HQ 0731572 - Country of Origin Marking of Sockets - United States International Trade Commision Rulings

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HQ 731572

July 1, 1989

MAR 2-05 CO:R:C:V 731572 LR

CATEGORY: MARKING

Rodney O. Thorson
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, NW.
Washington, D.C. 20005

RE: Country of Origin Marking of Sockets

Dear Mr. Thorson::

This is in response to your letter dated July 1, 1988, on behalf of Mechanics Tools, Inc. requesting an exception from country of origin marking requirements for certain forgings imported from Taiwan for manufacture by its National Hand Tool (NHT) division into sockets, socket wrench extensions and adapters. Representative samples of the rough forgings, samples of the finished tools and a video tape of the processing operations have been submitted. We regret the delay in responding.

FACTS:

The imported article is a rough forging produced on either a cold forging press or a former. The operations described below are performed in the U.S. in order to produce a usable socket, extension or adapter. The finished items become parts of a socket set with either 1/4", 3/8" or 1/2" drives, the drive sizes most commonly used.

Domestic Processing

1. Lathing - consists of two metal removal operations to achieve shape and dimensional requirements.

2. Drilling - this removes stock from the center of the blank to provide a cavity necessary for bolt and fastener clearance.

3. Centerless Grinding - each piece is run between two grinding wheels which grind the outer wall to a specified diameter and wall thickness.

4. Marking - the sockets are marked with the size of the opening and the brand name.

5. Heat Treatment - to assure that the final hardness specifications for the product are met. The process includes heating in a furnace for about 40 - 50 minutes, placing parts in a "quench tank", washing, and tempering where the items are again put in a furnace and heated to about 600 degrees F. for about one hour.

6. Hardness and Torque Strength Tests performed.

7. Sand Blasting - to remove the scale that has formed during the heat treating process.

8. Tumbling - in rotating drums with sand and water to remove metal burrs and smooth surface.

9. Chemical Vibration - parts placed in machines with stone media and chemical compound and physically vibrated to polish the parts.

10. Acid Dip - immersion into vat of hydrochloric acid to clean parts.

11. Plating - by nickel-chrome electroplating process.

12. Painting - of inside surfaces to achieve a uniform appearance.

13. Quality Controls - of the work in progress at various stages of operations.

ISSUE:

Whether the above-described processing operations substantially transform the imported articles so that they are excepted from individual country of origin marking requirements.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), generally requires, subject to certain specified exceptions, that every article of foreign origin imported into the U.S. be marked to indicate the country of origin to the ultimate purchaser in the U.S. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. An ultimate
purchaser is defined in section 134.1, Customs Regulations (19 CFR 134.1), as "the last person in the U.S. who will receive the article in the form in which it was imported." The regulation further provides 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. However, if the manufacturing process is merely a minor one which leaves the identity of the imported article intact, 19 CFR 134.1(d)(2) provides that the consumer or user of the article, who obtains the article after the processing, will be regarded as the ultimate purchaser.

According to U.S. v. Gibson-Thomsen Company, Inc. 27 CCPA 267 (1940), a manufacturer is considered to be an ultimate purchaser if a manufacturing process is performed on an imported item so that the item is substantially transformed in that it loses its identity and becomes an integral part of a new article with a new name, character or use. The court determined that in such circumstances, the imported article is excepted from individual marking. Only the outermost container is required to be marked. See section 134.35, Customs Regulations (19 CFR 134.35).

In Midwood Industries v. United States, 64 Cust. Ct. 499, C.D. 4026, 313 F. Supp. 951 (1970), the Customs Court considered the effect of U.S. processing on the country of origin marking requirements of imported steel forgings. Although the edges of the forgings were legibly and conspicuously marked with the country of origin at the time of importation, the mark was obliterated or destroyed during the course of the domestic processing. The processes involved in finishing the imported articles included cutting, boring, facing, spotfacing, drilling, tapering, threading, bevelling, heating and compressing. The court found that the marking was sufficient because the processing substantially transformed the imported forgings into fittings and flanges. As such, the court found that the U.S. processor was the ultimate purchaser of the imported merchandise and that the removal of the marking during processing was acceptable.

Although the court based its decision in part on the fact that the processing changed a producer's forging to a consumer's flange, the decision makes clear that numerous machining operations were performed in the U.S. which imparted essential characteristics to the forgings that enabled them to be used as fittings and flanges. For example, there was testimony that the rough forgings have no connecting ends and therefore, cannot be used to connect pipes of matching size, the essential purpose of fittings.

Customs has previously ruled on the amount and kind of further processing which would substantially transform a socket blank. In T.D. 74-12(3), November 1, 1973, Customs determined that the processing of fully machined components of socket wrench sets by heat treating, grinding, vibrating, polishing to remove scale or blemishes resulting from the heat treatment, plating, assembly, inspection and identification marking, does not result in a substantial transformation of the imported components within the meaning of 19 CFR 134.35.

This decision was affirmed in a subsequent Headquarters Ruling Letter (HQ 711320, March 6, 1981). In that case, socket blank from Japan were to be processed in the U.S. as follows: removal of minor imperfection from the imported socket blanks by a grinding or wrenching process, die-stamping the blanks with an appropriate logo, a multi-step heat treatment, vibratory rotofinishing, chrome plating, and further assembly and packing. Customs determined that none of these processes substantially transformed the imported articles.

The underlying rationale for these determinations is that the domestic processing operations are minor finishing operations which do not change the name, character or use of the article. See also HQ 721462 (ratchet set that is subjected to the various minor finishing operations of the kind described in T.D. 74-12(3) are not substantially transformed). In a subsequent ruling involving imported sockets, Customs determined that the processing performed in HQ 711320 would constitute a substantial transformation if coupled with substantial machining operations. See HQ 717662, October 25, 1981.

In contrast to the forgings in T.D. 74-12(3) and HQ 711320 which were fully machined at the time of importation, in the present case, the forgings are imported in a rough condition with a significant amount of machining to be done to enable the finishing operations to be accomplished. While the imported forgings resemble the size and shape of the finished articles, they are not yet machined to the actual dimensions. In order to achieve the shape and dimensional requirements, the forgings have to be lathed, drilled to remove stock from the center to provide a cavity necessary for bolt and fastener clearance, and ground to make the outer wall a specified diameter and wall thickness. These machining operations, unlike the other more cosmetic or minor processing operations such as identification marking, sand blasting, tumbling, and plating, change the fundamental character of the imported article from forgings to sockets, adapters and extensions and enable the product to be used as socket wrench tools. We conclude that the domestic processing substantially transforms the imported forgings into an article with a new name, character or use.

HOLDING:

For purposes of 19 U.S.C. 1304, the processing of imported forgings in the U.S. in the manner set forth above constitutes a substantial transformation and the U.S. importer/manufacturer is considered the ultimate purchaser. Accordingly, the imported forgings are excepted from country of origin marking under 19 CFR 134.35, provided the district director is satisfied that they will be used only in this manner and will not be otherwise sold and that they will reach the ultimate purchaser in their original containers which are properly marked to indicate the country of origin of the forgings.

Sincerely,

Marvin M. Amernick

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