United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2003 HQ Rulings > HQ 562721 - HQ 964609 > HQ 562842

Previous Ruling Next Ruling
HQ 562842




November 20, 2003

CLA-02 RR:CR:SM 562842 DCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.60

Mr. Karl F. Krueger
Danzas AEI Customs Brokerage Services
2660 20th Street
Port Huron, MI 48060

RE: Country of origin and applicability of subheading 9802.00.60, HTSUS, to machined roller cone drill bit cutter and lug forgings from Singapore

Dear Mr. Krueger:

This is in response to your letter dated June 25, 2003, and subsequent email messages requesting a ruling on behalf of ReedHycalog of Houston, Texas. Your request concerns the country of origin marking and applicability of subheading 9802.00.60, Harmonized Tariff Schedule of the United States (“HTSUS”), to machined roller cone drill bit cutter and lug forgings from Singapore. You provided photographs, drawings, and technical diagrams of the finished drill bits, also known as “roller cone bits,” machined components, and forgings.

Facts:

ReedHycalog produces roller cone drill bits. Each drill bit is assembled from three cutter and three lug forgings, both of which are made of nickel alloy steel. ReedHycalog acquires the cutter and lug forgings from one of two U.S. manufacturers who cast the forgings in the United States. After casting, the forgings are shipped to Singapore for machining.

In Singapore, the cutter forgings are milled to produce one of two types of forgings: tooth bits and insert bits. For both types of forgings, grooves milled into the outer face of the cutter forgings create the teeth of the bit. For tooth bits, the teeth are made of the same material as the cutter forging, nickel alloy steel. For insert bits, tungsten carbide or synthetic diamonds bits are press fitted into the teeth for increased cutting strength. Approximately 75% of the cutter forgings processed in Singapore are enhanced with tungsten carbide or synthetic diamond bits. In addition, the back facing of the cutter forging is precision machined to allow the forging to be fitted to lug forgings in the United States.

The lug forgings are also precision machined in Singapore to allow the lugs to be attached to the cutter forgings. Holes are also drilled into lug forgings for fluid jets and lubrication reservoirs in the finished drill bits.

After the machined forgings are returned to the United States, three cutter forgings and three lug forgings are assembled together to produce a single roller cone drill bit. The cutter and lug forgings are held together with threaded retention rings, bushings, roller bearings, and seals. The cutter/lug assemblies are then put into a jig where the seams between the lug forgings are welded together. After welding, the welded surface of the lug forgings is deburred and threads are cut into the upper end of the drill bit assembly where the assembly is attached to other drilling equipment. After the threads are cut, a “shirttail” is added to approximately 80% of the drill bit assemblies. Adding a shirttail entails turning the assembly on its side and drilling holes into which tungsten carbide or synthetic diamonds are inserted. Another option is to have a center fluid jet hole drilled and a carbide nozzle fitted into the lug assemblies. Finally, the drill bit is greased and painted.

Issues:

What is the country of origin of the machined cutter forgings and lug forgings imported from Singapore for country of origin marking purposes?

Whether the machined cutter and lug forgings qualify for the partial duty exemption under subheading 9802.00.60, HTSUS, upon return to the United States.

Law and Analysis:

Country of Origin

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 United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Part 134, Customs Regulations (19 C.F.R. § Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304.

Under 19 C.F.R. 134.1(b), the country of origin of an article is the country in which it was manufactured, produced, or grown, unless thereafter the article is subjected to processing in another country which results in a substantial transformation. For country of origin marking purposes, a substantial transformation of an article occurs when the good is used in manufacture, which results in an article having a name, character, or use differing from that of the article before the processing. See United States v. Gibson-Thomsen Co., 227 C.C.P.A. 267 (C.A.D. 1940). However, manufacturing that is merely minor processing, which leaves the identity of the article intact, will not constitute a substantial transformation of the article. See Uniroyal, Inc. v. United States, 542 F. Supp. 1026 (Ct. Int’l Trade 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983).

In National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), the U.S. Court of International Trade considered sockets and flex handles which were either cold formed or hot forged into their final shape prior to importation, speeder handles which were reshaped by a power press after importation, and the grip of flex handles which were knurled in the United States. The imported articles were then heat treated which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together which the court stated required some skill and dexterity.

The court determined that the imported articles were not substantially transformed and that they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold-formed or hot-forged “into their final shape before importation,” and that “the form of the components remained the same” after the assembly and heat-treatment processes performed in the United States. The court also found that there was no change in use as a result of the processing performed in the United States. Although the court stated that a predetermined use would not necessarily preclude a finding of a substantial transformation, it noted that such determination must be based on the totality of the evidence. The court then concluded that no substantial change in name, character or use occurred as a result of the processing performed in the United States.

In Headquarters Ruling Letter (“HRL”) 561661, dated July 20, 2000, CBP ruled that processing performed on surgical instrument in Pakistan was insufficient to cause the forgings to undergo a substantial transformation. In that case, the forgings underwent machining, surface grinding, initial assembly, beveling, and sharpening the edges in the case of scissors. Similarly, in HRL 559236, dated October 26, 1995, CBP considered German manufactured forgings in which the boxlock was formed and the ratchet teeth and serrations were cut prior to exportation to Pakistan for hardening, polishing and assembly. CBP held that the final shape and essential characteristics of the instruments were imparted by the operations performed in Germany and that the hardening, polishing and assembly of the two pieces in Pakistan did not effect a substantial transformation.

In this case, the cutter and lug forgings are shipped to Singapore where they are further processed before final assembly in the United States. In Singapore, the back facing of the cutter forgings is hollowed out to enable later U.S. assembly with the lug forgings. In addition, for both “tooth bits” and “insert bits,” grooves are machine cut into the forging to create the teeth on the outer face of the cutter. For the “insert bits” only, holes are drilled into the milled teeth and tungsten carbide or synthetic diamond inserts are press fitted into these holes on the face of the cutter forgings.

The unassembled lug forgings are also shipped to Singapore for further processing. As with the cutter forgings, the lug forgings are machined to allow later assembly with the cutter forgings. In addition, holes are drilled into the lug forgings to create nozzles and grease reservoirs. After the finished cutter and lug forgings are machined in Singapore they are returned to the United States for assembly. Three cutter forgings and three lug forgings are used to produce a single roller cone drill bit.

For both the cutter and the lug forgings, the further processing in Singapore does not result in a new and different article with a distinctive name, character or use when machined into cutter forgings with teeth or finished lug forgings. Based on the photographs submitted, the basic shape of the exported and imported forgings is the same except that the returned cutter forgings have teeth around the circular edge. Furthermore, the use of the exported forgings is dedicated to become a drill bit parts. Consequently, the country of origin of the cutter forgings and the lug forgings, at the time of their importation and upon completion of further processing and assembly in the United States, is the United States. Accordingly, the cutter and lug forgings will not be required to have any country of origin marking pursuant to 19 U.S.C. § 1304 when returned to the United States.

Subheading 9802.00.60, HTSUS

In addition, you ask about the applicability of subheading 9802.00.60, HTSUS. Subheading 9802.00.60, HTSUS, provides a partial duty exemption for certain metal articles that are manufactured or subjected to a process of manufacture in the United States, exported for further processing, and returned for further processing in the United States. Under subheading 9802.00.60, HTSUS, duty is assessed only on the cost or value of the foreign processing, provided the documentary requirements of 19 C.F.R. § 10.9 are satisfied.

This tariff provision imposes a dual “further processing” requirement on qualifying metal articles: one foreign, and when returned, one domestic. However, not all “processing” to which articles of metal may be subjected are significant enough to qualify as “further processing,” within the purview of subheading 9802.00.60, HTSUS. As CBP stated in C.S.D. 84-49, 18 Cust. Bull. 957 (November 15, 1983):

For purposes of item 806.30, TSUS, [the precursor provision], the term “further processing” has reference to processing that changes the shape of the metal or imparts new and different characteristics which become an integral part of the metal itself and which does not exist in the metal before processing; thus, further processing includes machining, grinding, drilling, threading, punching, forming, plating, and the like, but does not include painting or the mere assembly of finished parts by bolting, welding, etc.

Pursuant to U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS, for purposes of subheading 9802.00.60, the term “metal” covers (1) the base metals enumerated in Note 3 to section XV, HTSUS; (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. The base metals enumerated in Note 3 to section XV, HTSUS, include nickel. Because the returned cutter and lug forgings are made of a nickel alloy steel, they are eligible articles of metal as defined in U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS.

In this case, the cutter and lug forgings are cast in the United States. However, the forgings must also satisfy the dual processing requirement. In Singapore, the cutter forgings are machined by either cutting grooves into the forging to create teeth, or by drilling holes into the outer surface of the forging and press fitting tungsten carbide bits or synthetic diamond bits. In addition, the inside of the cutter forging is machined to allow the fitting of retention rings, bushings, and roller bearings. The lug forgings are also machined, particularly in the area where the hardware attaches the cutter forging to the lug forging. Consequently, we find that the machining performed in Singapore constitutes sufficient “further processing” to satisfy the initial processing requirement of subheading 9802.00.60, HTSUS.

After they are returned to the United States, three lug forgings are welded together to form a single shaft. After welding, the lug forgings are deburred and threads are cut into the portion of the lug forgings that will attach to the drilling equipment. Three cutter forgings are assembled to the welded lug forging by means of threaded ring retentioners, bearings, bushings, and seals. These cutter/lug assemblies are then placed in a jig where the lugs are welded together to form a single roller cone drill bit. Finally, the finished drill bits are greased, painted, and boxed for shipment.

We find that this further processing on the cutter and lug forgings in the United States constitutes further processing as required under 9802.00.60, HTSUS. Therefore, the machined cutter and lug forgings returned to the United States qualify for partial duty exemption under subheading 9802.00.60, HTSUS.

Holding:

Based on the facts presented, we find that the country of origin of the cutter and lug forgings, at the time of their importation and upon completion of further processing and assembly in the United States is the United States. Therefore, no marking in accordance with 19 U.S.C. § 1304 will be required for the cutter and lug forgings.

The cutter and lug forgings returned from Singapore qualify for the partial duty exemption under subheading 9802.00.60, HTSUS, provided the documentary requirements set forth at 19 C.F.R. § 10.9 are satisfied.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Myles B. Harmon, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: