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HQ 563194




March 4, 2005

MAR-2 RR:CR:SM 563194 KSG

CLASSIFICATION: 9801.00.10

Paula Girod
E.R. Hawthorne & Co., Inc.
9370 Wallisville Road
Houston, Texas 77013

RE: Eligibility of drill collars for a duty exemption under subheading 9801.00.10

Dear Ms. Girod:

This is in response to your letter dated January 24, 2005, and a telephone conversation on February 9, 2005, in which you clarified that you request a binding ruling on behalf of Grant Prideco, Inc., as to whether certain imported drill collars would be eligible for duty-free treatment under subheading 9801.00.10 of the Harmonized Tariff Schedule of the United States (“HTSUS”).

FACTS:

Grant Prideco Inc. purchases non alloy steel bars from domestic and foreign suppliers (South Korea, China, and Turkey). In the U.S., the steel bars are processed into drill collars as described below. The steel bars are classified in subheading 7214.99.00, HTSUS and the drill collars are classified in subheading 8431.43.8060, HTSUS.

The processing of the solid steel bars involves drilling from end to end to provide a passage for pumping drilling fluids through the collars. The outside diameter of the steel bars may be machined slightly to ensure roundness. Last, a threaded male connection is machined to one end and a female connection to the other end. Spiral grooves are machined along the body of some drill collars.

The finished drill collars are exported from the U.S. for sale. Some of the drill bars are subsequently imported back into the U.S. for sale without any foreign processing.

ISSUE:

Are the imported drill collars described above eligible for duty-free status under subheading 9801.00.10, HTSUS, upon importation into the U.S.?

LAW AND ANALYSIS:

Subheading 9801.00.10, of the Harmonized Tariff Schedule of the United States (“HTSUS”), provides that products of the United States when returned after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad can be entered duty free provided the documentary requirements of 19 CFR 10.1 are satisfied.

The issue presented is whether the drill collars are considered products of the United States.

Pursuant to section 134.1(b), CBP Regulations, 19 CFR 134.1(b), country of origin means the country of manufacture, production, or growth of any article of foreign origin entering the United States. 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”.

A substantial transformation occurs when a new and different article of commerce emerges from a process with a new name, character or use different from that possessed by the article prior to processing. United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940).

In this case, a raw material, sold steel bar, is processed in the U.S. to manufacture drill collars, a finished article that is tubular and has male and female connections (and may have grooves in the body). This processing results in a change in name, a dedication to a particular use and a change in character. We note that the applicable NAFTA Marking Rule set forth at 10 CFR 102.20(o), that a good classified in subheading 8431.43 undergo a heading change except from heading 8501 when resulting in a simple assembly. The U.S. processing in this case would satisfy the reqiurements. Based on the above, we conclude that there is a substantial transformation in the U.S. Accordingly, the drill collars would be considered a product of the U.S.

The Customs Court held in Border Brokerage Company, Inc. v. United States, 314 F. Supp. 788 (1970), that tomatoes of American origin were entitled to duty free entry under item 800.00, Tariff Schedules of the United States (TSUS) (the predecessor to subheading 9801.00.10, HTSUS). The tomatoes were shipped to Canada where they were unloaded, unpacked, sorted, graded by color and size, and repacked. The court stated that the test to be applied in item 800.00 cases is whether the merchandise of American origin has itself (apart from its container) been the object of advancement in value or improvement in condition while abroad.

In this case, the drill collars are not processed abroad and therefore, are neither advanced in value or improved in condition while abroad. Therefore, we find that the drill collars are eligible for duty-free treatment under subheading 9801.00.10, HTSUS, upon importation into the U.S., provided the applicable documentary requirements are satisfied.

HOLDING:

The imported drill collars are eligible for duty free entry as U.S. goods returned under subheading 9801.00.10, HTSUS, upon importation into the U.S. provided the documentary requirements of 19 CFR 10.1 are satisfied.

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, Director
Commercial Rulings Division

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