HQ 0733757 - Country of origin marking of imported wood chairs; substantial transformation; cutting wood; assembly of chairs. - United States International Trade Commision Rulings

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HQ 733757
November 8, 1990

MAR-2-05 CO:R:C:V 733757 KG

CATEGORY: MARKING

Mr. W. LLoyd Jones
Martin & MacArthur
P.O. Box 3101
Honolulu, Hawaii 96802

RE: Country of origin marking of imported wood chairs; substantial transformation; cutting wood; assembly of chairs.

Dear Mr. Jones:

This is in response to your letter of August 15, 1990, to the U.S. Customs Service office in New York, N.Y., requesting a ruling regarding the country of origin marking of imported wood chairs. Your letter has been referred to this office for response.

FACTS:

Koa wood, which is unique to Hawaii, is harvested and milled in Hawaii. In your factory in Hawaii, the wood is dryed in a kiln, surfaced on one side, graded and selected for color. Further, each piece of the chair will be marked out on the wood. The wood is then shipped to Mexico.

In Mexico, the marked out pieces of the chairs are cut out of wood, machined, rough sanded and assembled into chairs. The partially finished chairs are then shipped back to Hawaii.

In Hawaii, the chairs are sanded, stained and/or oiled, and cushions are added. The chairs are then packed for shipping. You propose to mark the chairs with a label stapled under the seat which reads "Made from Hawaiian Koa Wood Countries of Manufacture: Mexico and Hawaii, U.S.A." The values submitted state that the cost of the wood sent to Mexico is $70.00; the cost of the Hawaiian manufacturing operation is $55.00 for the labor and $49.00 for the material and the cost of the Mexican processing is $41.00.

ISSUE:

Whether the proposed marking on the chair complies with the country of origin marking requirements.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines the country of origin of an article as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin for country of origin marking purposes. Section 134.35, Customs Regulations (19 CFR 134.35), provides that a manufacturer or processor in the U.S. who converts or combines an imported article into a different article having a new name, character or use will be considered the ultimate purchaser of the imported article within the contemplation of section 304(a) of the Tariff Act of 1930, as amended, and the article shall be excepted from marking. If the article itself is excepted from marking, the outermost containers of the imported articles must be marked.

A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940), National Juice Products Association v. United States, 10 CIT 48, 628 F.Supp. 978 (CIT 1986), Koru North America v. United States, 12 CIT ___, 701 F.Supp. 229 (CIT 1988).

The issue presented is whether the Hawaiian Koa wood is substantially transformed in Mexico. Several Customs rulings involving the substantial transformation of wood products are relevant to this discussion. In HQ 553878 (October 28, 1985), Customs ruled that raw dimension lumber and plywood sheets made into doors, drawers, drawer fronts, moldings, kick plates and other parts in Mexico were substantially transformed into new articles of commerce. Customs ruled in HQ 731676 (June 22, 1989), that unfinished wood table legs and rails were substantially transformed when assembled into a table base and finished. Another case, HQ 555338 (July 10, 1989), dealt with the issue of whether wood doors made in Costa Rica from lumber from various countries was entitled to duty-free treatment under the Caribbean Basin Economic Recovery Act. The lumber was cut and shaped into doors, sometimes carved with decorative designs or grooved using special wood working machines and sanded, glued, and stained in Costa Rica. Customs ruled that "the lumber itself is substantially transformed in Costa Rica when it is cut and shaped to create doors and door frames, which are distinct articles of commerce with a completely new and different name, character, and use."

In this case, both the cutting of the wood into parts and the assembly of those cut parts into chairs is done in Mexico. A new and different article of commerce which is referred to as a chair is created out of the wood. A wood chair is used for sitting while a piece of wood has numerous potential uses. The Hawaiian wood undergoes a change in name, character and use when it is cut and made into chairs in Mexico. Although the figures submitted show that more of the value of the chair is due to the initial U.S. processing and material, the value of the Mexican processing is significant. Further, although value is one factor examined, it is not determinative. For instance, the difference in the labor costs in the U.S. and in Mexico is not factored into the figures. If value was the only factor examined, it could favor inefficient shops over more efficient ones. The use of expensive materials such as gold could also skew the figures. Since a new and different article of commerce is created with a change in name, character and use, the wood is considered substantially transformed in Mexico.

The work done in the U.S. to the unfinished chairs is mere finishing. Sanding and staining and/or oiling the chairs is similar to painting an unfinished article. Customs ruled in HQ 733693 (October 17, 1990), that applying paint and epoxy to wire- rimmed sunglasses fronts to create a tortoise shell appearance is not a substantial transformation. Merely adding cushions to the chairs does not result in a new article of commerce, requires little or no processing and does not result in a change in name, character or use. Based on the above factors, we conclude that the U.S. processing done to the unfinished chairs does not constitute a substantial transformation.

Since the wood is substantially transformed in Mexico into chairs and there is no subsequent substantial transformation in the U.S., pursuant to 19 CFR 134.1(b), the country of origin would be Mexico. The label must indicate that Mexico is the sole country of origin. The origin of the wood may be included as long as the country of origin of the chair is clearly identified and the requirements of section 134.46, Customs Regulations (19 CFR 134.46), are satisfied. This provision requires that when the name of a place other than the country of origin appears on an imported article or its container, the name of the country of origin must appear legibly, permanently, and in close proximity to such words, letters, or name, and in at least a comparable size, the name of the country of origin must appear preceded by "Made in,""Product of," or other words of similar meaning. We find that your proposed marking is unacceptable because it does not clearly indicate that Mexico is the country of origin of the chairs. An example of an acceptable marking would be "Made in Mexico from Hawaiian Koa wood."

The second issue presented is whether a country of origin label stapled to the bottom of the seat satisfies the requirements of 19 U.S.C. 1304 that the marking appear in a conspicuous location and that it is permanent. Under section 134.41, Customs Regulations (19 CFR 134.41), the marking is considered to be conspicuous if it is legible, indelible and permanent and the ultimate purchaser in the U.S. is able to find the marking easily and read it without strain. In T.D. 45121 (1931), Customs ruled that marking the country of origin on the underside of a chair in large letters is acceptable. See also HQ 707766 (July 29, 1977). The degree of permanence required by 19 CFR 134.41 is "at least sufficient to insure that in any reasonably foreseeable circumstance, the marking shall remain on the article (or its container) until it reaches the ultimate purchaser unless it is deliberately removed. The marking must survive normal distribution and store handling." A label that is stapled to the underside of a chair would be securely attached and would remain on the chair unless deliberately removed. Therefore, stapling is an acceptable method of attaching the label to the chair. Marking the country of origin on a label that is attached to the underside of the chair complies with the requirements of 19 U.S.C. 1304 and 19 CFR 134.41 as long as the lettering is large enough to be easily found and can be read without strain.

HOLDING:

The country of origin of these wood chairs is Mexico. Therefore, the label that is attached to the chair must clearly indicate that Mexico is the country of origin. The proposed label "Made from Hawaian Koa Wood Countries of Manufacture: Mexico and Hawaii, U.S.A." is unacceptable for country of origin marking purposes because it does not clearly indicate the country of origin of the chairs. Marking the country of origin on a label that is attached to the underside of the chair complies with the requirements of 19 U.S.C. 1304 and 19 CFR 134.41 as long as the lettering is large enough to be easily found and can be read without strain.

Sincerely,

Marvin M. Amernick
Chief, Value, Special Programs

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