HQ 562523 - Country of origin; marking; glass preforms; optical fiber; substantial transformation; Alcatel; HQ 560660; HQ 964632; draw process; Colorlock®; 7020.00.60; 8544.70.00; polarization mode dispersion (PMD); - United States International Trade Commision Rulings

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HQ 562523

November 14, 2002

MAR-05 RR:CR:SM 562523 TJM

CATEGORY: MARKING

Mr. Jim Curtis
Alcatel NA Cable Systems, Inc.
2512 Penny Road
Claremont NC 28610

RE: Country of origin; marking; glass preforms; optical fiber; substantial transformation; Alcatel; HQ 560660; HQ 964632; draw process; Colorlock®; 7020.00.60; 8544.70.00; polarization mode dispersion (PMD);

Dear Mr. Curtis:

This is in reference to your undated letter received by this office on August 15, 2002, on behalf of your company (“Alcatel”), requesting a prospective ruling concerning the country of origin of optical fiber manufactured by Alcatel in Claremont, North Carolina from foreign-made optical preforms.

FACTS:

You state that optical fiber will be manufactured by Alcatel NA Cable Sytems, Inc., in Clarement, North Carolina from foreign-made optical preforms. Due to a restructuring of Alcatel’s global manufacturing of optical fiber, the company will temporarily discontinue the manufacture of preforms in the United States. Preforms will instead be imported from Alcatel’s optical fiber manufacturing facilities in France. Fibers drawn in Claremont, NC, from these preforms will be offered for sale in the United States and abroad.

You state that you are aware of Headquarters Ruling Letter (HRL) 560660, dated April 9, 1999, issued to Corning, Inc, which ruled that the country of origin of optical fiber is the country in which the preform was produced. You state that your product is distinguishable from that in HRL 560660. You contend that the distinguishing factors include: 1) Alcatel’s manufacturing process is significantly different from Corning’s and those of others in the industry, in that a protective coating called Colorlock® is applied to the fiber during the draw process; and (2) that the critical optical fiber properties are not obtained solely during the production of the glass preform. Thus, you contend that the draw process performed in Claremont, NC, does indeed effect a substantial transformation of a glass preform into individually sheathed optical fibers.

You state that the important competitive advantage that Alcatel has over its competition is its patented Colorlock® (hereinafter “Colorlock”) process, in which a dual layer acrylate coating, of which the outer layer is colored, is applied to the fiber during the drawing phase of fiber production. You reference HRL 964632, in which Customs ruled that the Colorlock process “provides substantial sheathing protection to individual optical fibers,” thus warranting a classification of Alcatel’s Colorlock fiber in subheading 8544.70.0000, HTSUS, as individually sheathed fibers.

You note that conventional fiber is colored by the application of a thin layer of ink applied in a separate post-draw process by either the fiber or cable manufacturer. Since Colorlock technology combines coloring and coating into one process, it produces a very high-level of geometric precision, which creates a color that is “locked” into the fiber coating at over 5 times the thickness of the surface layer applied by inking technology. The Colorlock process not only protects the individual glass fibers from abrasions, but also ensures easy fiber identification in the field for splicing and for installation purposes.

You also note that not all critical optical fiber properties are predetermined by the production of the preform alone. You state that this was one of the key factors on which Customs based its ruling decision in HRL 560660. You state that as transmission speed and distance in optical networks have increased, one specific optical fiber characteristic that has become increasingly important to both manufacturers and consumers of optical cable is Polarization Mode Dispersion (PMD).

You state that PMD is a statistical effect created by minute random deviations within fibers that disturb the travel path of alight signal. When a light pulse travels down a single mode fiber toward the receiver, it has two polarization modes that follow the path of two axes at right angles to each other. Since the core of the fiber that binds the light is never perfectly symmetrical, the light traveling along one polarization axis moves slower or faster than the light polarized along the other axis. This effect can spread the pulse enough to make it overlap with other pulses, or change its own shape enough to make it undetectable at the receiver.

The PMD of a fiber depends on the amount of coupling between the power in the two polarization modes. When pulses propagate through a fiber, some of the power in the fast polarization mode couples into the slow polarization mode, and vice versa. The most successful method that manufacturers have found to decrease PMD is by creating a “mode coupling” effect, which equalizes the propagation times of the two polarized modes.

You contend that the reason PMD is important for the purposes of this ruling request is that Alcatel achieves the mode coupling effect during the draw process. Defects and irregularities in the core of the preform are compensated during the draw. This is achieved by the employment of patented fiber spinning unit, or SZ device. The SZ device is located at the base of the draw tower, and has an oscillating wheel, which creates a spin profile in the fiber, creating the desired mode coupling effect. As the hot fiber is drawn down the tower, the oscillating wheel rotates the fiber with a certain number of twists per meter in a clockwise direction, and then reverses to impart twists in the counterclockwise direction. When cooled, the fiber retains the desired amount of twists per meter to equalize the propagation times of the two polarized modes, therefore counteracting the negative effects of core irregularities. PMD is measured, along with other critical attributes, before fiber is packaged and deemed suitable for use in optical cables. After draw, the fiber is placed on special spools that create an optical environment in which to test PMD performance.

You state that manufacturers of optical fiber first began specifying PMD in 1998, when the maximum specified value was typically 0.5 pico seconds (ps)/sq. rt. Km. Since then, in response to system needs, fiber manufacturers have worked to substantially improve PMD performance. Alcatel’s current PMD standard established on January 15, 2002, is 0.2 ps/sq. rt. Km. Today, PMD is a fiber attribute that is considered a key parameter for high speed optical systems, just as important as attenuation, cut-off wavelength or mode field diameter.

ISSUE:

Whether the combination of ColorLock processing and drawing out of optical fiber to meet specific PMD specifications as described above qualifies as a substantial transformation.

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 the 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. The case of United States v. GibsonThomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940), provides that an article used in manufacture in the U.S. which results in an article having a name, character or use differing from that of the imported constituent article will be considered substantially transformed. In such circumstances, the U.S. manufacturer will be considered the ultimate purchaser. The imported article will be excepted from the marking requirements and only the outermost container is required to be marked. See 19 C.F.R. § 134.35.

In determining whether the processing in the U.S. or in a foreign country results in a substantial transformation, Customs has frequently relied on the reasoning formulated in certain principal court decisions. In Superior Wire v. United States, 669 F. Supp. 472 (1987), aff'd, 867 F.2d 1409 (1989), a case frequently cited in Customs administrative decisions, wire rod in coils was shipped to Canada where it was drawn into wire. The resulting product had various applications, but was primarily used for concrete sewer pipe reinforcement. The tensile strength of the final product was increased by approximately 30 to 40 percent as the rod was reduced in cross-sectional area by about 30 percent and was elongated. The evidence indicated that the final product was also “cleaner, smoother, less springy, less ductile, and cross-sectionally more uniform.”

The Court of International Trade determined that the drawing operation did not result in a substantial transformation, pointing out that the properties of the wire and its uses were determined by the chemical content of the rod and the cooling processes used in its manufacture, and that the “wire rod dictates the final form of the finished wire.” While noting that the commercial names of the product were different, the court stated that this factor “has rarely been dispositive”, and viewed the wire rod and wire as “different stages of the same product.”

In affirming the lower court’s decision, the U.S. Court of Appeals for the Federal Circuit dismissed Superior’s argument that because wire is “cleaner, smoother. . .and cross-sectionally more uniform” than the wire rod, it had a different character, and found these changes to be primarily cosmetic “in the light of the predetermined qualities and specifications of the wire rod.” (Emphasis added.) The court further pointed out that the end use of the wire rod is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawn wire will be used, and that it appeared that if the rod was improperly produced for its intended application, the wire drawing process was incapable of making the product suitable for such use.

While not necessarily dispositive of a substantial transformation, other cases have focused on the fact that where the use of the product is predetermined, it may be considered merely a different stage of the same product. See National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), and National Juice Products v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986). In Uniroyal, Inc., v. U.S., 3 CIT 220 (CIT 1982), aff'd, 702 F.2d. 1022 (Fed. Cir. 1983) imported shoe uppers were determined to be the "essence of the completed shoe" and therefore, not substantially transformed. See also National Juice Products, supra, where the court stated that the "very essence" of the retail orange juice products was imparted by the imported frozen concentrated orange juice. In that case, the court found that the change in name from "concentrated orange juice for manufacturing" to "frozen concentrated orange juice" and "orange juice from concentrate" is not significant to a finding of substantial transformation. Instead, the court stated that these names "merely refer to the same product, orange juice, at different stages of production." Id. at 989.

In HRL 560660, dated April 9, 1999, citing U.S. International Trade Commission Publication 2851, February 1995, Industry & Trade Summary, Optical Fiber Cable, and Bundles, B-2, the evidence established that glass preforms such as the preforms under consideration are “....a magnified version of the fiber to be drawn from it” (USITC Publication 2851, supra, B-2). That is, the optical characteristics (including attenuation, dispersion, single or multi-mode, and wave-length) of the optical fiber which will be drawn from the preform are determined by the preform. Fiber Optic Reference Guide, supra, at 20-30; Just The Facts, A basic overview of fiber optics, supra, at 15-19; McGraw-Hill Encyclopedia of Science & Technology (6th ed.1987), vol. 12, 414-415, Optical fibers).

Therefore, Customs concluded in that ruling – consistent with the Courts’ rulings in Superior Wire and National Juice Products - that the specifications and qualities of the optical fiber are predetermined by the chemical and other critical attributes of the glass preform. These attributes of the preform, including any defects, will be transmitted to the optical fiber through the drawing process. Thus, the “very essence” of the optical fiber is imparted by the preform. National Juice Products. Accordingly, Customs found that the character of the glass preform will not change as a result of the drawing process. Furthermore, as the use of the glass preform is predetermined, Customs found, as in Superior Wire, that it may be considered merely a stage in the production of the optical fiber. Customs noted that while the name and form of the completed product are different than the name and form of the product from which it is made, these factors are not necessarily dispositive of a substantial transformation. See National Juice Products and Uniroyal, where the court held that a change in the name of the product (in that case shoe upper to “shoe”) is the weakest evidence of a substantial transformation.

However, you contend that the instant case is distinguishable from HRL 560660. Although the drawing processing is dissimilar in some respects to that described in HRL 560660, the overall processing of preforms into optical fiber, including the specific processing in the instant case in terms of polarization mode dispersion (PMD) specifications, is not sufficiently distinguishable for Customs to determine that the drawing process in the instant case effects a substantial transformation in the United States. Although the polarization mode dispersion (PMD) specifications are an important characteristic in the market for these products, we believe that the fundamental character of the preforms will not change as a result of the drawing process in this case, as most of the critical fiber attributes are predetermined by the production for the preform. Moreover, consistent with the analysis in Superior Wire and Customs determination in HRL 560660, the use of the preforms is predetermined. In arguendo, a microprocessor that obtains increased speed due to material improvements is still a microprocessor. Furthermore, your reference to Customs determination in HRL 964632 that Colorlock provides “substantial sheathing,” although dispositive for classification purposes, is not controlling in the analysis before us regarding substantial transformation. The fact that certain characteristics of the optical fiber’s performance is altered by the processes involving the ColorLock and creating a “mode coupling” effect is not sufficient in our view to effect a substantial transformation of the foreign preforms.

Therefore, the country of origin of the optical fibers is the country where the preforms were formed. The processing in the United States does not effect a substantial transformation of the foreign material. Therefore, the imported article should be marked accordingly.

HOLDING:

The “drawing” of an imported glass preform in the U.S. into optical fiber with specific PMD specifications and the application of the ColorLock in the instant case does not result in a substantial transformation of the foreign material. Therefore, the country of origin of the optical fiber is the foreign country where the preform was produced, and the fiber must be marked accordingly.

A copy of this ruling letter 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,

Myles B. Harmon, Acting Director
Commercial Rulings Division

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