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HQ 734246


October 21, 1991

MAR-2-05 CO:R:C:V 734246 AT

CATEGORY: MARKING

Mr. Anthony Kania
Test-Rite Products Corporation
2 Daniel Road East
Fairfield, New Jersey 07004

RE: Country of origin of imported semi-finished tools; substantial transformation; 19 CFR 134.35; U.S. v. Gibson-Thomsen Company, Inc.; Midwood Industries v. United States; T.D. 74-12(3); HQ 711320; HQ 717662; HQ 721462; HQ 723857; HQ 731572

Dear Mr. Kania:

This is in response to your letter dated February 20, 1991, forwarded by the National Import Specialist (New York Seaport) by memorandum and received by our office on July 2, 1991, requesting a prospective and binding country of origin ruling regarding marking requirements applicable to certain imported semi-finished hand tools (claw hammers, wrenches, and pliers). Charts, estimated cost breakdowns, and numerous photographs depicting the various intermediate steps required to produce each of these tools has also been submitted with your letter. We also note that although you have requested Customs to specify the specific processes that are needed to be performed in the U.S. to constitute a substantial transformation this ruling will only address the specific transactions proposed and no other situations.

FACTS:

You state that you intend to import semi-finished tools (claw hammers, wrenches and pliers) manufactured in Taiwan and further process them into finished tools.

With respect to the semi-finished claw hammers, you indicate that the hammer heads will be imported entirely as finished articles in that all the manufacturing processing and machining operations are performed in Taiwan. After the finished hammer
heads are imported you intend to attach them in the U.S. to hickory wooden handles which are entirely manufactured in the U.S. You also state that the additional costs incurred in the U.S. to perform the hammer head and hickory handle assembly exceeds the foreign cost to make the finished hammer head.

In regards to the processing of the semi-finished wrenches (open end, combination) in the U.S., you claim that the following operations are performed in Taiwan: (1) forging, (2) trimming, and (3) broaching. After importation, the following operations will be performed to these semi-finished wrenches in the U.S. producing the finished tool: (1) stamping/marking, (2) heat treatment, (3) sand blasting, (4) polishing, (5) plating, and (6) packaging. In the case of the semi-finished adjustable wrench the following additional operations are performed in Taiwan: (1) annealing, (2) grinding handle, (3) punching square hole, (4) pressing the head, (5) punching handle hole, (6) reaming and beveling, (7) tapping set screw, and (8) machining fixed jaw, slot, slide face, grip face and worm gear. Also, the following additional steps are performed in the U.S. to produce the finished tool: (1) alignment/reaming, (2) machining slide (3) deburring, (4) body and jaw assembly, (5) grinding surface, and (6) assembling worm, spring and pin. Further, with respect to all three wrenches you claim that the additional costs incurred as a result of the processing performed in the U.S. exceeds the foreign cost to produce the semi-finished wrenches in Taiwan.

Finally, concerning the semi-finished pliers (7" linesman, 6" long nose, and 6" diagonal pliers) you state that the following processing operations will take place in Taiwan to produce the semi-finished tools: (1) forging, (2) trimming, (3) annealing and stamping (4) sand blasting, (5) pressing, (6) riveting hole drilled, (7) machining teeth, joint face and cutting face, (8) grinding face, and (9) alignment. Then you intend to further process these semi-finished pliers into finished pliers by performing the following operations: (1) heat treatment, (2) adjustable joint, (3) induction harden edge, (4) polishing, (5) ultrasonic cleaning, (6) laser marking, (7) lacquer finishing, (8) PVC handle coating, and (9) packaging. Again, you claim that the additional costs incurred from the processing performed in the U.S. exceeds the foreign cost to produce the semi-finished pliers in Taiwan.

ISSUE:

Whether the above-described processing operations performed in the U.S. substantially transform the imported semi-finished tools 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), 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 its 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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlander & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b), defines "country of origin" 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 transform- ation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed. In such circumstances the U.S. manufacturer is the ultimate purchaser. The imported article is excepted from individual marking and only the outermost container is required to be marked. See 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 then 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 blanks from Japan were to be processed in the U.S. in the following manner: 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 roto-finishing, 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. In HQ 721462 (March 17, 1981), Customs applied this rationale and ruled that imported ratchet sets subjected to the various minor finishing operations of the kind described in T.D. 74-12(3) are not substantially transformed, and therefore are required to be individually marked with the country of origin. However, in HQ 717662 (October 25, 1991) Customs ruled that the processing performed in HQ 711320 would constitute a substantial transformation if coupled with substantial machining operations (e.g. machining the drive end or the wrench end, drilling hole for pin in drive end, drilling ball and spring hole). See also HQ 731572, July 25, 1989 (forgings imported from Taiwan for
manufacture into sockets, socket wrench extensions and adapters and further processed in the U.S. through various operations including lathing, drilling, and centerless grinding, were substantially transformed and excepted from country of origin marking).

In this case, we find that with respect to the semi-finished wrenches and pliers no substantial transformation occurs in the U.S. The processing operations, described above, performed to both the semi-finished wrenches and pliers do not change the name, character, or use of the semi-finished tools and can only be considered as finishing operations, as in HQ 711320. Examination of the submitted picture diagrams indicate that as imported the semi-finished wrenches and pliers look like the finished articles, and have the essential characteristics of the finished article. Despite the fact that the imported tools are not yet finished, virtually all the machining is done in Taiwan and the articles have advanced well beyond the stage of being mere forgings. Also, although you state that the additional costs incurred in the U.S. to further process both the semi- finished wrenches and pliers exceeds the foreign costs, this fact is not determinative. We conclude that the processing to be performed in the U.S. does not change the name, character or use of the imported tools and is not a substantial transformation.

Furthermore, with respect to the semi-finished claw hammers, we note that Customs has previously ruled that the assembly operation involved in attaching a finished hammer head to a domestic wooden handle does not constitute a substantial transformation of the finished tool. In HQ 723857 (December 1, 1988), Customs ruled that finished hammer heads imported from Brazil to be assembled to domestic wooden handles in the U.S. did not constitute a substantial transformation and required the article to be individually marked with the country of origin. Customs stated that the single most costly item in producing the finished hammer was the cost of the imported forged steel hammer head.

Similarly, in this case, the submitted evidence indicates that the hammer heads are imported as finished hammer heads in that all processing operations and machining are performed in Taiwan. The processing of attaching the imported finished hammer heads to domestic wooden hickory handles only constitutes a minor change to the finished tool and the attachment of the wooden handle does not determine the essential character of the finished claw hammer. As imported, the hammer heads have the appearance of a finished hammer head and the processing of attaching a hickory wooden handle to the hammer head is nothing more than a finishing process, which although important, does not alter its
basic character of that of a finished hammer head. This type of processing must be considered minor. Based on these considerations, we conclude that attaching a hickory wooden handle to a imported finished claw hammer head in the U.S., is not a substantial transformation, and in accordance with 19 CFR 134.35, you would not be considered the ultimate purchaser of the hammer heads.

HOLDING:

For purposes of 19 U.S.C. 1304, the processing of imported semi-finished tools (claw hammers, wrenches and pliers) in the U.S. in the manner set forth above does not constitute a substantial transformation and you, the U.S. importer/ manufacturer, cannot be considered the ultimate purchaser of the unfinished tools. Accordingly, the imported semi-finished tools are not excepted from country of origin marking and must be individually marked with the country of origin to reflect "Taiwan" as the country of origin.

Sincerely,

John Durant, Director

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