HQ 0734924 - Country of origin marking of twist drills; 19 U.S.C. 1304; Virgin Islands; foreign origin; Made in United States; deceptive; Lanham Act; 15 U.S.C. 1125 ; HRL 733882; C.I.E.'s 373/56 and 779/60; ORR 73-159 - United States International Trade Commision Rulings

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HQ 734924

April 26, 1993

MAR 2-05 CO:R:C:V 734924 LR

CATEGORY: MARKING

Mr. Peter Hiebert, Esq.
Winston & Strawn
1400 L Street, N.W.
Washington, D.C. 20005

RE: Country of origin marking of twist drills; 19 U.S.C. 1304; Virgin Islands; foreign origin; Made in United States; deceptive; Lanham Act; 15 U.S.C. 1125 ; HRL 733882; C.I.E.'s 373/56 and 779/60; ORR 73-159

Dear Mr. Hiebert:

This is in response to your ruling request dated December 10, 1992, submitted on behalf of the Government of the U.S. Virgin Islands and American Tool & Supply Company regarding the marking of certain twist drills. Following a meeting at Customs Headquarters on February, 11, 1993, you made an additional submission on February 19.

FACTS:

In response to a ruling request submitted by counsel on behalf of Michigan Drill Company, the Customs Service determined in Headquarters Ruling Letter (HRL) 733882, July 25, 1991, that the processing in the U.S. Virgin Islands of high speed fluted steel blanks into finished precision twist drills in various configurations by Michigan Drill Company (Michigan Drill) would effect a substantial transformation of the blanks. Under the ruling, the finished articles would be exempt from duty upon importation into the U.S., provided each article satisfied the requirements set forth in General Note 3(a)(iv), Harmonized Tariff Schedule of the United States, that the value of foreign materials is not more than 70 percent by value. The ruling also held that the finished precision twist drills are not required to be marked as articles of foreign origin at the time of their importation into the U.S. based on a finding that Michigan Drill was the ultimate purchaser.

You advise that the majority shareholders of Michigan Drill subsequently established American Tool & Supply Company (American Tool) to make the proposed investment in the Virgin Islands and that American Tool plans to operate in the same manner as was described in the Michigan Drill ruling request.

You ask us to confirm that Customs will not take any adverse action pursuant to the Customs Regulations or any other provision of law, against either American Tool or the specific products it intends to ship into the customs territory of the United States if the drills are marked "Made in the U.S.A." or with words of similar import without also indicating that the drills are products of the U.S. Virgin Islands.

ISSUES:

1) Are the twist drills described in HRL 733882 articles of foreign origin for purposes of 19 U.S.C. 1304?

2) May the twist drills described in HRL 733882 be imported if they are marked "Made in U.S.A." or a similar marking without also indicating that they are a product of the Virgin Islands?

LAW AND ANALYSIS:

There are two laws relating to origin which are enforced by the Customs Service. The first is section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304). The second is section 43 of the Lanham Act (15 U.S.C. 1125). Each will be addressed separately.

Are the twist drills subject to the requirements of 19 U.S.C. 1304?

19 U.S.C. 1304, requires, subject to certain specified exceptions, that every article of foreign origin imported into the United States shall be marked to indicate the country of origin to the ultimate purchaser in the United States. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

In order to fall within the purview of 19 U.S.C. 1304 an article must be an article of "foreign origin" and it must be imported into the "United States."

United States is defined both in section 401(h) of the Tariff Act of 1930, as amended (19 U.S.C. 1410(h)) and in 19 CFR 134.1(e), to include:
all territories and possessions of the United States, except the Virgin Islands, American Samoa, Wake Island, Midway

Islands, Kingman Reef, Johnston Island, and the island of Guam. (emphasis added)

Articles of foreign origin imported into the Virgin Islands are not subject to the requirements of 19 U.S.C. 1304 because they are not imported into the United States as defined above.

The question here is whether products of the Virgin Islands are of "foreign origin" and subject to the requirements of 19 U.S.C. 1304 upon importation into the United States. While the statute does not define "foreign origin", 19 CFR 134.1(c) states:

"foreign origin" refers to a country of origin other than the United States, as defined in paragraph (e) of this section, or its possessions and territories (emphasis added).

In other words, foreign origin refers to a country of origin other than the United States or its possessions and territories. The Virgin Islands is an unincorporated territory of the United States. See Organic Act of the Virgin Islands of the United States, 48 U.S.C. 1541-1645 (1988). Although the Virgin Islands is excluded from the definition of the United States in paragraph (e) i.e., 19 CFR 134.1(e), it is included within the emphasized language above. Therefore, for purposes of 19 U.S.C. 1304 and 19 CFR Part 134, we conclude that products of the Virgin Islands are not articles 'of foreign origin'. Therefore, neither the products nor their containers are subject to the marking requirements of 19 U.S.C. 1304 and 19 CFR Part 134 upon importation into the United States. See also C.I.E. 373/56, March 2, 1956 and ORR Ruling 73- 159, May 31, 1973 (stating that 19 U.S.C. 1304 does not apply to articles which are the product of the U.S. Virgin Islands).1/

1/ There is also a specific exception in the marking regulations for products of possessions of the United States. See 19 CFR 134.32(l). Several rulings have applied this exception to products of possessions of the U.S. and at least one ruling has applied it to products of U.S. Virgin Islands. See HRL 725787, July 24, 1984. Generally, the containers of excepted articles must be marked with the origin of the contents. This is not the case where the imported article is not of foreign origin and outside the purview of the marking statute. (HRL 725787 does not address this issue).

Based on the determination in HRL 733882, supra, that the articles is question undergo a substantial transformation in the Virgin Islands and are products of the Virgin Islands, the requirements of 19 U.S.C. 1304 and 19 CFR Part 134 do not apply and neither the twist drills nor their containers are subject to origin marking requirements. 2/

May the twist drills be imported if they are marked "Made in the U.S.A." without also indicating that they are a product of the Virgin Islands?

The question of whether the twist drills may be imported with the proposed marking hinges on the application of 15 U.S.C. 1125. This law confers a private right of action, allowing one firm to sue another for damages stemming from deceptive origin disclosure and also provides that such goods may not be imported. It reads in applicable part:

(a) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact which --

(1) is likely to cause confusion, or to cause mistake, or to deceive as to ...the origin...of his or her goods, ...
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

(b) Any good marked or labeled in contravention of the provisions of this section shall not be imported into the United States or admitted to entry at any customhouse of the United States. ... (emphasis added)

2/ Although HRL 733882 stated that the drills required no marking, that finding was erroneously based on a determination that Michigan Drill was the ultimate purchaser of the "blanks" pursuant to 19 CFR 134.35. That section states that "the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the 'ultimate purchaser' of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended...and the article shall be excepted from marking." (emphasis added) Michigan Drill is located in the Virgin Islands. Even if section 304 applied to products of the V.I., Michigan Drill could not be considered the ultimate purchaser since the V.I. is excluded from the definition of the U.S. contained in 19 CFR 134.1(e) (which applies to 19 CFR 134.35).

Since the Customs Service enforces 19 U.S.C. 1304 which requires origin marking only on articles of foreign origin, most Customs rulings address the question of whether an article is subject to the requirements of that statute and if so, what the requirements are. With regard to the use of a "Made in U.S.A" marking on a product which is not subject to the requirements of 19 U.S.C. 1304, Customs has repeatedly deferred to the Federal Trade Commission (FTC), the agency that has primary responsibility for determining when the "Made in USA" marking may be used. See HRL's 734085, June 3, 1991; 555062, February 23, 1990; and, 731028, July 18, 1988.

Accordingly, we believe that except in circumstances where a "Made in U.S.A." marking on an imported article is clearly deceptive or false, or where a private party has obtained a court ruling pursuant to 15 U.S.C. 1125(a) that a particular marking is false or deceptive, or where the FTC has determined that a "Made in U.S.A." marking is unacceptable, Customs should not bar the importation of an article so marked when the article in question is not of foreign origin within the meaning of 19 U.S.C. 1304.

Therefore, the only question which will be addressed here is whether a "Made in U.S.A" marking on the twist drills is clearly deceptive or false. We conclude that it is not. First, there is nothing in the Lanham Act itself to suggest that the use of the "Made in the U.S.A." label on a product of the U.S. Virgin Islands would be a false designation of origin. On the contrary, the Lanham Act, 15 U.S.C. 1127 (1988), states in part: "In the construction of this chapter, unless the contrary is plainly apparent from the context--The United States includes and embraces all territory which is under its jurisdiction and control."

Second, although the Virgin Islands is outside of the customs territory of the United States, it is considered part of the United States for many purposes. In this regard, we refer to page 14 of your December 10, 1992, submission where you indicate the following:

Products manufactured in the Virgin Islands are produced by American workers subject to federal health, safety and welfare standards and protections. In some cases, manufacturing takes place in plants financed in part by federal funds or is conducted by firms capitalized with Small Business Administration leans. As an unincorporated territory, the Virgin Islands is a part of the U.S.A. Organic Act of the Virgin Islands of the United States, 48 U.S.C. 1541-1645 (1988). Its citizens are citizens of the United States, service in the U.S. military and are entitled to vote. See 48 U.S.C. 1542(a). Its Governor and high officials must be U.S. citizens. 48 U.S.C. 1543. The Virgin Islands has a Bill of Rights similar to that under the U.S. Constitution and certain provisions of the U.S. Constitution have been extended, by statute, to the Virgin Islands. 48 U.S.C. 2561. Moreover, the Virgin Islands is a member of the Department of Commerce District Export Council for the Puerto Rico district and its exports are considered U.S. exports for U.S. statistical purposes. American workers in the Virgin Islands are protected by U.S. immigration laws, as well as by federal regulatory statutes and standards -- federal wage and hour laws, Occupational Health and Safety Act standards, environmental laws and of the federal protection have generally been extended to the Virgin Islands by Congress. Finally, the Customs Service office in the USVI enforces both U.S. Customs requirements and those of the USVI.

Also, for purposes of application of U.S. laws administered by the FTC, which require the disclosure of consumer information (including origin) on certain products, the U.S. Virgin Islands is considered part of the United States. See Wool Products Labeling Act of 1939, as amended (Wool Act), 15 U.S.C. 68-68j (1988); and Textile Fibers Products Identification Act (Textile Act), 15 U.S.C. 70-70k (1988). Regulations adopted by the FTC under both Wool Products Labeling Act and the Textile Fiber Products Identification Act require domestic manufacturers to label their products with their country of origin. For labeling purposes, the regulations under both of these statutes specifically define the United States to include all of its possessions. See 16 CFR 300.1(g) and 303.1(d). 3/

Finally, the Customs rulings which have addressed the issue of U.S. markings on Virgin Island products are not persuasive. In a ruling regarding necklaces which were the product of the U.S. Virgin Islands (C.I.E. 373/56, supra), Customs determined that such articles may be precluded importation under the Lanham Act if marked to indicate the United States as the country of origin without also designating the Virgin Islands. No reasons were provided. Four years later, in a ruling regarding watches manufactured in the Virgin Islands (C.I.E. 779/60, June 1, 1960), Customs determined that they could not be marked "Made in the U.S.A." because "congress in defining the term 'United States' for tariff purposes in section 401(k) Tariff Act of 1930, as amended, specifically excludes the Virgin Islands as being within the geographical limits of the United States." See also ORR Ruling 73-159, supra (applying C.I.E. 373/56 to pharmaceutical products).

3/ Both the Wool Act and the Textile Act limit the use of the "Made in USA" label to those wool and textile fiber products which are completely made in the United States of materials that were made in the U.S.(16 CFR 300.25a and 16 CFR 303.33(a)(2)).

These rulings do not reflect our current policy. The fact that the United States does not include the Virgin Islands for tariff purposes should not determine whether a product marked "Made in U.S.A" is a prohibited importation under the Lanham Act. And, as stated above, Customs practice now is to defer to the Federal Trade Commission regarding "Made in U.S.A" on articles which are not subject to marking under 19 U.S.C. 1304. Thus, in HRL 555062, February 23, 1990, published as C.S.D. 90-57, concerning peanut butter made in the Virgin Islands, Customs stated that "whether or not the peanut butter can be marked with a 'Made in the U.S.A.' label is a determination to be made by the Federal Trade Commission, not the Customs Service."

In light of the above considerations, we conclude that a "Made in U.S.A" marking on the twist drills or their containers is not clearly deceptive or false and that we will not bar their importation if they are marked in this manner. However, if a determination is issued by the FTC that such marking is not acceptable in the circumstances presented, or if a court makes such a determination based on a private action under 15 U.S.C. 1125(a), Customs will abide by such determination. We suggest that your clients contact the FTC, 6th & Pennsylvania, N.W., Washington, D.C. 20500, for its views on this matter.

HOLDING:

Subject to the conditions noted above, Customs will not take any action to bar the importation of the finished precision twist drills of American Tool & Supply Company which are processed in the manner described in HRL 733882 because such articles or their containers are marked with the words "Made in the U.S.A." or with words of similar meaning.

To the extent that C.I.E.'s 373/56 and 779/60 and ORR 73-159 conflict with the determinations made herein, they are modified.

Sincerely,

John Durant, Director

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