HQ 0734567 - Country of origin marking of unsized leather strips imported from China and processed in the U.S. into finished belts; substantial transformation; 19 CFR 134.35. - United States International Trade Commision Rulings

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HQ 734567

August 27, 1993

MAR-2-05 CO:R:C:V 734567 KR

CATEGORY: MARKING

Mr. Allan L. Ford, President
The American Belt Company
Adams Road at Adams Circle
P.O. Box A
Pensalem, PA 19020-0848

RE: Country of origin marking of unsized leather strips imported from China and processed in the U.S. into finished belts; substantial transformation; 19 CFR 134.35.

Dear Mr. Ford:

This is in response to your letters dated March 17, 1992, and August 27, 1992, on behalf of The American Belt Company, requesting a country of origin ruling regarding unsized leather strips to be imported and manufactured into finished belts in the United States. Samples of the product were submitted for examination demonstrating the various manufacturing stages. Samples of the unfinished product made into other types of straps, and a Dooney and Bourke catalogue, were also submitted to show other uses of the leather strips.

FACTS:

You state that The American Belt Company intends to import unsized leather strips from China. The strips will be further processed in the U.S. to become finished belts. It is your position that this further processing amounts to a substantial transformation.

You have divided the U.S. processing into 8 steps:

1. Sizing the leather strips into particular lengths.

2. Punching the point end, including punching holes in the belt and rounding the end.

3. Punching the buckle end, including rounding the buckle end.

4. Polishing the point end.

5. Polishing the buckle end.

6. Stitching both sides of the entire length of the belt and stamping.

7. Attaching the buckle and loop.

8. Packaging, including attaching the hanger and price ticket.

The leather strips are made in China. The buckle, loop and packaging are of U.S. origin. You state that the value of the leather strips is $0.9589. You state that the value added in the U.S. with the low priced buckle is 58.9% of the total cost of the belt. The value added in the U.S. with the higher priced buckle is 69.2% of the total cost. You state the average value of a buckle is approximately $0.50, making an average value added in the U.S. $1.692 or 63.8% or the total cost of the finished belt.

The leather undergoes a nineteen step process in China prior to the importation into the U.S.:

1. Wash out packing salt.

2. Unhair.

3. Place in lime to plump the hide.

4. Flesh - to remove excess flesh.

5. Split the hide into two sections, grain and split.

6. Neutralize the hide - remove the lime.

7. Tan with chrome (can be done with vegetable).

8. Wring to remove excess moisture.

9. Shave to desired thickness.

10. Rotan with a vegetable rotan.

11. Dye the crust.

12. Lubricate with fat liquor.

13. Set out to stretch and remove moisture.

14. Toggle or paste to dry.

15. Finish - basecoat, tumble or mill, print with haircell, color coat, antique, and top coat.

16. Stake to soften the leather.

17. Block the finished hide and lining to panels.

18. Strip the hide panels and lining panels to the desired width.

19. Laminate the strip of leather and lining together.

You state that the leather strips as imported can be finished into belts, as you do, or into various other types of straps for luggage, handbags, camera cases, and other uses. You submitted a catalogue from Dooney and Bourke to demonstrate other uses of the leather strips; as well as mock up other straps made from the leather strips.

The containers holding the leather strips are marked "Made in China" when entered into the U.S. You believe that the processing of the leather strips into belts is a substantial transformation and wish to mark the finished belts "Made in U.S.A."

ISSUES:

Whether the imported leather strips are substantially transformed by the additional processing performed in the U.S.

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 1120 (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 134.35, Customs Regulations (19 CFR 134.35), states that the manufacturer or processor in the U.S. who converts or combines the imported article into a different article having a new name, character or use will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. 1304 and the article shall be excepted from marking.

A substantial transformation occurs when an article loses its identity and becomes a new article 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, 628 F. Supp. 978, 10 CIT 48 (CIT 1986); Koru North America v. United States, 701 F. Supp. 229, 12 CIT 1120, (CIT 1988). However, in Uniroyal, Inc. v. United States, 542 F. Supp. 1026, 1029 (CIT 1982), the court held that where the "manufacturing or combining process is merely a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred...." The court said that where the "substantially complete ... [product] ...is readily recognizable as a distinct item apart from" the further processing, there is no substantial transformation, but the imported part was the "very essence of the completed" product. Id. at 1029-30.

In ORR Ruling 72-83 (Dated May 2, 1972), Customs determined that unfinished leather belt straps were substantially transformed in the U.S. when processed in the manner described below:

[T]he belts will be imported with the buckle end completely unfinished. It will be necessary for you to first cut or trim the end of the strap so that there is a straight and smooth edge. Then you will either sew or glue the end so that it will be ready for the buckle to be attached by rivets, snaps, or by sewing. In addition, the end of the belt will have to be stained to match the color of the rest of the belt in color or shade. Finally, you propose to stain the belt holes....

In the instant case, The American Belt Company is importing unfinished leather strips made in China. In China the hides undergo nineteen processing steps and are substantially transformed into a new a different article, leather strips. These strips are imported into the U.S. and can be processed into various different products not only belts, such as straps for luggage, handbags, and camera cases. The American Belt Company processes the leather strip through eight steps to create a belt. These steps are similar to those performed in ORR ruling 72-83 supra. The processing in the U.S. adds approximately 58.9% of the total cost of the belt with the low priced buckle, and approximately 69.2% of the total cost of the belt with the high priced buckle. At the time of importation the product is unfinished leather strips which are far from completion. At that time, they possess none of the characteristics of belts. They are not the proper length; they have unfinished ends and no stitching, no holes, no buckle, and no loop. Based on the further processing and ORR Ruling 72-83, supra, we conclude in this instance that the imported leather strips are substantially transformed in the U.S. as a result of the further processing in the U.S. Accordingly, we find that American Belt Company is the ultimate purchaser of the leather strips under 19 CFR 134.35. As such, the leather strips are excepted from marking provided the cartons in which they are imported are marked.

This ruling does not address the issue of whether "USA" may be marked on the packaging, or belts. The determination of marking an item with the "USA" symbol is under the primary jurisdiction of the Federal Trade Commission. We, therefore, recommend that you contact the Federal Trade Commission, Division of Enforcement, located at 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20580, for any views concerning marking the belts with the "USA" symbol.

HOLDING:

Imported leather strips are substantially transformed into belts in the U.S. by the further processing steps performed in the U.S. as described above. Therefore, American Belt Company is the ultimate purchaser of the leather strips. The leather strips are excepted from marking provided they are imported in a properly marked carton and the District Director at the port of entry is satisfied that this carton will reach your company intact and that the strips will be used only in the manner discussed in this ruling.

Sincerely,

John Durant, Director

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