HQ 0735086 - Country of origin marking requirements for circular or rotary cutting tools or saw blades; substantial transformation; grinding; cutting; polishing; costs; 19 CFR 134.35 - United States International Trade Commision Rulings

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HQ 735086

October 20, 1993

MAR-2-05 CO:R:C:V 735086 RSD

CATEGORY: MARKING

Mr. Fred Gunzer
Dalex
302 W. Evergreen
P.O. Box 787
Redmond, Oregon 97756

RE: Country of origin marking requirements for circular or rotary cutting tools or saw blades; substantial transformation; grinding; cutting; polishing; costs; 19 CFR 134.35

Dear Mr. Gunzer:

This is in response to your letter of March 3, 1993, addressed to the Regional Commissioner of Customs at the New York Seaport concerning the country of origin marking requirements for circular saw blades. The National Import Specialist forwarded your letter to Customs headquarters for a response. Two sample saw blades, one without the carbide tips and one with carbide tips that have been attached and sharpened have been submitted.

FACTS:

Dalex imports components and manufactures and markets carbide cutting tools, including rotary saw blades. This case, concerns rotary steel saw blades imported from China. The blank is manufactured in China. The cutting carbide tips and silver soldering are made in the United States and are shipped to China. The cutting tips are then soldered to the saw blade blanks which are then exported to the United States. In the United States the saw blades are sandblasted, polished, and the top and the sides are ground. The two sample saw blades look very similar except on one of the blades the carbide tips have not been ground, while on the other blade the tips have been ground to a sharp edge.

Dalex states that the total cost of making a saw blade is $2.15 of which $1.47 or 75% of the cost is attributable to U.S. operations or components. In its breakdown of the cost of making a saw blade, Dalex indicates that the cost of each tip is $.03 and there are 24 tips on a saw blade, for a total of $.72 per blade. The labor cost of attaching the carbide tips to the saw blades is $.20. The cost of the steel blank from China is $.40. The shipping cost is $.05. The cost of the U.S. processing (sandblasting, polishing, and grinding the sides and tips) is $.75.

ISSUE:

Whether or not the imported rotary saw blades are substantially transformed by the grinding of the carbide tips and other operations 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 its 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. Congressional intent in enacting 19 U.S.C. 1304 was "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." United States v. Friedlaender & Co. 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "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" within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed. In such circumstances the U.S. manufacturer is the ultimate purchaser. The imported article is excepted from individual marking and only the outermost container is required to be marked. (see 19 CFR 134.35).

Customs ruled in HQ 740134 (February 6, 1987) that the grinding of geometrically shaped teeth on to blank saw blades and other minor processing substantially transformed the blank saw blade into a new article of commerce. It was noted that without the teeth the finished item could not function and that the creation of the teeth determines the essential character of the finished blade. In HQ 733837 (February 5, 1991) we followed the reasoning of HQ 740134, and concluded that very similar processing of grinding the teeth onto saw blade blanks in the U.S., was a substantial transformation.

In this case, the sharpening the carbide tips of the blades through grinding is a minor change to the blades. The identity of the article is already established before the U.S. processing takes place. Unlike HQ 740134 and 733387, the imported articles have all the basic characteristics of saw blades. The U.S. processing of the blades only further refines the products but does not change their character. The imported blades are readily recognizable as rotary blades and cannot be used to make any other products. The basic size and shape of the blades are unchanged by the U.S. processing operations. Even though the tips are unsharpened as imported, the blades would still be called saw blades, and thus the U.S. processing does not change the name of the article. There is no indication that the U.S. processing involves highly skilled or complex operations. We find that the name character or use of the saw blades are unchanged by the U.S. processing operation.

Dalex maintains that most of the costs in making the saw blades are attributable to U.S. components or U.S. operations and therefore the saw blades should be considered as U.S. products. We disagree. First, an increase in the value of an article does not automatically indicate that there is a substantial transformation. See National Hand Tool Corp. v. United States, Slip Op. 96-61 (April 27, 1992) aff'd 989 F.2d 1201 (1993) unpublished.

Furthermore, even if we did consider the costs to be a significant factor in determining whether the blades were substantially transformed, the costs of the U.S. materials sent to China are not relevant because the country of origin of an article for marking purposes is determined by where the last substantial transformation takes place not by where most of the costs of making article are incurred. Once an article is substantially transformed, it becomes a product of the country where the substantial transformation took place, and the cost of prior components and work are not considered in determining whether the additional processing in a second country results in another substantial transformation. In this case, the cost of the carbide tips and silver soldering ($.72 per blade) is not pertinent because they were substantially transformed in China when they were used to make the unfinished blade and therefore became part of a Chinese product. Accordingly, only the $.75 attributed to the U.S. operations of grinding, polishing, and sandblasting, which occurs after the blades are exported into the U.S., should be considered in determining whether the blades were substantially transformed in the U.S. The added cost of these U.S. operations is not significant enough to persuade us that the blades are substantially transformed in the U.S.

Moreover, although the costs of the U.S. operations and components account for most of the cost in making the saw blades, this may because the costs of doing business in the United States is greater than China. It does not mean that the U.S. operations and components are more significant than the Chinese operations and components or that the work in the United States contributes more to the making of the final product. We do not find the U.S operations to be highly significant relative to the work done in China, and it is therefore our opinion that the saw blades remain articles of foreign origin even after processing in the United States.

HOLDING:

The imported saw blade are not substantially transformed by the U.S. operations. Therefore, the saw blades must be marked to indicate their country of origin, China, at the time of importation.

Sincerely,

John Durant, Director
Commercial Rulings Division

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