HQ 0731617 - Country of Origin Marking of Aluminum Bowls - United States International Trade Commision Rulings

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HQ 731617

September 1, 1989

MAR 2-05 CO:R:C:V 731617 LR

CATEGORY: MARKING

S. Richard Shostak, Esq.
Stein, Shostak & O'Hara
3580 Wilshire Boulevard
Los Angeles, California 90010-2597

RE: Country of Origin Marking of Aluminum Bowls

Dear Mr. Shostak:

This is in response to your letter dated July 21, 1988, submitted on behalf of your client, Nambe' Mills, requesting reconsideration of Headquarters Ruling Letter 730287, dated October 23, 1987. We regret the delay in responding.

FACTS:

The articles to be imported are alloy aluminum trays and bowls which will be crafted and sandcast in the U.S. using alloy aluminum. After inspection and removal of burrs and other excess materials, the articles will sent to Mexico where they will be ground and polished and then returned to the U.S. Representative samples bowls in the condition before and after the Mexican processing were submitted. The processing costs of the representative samples for the U.S. and Mexican operations are about $2.07 and $1.27, respectively.

In the original submission of March 9, 1987, you requested a ruling that the aluminumware is not subject to the marking requirements of 19 U.S.C. 1304 or, alternatively, that it be excepted from the marking requirements under section 134.32(m), Customs Regulations. The request was based on your contention that the processing performed in Mexico did not substantially transform the aluminumware into articles of Mexican origin.

In response to your request, Customs issued HQ 730287 on October 23, 1987, which held that the merchandise in question was subject to marking under 19 U.S.C. 1304 because it had been advanced in value or improved in condition abroad under Schedule 8, Part 1, Headnote 2, Tariff Schedules of the United States. The ruling discussed neither the relevance of the substantial transformation standard traditionally used by Customs in ascertaining the applicability of 19 U.S.C. 1304, nor whether a substantial transformation had, in fact, occurred.

You request reconsideration of that ruling based on HQ 729519, dated May 18, 1988, involving the marking requirements of certain wine coolers manufactured partly in the U.S. and partly in Canada. In that case, Customs specifically determined that substantial transformation was the proper test to apply in determining whether U.S. goods exported and returned are subject to the requirements of 19 U.S.C. 1304.

You believe that the substantial transformation standard was correctly applied in HQ 729519 and should also be applied to determine whether your client's merchandise is subject to the marking requirements of 19 U.S.C. 1304.

ISSUE:

Whether aluminum bowls and trays which are crafted and sandcast in the U.S., and exported to Mexico, where they are further processed by grinding and polishing, must be marked as products of Mexico upon their re-importation into the U.S.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), generally requires that all articles of foreign origin imported into the U.S. must be legibly, permanently and conspicuously marked to indicate the name of the country of origin to the ultimate purchaser in the U.S. The regulations implementing the country of origin marking requirements and exceptions of 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR Part 134). Articles of U.S. origin are not subject to the requirements of 19 U.S.C. 1304 because they are not "articles of foreign origin." See HQ 729519, dated May 18, 1988, for discussion. Additionally, section 134.32(m), Customs Regulations, specifically excepts from marking U.S. articles exported and returned.

Customs has repeatedly ruled that, except as provided in section 10.22, Customs Regulations, products of the U.S. which are sent abroad for further processing, are not subject to country of origin marking upon re-importation of the article into the U.S. provided the further processing in the foreign country does not constitute a substantial transformation. Absent a substantial transformation, the article is not "of foreign origin" and is not subject to the requirements of 19 U.S.C. 1304. Alternatively, the article is excepted from marking under 19 CFR 134.32(m) as a U.S. product exported and returned. See e.g., HQ 732480, July 31, 1989; HQ 731652, February 16, 1989; HQ 729308, August 12, 1988; HQ 729519, May 18, 1988; C.S.D. 80-15, June 25, 1979; and, C.S.D. 79-443, January 25, 1979. A determination that
an article has been advanced in value or improved in condition abroad under Schedule 8, Part 1, Headnote 2, Tariff Schedules of the United States, has no bearing on whether the article is subject to the requirements of 19 U.S.C. 1304. Since HQ 730287 did not consider whether the processing performed in Mexico constitutes a substantial transformation, the decision was improperly decided.

Applying the substantial transformation standard to the facts of this case, we find that the Mexican grinding and polishing operations do not substantially transform the aluminumware into articles of Mexico origin. In order for a substantial transformation to be found, an article having a new name, character or use must emerge from the processing. See United States v. Gibson-Thomsen Co. Inc., 27 C.C.P.A. 267, C.A.D. 98 (1940). In addition, factors such as complexity and cost of the processing operations and whether the essence of the article has been changed, have also been considered. See Uniroyal Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).

Customs has previously ruled that grinding and polishing are finishing operations which render a product ready for use but do not substantially transform it into a product with a new name, character or use. For example, in T.D. 74-12(3), November 1, 1973, Customs ruled that socket blanks from Japan further processed in the U.S. by grinding, polishing and other processing were not substantially transformed. In C.S.D. 80-15, Customs determined that forged stainless steel instruments of U.S. origin which were further processed in Pakistan by polishing, and other processing, were not substantially transformed into products of Pakistan. However, if the grinding and polishing operations are accompanied by another highly skilled operation, such as hand- cutting, a substantial transformation may occur. See Treasury Department Memorandum dated May 21, 1986, overturning HQ 728579 (crystal blanks which are mouth blown and hand cut in Czechoslovakia are substantially transformed in Ireland by grinding, polishing and additional hand-cutting; the latter being a highly skilled operation. The processing performed in Ireland was said to nearly double the value of the product).

In the present case, neither the grinding nor the polishing that is performed in Mexico changes the fundamental character or use of the product. It is the constituent material, aluminum alloy, coupled with the shape and design of the article created by the U.S. sandcasting process, that imparts the essential character to the finished product and determines its ultimate use. We note that while the finished product which has been
ground and polished is more aesthetically pleasing than the unfinished product, the underlying decorative shape and design of the product is unaffected by the Mexican processing which merely renders the products ready to use. In addition, the name of the product i.e., alloy aluminum bowl or tray, is not changed as a result of the processing performed in Mexico. Only the modifier (unfinished vs. finished) is affected.

Finally, the cost of processing in Mexico is significantly less than the cost of the U.S. processing and, unlike the highly skilled hand-cutting operation which accompanied the grinding and polishing in the crystal case, the only operations that are performed on the U.S. made aluminumware are grinding and polishing, neither or which appear to require significant skill.

HOLDING:

The aluminumware manufactured in the U.S. by casting and exported to Mexico for grinding and polishing is not subject to the requirements of 19 U.S.C. 1304 upon its return to the U.S. because the Mexican processing does not constitute a substantial transformation. HQ 730287 is overruled.

Sincerely,

John Durant, Director

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