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HQ 734387


June 8, 1992

MAR-2-05 CO:R:C:V 734387 GRV

CATEGORY: MARKING

Scott Blake Harris, Esq.
Williams & Connolly
839 Seventeenth Street, N.W.
Washington, D.C. 20006

RE: Country of origin marking of certain lead crystal stemware (Lismore pattern) hand-cut in a country other than the country where it was first produced. 134.1(b); uncut glassware; foreign processing (decorative pattern cutting); substan- tial transformation (degree and extent of manufac- ture affects character); Koru North America; Madison Galleries; Superior Wire; National Hand Tool Corp.; 043004; 045106; 047663; 733036 (distinguished); 556060; 555787; O.C.O.D. 91-1; C.S.D. 89-49(9)

Dear Mr. Harris:

This is in response to your letters of October 17, November 8, and December 12, 1991, on behalf of Waterford Crystal, Inc., requesting a country of origin marking ruling regarding certain lead crystal stemware formed in a Continental Europe country and hand-cut in Ireland. Photographs and sample stemware showing the various stages of the hand-cut crystal stemware were submitted for examination.

We have considered in connection with this ruling request the information provided by you and your client in a meeting held at Customs Headquarters on February 6, 1992.

FACTS:

This ruling is limited to the merchandise submitted for examination, identified as the "Lismore" pattern of Waterford crystal stemware.

Waterford Crystal, Inc., intends to import uncut, lead crystal stemware from unspecified Continental Europe countries, hand-cut a certain decorative pattern onto the exterior of all areas of the stemware--the bowl, stem and foot, perform certain finishing operations on the cut stemware, and export the finished stemware to the U.S. for retail sales to individual consumers. The stemware is given its shape in Europe, where the production of the crystal is a completely automated, unskilled operation, requiring one to two and a half minutes to perform. You denominate the crystal stemware product at this stage of its production a "blank," although its utility as stemware was established when it was first formed. The condition of the "blank" following this forming process is such that the lip of the bowl portion of the stemware is smooth (not rough) and the height of the stemware and the capacity of the bowl are already determined. Thus, while the "blanks" do not constitute finished consumer products, their final stemware dimensions are fixed. The price of a "blank" currently ranges from $2.50-$3.00 each.

The stemware is given its decorative, outward appearance in Ireland, where the production of the finished crystal stemware product is labor-intensive and exacting, entailing considerable expertise in the art of hand-cutting the crystal. Overall, the hand-cutting operation entails (1) ink marking the three areas of the "blank" stemware--the bowl, stem and foot--with the appropri- ate grid pattern ("Lismore") to be cut, (2) having a team of glass cutters variously cut the pattern onto the "blank," which takes on average seven minutes, (3) performing various finishing operations--washing and acid polishing and dipping the cut piece --a one hour process, which produces a glossy finish, and (4) inspecting and packaging the finished consumer product-- hand-cut lead crystal stemware--for export to the U.S. The finished stemware carries an ex-factory price ranging from $15.00-$25.00 each: an increase of more than 500% increase in cost as a result of the processing in Ireland.

Regarding the hand-cutting aspect of the operation, it is extremely labor-intensive, as it is accomplished by skilled cutters without mechanical assistance. The cutters normally serve an apprenticeship of five year perfecting the various cutting skills necessary to create a particular pattern on the stemware, and even then work under the direction of a master cutter, who possesses at least ten years cutting experience. The pattern cutting is accomplished in teams specializing in certain cuts; each team being comprised of a master cutter and four other cutters, denominated as either wedge cutters, who produce deep, diamond-shaped cuts on the stem portion of the stemware, or flat cutters who produces shallow smooth cuts on the bowl and foot portion of the stemware. Further regarding the flat cutting, it is stated that, typically, they have to be made twice using different wheels, which adds to the labor intensity of the cutting process.

The cutting of the Lismore pattern affects a large portion, approximately 80%, of the stemware's surface area, as all three areas of the stemware--the bowl, stem and foot--are subjected to cutting operations. The bowl area of the stemware is variously cut in two separate areas: in the middle of the goblet's bowl, the main, 16-leaf Lismore, pattern is both flat and wedge cut; the bottom of the bowl is flat cut to create a scalloped effect. Together, these cuttings affect approximately 75% of bowl area. The entire stem area of the stemware (round in shape) is flat cut into a hexagon design. And approximately 90% of the foot area is variously cut to complement the main, 16-leaf Lismore, pattern. The material result of these various cutting operations is that approximately 80% of the surface area of the crystal stemware is removed, making the finished stemware approximately 25% lighter. However, while the various flat and wedge cuts create a large variety of visual effects--faceting and scaling--on the surface of the stemware, the exterior cutting does not otherwise affect the crystal "blank's" shape or utility; its capacity and height as glassware and use as stemware remain unchanged.

You claim that the "blanks" imported into Ireland are substantially transformed by the operations performed there, such that the country of origin of the finished stemware imported into the U.S. is Ireland. You argue that the processing in Ireland causes a change in the "blanks" (1) name, (2) character, and (3) use, as follows:

(1) a change in name--from "blanks" (the accepted, descriptive name for such items in the crystal industry because the imported articles are not cut) into "hand- cut crystal stemware";

(2) a change in character--the "blanks" are unsuitable for use by consumers and are in fact not merchantable; their only demand is as raw material for further pro- cessing. You state that the "blank's" significantly altered "appearance" demonstrates its changed charac- ter, as the finished stemware can now be used both as formal tableware and as display items. In this regard you reference Headquarters Ruling Letter (HRL) 555250 (abstracted as C.S.D. 89-49(9) and distinguish Customs determination in Office of Commercial Operations Decision (O.C.O.D.) 91-1, which revoked a previous country of origin determination involving lead crystal; and, (3)a change in use--repeating the character argument above that the finished stemware can be used both as formal tableware and as display items.

ISSUE:

Whether the hand-cutting and other operations performed in Ireland to effect the finished Lismore-pattern on crystal stemware substantially transform the uncut crystal stemware for purposes of country of origin marking under 19 U.S.C. 1304 and 19 CFR 134.1(b).

LAW AND ANALYSIS:

The marking statute, 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) 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 pur- chaser 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.

The purpose of the country of origin marking laws "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. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940). 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 article is to be sold at retail in its imported form, the purchaser at retail is the "ultimate purchaser." 19 CFR 134.1(3).

The country of origin for marking purposes is defined at 134.1(b), Customs Regulations (19 CFR 134.1(b)), to mean 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 trans- formation in order to render such other country the "country of origin" within the meaning of Part 134. A substantial transfor- mation occurs when articles lose their identity and become new articles having a new name, character, or use. Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988). The question of when a substantial transformation occurs for marking purposes is a question of fact; to be determined on a case-by-case basis. Uniroyal Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 1 Fed.Cir. 21, 702 F.2d 1022 (1983).
Although the substantial transformation criteria speak to the condition of the article as it emerges from a substantial manufacturing operation, the focus of the inquiry is on the nature of the particular processing operation. In Madison Galleries, Ltd. v. United States, 12 CIT 485, 688 F.Supp. 1544 (1988), aff'd, 7 Fed.Cir. 56, 870 F.2d 627 (1989), the court stated that the starting point for resolving substantial- transformation issues was the definition of manufacture, citing Ferrostaal Metals Corp. v. United States, 11 CIT 470, 664 F.Supp. 535 (1987). And in Superior Wire v. United States, 11 CIT 608, 669 F.Supp. 472 (1987), aff'd, 7 Fed.Cir. 43, 867 F.2d 1409 (1989), the same court stated that:

[i]n recent years the courts have concentrated on change in use or character, finding various subsidiary tests appropriate depending on the situation at hand. An inquiry that is sometimes treated as a type of cross-check or additional factor to be considered in substantial transfor- mation cases is whether significant value is added or costs are incurred by the process at issue. (Citations omitted).

A value added test has appeal in many situations because it brings a common sense approach to a fundamental test that may not be easily applied to some products. ... related concepts, including the amount of labor required to accomplish the change and the capital investment required relative to that required to produce the entire article, are also relevant to a determination of whether the change involves minor processing. .... By itself such analysis may not provide the entire answer as to whether a substan- tial transformation has taken place, but it should comprise part of the analysis in a case involving the type of products and processing at issue here.
Customs has previously considered the issue of cutting patterns onto certain merchandise and generally found that such processing in a country other than the country where the merchandise was first produced does not substantially transform the cut article from its original country of origin. For rulings concerning certain wine glasses, see Headquarters Ruling Letters (HRLs) 043004 dated January 7, 1976, 045106 dated April 22, 1976, 047663 dated March 21, 1977, and 733036 dated April 9, 1990. For rulings concerning the cutting of jewelry, see HRLs 556060 dated August 27, 1991 and 555787 dated October 2, 1991. However, your arguments respecting the difference between the present transaction and the transactions previously ruled on have merit.

The O.C.O.D. you reference concerned a Treasury Department memorandum dated May 21, 1986, wherein the Treasury Department initially concluded that the proper country of origin of crystal vases produced and partially cut in Czechoslovakia and finished in Ireland by additional hand-cutting, grinding, and polishing was Ireland, based, in part, on the fact that the market value of the imported product was nearly doubled. On instructions from the Treasury Department, Customs revoked this country of origin determination. O.C.O.D. 91-1 dated June 4, 1991, 25 Cust.Bull. . The present transaction is distinguishable from the transaction subject of the Treasury memorandum and O.C.O.D. revocation, in that here the crystal stemware "blanks" are completely uncut at the time of their importation into Ireland and the extent of the manufacturing activities in Ireland radically alters the appearance of the stemware and adds substantial value--at least 500%--to the finished article.

In HRL 733036, supra, crystal stemware was made in Austria at a unit cost of $1.60. The uncut stemware was exported to East Germany--now Germany, where simple flat cuts were made on the bottom of the flute above the stem at a unit cost of $0.62. Acknowledging that the hand cuts were attractive, being very simple flat cuts that did not greatly increase the value of the stemware, we concluded that it did not substantially increase the value of the stemware, as it was not very time consuming nor intricate. Accordingly, we held that the crystal stemware was not substantially transformed in East Germany. Cf., HRL 555250 dated March 13, 1989 (abstracted at C.S.D. 89-49(9)), domestic- ally-made glass mugs, produced at a unit cost of $0.34, were exported to France where they were etched or cut and specially tempered, at a unit cost of $0.50; held: that the returned mugs were substantially changed abroad so as to preclude special tariff treatment under HTSUS subheading 9802.00.50, as articles altered abroad. You argue that the present transaction is even more complicated than the simple etching involved in the later HRL and likewise creates a profound change in the appearance of the imported "blank" stemware.

Comparing the extent and degree of the crystal stemware processing in HRL 733036 with that presented here, and consider- ing the relevance of the Superior Wire value-added analysis, we find that, taken as a whole and after examining the samples and photographs submitted, the character of the imported glassware "blanks" is substantially transformed functionally into formal, elegant stemware--suitable for indoor decoration--by the exten- sive hand-cutting operation performed in Ireland. This finding is based on the following facts: (1) that the hand-cutting operation is not a minor, but rather a substantial and intricate processing operation requiring skilled craftsmen; (2) that the hand-cutting operation not only materially impacts on the imported "blank" (removes approximately 80% of the surface area of the stemware, making the finished article approximately 25% lighter) but also imparts a distinctive, elegantly decorated appearance to the otherwise bare utilitarian character of the uncut glassware "blanks," and; (3) that significant value--more than 500%--is added to the glassware "blanks" because of the hand-cutting operation. The degree of hand-cutting being so intricate and elaborate and the extent to which it is accom- plished to effect the Lismore pattern, affect the glassware's decorative/display character, thereby causing the initial "blank" to lose its identity as mere glassware and become a new article: formal, i.e., elegantly distinctive, stemware, bought primarily for its functional appearance, rather than for its utilitarian use. The substantial transformation criteria being disjunctive in their application, the finding of a functional character change is sufficient to render Ireland the country of origin of the Lismore-pattern crystal stemware imported into the U.S.

HOLDING:

The extensive hand-cutting and other operations performed in Ireland to effect the finished Lismore-pattern on crystal stemware substantially transform the functional character of the uncut crystal stemware "blanks" for purposes of the country of origin marking under 19 U.S.C. 1304 and 19 CFR 134.1(b). Thus, Ireland is the country of origin of the imported Lismore pattern crystal stemware.

Sincerely,

John Durant, Director

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