HQ 555511: Partial Reconsideration of Customs Headquarters Ruling Letter 555101 (November 15, 1988)

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 555511

                       September 13, 1990

CLA-2 CO:R:C:V 555511 GRV

CATEGORY:      CLASSIFICATION

TARIFF NO.:    9802.00.80

William D. Outman, II, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Suite 1100
Washington, D.C.  20006-4078

RE:  Partial Reconsideration of Customs Headquarters Ruling
     Letter 555101 (November 15, 1988)

Dear Mr. Outman:

     This is in response to your letters of November 2, and
December 18, 1989, on behalf of ITT Corporation, Cannon Division,
requesting partial reconsideration of Headquarters Ruling Letter
(HRL) 555101 (November 15, 1988), which was itself a reconsidera-
tion of HRL 554015/727943 (May 12, 1986).  We concluded in HRL
555101 that, based on further evidence and intervening case law,
those raw metallic "blanks" (sockets and pins) subjected to both
the zone-annealing and gold electroplating processes in the U.S.
(1) would be considered substantially transformed in the U.S. for
country of origin marking purposes, and (2) would be considered
U.S. fabricated components for purposes of item 807.00, Tariff
Schedules of the United States (TSUS) (now subheading 9802.00.80,
Harmonized Tariff Schedule of the United States (HTSUS)).  HRL
554015/727943 had previously held that these processes would not
effect a substantial transformation of the imported "blanks".
The annealed and/or plated sockets and pins are used as
electrical contacts in articles assembled abroad.  You request
that we reconsider that portion of the ruling which requires the
merchandise to be subjected to both processes before it qualifies
for the duty exemption under the tariff provision.

     We have considered in connection with the instant
reconsideration request a letter from your client dated October
16, 1989, as well as the information provided by you and a
representative of your client during a meeting at Customs
Headquarters on November 3, 1989.

FACTS:

     You maintain that HRL 555101, while correct, was not
entirely responsive to your original reconsideration request as
it failed to confirm your stated position that either the
annealing or electroplating process results in the substantial
transformation of the imported "blanks".  You specifically ask
that we address whether the gold electroplating operation, by
itself, is sufficient to satisfy the substantial transformation
test.  In this regard, you contend that the electroplating
transforms a "blank", which has no use, into an electrical
contact, which has a specific use, and that this process adds a
relatively large value to the "blank".  Moreover, you state that
because the electroplating is performed to give the contacts
capabilities and performance features not otherwise attainable in
the absence of such plating, this operation can readily be
distinguished from cosmetic electroplating.

 ISSUE:

     Whether the gold electroplating process effects a
substantial transformation of the imported metallic "blanks".

LAW AND ANALYSIS:

     A "product of the United States," for purposes of subheading
9802.00.80, HTSUS, is defined in section 10.12(e), Customs
Regulations (19 CFR 10.12(e)), as:

     ... an article manufactured within the Customs territory of
     the United States and may consist wholly of United States
     components or materials, of United States and foreign
     components or materials, or wholly of foreign components or
     materials.  If the article consists wholly or partially of
     foreign components or materials, the manufacturing process
     must be such that the foreign components or materials have
     been substantially transformed into a new and different
     article, or have been merged into a new and different
     article.

     Whether a substantial transformation of foreign-made
articles or materials has occurred in the U.S. is determined by
reference to section 10.14(b), Customs Regulations (19 CFR
10.14(b)), which provides that:

     [f]oreign-made articles or materials may become products of
     the United States if they undergo a process of manufacture
     in the United States which results in their substantial
     transformation.  Substantial transformation occurs when, as
     a result of manufacturing processes, a new and different
     article emerges, having a distinctive name, character, or
     use, which is different from that originally possessed by
     the article or material before being subject to the
     manufacturing process.  The mere finishing or modification
     of a partially or nearly complete foreign product in the
     United States will not result in the substantial
     transformation of such product and it remains the product of
     a foreign country.

     Within this context, we discussed in HRL 555101 our
understanding of the import of the decision in Ferrostaal Metals
Corporation v. United States, 664 F.Supp. 535 (CIT 1987), on the
subject metallic "blanks" in this case.  We stated that:

     [c]omparing the processing to be performed on the imported
     "blanks" with that described in the Ferrostaal decision, we
     are now of the opinion that, taken as a whole, the multiple
     manufacturing processes of annealing and electroplating, as
     described above, significantly alter both the mechanical
     properties and chemical composition of the imported
     "blanks," substantially transforming them into new and
     different articles of commerce.

Accordingly, we concluded that:

     ... the imported "blanks" (sockets and pins) which are
     subjected to both annealing and electroplating in the U.S.
     are substantially transformed for country of origin marking
     purposes and may be considered fabricated components,
     products of the U.S., for purposes of TSUS item 807.00.

HRL 554015/727943 was modified accordingly.

     In the Ferrostaal case, the dispositive question before the
court was whether the operations performed on the subject steel
sheet, described as a continuous hot-dip galvanizing process,
substantially transformed the sheet.  The process involved two
steps:  annealing, undertaken to restore the steel's ductility
lost in a previous cold rolling, and galvanizing, or dipping the
steel in a pot of molten zinc, thus changing the steel's chemical
composition to improve its resistance to rust.  The court held,
based on the totality of the evidence, that the continuous hot-
dip galvanizing process substantially transformed the subject
steel sheet.

     It is important to note that the court in Ferrostaal did not
hold that either the annealing or the galvanizing process alone
constituted a substantial transformation, but determined that the
multiple manufacturing processes effected the requisite changes
necessary for a finding of a substantial transformation.  This
was recognized in HRL 555247 dated January 11, 1990, which held
that annealing stainless steel hot bands in the U.S. Virgin
Islands to create stainless steel sheet and plate did not
substantially transform the hot bands into "products of" the
insular possession for purposes of General Note 3(a)(iv), HTSUS.
In sum, we decline to expand the scope of the Ferrostaal decision
by holding that a mere, one-step galvanizing or electroplating
process, although similar to that involved in the court case,
results in a substantial transformation of the metal article.

     Moreover, recent rulings on the issue of whether galvanizing
or electroplating, in and of itself, results in a substantial
transformation have concluded that it does not.  See, for
example, HRL's 554692 dated March 8, 1988, 081888 dated August 1,
1988, and 732159 dated September 7, 1990.  We reasoned in these
rulings that such a process is essentially a finishing operation
which neither creates a new article nor alters the intended use
of the article.  Consistent with these rulings and the Ferrostaal
decision, we find that the electroplating operation in the
instant case does not effect a substantial transformation of the
imported metallic "blanks".

HOLDING:

     Imported "blanks" (sockets and pins) which are subjected to
both annealing and electroplating processes in the U.S. are
substantially transformed for country of origin marking purposes
and may be considered fabricated components, products of the
U.S., for purposes of subheading 9802.00.80, HTSUS.  However,
merely electroplating the metallic "blanks" will not result in a
substantial transformation.  HRL 555101 is affirmed.

                              Sincerely,




                              John Durant, Director
                              Commercial Rulings Division