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HQ 561807

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July 20, 2000

MAR-2-05 RR:CR:SM CW

CATEGORY: MARKING

Lawrence J. Bogard, Esq.
Neville, Peterson & Williams
1233 20th Street, NW., Suite 500
Washington, D.C. 20036

RE: Modification of HRL 728693; country of origin marking of pipe fittings; substantial transformation; Midwood

Dear Mr. Bogard:

This is in reference to Headquarters Rulings Letter (HRL) 728693 dated November 5, 1985, which was issued to you regarding the country of origin marking requirements applicable to certain rough forged fittings imported by Tube Forgings of America, Inc.

We have reviewed HRL 728693 and believe that the portion of the ruling holding that the processing of the rough forged fittings in the United States results in a substantial transformation is incorrect. For the reasons set forth below, this ruling modifies HRL 728693.

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

FACTS:

Tube Forgings of America, Inc., imports rough forged fittings of carbon steel and further processes them into finished pipe fittings in the form of elbows or tees. The further processing includes: shot blasting; machine bevelling, boring and tapering; grinding; die stamping; inspecting; painting; with certain elbows also undergoing a hot forming process prior to bevelling.

In HRL 728693, Customs determined that the above-described U.S. operations constitute a substantial transformation of the forgings into finished pipe fittings. Accordingly, the U.S. processor was determined to be the ultimate purchaser of the imported forgings.

ISSUE:

What are the country of origin marking requirements applicable to the finished pipe fittings?

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 order for the country of origin of imported articles to be considered the U.S., and excepted from marking, the work or material added to the articles 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).

In Midwood, 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.

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 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 in this case that the imported articles are referred to as “rough forged fittings.” 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 (Fed Cir. 1989).

With respect to the change in use and character, we note that the imported articles are at all times intended for use as pipe fittings 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 forgings 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 fittings processed from imported foreign forgings, as described above, will be required to be marked with the country of origin of the forgings.

HOLDING:

Based upon the information provided, Customs finds that no substantial transformation results from the U.S. processing of the imported forgings to produce the finished pipe fittings. Accordingly, fittings processed from imported foreign forgings, as described above, will be required to be marked with the country of origin of the imported forgings. Consistent with this ruling, HRL 728693 dated November 5, 1985, 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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