HQ 735470 - Country of origin marking requirements for imported sword parts further processed in the U.S.; substantial transformation; ultimate purchaser; 19 CFR 134.35; T.D. 74- 12(3); C.S.D. 91-17; C.S.D. 92-34 - United States International Trade Commision Rulings

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HQ 735470

November 16, 1994

MAR 2-05 CO:R:C:V 735470 AT

CATEGORY: MARKING

Mr. Joshua Zuber
Zuber & Company Inc.
1556 Commonwealth Ave.
Boston, Mass. 02135

RE: Country of origin marking requirements for imported sword parts further processed in the U.S.; substantial transformation; ultimate purchaser; 19 CFR 134.35; T.D. 74- 12(3); C.S.D. 91-17; C.S.D. 92-34

Dear Mr. Zuber:

This is in response to your letter dated December 23, 1993, concerning the country of origin marking requirements for sword parts imported from Taiwan that are to be further processed in the U.S. into finished swords. Samples of the imported sword parts and finished sword, and additional information detailing the U.S. operations were submitted on July 26, 1994, and received by this office on July 27, 1994. We regret the delay in responding.

FACTS:

You state that Zuber intends to import unassembled sword parts which are made in Taiwan, into the United States. Once imported, Zuber further processes and assembles the parts into finished swords. The U.S. processing consists of the following operations:

1. Inspect Taiwan parts for manufacturing defects.

2. Pre-fit sword parts to blade and scabbard.

3. Buff and polish sword parts and blade.

4. Gold plating all scabbard mounts, hilt parts and grip wire. All items must be cleaned, copper plated, and nickel plated prior to gold plating.

5. Final assembly of all parts into the finished sword.

6. Final inspection for proper fit, correctness of assembly and quality.

You also state that the cost of the imported sword parts as compared to the total manufacturing cost of the finished sword is approximately 47 percent.

You contend that the imported sword parts are substantially transformed as a result of the U.S. processing and, thus, the finished swords are of U.S. origin. You also inquire as to whether it is acceptable to mark the finished swords "Assembled in the USA From Parts Made in Taiwan".

ISSUE:

1. What are the country of origin marking requirements for imported sword parts which are to be used in the production of finished swords in the U.S. in the manner described above?

2. Whether it is acceptable to mark the finished swords with the phrase "Assembled in the USA From Parts Made in Taiwan"?

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 evidentpurpose 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). The country of origin marking requirements for the imported sword parts that are to be further processed and assembled by Zuber in the U.S. depends upon whether Zuber is the ultimate purchaser of the imported parts.

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. See, 19 CFR 134.1(d). If an imported article will be used in domestic manufacture, the manufacturer may be the "ultimate purchaser" if he or she subjects the imported article to a process which results in a substantial transformation of the article. However, if the manufacturing process is a minor one which leaves the identity of the imported article intact, the consumer or user of the article, who obtains the article after the processing, will be regarded as the "ultimate purchaser." 19 CFR 134.1(d)(1) and (2).

For country of origin marking purposes, 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 CCPA 267 (1940); National Juice Products Association v. United States, 10 CIT 48 (1986). Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into a different article will be considered the "ultimate purchaser" of the imported article, and the article shall be excepted from marking. However, the outermost container of the imported article must be marked (See, 19 CFR 134.35). Whether a substantial transformation occurs is determined on a case-by-case basis.

In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linen v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2 Fed. Cir. 105, 741 F.2d 1368 (1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, C.S.D.'s 80-111, 89-110, 89-129, 90-51.

The issue involved in this case is whether the imported sword parts which are processed as described above in the U.S. to form a finished sword are substantially transformed into a new article having a new name, character or use. You contend that the imported parts are substantially transformed by Zuber as a result of the U.S. processing, making Zuber the ultimate purchaser. Therefore, the imported parts would be excepted from marking, provided the outermost container which reaches the ultimate purchaser is marked with the country of origin "China". We disagree.

In National Hand Tool Corp., v. United States, Slip Op. 92- 61 (April 27, 1992), aff'd, 989 F.2d 1201 (1993), the Court of International Trade held that imported hand tool components which were used to produce flex sockets, speeder handles and flex handles were not substantially transformed when further processed and assembled in the U.S. One of the factors considered by the court in reaching its conclusion was that the name of the imported components did not change as a result of the U.S. processing and assembling operations. The court found that the name of each article imported had the same name in the completed tool. In support of this conclusion, the court cited the following example:

"For example, when the lug or "G-head", component of a flex handle imported from Taiwan (Ex. E) was shown, plaintiff's witness called it a "G-head." When the government counsel asked the name of the part where the lug component is attached to a completed flex handle (Ex. J.), the witness also called it a "G-head."

The court also considered whether the use of the imported components changed as a result of the processing and assembling operations performed in the U.S. In finding that the use of the imported components did not change, the court stated that the use of the imported articles was predetermined at the time of importation due to the fact that each component was intended to be incorporated in a particular finished mechanics' hand tool. Although the court recognized the fact that only one predetermined use of imported articles does not preclude the finding of substantial transformation (See, Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it went on to say that the determination of substantial transformation must be based on the totality of the evidence.

Similarly, based on the totality of the evidence in this case, we find that none of the imported sword parts of the completed sword are substantially transformed when they are further processed and assembled in the U.S., as the U.S. operations do not change the name, character or use of the imported parts. Examination of the imported components reveals that they are all substantially finished articles. No further processing needs to be performed to the individual parts in the U.S., except plating, polishing, buffing and assembly which Customs has ruled in similar circumstances to be minor finishing operations which do not constitute a substantial transformation. See, T.D. 74- 12(3), November 1, 1973 (the heat treating, grinding, vibrating, buffing, polishing, plating and assembly of imported socket wrench components into a finished socket wrench were considered to be minor finishing operations which did not constitute a substantial transformation within the meaning of 19 CFR 134.35). See also, C.S.D. 91-7, September 7, 1990 (imported jewelry subjected to gold and silver electroplating in the U.S. after importation does not constitute a substantial transformation within the meaning of 19 CFR 134.35).

Like the hand tool components in National Hand Tool, the imported components in this case (blade, handle, scabbard and hilt) have the same name after assembly. Although each component becomes an essential part of a completed sword, each component is still referred to as a blade, handle, scabbard and hilt after assembly. Thus, none of the components would change in name as a result of the U.S. operations.

What is critical in ascertaining whether a substantial transformation has occurred is whether, based on the totality of the evidence, there has been a change in the character or use of the imported article after the U.S. processing.

Likewise, as in National Hand Tool, the use of an imported sword blade, scabbard, handle and hilt is predetermined at the time of importation. Each component is intended to be utilized in the manufacture of a finished sword. Clearly, these components do not change in character as a result of the assembly operation. The overall shape, form as well as size of the finished sword is essentially the same as the imported unassembled sword parts. None of these features of the finished sword have changed as a result of the U.S. processing. After being assembled, the imported parts retain their original shape and form. There is no change in the microstructure or chemical composition as a result of the U.S. processing. See, Ferrostaal Metals Corp., v. United States, 11 CIT 470, 664 F.Supp. 535 (1987). In addition, there is no indication that the assembly operation is complex as all the imported sword parts are fully manufactured when imported so that simple assembly of the sword is possible. Accordingly, the imported sword parts are not substantially transformed when they are used to produce finished swords in the U.S. Therefore, Zuber is not the ultimate purchaser of the imported sword parts. Rather, the ultimate purchaser is the person(s) who purchases the finished sword in the U.S., and the imported parts must be conspicuously, legibly and permanently marked to indicate the country of origin "Taiwan" to such person(s).

In the alternative, the importer may seek approval of local Customs officials for a repacking operation conducted under Customs supervision as provided under 19 CFR 134.34. Section 134.34, Customs Regulations (19 CFR 134.34), provides that an exception may be authorized in the discretion of the district director under 19 CFR 134.32(d) for imported articles which are to be repacked after release from Customs custody under the following conditions: (1) the containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S.; and (2) 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.

If approval is granted by the district director under 19 CFR 134.34, it would be acceptable to mark the finished article (or its container) with a single, centrally-located, country of origin marking that denotes the foreign casting as well as the U.S. components.

We find that the proposed marking "Assembled in the USA From Parts Made in Taiwan" is not an acceptable country of origin marking for the finished swords in that the marking does not give a clear indication of a single country of origin "Taiwan" of the finished sword which is required under 19 U.S.C. 1304 and 19 CFR Part 134. However, the phrase "Made in Taiwan, Assembled in the U.S." would be an acceptable country of origin marking for the finished swords since it clearly indicates that "Taiwan" is the country of origin of the finished sword.

HOLDING:

Imported sword parts which are used by Zuber to manufacture finished swords in the U.S. in the manner described above, are not substantially transformed as a result of the U.S. operations. Thus, Zuber is not the ultimate purchaser of the imported sword parts and the parts must be individually marked with their country of origin "Taiwan", unless the district director at the port of entry approves marking after importation pursuant to 19 CFR 134.34.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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