HQ 731926 - Internal Advice Request #5/87 - Country of Origin Marking of Imported Steel Forgings and Castings; pipe fittings - United States International Trade Commision Rulings

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HQ 731926

June 3, 1991

MAR 2-05 CO:R:C:V 731926 LR

CATEGORY: MARKING

District Director of Customs
Laredo, Texas

RE: Internal Advice Request #5/87 - Country of Origin Marking of Imported Steel Forgings and Castings; pipe fittings

Dear Sir:

This is in response to your request for internal advice regarding the country of origin marking requirements for imported steel forgings and castings imported by Standard Fittings Company which will be further processed in the U.S. into pipe fittings. We regret the delay in responding.

FACTS:

Standard Fittings imports various types of steel forgings and castings manufactured in Mexico which are further processed in the U.S. into pipe and tube fittings, such as tees, elbows, crosses, union and outlet blanks meeting ASTM, ANSI and other applicable specifications. Although the imported articles are legibly and conspicuously marked at the time of importation, the marking will be obliterated by the U.S. processing.

Samples of outlets, forged and cast tees and union parts in their imported and finished condition were submitted. Each of the samples in its imported condition appears to be in a rough condition and far from the finished article. In particular, we note that the tees are imported in solid form with a substantial amount of machining to be performed to enable them to be used for their intended purpose.

According to the importer's submission, the outlet and speed-d-tee blanks are machined in multi-tool high production equipment by drilling, threading, chamfering, boring and threading or socketing; the parts are then deburred, phosphated and packaged. Each end of the inside hex swage blanks are drilled, tapered, turned, and faced to length. The inner and outer diameters of these blanks are chamfered and the end is threaded. The parts are then cadmium plated. The union parts are drilled, faced, chamfered, and threaded or socketed as required; the female end is threaded to accept the nut and the seats are generated on the other ends; the union nut is bored, faced, chamfered and threaded; the union parts are then assembled, cleaned and phosphated.

ISSUE:

Whether the blanks which are processed in the manner described above, may be marked with the country of origin in a location where it will be obliterated during U.S. processing.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires, subject to certain specified exceptions, that every article of foreign origin imported into the U.S. shall be marked to indicate the country of origin to the ultimate purchaser in the U.S. 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 section 134.1, Customs Regulations (19 CFR 134.1), as "the last person in the U.S. 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 manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation. However, if the manufacturing process is merely a minor one which leaves the identity of the imported article intact, 19 CFR 134.1(d)(2) provides that the consumer or user of the article, who obtains the article after the processing will be regarded as the ultimate purchaser.

According to United States v. Gibson-Thomsen Company, Inc., 27 CCPA 267 (C.A.D.98), a U.S. manufacturer is considered to be an ultimate purchaser if a manufacturing process is performed on an imported item so that the item is substantially transformed in that it loses its identity and becomes an integral part of a new article will a new name, character or use. The court determined that in such circumstances, the imported article is excepted from individual marking. Only the outermost container is required to be marked. See 19 U.S.C. 1304(a)(3)(D), section 134.32(d) and 134.35, Customs regulations (19 CFR 134.32(d), 134.35).

In Midwood Industries v. United States, 64 Cust. Ct. 499, C.D. 4026, 313 F. Supp. 951 (1970), the Customs Court considered the effect of U.S. processing on the country of origin marking requirements of imported steel forgings. Although the edges of the forgings were legibly and conspicuously marked with the country of origin at the tie of importation, the country of origin marking was obliterated or destroyed during the course of the domestic processing. The processes involved in finishing the imported articles included, cutting, boring, facing, spotfacing, drilling tapering, threading, bevelling, heating and compressing. The court found that the marking was sufficient because the processing substantially transformed the imported forgings into fittings and flanges. As such, the court found the U.S. processor was the ultimate purchaser of the imported merchandise and that the removal of the marking during processing was acceptable.

Although the court based its decision in part on the fact that the processing changed a producer's forgings to a consumer's flange, the decision makes clear the numerous machining operations were performed in the U.S. which imparted essential characteristics to the forgings that enabled them to be used as fittings and flanges. For example, there was testimony that the rough forgings have no connecting ends and therefore, cannot be used to connect pipes of matching size, the essential purpose of fittings.

In T.D. 87-46, Customs determined that threading operations alone do not substantially transform pipe fittings so as to change their country of origin. Customs found that threading does not change the name, character or use of a fittings, and that the operation is insubstantial in relation to the nature of the operations needed to manufacture a fitting. In C.S.D. 98-121, July 25, 1989, Customs recently construed Midwood as requiring that significant aching operations which change the actual dimensions of imported forgings into those of the finished article must be undertaken before a finding of substantial transformation may be reached. Operations such as lathing, drilling and grinding, which changed the fundamental character or the imported articles were distinguished from cosmetic or minor processing operations such as identification marking, sand blasting, tumbling and plating.

In this case, the machining operations that are performed on the imported articles are similar to those involved in Midwood. As in Midwood, the forgings and castings are imported in a rough condition with a significant amount of machining to be done to enable them to be used as fittings. While the imported forgings and castings resemble the size and shape of the finished articles, they are not yet machined to the actual dimensions. In order to achieve the shape and dimensional requirements, they are subjected to numerous machining operations which change the fundamental character of the imported articles from forgings and castings to pipe and tube fittings. We note in particular that significant machining of the sample forged and cast tees is required to hollow out the center.

We find that the processing in this case, which parallels the processing performed in Midwood, similarly substantially transforms the imported forgings and castings into articles with a new name, character or use. As such, we find that the U.S. processing constitutes a substantial transformation and, for this reason, the U.S. manufacturer is the ultimate purchaser.

Although in these circumstances, the imported articles would ordinarily be excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D), 19 CFR 134.32(d) and 19 CFR 134.35, this is not the case with respect to imported steel pipe fittings. In this regard, 19 U.S.C. 1304(c) provides that, with two exceptions not applicable here, no exception from marking may be made under subsection (a)(3) of this section with respect to pipes of iron, steel or stainless steel, to pipe fittings of steel, stainless steel, chrome-moly steel, or case and malleable iron each of which shall be marked with the country of origin by means of die stamping, cast-in-mild lettering, etching, or engraving.

Therefore, if the imported articles are classifiable as pipe fittings, they must be marked in accordance with the requirements of 19 U.S.C. 1304(c). However, in view of the fact that the importer is the ultimate purchaser, the marking may appear in a location where it will be obliterated during the U.S. processing. See HQ 728693, November 5, 1985.

HOLDING:

For purposes of 19 U.S.C. 1304, the domestic processing of the imported articles in the manner set forth above constitutes a substantial transformation and the U.S. importer/manufacturer is considered the ultimate purchaser. Accordingly, they may be marked in a location were the country of origin marking will be obliterated during the U.S. processing.

Sincerely,

John Durant, Director
Commercial Rulings Division

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