HQ 0734024 - Country of origin marking of imported back table cover; 19 CFR 12.130; substantial transformation - United States International Trade Commision Rulings

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HQ 734024
May 21, 1991

MAR-2-05 CO:R:C:V 734024 KG

CATEGORY: MARKING

Mr. Ken W. Read
Baxter Healthcare Corporation
One Butterfield Trail
El Paso, Texas 79906

RE: Country of origin marking of imported back table cover; 19 CFR 12.130; substantial transformation

Dear Mr. Read:

This is in response to your letter of January 22, 1991, requesting a country of origin ruling regarding imported back table covers.

FACTS:

A sample table cover was submitted for examination. Your company purchases large rolls of non-woven fabric which are made in England for processing in the U.S. In the U.S., the non woven fabric is laminated by a lamination machine which takes about two seconds per piece. The laminated material is then rerolled onto a core and moved to the sheeter machine. The sheeter machine cuts the fabric to length; this process takes about 17 seconds per piece. After cutting, the covers are bulk packed and shipped either to a plant in the U.S. or to a plant in Mexico. The cost of the fabric is about 50% of the cost of the final product while the film makes up the other 50%. Some of the covers are folded and packaged into surgical kits within the U.S. while others are folded and packaged into surgical kits in Mexico and then imported back into the U.S.

The kits include everything that an operating nurse needs to set up an operating room for a particular operation. For instance, a kit might include such items as gowns, grays that go over the patient, mayo stand covers, sponges, surgical blades, surgical towels and syringes. Each kit, which includes a cover and other items, is packaged into a heat sealed poly bag. Two to ten kits are packaged together in a shipping carton. Each carton is marked to indicate the country of origin of each foreign item that is included in the kit. The cartons are imported into the U.S., sterilized and sold to hospitals and surgical clinics by the carton.

ISSUES:

What is the country of origin of the back table covers?

What is the proper country of origin marking of the cartons?

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."

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for making country of origin determinations for textile and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854)"("section

Pursuant to 19 CFR 12.130, the standard of substantial transformation governs the determination of the country of origin where textiles and textile products are processed in more than one country. The country of origin of textile products is deemed to be that foreign territory, country, or insular possession where the article last underwent a substantial transformation. Substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing operations.

In T.D. 85-38 there is a discussion of how the examples and the factors enumerated in the regulation are intended to operate. "Examples set forth in 19 CFR 12.130(e) are intended to give guidance to Customs officers and other interested parties. Obviously, the examples represent clear factual situations where the country of origin of the imported merchandise is easily ascertainable. The examples are illustrative of how Customs, given a factual situation which fall within those examples, would rule after applying the criteria listed in 12.130(d). Any factual situation not squarely within those examples will be decided by Customs in accordance with the provisions of 12.130(b) and (d)." The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d).

The first prong of the substantial transformation standard set forth in 19 CFR 12.130 requires that a new and different article of commerce result from the manufacturing or processing operation. Section 19 CFR 12.130(d)(1) provides that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in commercial designation or identity; fundamental character or commercial use. In this instance, the fabric which is made into a laminated back table cover in the U.S., does undergo a change in commercial identity, fundamental character and commercial use. Therefore, the first prong of this standard is satisfied in this case.

The second prong of the substantial transformation standard set forth in 19 CFR 12.130 requires that the merchandise has been subjected to substantial manufacturing or processing operations. This case is not squarely within the example set forth in 19 CFR 12.130(e)(1)(iv). Therefore, the factors set forth at 19 CFR 12.130(d)(2) will be considered to determine if the operations performed in the U.S. would be considered to be a substantial manufacturing or processing operation or not. The factors set forth at 19 CFR 12.130(d)(2) are: (1) the physical change in the material or article as a result of the manufacturing or processing operations in each foreign country; (2) the time involved in the manufacturing or processing operations in each foreign country; (3) the complexity of the manufacturing or processing operations in each foreign country; (4) the level or degree of skill and/ or technology required in the manufacturing or processing operations in each foreign country; and (5) the value added to the article or material in each foreign country compared to its value when imported into the U.S.

The physical change in the fabric involved here is not that significant; the fabric is merely cut to length and processed in a machine in an operation that takes less than one minute. The time involved in the processing is de minimis. It does not appear that this processing is complex and no human skill appears to be involved in this processing. Based on the information submitted, the processing in the U.S. does not appear to be a substantial manufacturing or processing operation. Folding and packaging, which is sometimes done in Mexico, would not constitute a substantial transformation. Therefore, the country of origin of the imported back table covers remains England.

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Customs ruled in T.D. 91-7 (January 16, 1991) and HQ 732498 (October 3, 1989), that for sets, mixtures and composite goods, the country of origin for each foreign article imported into the U.S. must be marked to indicate their own country of origin. Where the marking of the container will reasonably indicate the country of origin to the ultimate purchaser, the container may be marked instead of the individual articles. (See 19 CFR 134.32(d)). In this case, marking the cartons with the country of origin of each foreign component in the kit will reasonably indicate the country of origin of the foreign components as long as the kits are imported in those marked cartons and sold only in this manner to the hospitals and clinics that will use them. For the back table covers, marking the carton with a phrase such as "Back table cover made in England" will satisfy the requirements of section 304 of the Tariff Act of 1930, as amended and 19 CFR Part 134.

Those table covers which will be packaged (or repacked) in the U.S. into marked cartons after release from Customs custody must be individually marked unless excepted from marking by the district director under the procedures set forth in 19 CFR 134.34. Under this provision, an exception under 19 CFR 134.32(d) may be authorized in the discretion of the district director if the containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S. and the importer arranges for supervision of the marking of the containers by Customs officers at the importer's expense or secures such verification, as may be necessary, by certification and the submission of a sample or otherwise, of the marking prior to the liquidation of the entry.

Also, note that if a U.S. address appears on the individual surgical kit containers, the provisions of 19 CFR 134.46 would require that the country of origin of all imported articles also appear on the individual surgical kit containers. HOLDING:

The country of origin of the back table covers is England. Marking the country of origin on the cartons in which the covers are imported instead of the covers themselves is acceptable provided the district director is satisfied that they will be sold only in this manner to the hospitals and clinics that will use them. If individual kits are sometimes removed from the carton prior to sale to the hospital or if the kit includes a U.S. address or some other place reference (other than England), the marking of the kit container would be required. A phrase such as "back table covers made in England," should be used.

With respect to those covers which will be packaged in the U.S., the covers must be individually marked unless the district director authorizes the marking of the cartons under 19 CFR 134.34.

Sincerely,

John Durant
Director,

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