HQ 0733288 - Country of origin marking of imported forgings to be used in the manufacture of steering linkages. I/A 73- 89; Substantial transformation; ultimate purchaser; 19 U.S.C. 1304; 19 CFR 134.1; 19 CFR 134.35; Koru North America v. United States; United States v. Friedlaender & Co.; Avins Industrial Products Co. v. United States; Torrington Co. v. United States; U.S. v. Gibson-Thomsen Company, Inc.; Midwood Industries, Inc. v. United States; T.D. 68-57; T.D. 74-12(3); HQ 731572; HQ 732487; HQ 730123;; HQ 711320; HQ 732259; HQ 726172 - United States International Trade Commision Rulings

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HQ 733288

September 5, 1990

MAR 2-05 CO:R:C:V 733288 EAB

CATEGORY: MARKING

Daniel C. Holland
District Director
U.S. Customs Service
909 First Avenue
Seattle, Washington 98174

RE: Country of origin marking of imported forgings to be used in the manufacture of steering linkages. I/A 73- 89; Substantial transformation; ultimate purchaser; 19 U.S.C. 1304; 19 CFR 134.1; 19 CFR 134.35; Koru North America v. United States; United States v. Friedlaender & Co.; Avins Industrial Products Co. v. United States; Torrington Co. v. United States; U.S. v. Gibson-Thomsen Company, Inc.; Midwood Industries, Inc. v. United States; T.D. 68-57; T.D. 74-12(3); HQ 731572; HQ 732487; HQ 730123;; HQ 711320; HQ 732259; HQ 726172

Dear Mr. Holland:

This is in reply to your memorandum of November 30, 1989 (MAR-1-01 SE:C:D DF), in which you request internal advice on the marking of imported forgings to be used in the manufacture of steering linkages.

FACTS:

Steel forgings made in Korea are used in the domestic manufacture of automobile steering linkages. The manufacturing processes to which the importer/manufacturer subjects the forgings consist of the boring of holes at two places in the center of the forging; cutting and shaping of the forging by the use of five different cutting tools; the combining of U.S. components, consisting of two different studs, two different bearings, two different cushions, two housings, two different pressure plates, and grease; and, assembling the components into the idler and pitman ends of the machined linkage. Although no details about the machining process was submitted, it appears from the submitted blueprints that the ends of the forgings are machined to accommodate the U.S. components. The chassis parts technicians that are required to perform the manufacturing tasks on the rough forging to produce the steering linkage are initially trained 30 - 45 days, and are considered skilled only after approximately six months.

The domestic process and components add 140% to the cost of an imported rough forging.

The importer/manufacturer asserts that he substantially transforms the forgings and is the ultimate purchaser, as provided in 19 CFR 134.35. You believe that the imported article should be classified in accordance with GRI 2(a) as an unfinished article having the essential character of the finished article, and that the manufacturing processes do not result in a substan- tial transformation, citing T.D. 68-57, February 13, 1968, as controlling in principle.

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. The Court of Interna- tional Trade stated in Koru North America v. United States, 701 F.Supp. 229, 12 CIT __ (1988), that: "In ascertaining what con- stitutes the country of origin under the marking statute, a court must look at the sense in which the term is used in the statute, giving reference to the purpose of the particular legislation involved. The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297 @ 302, C.A.D. 104 (1940), where the court states that: 'Congress intended that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods 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 by them, if such marking should influence his will.'"

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. An ultimate purchaser is defined in {134.1, Customs Regulations (19 CFR 134.1), as "generally the last person in the United States who will receive the article in the form in which it was imported." The regulation further provides that if an imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation.

For classification purposes, a product may be deemed to be an unfinished form of an article if the product has been manufactured to the point where it is dedicated solely to the manufacture of that article, see Avins Industrial Products Co. v. United States, 62 CCPA 83 (1976). "The proper classification is
not dispositive of whether the manufacturing process necessary to complete an article constitutes a substantial transformation from the original material to the final product." (emphasis supplied) Torrington Co. v. United States, 3 CAFC 158 (1985). The test for substantial transformation is whether a new and different article of commerce having a new name, character or use occurs as the result of a manufacturing process. Under {134.35, Customs Regulations (19 CFR 134.35), an imported article that is substantially transformed in the U.S. is excepted from individual country of origin marking and only the outermost containers of the imported article must be marked with the country of origin. An article is described in U.S. v. Gibson-Thomsen Company, Inc., 27 CCPA 267 (1940), as being substantially transformed because it is "so processed in the U.S. that it loses its identity in a tariff sense and becomes an integral part of a new article having a new name, character and use."

Imported rough forgings made into flanges and fittings in the U.S. were found to be substantially transformed in the U.S. in Midwood Industries, Inc. v. United States, 64 Cust.Ct. 499, 313 F.Supp. 951 (1970). The court effectively overruled T.D. 68- 57:

It is apparent from the evidence at bar that the processes to which the imported merchandise is subject- ed after entry are essentially the same as those the subject of the Bureau of Customs' ruling in T.D. 68-57,
ibid., 956. The court found that the processes, namely, the cutting, boring, facing, spotfacing, drilling, tapering, thread- ing, bevelling, and heating and compressing, were manufacturing processes representative of a successive stage of manufacture. The court pointed out that the rough forgings had no commercial use in their imported condition because the forgings were used to connect pipes of a matching size, and in their imported state, the forgings had no connecting ends. The end result of the manufacturing processes was the transformation of the imported articles into different articles having a new name, character and use. The court concluded that the ultimate purchaser of the forgings was the manufacturer of the flanges and fittings.

In HQ 731572, July 1, 1988, Customs found that forgings imported in a rough condition with a significant amount of machining to be done to enable the finishing operations to be accomplished were substantially transformed, and the ultimate purchaser of such imported rough forgings was the U.S. processor. Even though the forgings resembled the size and shape of the finished articles, they had to be lathed, drilled to remove stock from the center to provide a cavity necessary for bolt and fastener clearance, and ground to make the outer wall a specified diameter and wall thickness. All of the foregoing was necessary
and changed the fundamental character of the imported article from forgings to sockets, adapters and extensions and enabled the product to be used as socket wrenches. The imported forgings were substantially transformed into an article with a new name, character or use.

Customs ruled in HQ 732487 (September 20, 1989), that an imported rough forging made into a wrench in the U.S. was substantially transformed. The processes involved in the U.S. included: coining, shot blasting, polishing, grinding, stamping, tempering, chrome plating and calibrating both ends of the wrench. The U.S. processing constituted 55-60% of the total cost of the finished wrench.

Raw forgings for automotive master cylinders and automotive wheel cylinder castings were held to be substantially transformed in HQ 730123 (February 5, 1990). In that ruling, Customs pointed out that the imported parts were subjected to substantial proces- sing which included: drilling, boring, reaming, tapping and assembly with other U.S.-made parts and which was costly and com- plex. The imported master cylinder casting was 25.5% of the fin- ished product, and the imported wheel cylinder casting was 15.8%.

In T.D. 74-12(3), November 1, 1973, Customs determined that the processing of fully machined components of socket wrench sets did not result in a substantial transformation of the imported blank within the meaning of 19 CFR 134.35. This deci- sion was affirmed in HQ 711320, March 6, 1981. The underlying rationale in both instances was that the U.S. processing was merely minor finishing operations that did not change the name, character or use of the imported blanks. cf HQ 732259, February 16, 1990, where Customs found that imported unfinished adjustable wrench handles and adjustable wrench jaws further processed and combined with U.S. parts to make finished adjustable wrenches were substantially transformed.

Finally, in HQ 726172 (September 6, 1984), Customs found that universal joints imported in a solid hub configuration, and subjected to standard boring processing in the U.S., so that a rod or shaft could be inserted into the joint, were not substan- tially transformed. Customs found that, while the domestic machining was essential to making the imported joints into func- tional articles, the imported joint was far along to becoming a finished article as imported, and its identity was not fundament- ally changed in the U.S. Customs noted that a substantial amount of machining and processing had already occurred prior to the boring process performed in the U.S.

The instant case presents a very close question on the issue of substantial transformation. The machining consists of boring two holes in the center of the forgings and some machining of the
ends to accommodate the U.S. components. As in the universal joints case cited above, the imported product is far along into becoming an automobile steering linkage, and the machining does not change the fundamental identity of the product. Although the machining performed is more extensive than the mere boring of the holes that was performed on the universal joints, it appears to be less extensive than the machining which was done in Midwood, or in HQ 731572 (sockets) and HQ 732487 (wrenches), supra. However, in addition to machining, several U.S. components are added to the imported forging to produce the steering linkage; namely, studs, bearings, cushions, housing, pressure plates. These components are important to the actual functioning of the steering linkage. Although no figures were provided with regard to the cost of these domestic components, the information submitted indicates that the total of the U.S. costs (material, labor, support and overhead) is substantial. The present case is similar to HQ 730123, supra, in which forgings for automotive master cylinders were found to be substantially transformed as a result of the machining operations coupled with the assembly with other U.S.-made parts.

As a result of both the machining operations and the addition of the U.S. components, and in accordance with the above decisions, we find that the imported forging is substantially transformed into an article with a new name, character or use, namely a steering linkage. Therefore, in accordance with 19 CFR 134.35, the importer/manufacturer is the ultimate purchaser, and the imported forgings are excepted from individual marking.

HOLDING:

The manufacturer of steering linkages who uses imported steering linkage forgings in the manufacturing process is the ultimate purchaser of the imported articles. Pursuant to 19 CFR 134.35, the articles are excepted from marking. The outermost containers of the imported article shall be marked in accord with Part 134, Customs Regulations (19 CFR Part 134). Written state- ments that the imported steering linkage forgings will be used only in the further manufacture of finished steering linkages and not otherwise sold may be required by Customs officials at the port of entry.

Sincerely,

Marvin M. Amernick, Chief
Value, Special Programs and

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