PIPING & EQUIPMENT- A Member of AD                               April*May*June* 1999

COUNTRY-OF-ORIGIN MARKING DEVELOPMENTS

In January 1999, the Federal Circuit Court of Appeals decided a celebrated "Skippy" peanut butter case in favor of the U.S. Customs Service’s special country-of-origin marking rules under the NAFTA. The case, Bestfoods v. United States, addressed the question whether the tariff-shift method of determining "substantial transformation," as prescribed by the NAFTA, was valid. The appellate court reversed the Court of International Trade, which had held that Customs exceeded its authority in promulgating the tariff-shift test for goods in North American trade.

The American Pipe Fittings Association has been a strong advocated of the tariff-shift method of determining national origin for marking purposes. The appellate court decision, therefore, is a welcome development for the American pipe fittings industry. Where imports from other NAFTA countries are concerned, it will mean greater predictability in the application of the marketing requirements and will cure some of the competitive anomalies created by the Midwood case back in 1970.

The Midwood case involved steel butt-weld fittings and flanges. There the court determined that adding a bevel to an imported fitting that was otherwise finished, resulted in a substantial transformation of the imported product. The basis for the determination was that beveling changed the fitting from a producer’s good to a consumer’s good. This enabled foreign producers to place the country-of-origin marking at the butt-end and, subsequently, enabled the importer to remove the marking during beveling process. In other words, simple beveling is enough to change the national origin of the fitting. Under Midwood, the importer can sell the finished product in the U.S. marketplace without identifying it as imported.

The tariff-shift rule under NAFTA has the effect of overturning the Midwood decision as to pipe, fittings, and flanges. The tariff-shift rule required sufficient processing to change the tariff classification of the product. Since both finished and unfinished carbon steel butt-weld fittings are classifiable in the same heading of the Harmonized Tariff Schedule, beveling as unfinished fitting is not sufficient to change the heading under which it is classified. As a consequence, there is no substantial transformation.

It should be stressed that the tariff-shift test only applies under NAFTA; it does not apply to imports from non-NAFTA countries. Such imports are still governed by the Midwood decision. However, the U.S. Customs Service has proposed an interpretation of the marking law that would remove from consideration the producer’s good/consumer’s good test in determining whether a product has been substantially transformed. Adoption of that interpretation would go a long way toward eliminating the country-of-origin marking abuses that were made possible by the Midwood decision. The American Pipe Fittings Association (APFA) comments to the U.S. Customs Service last May, strongly endorsing the Customs proposal which had been published in the Federal Register. Approximately 15 comments were submitted on behalf of other interested parties, most of them in favor of the proposal. The final decision to adopt the new interpretation is currently under review in the Treasury Department (2/12/99).

This article was reprinted with permission of the American Pipe Fitting Association as reported by Peter Buck Feller, McKenna & Cuneo (February 12, 1999).

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Pricing ¯ « ­ Numerous manufacturers are reporting conflicting information from an expected decrease of 1 – 2 1 /2%, no change, and an increase of 1 – 2 1 /2%. One manufacturer indicates a possible decrease due to supply, foreign pressure and capacity. Another notes no change with positive dumping suits offset by flat demand. While still another predicts an increase due to raw material costs. Flat rolled producers are attempting to increase raw material prices, and the manufacturer indicates a 60% chance of the increase sticking.

Lead times – Commodity items shipping from stock vary from 70 – 90%. Domestic mills are running at 65% capacity with mill inventories remaining high. Commodity lead time are running 4 – 8 weeks. Exotic items of nonstandard stainless and high nickel alloys have lead times reported to be 12 – 20 weeks. Some alloys are running low on inventory.

Comments – There are reported record imports from Japan and Korea. Seven domestic mills are exploring the possibility of a suit against Japan. The decision will be made in May 1999. Overall foreign competition is decreasing with Japan providing approximately 40% of imports, Spain 9%, France 5%, and England 5% in 1998.

Pricing

Pricing « ¯ Carbon Steel Seamless Pipe prices are expected to remain the same for domestic material and decrease from 5 – 7 1 /2 % on the foreign material due to supply and demand. An oversupply exists in the market with distribution reducing margins and inventory.

Lead times – Commodity items are shipping from stock 90 – 100% and the balance of shipments in 4 – 6 weeks.

Comments – Demand is soft in oil country tubular, with more pressure on standard and line pipe.

Pricing « ERW Pipe pricing forecast is no change for this quarter.

Lead times for commodity items is 4 – 6 weeks with 70 – 80% delivered from stock.

Comments – Foreign competition remains the same with little to no change in this market expected in this quarter.

CARBON STEEL WELD FITTINGS AND FLANGES