HQ 558831 - Country of origin marking; steel rod; steel wire; substantial transformation; Superior Wire; 19 CFR 134.25; 19 CFR 134.26; J-list; essential character; Article 509 - United States International Trade Commision Rulings

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HQ 558831

January 31,
1995

MAR 2-05 CO:R:C:S 558831 BLS

CATEGORY: MARKING

Frederick P. Waite, Esq.
Pophaim Haik
655 Fifteenth Street, N.W
Washington, D.C. 20005-5701

RE: Country of origin marking; steel rod; steel wire; substantial transformation; Superior Wire; 19 CFR 134.25; 19 CFR 134.26; J-list; essential character; Article 509

Dear Mr. Waite:

This is in reference to your letters dated October 14 and November 23, 1994, on behalf of the American Wire Producers Association and four of its members, requesting a ruling regarding the country of origin marking requirements in connection with imported wire rod.

FACTS:

The four U.S. processors of wire rod from Canada and other countries, purchase the wire rod in most cases on a duty-paid basis, from the importer of record, which also may be the exporter, or a subsidiary thereof, or a trading company. At other times the processor may act as the importer, entering the merchandise and paying applicable duties and other fees. In the U.S., the processor draws the steel rod into wire, repacks it, and then resells the product to its customers. In turn, the customers may fabricate the wire into a variety of products, including nails, other fasteners, fencing, springs, wire rope and strand, mesh, and other items. The drawing process is as follows:

Bekaert Corporation

1) Imported rod (5.5 to 8.0 mm. or 0.218 to 0.315 inch in diameter) is chemically descaled (cleaned) to remove rust and hot-rolled scale.

2) Imported rod is coated with zinc phosphate and/or borax as a lubricant.

3) Imported rod is uncoiled.

4) Imported rod is cold drawn through a series of mechanical dies.

5) For wire with a diameter of 0.0625 inch or larger, finished wire is coiled into tubular carriers or reels. This stage completes the manufacturing process for this wire (i.e., diameter of 0.0625 inch or larger).

5a) For wire with a diameter less than 0.0625 inch, wire is "patented" or heat-treated in order to restore completely the original structure of the material.

6a) Wire is coated with a lubricant.

7a) Wire is cold drawn through a further series of mechanical dies.

8a) Finished wire is coiled onto tubular carriers or reels. This stage completes the manufacturing process for this wire (diameter less than 0.0625 inch).

Merit Steel .(Division of Leggett & Platt. Inc.)

1) Imported rod (5.5 to 14.3 mm. or 0.218 to 0.563 inch in diameter) is chemically descaled to remove rust and mill scale.

2) Imported rod is uncoiled;

3) Imported rod is coated with a lubricant.

4) Imported rod is cold drawn through a series of mechanical dies to diameters of 1.6 to 12.7 mm. or 0.063 to 0.500 inch.

5) Finished wire is cleaned and coiled on tubular carriers.

6) Coils of finished wire are packaged.

National-Standard Company

Welding Wire

1) Imported rod (5.5 ram. or 0.218 inch in diameter) is mechanically descaled or cleaned.

2) Imported rod is cold drawn through a series of mechanical dies to an intermediate
size (wire diameter of O. 130 inch).

3) Wire is patented or annealed to restore the original structure and to prepare the wire for further processing.

4) Wire is cleaned and coated with a lubricant.

5) Wire is further cold drawn through a series of mechanical dies to its finished size
(diameter of 0.035, 0.045, or 0.052 inch).

6) Wire is cleaned.
7) Wire is copper or bronze coated, or coated with a lubricant. 8) Wire is spooled into smaller packages. Bead Wire
1) Imported rod (5.5 ram. or 0.218 inch in diameter) is mechanically descaled or cleaned.

2) Imported rod is cold drawn through a series of mechanical dies to an intermediate size (wire diameter of O. 130 inch).

3) Wire is patented or annealed to restore the original structure and to prepare the wire for further processing.

4) Wire is cleaned and coated with a lubricant.

5) Wire is further cold drawn through a series of mechanical dies to its finished size
(diameter of 0.038 or 0.072 inch).

6) Wire is further heat-treated.

7) Wire is cleaned.

8) Wire is plated with bronze.

9) Wire is spooled and packaged.

Walker Wire & Steel Corporation
Direct Drawn Wire
1) Imported wire is descaled (cleaned) to remove rust and mill scale.
2) Imported rod is coated with a lubricant. 3) Imported rod is uncoiled.

4) Imported wire is cold drawn through a series of mechanical dies.

5) Finished wire is recoiled on tubular carriers.

6) Coils of finished wire are packaged.

Direct Drawn, Straightened and Cut Wire

1) Imported wire is descaled (cleaned) to remove rust and scale.

2) Imported rod is coated with a lubricant.

3) Imported rod is uncoiled.

4) Imported rod is cold drawn through a series of mechanical dies.

5) Finished wire is uncoiled and straightened.

6) Finished wire is cut into lengths.

Spheroidize Annealed at Finished Size

1) Imported rod is descaled (cleaned) to remove rust and mill scale.

2) Imported rod is coated with a lubricant.

3) Imported rod is uncoiled.

4) Imported rod is cold drawn through a series of mechanical dies.

5) Finished wire is coiled.

6) Finished wire is spheroidize annealed (heat treated) in order to restore the original structure of the material, and cleaned.

7) Finished wire is coated with a lubricant.

8) Finished wire is coiled and packaged.

You advise that the U.S. Customs district office in Detroit is of the opinion that Walker Wire must comply with the marking notification and certification requirements of sections 134.25 and 134.26, Customs Regulations ( 19 CFR 134.25 and 134.26), in connection with its purchases of wire rod and processing of such rod into wire. The company has since implemented procedures to conform to the district's request. The three other companies, also purchasers of wire rod, have received requests for information from the district regarding the processing which occurs in the U.S., and current method of country of origin marking on the repacked articles. You believe that these requirements are inapplicable to the processors, and request our opinion in this matter.

ISSUE:

1 ) What are the country of origin marking requirements in connection with the imported steel rod and U. S .-processed wire under the fact situations presented?

2) What are the obligations of the processors of wire rod in connection with the certification requirements set forth under 19 CFR 134.25 and 134.26?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the United States 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 the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR 134).

Since we are dealing with both NAFTA and non-NAFTA goods, we will treat each class of goods separately, as different rules may be applicable in determining who is the ultimate purchaser, and in making other determinations pertinent to the application of
the marking requirements under Part 134.

Goods of Non-NAFTA Countries (Other than Canada. Mexico. or the U.S..)

Articles of a class or kind listed in section 134.33, Customs Regulations (19 CFR 134.33), are on the so-called "J-list" and are excepted from individual marking requirements in accordance with the provisions of 19 U.S.C. 1304(a)(3)(J). Metal bars, except concrete reinforcement bars; billets, blocks, blooms; ingots; pigs; plates; sheets, except galvanized sheets; shafting; slabs; and metal in similar forms, are among the classes of articles which are included on the "J-list". We find that the imported steel rods fall within this class of articles. In addition, "Wire, except barbed", is also on the "J-list". Therefore, neither the subject steel rods nor the U. S .-processed wire are required to be individually marked with the country of origin.

However, 19 CFR 134.33 further provides that if articles included on the "J-list" are imported in containers, the outermost container in which the article ordinarily reaches the ultimate purchaser is required to be marked to indicate the origin of its contents. In addition, if a "J-list article will be repacked into new containers after leaving Customs custody, the importer must certify to Customs that the new container will be marked to indicate the country of origin of the contents. See 19 CFR 134.25. The certification procedures, which are for the purpose of ensuring that the ultimate purchaser will be advised of the country of origin, apply to imported J-list articles processed and repacked after importation unless the articles are substantially transformed prior to repacking. Absent a substantial transformation, the consumer or other recipient of the wire is considered the ultimate purchaser and must be advised of its country of origin. In this regard, 19 CFR 134. l(d) provides that if the manufacturing process is merely a minor one which leaves the identity of the article intact, the consumer or user of the article who acquires it after the processing will be regarded as the ultimate purchaser.

Therefore, as applied to the instant case, whether the importer/repacker of J-list articles is subject to the requirements of 19 CFR 134.25 is dependent upon a determination of the identity of the ultimate purchaser, which in turn requires a determination as to whether the processing of the wire rod in the U.S. results in a substantial transformation.

The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character and use, different from that possessed by the article prior to the processing. See United States v. Gibsen-Thomsen Co., 27 CCPA 267 (C.AD. 98). In Superior Wire v, United States, 11

C.I.T. 608, 669 F. Supp. 472 (C.I.T. 1987), aff'd,867 F.2d 1409 (Fed. Cir. 1989), the court held that the drawing of wire rod into wire through a multi-stage process did not constitute a substantial transformation of the wire rod, since there was no significant change in use or character of the imported material. 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.

We believe that the holding in Superior Wire is controlling as to whether a substantial transformation occurs in the drawing of the wire rod with respect to each of the four manufacturing processes. Thus, as in Superior Wire, the wire rod dictates the final form of the finished wire, as the basic properties of the wire are predetermined by the wire rod. Further, no substantial change in the composition of the wire occurs between the initial stage of the wire rod as imported and after processing in the U.S. It is our position that the products in final form do not possess a significantly different character or use in comparison to the wire rod imported into the U.S. Accordingly, we find that the drawing and other processing of the wire rod in the U.S. in each of the four scenarios does not result in a substantial transformation of the imported product. Therefore, for wire rod purchased from a non-NAFTA country, the "ultimate purchaser" will be considered to be the consumer of the wire, who purchases it from the U.S. processor of the wire rod, and subsequently fabricates the product into nails and other fasteners, and other products. This person is the last person in the U.S. who will receive the wire rod in essentially the same form in which it was imported.

In summary, although the wire rod and wire are excepted from individual marking requirements, the outermost container in which the finished article (wire) reaches the ultimate purchaser must be marked to indicate the origin of its contents. The certification requirements under 19 CFR 134.25 are applicable only to an importer of the goods. Thus, a processor of the wire rod into wire must certify to Customs that it will properly mark the re-packaged wire only when this person is also the importer. Section 134.25 also requires, however, that the importer notify any subsequent purchaser or repacker in writing at the time of sale, of the marking requirements.

Good of a NAFTA Country.

The country of origin marking requirements for a "good of a NAFTA country" are determined in accordance with Annex 311 of the North American Free Trade Agreement ("NAFTA"), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-82, 107 Stat. 2057) (December 8, 1993) and the interim amendments to the Customs Regulations published as T.D. 94-4

(59 Fed. Reg. 109, January 3, 1994) with corrections (59 Fed Reg. 5082, February 3, 1994) and T.D. 94-1 (59 Fed. Reg. 69460, December 30, 1993). These interim amendments took effect on January 1, 1994, to coincide with the effective date of the NAFTA. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in T.D. 94-4 (adding a new part 102, Customs Regulations). The marking requirements of these goods are set forth in T.D. 94-1 (interim amendments to various provisions of Part 134, Customs Regulations).

Section 134.1 (j) of the interim regulations, provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1 (g) of the interim regulations, defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. Section 134.45(a)(2) of the interim regulations, provides that a "good of a NAFTA country" may be marked with the name of the country of origin in English, French or Spanish. For purposes of this ruling, we are assuming that the imported wire rod is of Canadian origin. Under 19 CFR 134.25, if the imported "J-list" article, wire rod, will be repacked prior to sale to the ultimate purchaser, the importer must certify to Customs that he will properly remark the new package or alternatively, notify the repacker of its obligation to remark the new package. However, if the importer is considered to be the ultimate purchaser, then the certification requirements are not applicable.

Section 134. l(d), Customs Regulations (19 CFR 134. l(d), provides that for a good of a NAFTA country, the "ultimate purchaser" is generally the last person in the U.S. who purchases the good in the form in which it was imported. If an imported article will be used in manufacture, the manufacturer may be the "ultimate purchaser" if the process results in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin. If the manufacturing process does not result in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin, the consumer who purchases the article after processing will be regarded as the ultimate purchaser.

Accordingly, since the wire rod is imported from Canada, a NAFTA country, in order to determine the appropriate marking and certification requirements we must examine the NAFTA Marking Rules to ascertain whether or not the imported product undergoes a change as prescribed under the rules.

Part 102 of the interim regulations, sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the interim regulations, sets forth the required hierarchy
for determining country of origin for marking purposes. Section 102.11 (a) of the interim regulations provides that "[t]he country of origin of a good is the country in which:

(1) the good is wholly obtained or produced; (2) the good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied."

Since the wire is produced in the U.S. from Canadian wire rod, the wire is neither wholly obtained or produced nor is it produced exclusively from domestic materials. Therefore, paragraphs (a)( 1 ) and (a)(2) of section 102.11 cannot be used to determine the country of origin of the finished article. Thus, paragraph (a)(3) of section 102.1 l is the applicable rule that we must first apply to determine the origin of the product manufactured by Walker.

From a description of the various types of rod, it appears that the imported products will be classified under headings 7213-7215. The wire products resulting from the U.S. processing of the wire rod are classified under heading 7217. The specific tariff rule set out in section 102.20(a), Section XV, Chapters 72 through 83, 7217 of the interim regulations provides:

7217.... A change to heading 7217 from any other heading, except from heading 7213 through 7215.

Under this rule, the imported rod does not undergo the applicable change in tariff classification set out in section 102.20(a). Therefore, under the hierarchal rules, we must apply the next applicable rule, section 102.1 l(b), to determine the country of origin of the wire.

Section 102.11(b) of the interim regulations provides, in pertinent part, that where the country of origin cannot be determined under paragraph (a), the country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good. Section 102.18(b)(2) provides that for purposes of section 102.11 Co), "only domestic and foreign materials. ..that are classified in a tariff provision from which a change in tariff classification is not allowed in the [102.20] rule
for the good. ..shall be taken into consideration in determining the parts or materials that determine the essential character of the good." In the instant case, only the imported Canadian wire rod is classified under a provision from which a change in tariff classification is not allowed under the 102.20 rule for the wire.

Therefore, we find that the material that imparts essential character to the wire is the wire rod. Accordingly, since under the NAFTA Marking Rules the processing of the wire rod does not effect a change in its country of origin, the person who purchases the article after such processing will be regarded as the ultimate purchaser. As a result, the importer must comply with the certification requirements of 19 CFR 134.25. However, the certification rules will be applicable to the producer only where he is acting in the capacity of an importer.

HOLDING:

1 ) Wire rod imported from non-NAFTA countries and processed into wire does not undergo a substantial transformation; therefore, the "ultimate purchaser" will. be the person who purchases the wire from the U.S. producer. Since the goods are J-list articles, they are excepted from individual marking requirements under 19 CFR 134.33. However, the outermost container in which the article reaches the ultimate purchaser is required to be marked to indicate the country of origin of its contents. Where the processor of the wire rod is acting as the importer, he must also comply with the certification requirements of 19 CFR 134.25.

2) Wire rod imported from Canada, a NAFTA country, and processed into wire, does not undergo the applicable change in tariff classification setout in 19 CFR 102.20(a) of the NAFTA Marking Rules. As a result, the next rule under the hierarchal rules, 19 CFR 102.11 (b), must be examined to determine whether it is applicable. Under this rule, the country of origin of the good is the country of origin of the material that imparts essential character to the wire. We find that the wire rod is the material that imparts essential character.

Therefore, under the NAFTA Marking Rules, since the processing of the wire rod does not effect a change in its country of origin, the person who purchases the article after such processing will be considered the ultimate purchaser. Since the goods are J-list articles, they are excepted from individual marking requirements under 19 CFR 134.33. However, the outermost container in which the article reaches the ultimate
purchaser is required to be marked to indicate the country of origin of its contents. Where the processor of the wire rod is acting as the importer, he must also comply with the certification requirements of 19 CFR 134.25.

Sincerely,

John

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