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HQ 732897

June 6, 1990

MAR-2-05 CO:R:C:V 732897 KG

CATEGORY: MARKING

District Director
U.S. Customs Service
Dallas / Fort Worth International Airport P.O. Box 619050
Dallas, Texas 75261

RE: Country of origin marking of automobile air conditioner kits

Dear Sir:

This is in reference to protest number 5501-8-000244 dated July 14, 1988, and the application for further review filed on behalf of Uriman, Inc., the importer, against the decision of the district director to assess marking duties in connection with entries of automobile air conditioner kits.

FACTS:

This protest involves nine shipments of automobile air conditioner kits imported from Korea which are designed to be installed in Hyundai automobiles. The importer sells the units to Specific Climate Systems who resells them to Hyundai dealerships. The kits are available for retail purchase directly from a Hyundai dealership for self-installation or can be purchased and installed by the Hyundai dealership. The kits contain several major parts such as the compressor that are made in Japan, several parts made in the U.S. and numerous parts made in Korea.

The shipments in question involved kits made up of parts from Korea, Japan and the U.S. which were packaged in boxes marked "Made in Korea". The entries for the nine shipments were made from October 20, 1987, to December 28, 1987. On November 6, 1987, entries two, three and four were made and the importer had discussions with Customs officials at the Dallas port about granting a marking waiver for the entries based on 19 CFR 134.32(h). A second marking/redelivery notice for the nine shipments was issued on January 20, 1988. However, the importer was unable to mark or redeliver the nine shipments because they had already been sold. Since January 20, 1988, the importer has continued to make entries for these kits but the boxes are marked "Made in Korea with compressor-dryer- fan motor-actuator Made in Japan, hoses Made in U.S.A."

ISSUE:

Whether the imported air conditioner kits should be subject to marking duties.

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."

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 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 with the meaning of 19 CFR Part 134. Therefore, pursuant to 19 CFR 134.1(b), each piece within a kit retains its own country of origin which must be marked if it is of foreign origin unless the packaging of the pieces together effects a substantial transformation.

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 ___, 628 F.Supp. 978 (CIT 1986), Koru North America v. United States, 12 CIT ___, 701 F.Supp. 229 (CIT 1988). Customs held in HQ 732498 (October 3, 1989), that merely packaging parts of a kit together does not constitute a substantial transformation. The parts involved in this protest were merely packaged together and are not substantially transformed into a new article of commerce having a new name, character or use. Therefore, the individual parts retain their individual countries of origin. The Japanese and U.S. made parts contained in the kit are not considered products of Korea and should not have been imported in boxes marked "Made in Korea".

In this instance, the Customs officials erroneously thought that the imported kits were entitled to a marking exception under section 134.32(h), Customs Regulations (19 CFR 134.32(h)), and that if the kits were entitled to this exception, that they could be marked as entered. This general exception to the marking requirements is based on 19 U.S.C. 1304(a)(3)(H) where an ultimate purchaser, by reason of the character of the article or by reason of the circumstances of its importation, must necessarily know the country of origin of the article even though it is not marked to indicate its origin. In ruling 730243 (March 5, 1987), Customs required that the importer must be the ultimate purchaser of the imported article and have direct contact with the foreign supplier to qualify for the 19 U.S.C. 1304 (a)(3)(H) exemption. In fact, the kits were not entitled to the 19 CFR 134.32(h) exception regardless of whether the dealerships or retail purchasers were the ultimate purchaser because the importer, Uriman, sold the kits to Specific Climate Systems and was therefore not the ultimate purchaser of the kits. Since the importer was not the ultimate purchaser of the kits but merely a middleman, the kits were never entitled to the 19 CFR 134.32(h) exception. Further, even if the kits were excepted from marking in accordance with 19 CFR 134.32(h), the exception is inapplicable pursuant to section 134.36(b), Customs Regulations (19 CFR 134.36(b)), because the container could mislead a purchaser to believe that the parts were made in Korea, when in fact, some of the major components were made in Japan. Containers bearing misleading marking which imply that an article was made or produced in a country other than the actual country of origin are not entitled to a marking exception pursuant to 19 CFR 134.36(b).

At the meeting with the importer in 1987, the Customs officials led the importer to believe that the imported kits might be entitled to a marking exception and that if so, the kits would not have to be remarked. Relying on those statements, the importer did not remark the goods and sold the kits to Hyundai dealerships. They also brought in five more shipments which were marked the same way in reliance on Custom's position. Articles found not legally marked may be properly marked pursuant to section 134.51, Customs Regulations (19 CFR 134.51), after Customs has notified the importer that the goods are not properly marked. In this instance, because the importer relied on statements by Customs officials that the kits were entitled to a marking exception if the kits were only sold to Hyundai dealerships, they incorrectly believed that they did not need to correct the markings. Without further addressing the merits of the importers actions, because the importer reasonably relied on statements by Customs officials to their detriment, the marking duties should be cancelled.

HOLDING:

Based on the above considerations, you are advised to grant the protest.

Sincerely,

Marvin M. Amernick
Chief, Value, Special Programs

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