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HQ 561710




July 20, 2000

MAR-2-05 RR:CR:SM 561710 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 Italy and Germany; substantial transformation; Midwood; Modification of HRL 559871

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

This is in reference to your letters of May 28, 1996, and March 24, 1997, requesting a ruling on behalf of your client, concerning the country of origin marking of stainless steel flanges, and requesting reconsideration of Headquarters Ruling Letter (HRL) 559871 dated February 18, 1997.

We have reviewed HRL 559871 and believe the portion pertaining to the marking of stainless steel flanges made from Italian or German forgings is incorrect. It is this aspect of the ruling that we are modifying. The remainder of the ruling concerning the marking requirements of flanges made from Mexican forgings remains in effect.

Pursuant to section 625(c), Tariff Act of 1930, as amended (19 U.S.C. 1625(c)), notice of the proposed modification of HRL 559871 was published on June 7, 2000, in the Customs Bulletin, Volume 34, Number 23.

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 2 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 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. A sample of an unfinished stainless steel flange and a finished stainless steel flange was submitted with your request.

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.

In regard to the stainless steel flanges 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., and excepted from marking, 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 processes by the U.S. importer/processor. Excess material was removed, the forgings were faced, bored, threaded or beveled, and drilled and spot faced. In certain instances, the flanges were subject to both heating and reducing one end in size and diameter by compression.

The court noted that the imported forgings were made as close to the dimensions of the ultimate finished form as possible. Nevertheless, the court stated that the products remained forgings unless and until converted by some manufacturer into consumers’ goods, that is, flanges and fittings. The court held that the imported forgings and the fittings and flanges made therefrom were different articles of commerce, and the importer/processor was the ultimate purchaser of the forgings.

You claim that Midwood no longer reflects the state of the law as subsequently decided by the court and should not form the basis for our decision in this case. Moreover, you note that under the NAFTA Marking Rules, the processes performed are not sufficient to render the flange a product of the United States. You believe that the same result that obtains under the NAFTA Marking Rules should obtain when the forging is a product of a non-NAFTA country.

The Customs Service has on a number of occasions expressed its views with respect to the decision in Midwood. More recently, on March 14, 2000, following notice and comment, Customs stated, "It is Customs opinion that
based on subsequent court decisions applying substantial transformation analysis, Midwood would be decided differently today.” Accordingly, we announced that we would no longer be following the analysis in Midwood.

In view of the foregoing, we conclude that the issue of substantial transformation in this case must be decided in accordance with the facts presented applying the reasoning employed by the court in a number of decisions in this area, namely whether a change in name, character or use has occurred. See Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (CIT 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983); National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993); Superior Wire v. United States, 669 F. Supp. 472 (CIT), aff’d, 867 F. 2d 1409 (Fed. Cir. 1989); National Juice Products Ass’n v. United States, 628 F. Supp. 978 (CIT 1986); Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535 (CIT 1987).

With respect to the change in name, we note that the imported articles are variously referred to as “forgings” or as “unfinished stainless steel flanges.” This is also confirmed in Midwood, where the imported articles were referred to as “unfinished flange forgings,” “unfinished 180 degree elbow,” “flange in the rough,” or as “semi-finished articles.” Thus, while a change in name by itself is the least persuasive factor and is insufficient by itself to support a holding that there is a substantial transformation, the evidence of such a change in name is equivocal in this case. See Superior Wire, 867 F.2d at, 1414.

With respect to the change in use and character, we note that the imported articles are at all times intended for use as flanges and imported in dimensions that are close to their finished form. These factual conclusions are in accord with the facts as adduced by the court in Midwood. While the unfinished flanges must be machined to final dimension, we do not believe that such operations amount to a change in use or character in the article.

Since we do not find a change in name, character or use, it is our opinion that the importer/U.S. processor is not the ultimate purchaser. Therefore, we find that the steel flanges processed from forgings of Italian or German origin, as described above, will be required to be marked with the country of origin of the forging.

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, the ultimate purchaser of the forgings is the recipient of the steel flanges. Accordingly, steel flanges processed from forgings of Italian or German origin, as described above, will be required to be marked with the country of origin of the imported forging. Consistent with this ruling, HRL 559871 dated February 18, 1997, is hereby modified.

In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.

Sincerely,

John Durant, Director
Commercial Rulings Division


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