HQ 0734566 - Country of origin marking of imported components used in the manufacture of automotive water pumps; 19 U.S.C. 1304; 19 U.S.C. 1304 (a)(3)(G); 19 CFR 134.32(g); 19 CFR 134.35; 19 CFR 134.1(d); HQ 732940 revoked; Gibson-Thomsen; Friedlaender; National Juice; Belcrest Linens; National Hand Tool; T.D. 67-173; C.S.D. 80-111; C.S.D. 89-110; C.S.D. 89-129; C.S.D. 90-51; HQ 709570; HQ 730069; HQ 732196; HQ 733676; HQ 734259; substantial transformation; concealed marking; assembly; addition of domestic components - United States International Trade Commision Rulings

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HQ 734566

June 25, 1992

MAR-2-05 CO:R:C:V 734566 AT

CATEGORY: MARKING

Jacalyn N. Kolk, Esq.
Hilton, Hilton, Kolk & Penson
1610 Beck Avenue
Panama City, Florida 32405

RE: Country of origin marking of imported components used in the manufacture of automotive water pumps; 19 U.S.C. 1304; 19 U.S.C. 1304 (a)(3)(G); 19 CFR 134.32(g); 19 CFR 134.35; 19 CFR 134.1(d); HQ 732940 revoked; Gibson-Thomsen; Friedlaender; National Juice; Belcrest Linens; National Hand Tool; T.D. 67-173; C.S.D. 80-111; C.S.D. 89-110; C.S.D. 89-129; C.S.D. 90-51; HQ 709570; HQ 730069; HQ 732196; HQ 733676; HQ 734259; substantial transformation; concealed marking; assembly; addition of domestic components

Dear Ms. Kolk:

This is in response to your letter of March 25, 1992 on behalf of Eastern Industries, Inc. (Eastern), requesting a ruling on the country of origin of imported components used in the manufacture of automotive water pumps. A sample of a completed water pump and the unassembled components were submitted with your letter for review. As we requested, you have provided us with further cost and assembly information by letter dated May 5, 1992. This request supplements Eastern's original ruling request of November 30, 1989, and April 6, 1990, and Customs subsequent Headquarters Ruling Letter 732940 dated July 5, 1990.

FACTS:

You state that Eastern Industries imports components of water pumps which it then assembles for sale to automotive parts stores. Each completed water pump generally consists of a casting, bearing, impeller, hub, seal, gasket, and in certain circumstances a backplate. You claim that Eastern carries a water pump line of approximately 600 part numbers, of which, approximately 120 part numbers are manufactured by Eastern. From
the additional cost information that you submitted on May 5, 1992, it appears that Eastern sells approximately 106 different water pump models and that any component can be either domestically or foreign made. You also state that Eastern does not offer for sale nor sell the individual components, but only utilizes said components in the manufacturing process to produce water pumps.

The assembly of the water pump initially involves random checking of a given lot for casting quality, machining quality and finish. Parts, i.e. bearings, seals, hubs, impellers, back plates and gaskets are randomly checked by Eastern's quality control personnel. Following this, tooling is designed and built, then tested for accuracy. A casting is heat treated, then sent forward for assembly. The assembly procedure involves the combining of the bearing, hub, impeller, casting, seal, backplate, and gaskets. Following assembly, a completed water pump is subjected to a 100% vacuum test. A final quality control check precedes delivery to Eastern's shipping department, where each pump is boxed with any miscellaneous parts required and sent to automotive parts stores. No information was submitted which suggests that the assembly procedure is complex.

During the preliminary planning of a production number, samples of each component in a particular water pump are submitted to vendors for quotation, both domestically and foreign. Although you state that most of the castings are of foreign origin, at times, the castings may be purchased domestically and the other components, such as a bearing, hub or impeller may be sourced from a foreign vendor. Each part number is analyzed to determine whether it will be profitable to put the new number into production, and thus it is important to be able to source a quality component at the lowest price. Consequently, various sources are used, both domestic and foreign.

ISSUE:

What are the country of origin marking requirements of imported water pump components assembled by Eastern from imported and domestic parts?

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. The Court of International Trade stated in Koru North America v. United States, 701 F.Supp. 229, 12 CIT (CIT 1988), that "In ascertaining what constitutes the country of origin under the marking statute, a court must look at the sense in which the term is used in the statute, giving reference to the purpose of the particular legislation involved. The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297 at 302, C.A.D. 104 (1940), where the court stated that: "Congress intended 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."

The country of origin marking requirements of imported water pump components that are assembled by Eastern in the U.S. with domestic parts depend upon whether Eastern is the ultimate purchaser of the imported pump components.

The "ultimate purchaser" is defined generally as the last person in the U.S. who will receive the article in the form in which it was imported. 19 CFR 134.1(d). If an imported article will be used in domestic manufacture, the manufacturer may be the "ultimate purchaser" if [s]he subjects the imported article to a process which results in a substantial transformation of the article. However, if the manufacturing process is a minor one which leaves the identity of the imported article intact, the consumer of user of the article, who obtains the article after the processing, will be regarded as the "ultimate purchaser." 19 CFR 134.1(d)(1) and (2).

Substantial Transformation and Domestic Assembly Operations

For country of origin marking purposes, 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 CCPA 267 (1940); National Juice Products Association v. United States, 10 CIT 48. Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into a different article will be considered the "ultimate purchaser" of the imported article, and the article shall be excepted from marking. However, the outermost containers of the imported articles must be marked. 19 CFR 134.35. The issue of whether a substantial transformation occurs is determined on a case-by-case basis.

In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linen v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2 Fed.Cir. 105, 741 F.2d 1368 (1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, C.S.D.s 80-111, 89-110, 89-129, 90-51.

The issue involved in this case is whether the imported components which are combined in the U.S.to form a completed water pump are substantially transformed into a new article having a new name, character or use.

In this case, review of the completed water pump and unassembled components indicates that the water pump is comprised of four essential components, which are the casting, bearing, impeller and hub. This is also supported by the fact that in most cases the cost of these individual parts (as indicated by the additional cost information provided to Customs by your letter dated May 5, 1991), exceeds the cost of any other component used to make the completed water pump, irrespective of whether the individual component is domestic or foreign. Thus, it is our decision to only focus on these four essential components for purposes of determining whether a substantial transformation occurs as a result of the U.S. operations performed.

You contend that Eastern's manufacturing process of assembling both domestic and foreign components into a completed water pump in the U.S. results in a substantial transformation of the imported article, and that Eastern is the "ultimate purchaser" of the imported components, and marking of the outermost container in which the articles are imported is sufficient to indicate the country of origin. We disagree.

In National Hand Tool Corp., v. United States, Slip Op. 92- 61 (April 27, 1992), the Court of International Trade held that imported hand tool components which were used to produce flex sockets, speeder handles and flex handles were not substantially transformed when further processed and assembled in the U.S. One of the factors considered by the court in reaching its conclusion was that the name of the imported components did not change as a result of the U.S. processing and assembling operations. The
court found that the name of each article imported had the same name in the completed tool. In support of this conclusion, the court cited the following example:

"For example, when the lug or "G-head", component of a flex handle imported from Taiwan (Ex. E) was shown, plaintiff's witness called it a "G-head." When the government counsel asked the name of the part where the lug component is attached to a completed flex handle (Ex. J.), the witness also called it a "G-head."

The court also considered whether the use of the imported components changed as a result of the processing and assembling operations performed in the U.S. In finding that the use of the imported components did not change, the court stated that the use of the imported articles was predetermined at the time of importation due to the fact that each component was intended to be incorporated in a particular finished mechanics' hand tool. Although the court recognized the fact that only one predetermined use of imported articles does not preclude the finding of substantial transformation (See, Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it went on to say that the determination of substantial transformation must be based on the totality of the evidence.

Similarly, based on the totality of the evidence in this case, we find that none of the four essential components of a completed water pump is substantially transformed when it is combined with the other components, due to the fact that the U.S. operations do not change the name, character or use of the said four components. Examination of the four components reveals that they are all completely finished articles. No further processing needs to be performed to the individual components in the U.S. except assembly of the various components. In fact both the casting and hub already have the requisite number of holes drilled into them to assure proper mounting in the automobile. Like the hand tool components in National Hand Tool, an imported casting, bearing, impeller or hub has the same name after assembly. Although each component becomes an essential part of a completed water pump, each component is still referred to as a casting, bearing, impeller or hub after assembly. Thus, none of the essential components would change in name as a result of the U.S. operations. Likewise, as in National Hand Tool, the use of an imported casting, bearing, impeller or hub is predetermined at the time of importation. Each component is intended to be incorporated in a water pump. Also, as you state, none of the components are to be sold individually or as replacement parts, but are only used in the manufacturing of water pumps by Eastern. Clearly, these essential components do not change in character as
a result of the assembly operation. After being assembled into the completed water pump the form of a casting, bearing, impeller or hub remains the same of that of its original shape and form. There is no change in the components' microstructure or chemical composition after assembly. See Ferrostaal Metals Corp., v. United States, 11 CIT 470, 664 F.Supp. 535 (1987). In addition, there is no indication that the assembly operation is complex.

Applicability of Headquarters Ruling Letter (HQ) 732940

In HQ 732940 (July 5, 1990), issued to Eastern, Customs ruled that imported castings were substantially transformed in the U.S. when assembled with domestic components into a completed water pump and were not required to be individually marked. (No samples of either the individual components or the finished water pump were submitted prior to the issuance of the ruling). In reaching this conclusion, Customs noted that although the casting was generally the most costly component and was clearly an essential component of a water pump, other costly domestic components (bearing, impeller, hub, seal) were added which were also essential to the functioning of the water pump. Customs further noted that the addition of the impeller (an essential component) along with a domestic bearing, hub and seal was essential to create a functional article of commerce. (Emphasis added).

You contend that HQ 732940 should either already or should be amended to except from marking all foreign components used in the assembly of Eastern's water pumps, regardless of the origin of the various other components. We disagree.

As set forth above, Eastern proposes to use any amount of foreign components with other domestic components in the assembly of its water pump models, including any number of the four essential components. This we find to be outside the scope and rationale of HQ 732940. In that ruling we emphasized that a substantial transformation occurred due to the fact that all the essential components were domestic, except for the castings and/or gaskets. However, in this case one or more essential components added to the completed water could be foreign. This certainly is outside the scope of our previous holding.

Furthermore, after examination of the samples you have now submitted and in light of the recent National Hand Tool case decided after the issuance of HQ 732940, we find that we must reconsider the substantial transformation issue presented in HQ 732940 in accordance with the holding in that case. The casting is the most costly and largest component used in the completed
water pump which remains visible after it is assembled with the other components. Under the rationale in National Hand Tool the casting can not be considered to be substantially transformed when merely assembled with the other essential components. As we have decided above, none of the essential components is substantially transformed when assembled in the U.S. Each essential component, including the casting, does not change in name, character or use as a result of the assembly. Accordingly, we are revoking HQ 732940. However, as set forth in the holding below, in order to allow Eastern time to adjust to the new requirements for these castings, the effective date of this portion of our ruling is delayed until September 23, 1992.

Marking Exception Under 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g) For Imported Water Pump Components

In the alternative, you state that regardless of whether Customs finds that the foreign imported components are substantially transformed as a result of the U.S. operations, the imported components are excepted from country of origin marking under 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g) and only the outermost containers must be marked with the country of origin.

Pursuant to 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g), an imported article is excepted from marking if it is to be processed in the United States by the importer or for his account otherwise than for the purpose of concealing the origin of such article and in such manner that any country of origin marking would necessarily be obliterated, destroyed, or permanently concealed. Customs has ruled that articles excepted from marking under these provisions at the time of importation must be marked to indicate the country of origin after processing unless such processing constitutes a substantial transformation. The purpose of such requirement is to ensure that the ultimate purchaser is advised of the country of origin. See, HQ 732196, May 16, 1989; HQ 733676, December 6, 1990.

In this case, some of the water pump components, such as the impeller, may not remain visible after assembly. Any such components would be excepted from marking at the time of importation pursuant to 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g), since any marking thereon would necessarily be permanently concealed during the U.S. processing. However, in accordance with the above rulings, the completed water pump must be marked to indicate the country of origin of the various components, including those that are obscured during assembly.

Practical Considerations

In determining the marking requirements of the imported water pump components that are the subject of this ruling request, various practical considerations should be considered. These include the fact that Eastern sells numerous models of water pumps, and that, according to its submission, any of the individual components can be either domestically or foreign made. As provided above, and in light of the recent National Hand Tool case, none of the four essential components whether domestic or foreign is substantially transformed when assembled in the U.S. into a completed water pump and therefore must be marked with its country of origin. However, some of the components will be concealed during the assembly process and are excepted from marking at the time of importation on this basis, while others will not. Accordingly, the various components are subject to different marking requirements depending on how they will be used by Eastern. This makes compliance with marking requirements at the time of importation difficult.

In view of these practical considerations, in order to facilitate marking while at the same time providing adequate notice to the ultimate purchaser of the country of origin, we will permit Eastern to import the various components used in the assembly of the water pumps without country of origin marking provided:

1. the containers in which such components are imported are marked to indicate the country of origin of their contents

2. Eastern certifies to Customs at the time of entry that the finished water pump will be marked to indicate the country of origin of the essential foreign components used therein. For purposes of this requirement, the essential components of the water pump include the casting, impeller, bearing and hub. A single, centrally-located, country of origin marking on the finished article (or its container) that denotes the actual countries of origin of the essential foreign components of the water pump, but does not specify with particularity which component comes from which country is acceptable. If the pump contains essential domestic components, this may be noted. The fact that the pumps are assembled in the U.S. may also be included. For example, Model No. 18-008, which utilizes a
casting, impeller and hub from Taiwan and a bearing from the U.S. could be marked, "Assembled in U.S. from components manufactured in Taiwan and U.S." Alternatively, "Components Made in Taiwan", or "Components Made in Taiwan and U.S." are acceptable markings.

3. Customs officials at the port of entry are satisfied that the imported water pump components will be used by Eastern only in the assembly of automotive water pumps and will not otherwise be sold and that Eastern is marking the completed pumps as set forth above.

Failure by Eastern to comply with its certification will result in the imposition of marking duties and/or other appropriate measures.

HOLDING:

In view of the Court of International Trade's recent holding in National Hand Tool none of the essential components (casting, bearing, impeller and hub) of a completed water pump is substantially transformed when assembled in the U.S., and the imported components are subject to marking as set forth above. HQ 732940 is revoked.

In order to provide Eastern time to adjust its marking practices for the castings which were the subject of HQ 732940 to the requirements set forth herein, any castings which are entered or withdrawn from warehouse for consumption prior to September 23, 1992, which are to be combined with domestic components, as described in HQ 732940, are not subject to the above marking requirements. With respect to other imported components which are outside the scope of HQ 732940, this ruling is effective immediately.

Sincerely,

John Durant, Director
Commercial Rulings Division

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