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HQ
560241

October 22,
1997

MAR-05 RR:TC:SM 560241 BLS

CATEGORY: MARKING

Port Director
U.S. Customs Service
Chicago, Illinois 60607

RE: Country of origin marking of cold-drawn stainless steel bar imported from
Thailand; Superior Wire

Dear Sir:

This is in reference to letters dated December 12, 1996 and July 29, 1997, on behalf of KG Speciality Steel, Inc. ("KGS"), requesting a ruling with regard to the country of origin marking of certain stainless steel round bar imported from Thailand. Counsel advises that entries of the product are currently being made through the port of Chicago marked Thailand as the country of origin, and that Customs officials at your port have been advised that such marking may be in error.

FACTS:

Hot-rolled stainless steel rod is imported into Thailand from Japan, Taiwan, Spain, Korea and France. In Thailand, the following operations are performed:

1) The rod is uncoiled from spools, inspected and the surface is ground by hand to remove surface abrasions, scrapes, lacerations and scratches.

2) The rod is then dipped in plastic, which completely coats the rod.

3) The rod is then cold-drawn into bars of the desired thickness, shape (i.e., straight, etc.) hardness, and tensile and yield strengths. The rod is reduced in cross-sectional area by up to 20%. The tensile and yield strengths are increased by up to 20%.

4) The cold-drawn bars are then cut, straightened and polished.

5) The bars are then subject to visual inspection and mechanical testing.

6) Once the bars pass the inspection and testing stage, they are packaged and shipped.

SKJ (a steel mill in Thailand) estimates that the value added by the above-described processing may amount to as much as 22%. You state that the capital investment made by SKJ is approximately $5.8 Million.

The finished bars meet severe diameter (including, ASTMA 484 table No. 6) tolerance and straightness requirements which are necessary for use as machine parts such as shafts for electric appliances, motors, printers, copy machines, etc. In addition, as a result of the described processing, the finished bars can be used for a variety of ornamental applications including kitchenware, home hardware, and applications requiring high sanitary qualities (e.g., medical and food preparation and storage equipment).

ISSUE:

What are the country of origin marking requirements of the imported cold-drawn steel rod?

LAW AND ANALYSIS:

Section 304 of the 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 (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. 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 article 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., 27 CCPA 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b) provides in general that an article's country of origin is the country in which it was manufactured, produced, or grown. 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. A substantial transformation is said to occur if, within the principle of the case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), an article emerges from processing having a new name, character, and use. See 19 CFR 134.35.

KGS contends that the processing which takes place in Thailand results in a substantial transformation of the hot-rolled steel as the finished product is said to emerge with a new name, character and use. Therefore, KGS is of the opinion that the imported cold-drawn steel product is properly marked reflecting Thailand as the country of origin. In support of a change in name, character and use, the importer relies on Torrington v. United States, 764 F.2d 1563, 3 CAFC 158 (Fed. Cir. 1985); Ferrostaal Metals Corp. v. United States, 11 CIT 470 (1987); and Superior Wire v. United States et al., 11 CIT 608 (1987).

Torrington

In Torrington, the Court of Appeals for the Federal Circuit (CAFC) affirmed the Court of International Trade (CIT) holding that for purposes of the Generalized System of Preferences (GSP), industrial sewing machine needles exported from a beneficiary developing country (BDC), but manufactured from non-BDC wire, were eligible for duty-free treatment because the double substantial transformation requirement had been satisfied. In Torrington, the imported wire was first shaped into a swage needle by cutting, beveling, and altering its length and circumference. The swage needle was then further processed into a finished sewing machine needle. The CAFC found that swage needles were an intermediate "new and different" article because they were more refined, and possessed a definite size and shape suitable for further manufacturing into needles, while having lost the identifying characteristics of wire. See Torrington, 764 F.2d at 1568-1569. Torrington has been limited to the specific factual situation found therein and accordingly, we do not recognize Torrington as precedent for the factual situation in the subject case. See T.D. 86-7, 20 Cust. Bull. (1986).

Ferrostaal

In Ferrostaal Metals Corp. v. United States, the court considered whether cold-rolled steel of Japanese origin which was annealed and galvanized in New Zealand by a process known as "continuous hot dip galvanizing" prior to its shipment to the U.S. was covered by the U.S.-Japan voluntary restraint arrangement concerning steel products. The court held in that case that the steel was not covered by the arrangement since the annealing and galvanizing operations substantially transformed the Japanese-origin steel into a product of New Zealand. The annealing process, which relieves the deformation energy in the steel sheet, making it more ductile or formable and reducing defects, involved heating the steel to between 1050 and 1450 degrees F before cooling to 880 degrees F. While at 880 degrees F, the sheet was dipped in a pot of molten zinc to create a galvanized surface in which alloys were formed at the interface between the steel and zinc. The court in Ferrostaal found that the annealing significantly affected the character of the sheet by altering the ductility and strength of the steel, and that the zinc galvanizing further affected the steel sheet by protecting it against rust.

We do not find the decision in Ferrostaal to be applicable to the subject situation, as the annealing and galvanizing operations performed on steel sheet in that case are unlike the cold drawing process of steel wire rod which occurs in the instant case.

Superior Wire

In Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (CIT 1987), aff'd, 867 F.2d 1409 (Fed. Cir. 1989), the Court of Appeals for the Federal Circuit affirmed the determination of the Court of International Trade that the cold-drawing of wire rod into wire was a minor operation which did not result in a substantial transformation, even though the physical properties of the wire rod, and therefore its use, were affected as a result of the processing. The record in that case showed that the wire that emerged from the drawing process was stronger and rounder 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 rather the last stage in the processing of the same product. Subsequently, we held in Headquarters Ruling Letter (HRL) 085044 dated July 26, 1989, that hot-rolled bar and wire rod of carbon steel which is descaled, lubricated, cold-drawn, and cut to length was not substantially transformed as these operations were in the nature of a finishing process.
KGS argues that the facts in Superior Wire [and HRL 085044] are distinguishable from the case at hand. In the instant situation, the bar is stainless [not carbon] steel, and meets precise diameter tolerance, straightness and other specifications. KGS contends that unlike the facts in Superior Wire, the subject bar requires trained technicians and metallurgists, depends upon continuous inspection and results in a significant quantity of discarded material as waste. Further, KGS points out that the capital investment ($250,000) required to perform the processing in Superior Wire added as a result of the processing (15%), was not substantial. In the subject matter, however, KGS states that the investment amount, $5.8 Million, and the value added, approximately 22%, are quite substantial. KGS is of the opinion that the court in Superior Wire distinguished its holding from Ferrostaal based on the value added and capital investment factors.

We do not agree that these factors were paramount to the court's decision in Superior Wire. While the court treated the cost added, amount of labor, and capital investment as a cross-check in substantial transformation cases, we note that the CIT has stated in a number of cases that the name, character and use test is entitled to continued adherence and should generally be determinative of the country of origin of imported articles.

Thus, in National Hand Tool Corp. v. United States, 16 CIT 308(1992), aff'd, 989 F.2d

1201 (1993), certain hand tool components were forged into their final shape abroad, and then imported into the U.S. for further processing. The Court of International Trade stated in that case that the substantial transformation test utilizing name, character and use criteria should generally be conclusive in country of origin marking determinations, and that the determination of substantial transformation must be based "on the totality of the evidence." In that case, the court dismissed as a basis for a substantial transformation the value of the processing and concluded, based on the name, character and use criteria, that the processing in the U.S. resulting in the completed tools did not effect a substantial transformation of the foreign components.

Similarly, in accord with the decision of the court in Superior Wire, we find in the instant case that the processing of the wire rod in Thailand which involves dipping the rod in plastic, cold-drawing the rod into bars of a desired thickness, and cutting, straightening and polishing, does not result in a substantial transformation. Therefore, the country of origin of the product imported into the U.S. from Thailand is the country of origin of the hot-rolled stainless steel rod imported into Thailand, which SKG states is France, Japan, Korea, Taiwan or Spain.

HOLDING:

Hot-rolled stainless steel wire rod imported into Thailand does not undergo a substantial transformation when processed into cold-drawn stainless steel round bar. Therefore, the country of origin of the product imported into the U.S. from Thailand is the country of origin of the wire rod.

Please provide a copy of this decision to Daniel Gluck, Esq., Serko & Simon LLP, One World Trade Center, New York, N.Y. 10048.

Sincerely,

John
Durant, Director


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