferrostaal Metals Corp. v. United States, 11 CIT 470 (1987). The Court observed that whether these processes change the character of the imported merchandise depends on the nature of the operations and their effect on the properties of the steel. The Ferrostaal court distinguished "recovery annealing" from "recrystalization annealing" and noted that neither changes the actual chemical composition or dimensions of the sheet. In strongly worded dictum, however, the Court noted that recovery annealing used in producing ASTM A-446 Grade E steel sheet of the type in issue here resulted in a transformation less substantial than that resulting from recrystalization annealing, since steel grains do not form, grow or change shape during recovery annealing. Customs has independently researched the issue and our findings are consistent with the Ferrostaal Court's description of recovery annealing and its effects. Our findings are also consistent with the metallurgical analysis of actual samples of the steel you have submitted which purports to evidence no change in grain structure and virtually no change in hardness, tensile and yield strengths.

The described processing has not been shown to be sufficient to transform a hard, brittle steel dedicated solely to structural uses into a steel with a wider range of commercial or formable applications. It remains structural quality steel.

HOLDING:

The processing of full hard cold rolled steel sheet in Mexico by a combination of recovery annealing and coating with molten zinc or a zinc/aluminum alloy, as described, does not substantially transform the steel into a product of Mexico for tariff purposes. The steel remains a product of the country in which it was melted and poured.

This decision is not a definitive ruling for the purposes of interpreting the scope of any antidumping duty determination on this merchandise that may be pending before the Department of Commerce.

Sincerely,

John Durant, Director
Commercial Rulings Division

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