Internal Advice; Application for Further Review of Protest No. 4772-20-100684; Industrial Diamond Superabrasives; Country of Origin

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H317432 April 29, 2021 OT:RR:CTF:VS H317432 EE CATEGORY: Origin Center Director Industrial & Manufacturing Materials Center of Excellence and Expertise U.S. Customs and Border Protection 726 Exchange Street, Suite 400 Buffalo, NY 14210 RE: Internal Advice; Application for Further Review of Protest No. 4772-20-100684; Industrial Diamond Superabrasives; Country of Origin Dear Center Director: We are providing internal advice with regard to Protest No. 4772-20-100684 concerning the country of origin of certain industrial Superabrasives products (“Superabrasives”) produced in Romania from Chinese origin feedstock. The issues raised by this protest were the subject of a request for a prospective ruling, dated May 20, 2019, submitted by Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, on behalf of their client, Lands Superabrasives, Co. (“Lands”). In the ruling request submitted by Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, counsel stated that “[t]o the best of our knowledge, neither the instant transaction nor one identical to it has ever been considered, or is currently being considered by U.S. Customs and Border Protection…” However, it has come to our attention that at the time the ruling request was submitted, the same or identical transactions had already occurred, and the entries were liquidated from September to November 2019 at the Industrial & Manufacturing Materials Center of Excellence and Expertise. We note that counsel’s request for a ruling was not proper pursuant to section 177.1(a)(2)(ii), U.S. Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 177.1(a)(2)(ii)); rather, the proper course of action was to file a request for internal advice in accordance with 19 C.F.R. § 177.11. A meeting between Lands, counsel, CBP Laboratory, and this office occurred on December 16, 2020. We have taken into consideration the discussion and arguments presented during that meeting in reaching our decision set forth below. Counsel for Lands has asked that certain information submitted in connection with this request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets in the request will not be released to the public and will be withheld from published versions of this ruling. FACTS: Lands imports Superabrasives from Romania that are used in a wide array of high precision commercial applications, including precision grinding, sawing, cutting, polishing, lapping, drilling, machining, and industrial tooling. The products that are the subject of this ruling request are as follows: Product No. Description/Name:  STK600S Ultra Fine Sized Synthetic Graded Industrial Diamond Superabrasives Micronpowder  STK600 Fine Sized Graded Synthetic Industrial Diamond Superabrasives Micronpowder  STK100S Finer than 80 Mesh Synthetic Industrial Diamond Superabrasives Powder  STK126NPC Synthetic Industrial Diamond Superabrasives coated with Nickel or Copper (50%-60% by weight metal)  STK103N Synthetic Industrial Diamond Superabrasives coated with Nickel (30% by weight metal)  STK126CBN Cubic Boron Nitride Superabrasives coated with Nickel or Copper (60% by weight metal)  STK50 Purified Sorted Synthetic Industrial Diamond Superabrasives Powder   Lands states that each Superabrasives product is specifically manufactured to meet certain technical specifications (size, shape, hardness, blend, etc.), depending on the required application. The Superabrasives are used in many industries including aerospace, automobile, consumer hardware, electronics, medical, and construction. Some examples of the Superabrasives applications include: • Precision machining of automobiles; • Production of oil and gas bits, engine blocks, concrete, medical tools, ceramic ball bearing parts for wind turbines, and direct consumer tools; • Precision cutting of copper/fiber optic wires or sapphire ingots used in electronics; • Sensitive polishing of glasses and telescope lenses. Lands states that synthetic industrial feedstock raw material used to produce the Superabrasives is sourced in China, the only country that manufactures the material in commercial quantities. The production of feedstock results in crystals that are irregular in shape, size, and contain various impurities, which are a byproduct of the manufacturing process. Lands states that in this condition, the unrefined feedstock cannot be used for any of the Superabrasives applications. To produce the Superabrasives, Lands sends the raw feedstock to Supertek SRL (“Supertek”), an abrasive product manufacturing facility in Romania. The manufacturing process in Romania can take at the minimum 5 days, and often several months to over a year in the aggregate to complete production using Lands proprietary formula, processes, and technology to produce each of the Superabrasives with their specific applications. Lands states that the exact processing operations in Romania required depends on the ultimate intended use for the Superabrasives; however, they undergo a combination of many of the below processes: Sourcing: Raw material feedstock is sourced and shipped to Romania. Raw Material Qualification: The feedstock is qualified through comprehensive quality testing, which includes, but is not limited to testing for the following: • Crystal strength (Toughness Index (TI), Thermal Toughness Index (TTI) • Crystal micro-fracturing characteristic (MC Micro Chipping) • Crystal crush strength SCCI (Single Crystal Crushing Index) • SEM (Scanning Electron Microscopy) • EDX (Energy Dispersive X-Ray) analysis • Crystal structure evaluation, crystal shape testing, crystal size distribution (PSD Particle Size Distribution), internal metallic impurities/magnetic contents, surface cleanliness. Purification: As a byproduct of producing the feedstock, impurities that contaminate the product such as sand, dirt, etc. are created. The impurities can scratch, damage, prevent bonding, or cause inefficiencies to a tool, and must be removed. Feedstock is processed through various filters to eliminate the impurities and extract the crystals. Grading, Sieving, Filtering: As produced, feedstock is ungraded, with crystals of mixed sizes and shapes. Supertek conducts various grading, sieving, and filtering operations to separate the crystals into usable uniform sizes and shapes. Lands states that this step involves complex and time-consuming processing that can take over a year for ultrafine grading, and requires specialized equipment. Specialized electroformed ultrasonic sieves using ultrasonic waves separate the various crystal sizes to meet international ISO/ANSI standards. Dedicated vibrating tables and screen banks separate crystals based on crystal shape. Magnetic Separation, Shape Separation: Customized magnetic separating machinery is used to extract crystals with a magnetic (metal) content. The vibrating tables and screen banks may also be used in this step to separate crystals based on crystal shape. Feedstock that undergoes this process may be further processed into micron powders (i.e., from 10 mesh to [X]). Crystal Alteration, Heat Shock, [X]: The crystals (measured in TI), may be too hard for the intended applications. A high level of heat ([X]) is applied to change and weaken the original crystal structure, fracturing it to expose new sharp edges for cutting. For example, after heating, feedstock with an original TI of 135 may result in a TI of 104 with a change of crystal structure. In some cases, [X] / Surface Texturing processes are required because the feedstock crystal surface may be too smooth to adhere to a metal or other coating or bonding system. A proprietary [X] treatment is applied to penetrate the surface and “rough” the smooth surface to expose crevices in the crystals that will allow bonding to occur. Crystal Crushing: As produced, feedstock is in large sized crystals that can damage tools. Finer crystal feedstock powder can be used in tooling applications including for grinding of engine parts (medium size) or polishing optic and memory chips (ultrafine). In order to produce finer feedstock powder, the material must be crushed or milled. The feedstock is placed into [X] to crush the crystals from a size similar to a grain of sugar (30 mesh) to a flour consistency (under 10 micron). This process can take from several days to several months for micronpowder. Shape Milling: Feedstock crystals are in irregular shapes and structures (flakey) and unusable for most tooling applications. To process the feedstock into a usable form, it must be shaped to change the crystal structure. The feedstock is placed in [X] that break off the weaker parts of the crystals and strengthen the remaining balance. This process transforms irregularly shaped jagged crystal into smaller, rounded, and more uniform pieces. This process decreases the crystal size by approximately 40% and can take several weeks. Micron Elutriation, Sedimentation, Centrifugal Separation: The Superabrasives crystal size depends on the specifications for the end-use application. To extract the requisite crystal size, Supertek uses proprietary technology and specialized machinery using complex water systems based on Stokes’ law to separate finer sized crystals from larger ones. Centrifugal separation processes are used for feedstock smaller than 0.2 micron. In the Sedimentation process, heavier (larger) crystals are separated from lighter crystals in water. In the Elutriation process, particles are pushed upwards by the water flow to separate finer particles from heavier particles. Lands states that this process can take from 2-3 weeks for larger crystals to 8 to 12 months for ultrafine ones. Final Sieving for Removal of Conglomerated Particles: During the processing, some crystals may cluster. Sieving is conducted to separate the crystals and prevent the tool from causing scratches. Aggregation, Blending, Precision Mixing: The crystals undergo aggregation, blending, and precision mixing to create a specially formulated product with the crystal composition and size necessary for the specified application. Acid Purification: The crystals undergo acid purification using a high temperature acid wash and de-ionized rinse to remove impurities, including trace metals, and to open cavities in the crystal that allow the crystal to absorb materials and bond to tools. Lands states that this step is required for any metal plated crystals. Electroplating Pretreatment: The crystals undergo electroplating pre-treatment to expose cavities that will allow the crystal to bond to the electroplating. The crystals are [X] washed then undergo a [X], and finally [X]. Chemical Electroless and Electrolytic Coating: Lands states that feedstock can be coated with various metals (Nickel or Copper) to produce a metal alloy (Nickel-Carbide, Nickel-Boride, Copper-Carbide, Copper-Boride) that adheres chemically and physically onto the surface of individual crystals. The coating method used depends on the density of the coating specified for the Superabrasives application. In the Electrolytic method, electricity is used to deposit the metal onto the crystal, forming an intrinsic chemical and physical bond. This method of coating results in a more porous coating in spikey layers. In the Chemical Electroless method, the metal coating and feedstock are mixed in a bath to form a chemical bond between the feedstock and metals. The metal coating in this method is denser and more uniform. After either coating process, the coated Superabrasives have an enhanced ability to anchor into bond systems and have added lubricity. Further, the coating protects the crystal against oxygen burn and dissipates heat. Final Sieving to Remove Metals: The Superabrasives undergo final sieving to remove any superfluous metal. Quality Control Qualification and Laboratory Work: The finished Superabrasives undergo comprehensive quality control testing for various performance measures including: sieving, TI, Thermal Stability Index, micro­chipping/fracturing, particle size distribution (PSD), chemical composition of coating, crystal crush strength (SCCT), precision particle count, Image Analysis (IA), and Laser Diffraction Analysis (LA). Lands states that these manufacturing operations can be broadly segregated into three categories, all of which Lands claims result in a substantial transformation in Romania: Crystal Structure Alteration: Product Nos. STK 600S, STK 600, STK100S Superabrasives with an altered crystal structure undergo a combination of the following processes: 1 (Sourcing), 2 (Raw Material Qualification), 3 (Purification), 4 (Grading, Sieving, Filtering), 5 (Magnetic/Shape Separation), 6 (Crystal Alteration, [X]), 7 (Crystal Crushing), 8 (Shape Milling), 9 (Micron Elutriation, Sedimentation, Centrifugal Separation), 10 (Final Sieving), 11 (Aggregation, Blending, Precision Mixing), 12 ([X] Purification), 13 (Electroplating Pretreatment), and 16 (Quality Control). Chemical or Electrolytic Metal Coating: Product Nos. STK126NPC, STK103N, STK126CBN The metal coated Superabrasives undergo many of the Crystal Structure Alteration operations in preparation for the metal coating. In addition, the following processes are conducted: 14 (Chemical Electroless and Electrolytic Coating), a second process of 11 (Aggregation, Blending, Precision Mixing), and 15 (Final Sieving to Remove Trace Metals). Acid Purification: Product No. STK 50 The acid purified Superabrasives undergo a combination of the following processes: 1 (Sourcing), 2 (Raw Material Qualification), 3 (Purification), 4 (Grading, Sieving, Filtering), 11 (Aggregation, Blending, Precision Mixing), 12 (Acid Purification), and 16 (Quality Control). Counsel for Lands provided flowcharts illustrating: the various manufacturing operations that the feedstock may undergo in Romania to produce the Superabrasives; the operations required to produce Superabrasives with an altered crystal structure; the operations required to produce metal coated Superabrasives; and the operations required to produce acid purified Superabrasives. Counsel for Lands also provided the following photos: the feedstock crystals before and after crushing operations; the feedstock crystals in their original state versus after shaping; the crystals before and after heat shock treatment; the uncoated crystal versus coated crystal; electrolytic versus chemical electroless coated crystal; the feedstock crystals with impurities on the surface and inorganic contaminants that must be extracted; and crude feedstock versus the acid purified Superabrasives. Counsel for Lands also submitted samples to the U.S. Customs and Border Protection (“CBP”) Laboratory for analysis. ISSUE: What is the country of origin of the Superabrasives imported from Romania? LAW AND ANALYSIS: The United States Trade Representative (“USTR”) has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR’s authority under Section 301(b) of the Trade Act of 1974 (“Section 301 measures”). The Section 301 measures apply to products of China enumerated in Section XXII, Chapter 99, Subchapter III, U.S. Note 20(s), HTSUS. When determining the country of origin for purposes of applying trade remedies under Section 301, the substantial transformation analysis is applicable. A substantial transformation occurs when an article emerges from a process with a new name, character, and use different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 C.C.P.A. 151 (1982). This determination is based on the totality of the evidence. See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). While the name of the crude material purchased in China changes from feedstock to various Superabrasives when processed in Romania, as noted by the Court in Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308, 1318 (Ct. Int’l Trade 2016), “[c]ourts have primarily focused on changes in use or character”. Precision Specialty Metals v. United States, 116 F. Supp. 2d 1350, 1364 (Ct. Int’l Trade 2000). “The name criterion is generally considered the least compelling of the factors which will support a finding of substantial transformation.” Ferrostaal Metals Corp. v. United States, 664 F. Supp. 535, 541 (Ct. Int’l Trade 1987) (“Ferrostaal Metals”); see also Superior Wire, Div. of Superior Prods. Co. v. United States, 669 F. Supp. 472, 480 (Ct. Int’l Trade 1987) (“Superior Wire”), aff’d 867 F.2d 1409 (Fed. Cir. 1989) (when only a change in name is found, “such a change has rarely been dispositive”). The courts have held that when the properties and uses of a product are predetermined by the material from which it was made, no substantial transformation occurs. For example, in Superior Wire, wire rod in coils was shipped to Canada where it was drawn into finished wire. The tensile strength of the final product was increased by approximately 30 to 40 percent as the rod was reduced in cross-sectional area by about 30 percent and was elongated. The court determined that the drawing operation did not result in a substantial transformation, pointing out that the properties of the wire rod and its uses were determined by the chemical content of the rod and the cooling processes used in its manufacture, and that the wire rod dictated the final form of the finished wire. In National Juice Products Association v. United States, 628 F. Supp. 978 (Ct. Int’l Trade 1986), the court considered whether foreign manufacturing concentrate processed into frozen concentrated orange juice in the United States and reconstituted orange juice was considered substantially transformed. The U.S. processing involved blending the manufacturing concentrate with other ingredients to create the end product; the manufacturing concentrate was mixed with purified and dechlorinated water, orange essences, orange oil, and in some cases, fresh juice. The court found that the U.S. processing added relatively minor value to the product and that the manufacturing concentrate imparted the essential character to the juice and made it orange juice. The court concluded that the foreign manufacturing juice concentrate was not substantially transformed in the United States when it was processed into retail orange juice products. Examining the character of the Superabrasives, the crude feedstock is of various sizes and shapes with irregular, flakey crystals. They undergo processing in Romania including filtering, grading, blending, crushing, milling, [X], and metal coating. After processing, the crystals are smaller, rounder, and more uniform. Some crystals are also metal coated. We do not find that the processing of the feedstock into Superabrasives results in a change in character. The processing performed in Romania makes the products more amenable to incorporation into tools; however, the feedstock is not chemically changed. The addition of copper or nickel coating does not change the internal characteristic of the diamond, rather it appears to assist in cases of adhesion to metal, assist in heat dissipation, and lubricity. Counsel for Lands stated that in the feedstock’s crude condition, the use of the raw material is limited to the manufacture of various Superabrasives, but that the Superabrasives have many precision grinding, polishing, cutting, and tooling applications for various industries depending on the processing that occurs and the resulting technical specifications. It is o