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HQ 559871




February 18, 1997

MAR-2-05 RR:TC:SM 559871 MLR

CATEGORY: MARKING

Laurence J. Lasoff, Esq.
John B. Brew, Esq.
Laura A. Svat, Esq.
Collier, Shannon, Rill & Scott, PLLC
3050 K Street, N.W.
Suite 400
Washington, D.C. 20007

RE: Country of origin marking for stainless steel forgings from Mexico, Italy and Germany; substantial transformation; Midwood; NAFTA; Article 509

Dear Mr. Lasoff, Mr. Brew, and Ms. Svat:

This is in reference to your letter of May 28, 1996, requesting a ruling on behalf of your client, concerning the country of origin marking of stainless steel flanges, imported from Mexico, Germany, and Italy.

FACTS:

You state that your client imports stainless steel forgings (also referred to as unfinished stainless steel flanges), classifiable under 7307.21.10, Harmonized Tariff Schedule of the United States (HTSUS), from Mexico, Germany, and Italy into the U.S. In the U.S., the forgings are machined into stainless steel flanges, classifiable under subheading 7307.21.50, HTSUS. You state that stainless steel flanges are generally manufactured using alloys such as 304/304L and 316/316L. The five general types of flanges, normally ranging in size from « to 30 inches, include (i) weld neck flanges (used for butt-weld line connections), (ii) threaded flanges (used for threaded line connections), (iii) slip-on and lap joint flanges (used with stub end/butt-weld line connections), (iv) socket weld flanges (used with fit pipe into machine recessions), and (v) blind flanges (used to seal off lines).

In producing a finished stainless steel flanges, you state that the entire forging is machined, which includes machining the backside, faceside, outside diameter, and bore, and drilling the bolt holes.

ISSUE:

What are the country of origin marking requirements applicable to the finished stainless steel flanges?

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 (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 a 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.

I. Stainless Steel Forgings Imported from Mexico

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 this part; however for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (Emphasis added.)

Section 134.1(j), Customs Regulations (19 CFR 134.1(j)), provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. A "good of a NAFTA country" is defined in 19 CFR 134.1(g) as an article for which the country of origin is Canada, Mexico, or the U.S. as determined under the NAFTA Marking Rules set out at 19 CFR Part 102.

Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Paragraph (a) of this section states that the 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 applicable requirements of these rules are satisfied.

In this case, the applicable rule is 19 CFR 102.11(a)(3). The finished flanges are stated to be classifiable under subheading 7307.21.50, HTSUS. The applicable change in tariff classification for headings 7301-7307 set out in section 102.20(n), Section XV, Chapters 72 through 83, provides:

7301-7307 ... A change to heading 7301 through 7307 from any other heading, including another heading within that group.

It is stated that the imported forgings are classifiable under subheading 7307.21.10, HTSUS. Therefore, the imported forgings will not undergo the requisite tariff shift, and 19 CFR 102.11(b) of the hierarchial rules must be applied, which in pertinent part provides that:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a), the country of origin of the good:

(1) Is the country or countries of origin of the single material that imparts the essential character of the good ...

When determining the essential character of a good under 19 CFR 102.11, 19 CFR 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. Section 102.18(b)(1)(iii), Customs Regulations (19 CFR 102.18(b)(1)(iii)), provides that if there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed, then that material will represent the single material that imparts the essential character to the good under 19 CFR 102.11.

Pursuant to 19 CFR 102.18(b)(1)(iii), the single material that imparts the essential character of the finished flange is the forging. Accordingly, the country of origin of the finished stainless steel flange is the country of origin of the forging, which is Mexico.

II. Stainless Steel Forgings Imported from Italy and Germany

In regard to the stainless steel forgings imported from non-NAFTA countries which are finished into flanges in the U.S., you contend that the finished flanges are not being marked with their country of origin as required by U.S. law. In order for the country of origin of the flanges to be considered the U.S., the work or material added to the forgings in the U.S. must effect a substantial transformation. 19 CFR 134.1(b).

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, and the article is excepted from marking and only the outermost container is required to be marked. See 19 CFR 134.35(a).

You contend that imported forgings which are machined in the U.S. are not substantially transformed in the U.S. when they are made into flanges. In Midwood Industries, Inc. v. United States, 64 Cust. Ct. 499, 313 F. Supp. 951 (1970), imported rough steel forgings were subjected to several machining processes by the U.S. importer/processor such as boring, facing, spot facing, drilling, tapering, threading, beveling and heating and compressing. The court pointed out that the rough forgings have no commercial use in their imported condition because the forgings are used to connect pipes of a matching size and in their imported state, the forgings had no connecting ends. It was determined that the importer/processor was the ultimate purchaser of the forgings since he substantially transformed them and the resulting finished flanges and fittings did not have to carry country of origin marking.

You claim that Midwood is no longer valid law and is not applicable to the facts presented. You note that the NAFTA Marking Rules were intended to codify existing country of origin marking practice on articles imported from any country as indicated in Customs notice of proposed rulemaking issued at 59 FR 141 (January 3, 1994), and further clarified at 60 FR 22,312 (May 5, 1995). In 61 FR 28932, 28933 (June 6, 1996), in connection with the Final Rule for Determining the Country of Origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement, Customs decided that the proposal to extend Section 102 to all trade, as reflected in the May 5, 1995, notice of proposed rulemaking, should not be adopted as a final rule at this time. Therefore, the NAFTA Marking Rules do not apply for purposes of country of origin marking determinations from non-NAFTA countries, and the duly promulgated NAFTA Marking regulations which do not codify the Midwood decision, is only applicable for purposes of determining when a good is a good of a NAFTA country.

The next question to be resolved is whether Midwood is still applicable to the facts presented. Customs, in setting forth its rationale for the NAFTA Marking Rules and in examining Midwood stated that it did not believe that a court is bound to follow the reasoning of Midwood because the court's decision involved the manufacturing processes of only one single company and did not determine whether these processes were generally prevalent throughout any segment of the industry in the U.S. See 60 FR 22,315. However, after notice and comment in the Federal Register, the NAFTA Marking Rules set forth at 19 CFR Part 102 were not adopted for all trade, and the Midwood decision, while questioned in subsequent court decisions, has not been overruled. Accordingly, to the extent that forgings are not imported from a NAFTA Party, the NAFTA Marking Rules will not apply. In the absence of other information that the flanges being imported from non-NAFTA countries are undergoing operations that are different from the processes performed in Midwood, the Midwood case still will be applicable for determining the country of origin marking requirements. Therefore, steel flanges processed from forgings of Italian or German origin, as described above, will not require any country of origin marking for Customs purposes.

HOLDING:

Based upon the information provided, for the forgings imported from Mexico, pursuant to 19 CFR 102.18(b)(1)(iii), the country of origin of the finished stainless steel flanges is the country of origin of the forging, which is Mexico. For the forgings imported from Italy or Germany, pursuant to 19 CFR 134.35(a), the ultimate purchaser of the forgings is the U.S. processor. Accordingly, steel flanges processed from forgings of Italian or German origin, as described above, will not require any country of origin marking for Customs purposes.

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

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