Marking; Imported Iron Castings; Substantial Transformation; Ultimate Purchaser

HQ H202736 April 17, 2012 OT:RR:CTF:VS H202736 BGK CATEGORY: Marking Frederick L. Ikenson Blank Rome LLP Watergate 600 New Hampshire Avenue, NW Washington, DC 20037 RE: Marking; Imported Iron Castings; Substantial Transformation; Ultimate Purchaser Dear Mr. Ikenson: This is in response to your request for a binding ruling on behalf of your client concerning the country of origin marking of certain iron valve body and bonnet castings produced abroad and imported and used by your client in the production of double-disc valves and resilient wedge valves in the U.S. FACTS: Body, and sometimes bonnet, castings are imported from China for use in the production of double-disk valves and resilient wedge valves in the U.S. The castings are used in the production of valves varying in size from 14 inches to 36 inches, as sized by the line diameter. At no time will the castings be sold individually as valve parts. The production process for the double-disk valve consists of assembling the imported valve body with: a cast iron bonnet, bonnet gasket, iron test plug, cast iron discs and disc rings, bronze seat ring, bronze disk pin and side spreader, cast iron bottom wedge and top wedge nut, cast iron stuffing box, fiber gasket and rubber O-ring, a bronze stem, stem O-ring, cast iron wrench nut, steel nut and cast iron hand wheel, and various steel bolts and nuts for securing the stuffing box and bonnet. The production process for the resilient wedge valve consists of assembling the imported valve body with: a ductile iron bonnet, bonnet O-ring, rubber encapsulated ductile iron wedge, two brass antifriction washers, ductile iron stuffing box and rubber seal, guide cap bearings, a bronze stem and stem nut, a cast iron wrench nut and hand wheel, three stuffing box O-rings, a zinc plated steel cap screw, and various zinc plated carbon steel bolts and nuts for securing the stuffing box and bonnet. For the 14 inch size, only the body is imported. For larger sizes, the bonnet will also be imported. These goods are directly imported from the foreign foundry cast to specification. The body and bonnet, when imported, are expected to represent approximately 25-30% of the total cost of manufacture of the valves. The remaining parts may be domestically or foreign sourced. The importer manufactures the stems, disks, and wedges at its own domestic facility, and considers these to be the “critical precision elements” of the valves. At the time of importation, the bodies and bonnets may contain the cast words of the U.S. manufacturing facility. The outer containers will be marked with the foreign country of origin. The importer states that it is an industry standard to have the name of the producer and the location of the production facility on the outside of the value. ISSUE: Whether the body, and bonnet when imported, may be marked with a U.S. location when imported into the U.S. 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 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 buy them, if such marking should influence his will.” See United States v. Friedlander & Co., 27 C.C.P.A. 297, 302 (1940). 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. 19 C.F.R. §134.1(b) defines “country of origin” as: [T]he 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” within the meaning of [the marking regulations]… The case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See 19 C.F.R. § 134.35(a). The first question in this case is whether the U.S. importer and manufacturer is the ultimate purchaser of the imported parts. The “ultimate purchaser” is defined in 19 C.F.R. §134.1(d) as the “last person in the United States who will receive the article in the form in which it was imported”. Section 134.1(d)(1), Customs Regulations (19 C.F.R. § 134.1(d)(1)), states 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 of the article. It is well settled that imported bodies and bonnets are substantially transformed when used in the production of valves. See Headquarters Ruling Letter (HRL) 562763, dated August 1, 2003 (citing HRL 562657 (fire hydrants), dated April 29, 2003; HRL 734785, dated March 17, 1993 (fire hydrants); HRL 731307, dated February 23, 1990 (gate valves, butterfly valves, and fire hydrants)).  In HRL 562763, 30-40 components from various locations, including China, Canada, and the U.S., were assembled into fire hydrants in the U.S. U.S. Customs and Border Protection (CBP) held that the assembly effected a substantial transformation on the imported components, and as such, the U.S. manufacturer was the ultimate purchaser. In HRL 562657, imported cast iron parts, including a bonnet, were substantially transformed when assembled into a fire hydrant in the U.S. The imported components accounted for approximately 25 percent of the total value of the finished fire hydrant. It was noted that the majority of the parts were of U.S. origin, and comprised the inner functioning components of the fire hydrant. In this case, as in HRL 562763 and 562657, the body and bonnet, along with other components, are imported into the U.S. for use in the production of the valves. The stems, disks, and wedges, identified as the critical precision elements, are all domestically produced, and the operations in the U.S. are significant and involve a number of components. We find the operations in the U.S. effect a substantial transformation of the imported components in the creation of the valves at issue. As such, the U.S. manufacturer and importer is the ultimate purchaser, and the imported components are exempt from the marking requirements and only the outer container needs to be marked. See 19 C.F.R. § 134.35(a). The next issue we must consider is, whether the bodies and bonnets may be imported with the location of the U.S. manufacturing facility already cast onto the goods. Potentially of concern in this situation is 19 C.F.R. § 134.46, which states: In any case in which the words ‘‘United States,’’ or ‘‘American,’’ the letters ‘‘U.S.A.,’’ any variation of such words or letters, or the name of any city or location in the United States, or the name of any foreign country or locality other than the country or locality in which the article was manufactured or produced appear on an imported article or its container, and those words, letters or names may mislead or deceive the ultimate purchaser as to the actual country of origin of the article, there shall appear legibly and permanently in close proximity to such words, letters or name, and in at least a comparable size, the name of the country of origin preceded by ‘‘Made in,’’ ‘‘Product of,’’ or other words of similar meaning. The requirements of 19 C.F.R. § 134.46 are designed to alleviate the possibility of misleading an ultimate purchaser with regard to the country of origin of an imported article, if such article or its container may suggest U.S. origin. However, with regard to the valves at issue, we have determined that as the operations conducted by the U.S. importer effect a substantial transformation on the imported components, the importer is the ultimate purchaser of the imported bodies and bonnets. In HRL 734785, a U.S. manufacturer sought to import metal castings for fire hydrants with “Beaumont, Texas”, the location of the importer’s U.S. manufacturing facility, cast into the outside of the upper barrels. The U.S. importer combined and assembled the upper barrels with the other components to create completed fire hydrants, which CBP held resulted in a substantial transformation of the upper barrels. CBP stated that: The marking law, 19 U.S.C. 1304, is intended to ensure that the ultimate purchaser is informed of the country of origin of the imported article. Because it is substantially transforming the imported upper barrels, [the U.S. importer] is the ultimate purchaser. Therefore, the question that must be resolved is whether the U.S. reference, “Beaumont, Texas”, would mislead [the U.S. importer] as to the origin of the imported merchandise. HRL 734785. As the U.S. importer certified that it was aware of the country of origin of the upper barrels, the shipping containers were marked with the country of origin and reached the U.S. importer in such condition, and the U.S. importer was the one requesting “Beaumont, Texas” to be cast on the side, it was held that the U.S. importer, the ultimate purchaser, could not be misled by the presence of the U.S. locality on the imported upper barrel. CBP also noted that “[b]ecause the upper barrels [were] substantially transformed in the United States, the concern that the general public might be misinformed by the reference to “Beaumont, Texas” on the finished fire hydrant is misplaced and beyond the scope of 19 U.S.C. 1304.” HRL 734785 is directly on point to this situation. As in HRL 734785, the importer is the ultimate purchaser of the imported bodies and bonnets, and will not be confused or misled by the presence of the U.S. location on the imported castings. The importer orders the castings directly from the foreign foundry cast to their specifications with the U.S. location cast into the side, and the outermost containers in which the castings reach the importer will be marked to reflect their country of origin. As such, the evidence demonstrates that the importer, the ultimate purchaser, will not be confused or misled by the presence of the U.S. locality cast into the side of the bodies and bonnets. We find that under the circumstances at issue, the imported body and bonnet castings may be cast with the U.S. locality reference prior to importation. HOLDING: We find that the importer is the ultimate purchaser of the imported body and bonnet castings, and as such, the castings may be imported with the reference to the location of the importer’s U.S. production facility. 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, Monika R. Brenner Chief, Valuation & Special Programs Branch