HQ 555643: Eligibility of certain foreign-made lock components which are heat treated and plated in the U.S. for subheading 9802.00.80, HTSUS, treatment; substantial transformation; Ferrostaal Metals Corp. v. U.S.; 555101

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 555643

                         April 26, 1991

CLA-2 CO:R:C:S 555643 CW

CATEGORY:  Classification

TARIFF NO.:  9802.00.80

Edward B. Ackerman, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, New York 10004

RE:  Eligibility of certain foreign-made lock components which
     are heat treated and plated in the U.S. for subheading
     9802.00.80, HTSUS, treatment; substantial transformation;
     Ferrostaal Metals Corp. v. U.S.; 555101

Dear Mr. Ackerman:

     This is in response to your letters of April 12, 1990, and
April 18, 1991, requesting a ruling on behalf of Schlage Lock Co.
concerning the applicability of the partial duty exemption under
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (HTSUS), to certain lock components which are heat treated
and plated in the U.S., assembled into locksets in Mexico, and
then returned to the U.S.  Samples of the components, both before
and after the U.S. processing operations, were submitted for
examination.

FACTS:

     Two cold rolled steel interior components of a deadbolt lock
assembly are imported into the U.S. from Canada.  In the U.S.,
your client subjects the components to various processes,
including heat treatment and a zinc di-chromate plating process. 
The heat treatment consists of a combination of two processes --

hardening and tempering.  Hardening involves heating the steel
components to 1600 degrees F, which causes the steel to become
entirely austenitic in structure, followed by "quenching" or
rapid cooling, which causes the structure to transform from
austenite into martensite.  The next step, tempering, involves
reheating the steel to between 300 and 750 degrees F, which
causes the structure of the steel to change from martensite to a
softer and tougher structure known as troostite.

     The hardening operations increase the hardness and tensile
strength of the steel, while the tempering operation reduces
brittleness in the steel and removes internal strains within the
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steel caused by the abrupt cooling in the quenching operation. 
The heat treatment is necessary so that the components will meet
the torque requirements for deadbolt bars.

     After the heat treatment, the steel components are subjected
to a zinc di-chromate process.  First, the steel undergoes a
number of procedures, such as burnishing and alkaline
electrolytic cleaning, to produce a clean, scale-free surface. 
Zinc metal is then cathodically deposited onto the metal surface
to a thickness of approximately 10 microns (0.0004 inch) followed
by immersion in a solution of chromate ions in an acid medium. 
The plating process preserves the components by deterring
corrosion and affording a measure of mechanical protection.

     The components are then exported to Mexico for assembly into
locksets.  When the locksets are returned to the U.S, you
maintain that they are entitled to an allowance in duty under
subheading 9802.00.80, HTSUS, for the cost or value of the two
interior components that were heat treated and plated in the U.S. 
In this connection, you contend that the holding in Ferrostaal
Metals Corp. v. United States, 664 F.Supp. 535, 11 CIT ___
(1987), supports the conclusion that the U.S. processing
substantially transforms the two foreign lock components into
products of the U.S.

ISSUE:

     Whether the heat treatment and plating operations performed
in the U.S. substantially transform the Canadian-made lock
components into products of the U.S., thereby entitling them to a
duty allowance under subheading 9802.00.80, HTSUS, when returned
to the U.S. from Mexico as part of locksets.

LAW AND ANALYSIS:

     Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:

     [a]rticles assembled abroad in whole or in part of
     fabricated components, the product of the United States,
     which (a) were exported in condition ready for assembly
     without further fabrication, (b) have not lost their
     physical identity in such articles by change in form,
     shape or otherwise, and (c) have not been advanced in
     value or improved in condition abroad except by being
     assembled and except by operations incidental to the
     assembly process such as cleaning, lubricating and
     painting.



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     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.

According to section 10.14(b), Customs Regulations (19 CFR
10.14(b)), a 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.

     In Ferrostaal Metals Corp. v. United States, the court
considered whether cold-rolled steel of Japanese origin which was
annealed and galvanized in New Zealand by a process known as
"continuous hot dip galvanizing" prior to its shipment to the
U.S. was covered by the U.S.-Japan voluntary restraint
arrangement concerning steel products.  It was held that the
steel was not covered by the arrangement since the annealing and
galvanizing operations substantially transformed the Japanese-
origin steel into a product of New Zealand.  The annealing
process, which relieves the deformation energy in the steel
sheet, making it more ductile or formable and reducing defects,
involved heating the steel to between 1050 and 1450 degrees F
before cooling to 880 degrees F.  While at 880 degrees F, the
sheet was dipped in a pot of molten zinc to create a galvanized
surface in which alloys were formed at the interface between the
steel and zinc.

     The court in Ferrostaal found that that the annealing
significantly affected the character of the sheet by altering the
ductility and strength of the steel, and that the zinc
galvanizing affected the character of the steel by changing its


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chemical composition and providing corrosion resistance.  The
court further concluded that the "continuous hot-dip galvanizing"
process was substantial in terms of the value it added to the
cold-rolled steel sheet (between 57 and 80%), and that
substantial changes in the utility of the product resulted from
the processing.

     In light of the decision in Ferrostaal, we determined in
Headquarters Ruling Letter (HRL) 555101 dated November 15, 1988,
that certain foreign-made "blanks" in pin or socket form which
were subjected to zone-annealing and gold electroplating
operations in the U.S. were substantially transformed into
products of the U.S. for purposes of subheading 9802.00.80,
HTSUS.  The annealed and plated articles were to be used as
electrical contacts in articles assembled abroad.  The zone
annealing effected an irreversible metallurgical change in the
blank by rendering it ductile, a condition necessry in order to
crimp the contact to a wire, and the electroplating changed the
chemical composition of the blank's surface to impede chemical
oxidation and engagement wear.

     The heat treatment and plating operations in the instant
case, like the processes involved in Ferrostaal and HRL 555101,
significantly affect the character of the lock components.  By
changing the structure of the cold-rolled steel first into
austenite, then into martensite, and finally into troostite, the
heat treatment increases the hardness and tensile strength of the
steel and reduces its brittleness.  The zinc di-chromate plating
operations preserve the components by deterring corrosion and
affording a measure of mechanical protection.  Moreover, the cost
information you have submitted indicates that the U.S. processing
operations will add significant value to the lock components
(between 33 and 50%).

     Consistent with the holdings in Ferrostaal and HRL 555101,
we find that the imported lock components which are subjected to
the described heat treatment and plating operations in the U.S.
are substantially transformed into new and different articles of
commerce.

HOLDING:

     Based on the information submitted, we conclude that the
described heat treatment and plating operations performed in the
U.S. on the imported steel lock components substantially
transform the components into products of the U.S.  Therefore,
when assembled into locksets in Mexico and returned, the subject




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lock components will be entitled to a duty allowance under
subheading 9802.00.80, HTSUS, upon compliance with the applicable
Customs Regulations (19 CFR 10.11-10.24).    

                           Sincerely,




                           John Durant, Director
                           Commercial Rulings Division