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HQ 561064




October
21, 1998

MAR-05 RR:TC:SM 561064 BLS

CATEGORY: MARKING

Ms. Margaret Fette, Customs Analyst
General Electric Corporation
4315 Metro Parkway
Fort Meyers, FL 33916

RE: Country of origin marking of polycrystalline diamond tool blanks; grinding/polishing; classification

Dear Ms. Fette:

This is in reference to your letters dated June 26 and October 9, 1998, requesting a ruling concerning the country of origin marking requirements for certain polycrystalline diamond tool blanks imported from China. You also ask that we rule as to the proper classification for the imported products and the applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States.

FACTS:

The product is described as a Compax polycrystalline diamond tool blank manufactured in the U.S. using diamond crystals which are grown together and integrally bonded to a cemented tungsten carbide substrate using a high-temperature, high-pressure process. You advise that the weight of the carbide is 145 grams and of the diamond crystals 9 grams. The carbide is valued at approximately 25% of the value of the diamond.

You state that the tool blanks are useable in their condition as exported to China. In China, the tool blanks undergo a fine grind/polish operation. This operation is considered an enhancement as it adds value and increases performance in certain applications required by your customers.

The tool blanks are then returned to the U.S. where approximately two-thirds are sold in a completed round shape. The remaining one-third are further cut into varying shapes according to customer requests.

ISSUES:

1) What is the proper classification of the imported tool blanks?

2) What are the country of origin marking requirements for the tool blanks?

3) Whether the tool blanks will qualify for the partial duty exemption under subheading 9802.00.60, HTSUS, upon return to the U.S.

LAW AND ANALYSIS:

Classification

Merchandise is classifiable under the Harmonized Tariff Schedule of the United States in accordance with the General Rules of Interpretation (GRIs). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6. GRI 3(b) states in part that composite goods consisting of different materials or made up of different components which cannot be classified by reference to Rule 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criteria is applicable.

The Harmonized Commodity Description And Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).

In accordance with GRI 3, the tool blanks are composite goods that are prima facie classifiable in the following headings:

Heading 2849, Carbides, whether or not chemically defined;

Heading 7102, Diamonds, whether or not worked, but not mounted or set;

Heading 7104, Synthetic or reconstructed precious or semi-precious
stones, whether or not worked or graded but not strung, mounted or set; and,

Heading 7116, Articles of precious or semiprecious stones (natural, synthetic or reconstructed).

Each of these headings describes a part only of the tool blanks. There is no single heading that provides a specific description for these blanks, in accordance with GRI 3(a). In accordance with Rule 3(b), they must be classified as if consisting of the material or component that gives them their essential character, insofar as this criteria is applicable. The Rule 3(b) ENs, at p. 4, states that the factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods. In this case, the tungsten carbide provides the substrate on which the bonded diamond crystals are mounted. Its bulk and weight are clearly superior to the bonded diamond crystals. However, the record reflects that the diamonds clearly predominate in value. Moreover, the synthetic crystalline diamonds provide the cutting surface of the tool blank. We conclude it is the diamond that imparts the essential character to the whole so that the tool blanks must be classified as if consisting only of diamonds. Heading 7102 provides for diamonds while heading 7104 provides for synthetic or reconstructed precious or semi-precious stones. However, in this case, individual diamond crystals have been bonded together under heat and pressure into a cutting element, which is an "article" of diamond. We conclude that from among the competing provisions, heading 7116 provides the most specific description for the tool blanks.

Under the authority of GRI 3(b), the diamond drill blanks are provided for in heading 7116. They are classifiable in subheading 7116.20.50, HTSUS. Articles classifiable in this provision are eligible for duty-free entry under subheading 9907.71.01, HTSUS, through the close of December 31, 2004.

2) Country of Origin Marking

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. 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 C.C.P.A. 297, 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), 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. A substantial transformation occurs when an article loses its identity and becomes a new article having a new name, character or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940); National Juice Products Association v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986); Koru North America v. United States, 701 F. Supp. 229, 12 CIT 1120, (CIT 1988).

As provided in section 134.32(m), Customs Regulations (19 CFR 134.32(m)), products of the U.S. exported and returned are specifically excepted from country of origin marking requirements. If a U.S. product is sent abroad for processing, the article remains a product of the U.S. excepted from the country of origin marking requirements unless prior to its return it is substantially transformed into an article of foreign origin.

Customs has previously ruled that grinding and polishing are finishing operations which render a product ready for use but do not substantially transform it into a product with a new name, character or use. See, e.g., T.D. 74-12(3), November 1, 1973, where Customs ruled that socket blanks from Japan further processed in the U.S. by grinding, polishing and other processing were not substantially transformed; and Headquarters Ruling Letter (HRL) 733565 dated September 11, 1990, where Customs ruled that unfinished household scissors exported to Pakistan for further processing including grinding, polishing, nickel plating, heat treating, and assembly did not constitute a substantial transformation. It was determined that these processes were nothing more than finishing operations which did not alter the basic character of the shears.

In the present case, neither the grinding nor the polishing that is performed in China changes the fundamental character or use of the product. The diamond tool blank is already useable in its exported condition, and the additional grinding/polishing merely serves to enhance performance to meet the requirements of certain of GE's customers. In addition, the name of the product, i.e., polycrystalline diamond tool blank, is not
changed as a result of the processing performed in China. Accordingly, as the U.S.-origin diamond tool blanks are not substantially transformed as a result of the processing performed in China, the imported products are excepted from the marking requirements pursuant to 19 CFR 134.32(m).

3) Subheading 9802.00.60

Subheading 9802.00.60, HTSUS, provides a partial duty exemption for:

[a]ny article of metal (as defined in U.S. note 3(d) of this subchapter) manufactured in the United States or subject to a process of manufacture in the United States, if exported for further processing, and if the exported article as processed outside the United States, or the article which results from the processing outside the United States, is returned to the United States for further processing.

This tariff provision imposes a dual "further processing" requirement on eligible articles of metal--one foreign, and when returned, one domestic. Metal articles satisfying these statutory requirements may be classified under this tariff provision with duty only on the value of such processing performed outside the U.S., provided there is compliance with the documentary requirements of section 10.9, Customs Regulations (19 CFR 10.9).
Eligible articles of metal are defined in U.S. note 3(d), subchapter II, Chapter 98, HTSUS, which provides that:

[f]or purposes of subheading 9802.00.60, the term "metal" covers (1) the base metals enumerated in additional U.S. note 3 to section XV;
(2) arsenic, barium, boron, calcium, mercury, selenium, silicon, strontium, tellurium, thorium, uranium, and the rare-earth elements; and (3) alloys of any of the foregoing.

Base metals are further enumerated in additional U.S. note 3, section XV, HTSUS, which provides that:

[f]or the purposes of the tariff schedule, the term "base metals" embraces aluminum, antimony, beryllium, bismuth, cadmium, chromium, cobalt, copper, gallium, germanium, hafnium, indium, iron and steel, lead, magnesium, manganese, molybdenum, nickel, niobium (columbium), rhenium, tantalum, thallium, tin, titanium, tungsten, vanadium, zinc and zirconium.

As described, the tool blanks are produced by a process of bonding diamond crystals and tungsten carbide. Diamonds are considered a precious metal and thus is not an "article of metal" eligible for subheading 9802.00.60, HTSUS, treatment. Further, we have previously held that tungsten carbide, in powdered form, is a chemical compound, and similarly does not constitute an "article of metal" for purposes of item 806.30, Tariff Schedules of the United States (the precursor provision to HTSUS subheading 9802.00.60). See Headquarters Ruling Letter (HRL) 555215 dated August 15, 1989.

Therefore, as the imported tool blank is not an eligible article of metal under U.S. Note 3(d), subchapter II, Chapter 98, HTSUS, the tool blanks which are returned to the U.S. from China will not be eligible for the partial duty exemption under HTSUS subheading 9802.00.60.

HOLDING:

1) Under the authority of GRI 3(b), HTSUS, the diamond tool blanks are provided for in heading 7116. They are classifiable in subheading 7116.20.50, HTSUS. Articles classifiable in this provision are eligible for duty-free entry under subheading 9907.71.01, HTSUS, through December 31, 2004.

2) The grinding/polishing operations performed in China do not result in a substantial transformation. Therefore, the U.S.-origin tool blanks are excepted from the marking requirements. See 19 CFR 134.32(m).

3) As the tool blank is not an eligible article of metal under U.S. Note 3(d), subchapter II, Chapter 98, HTSUS, those tool blanks which are returned to the U.S. from China will not be eligible for the partial duty exemption under HTSUS subheading 9802.00.60.

A copy of this ruling should be attached to the entry documents filed at the time this merchandise is 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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