HQ 559244 - Internal Advice 19/95; Country of origin marking of wire rod; 19 CFR 134.26; - United States International Trade Commision Rulings

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HQ
559244

March 12,
1996

CLA-2 RR:TC:SM 559244 BLS

CATEGORY: MARKING

Port Director
477 Michigan Avenue
Detroit, Michigan 48226-2568

RE: Internal Advice 19/95; Country of origin marking of wire rod; 19 CFR 134.26;
Article 509; modification of HRL 558831

Dear Sir:

This is in reference to your memorandum dated May 17, 1995, requesting internal advice (IA 19/95) in connection with country of origin marking requirements of wire rod imported from Canada.

FACTS:

Ivaco Rolling Mills ("Ivaco") is a producer of steel wire rod in Canada and is the importer of record for that product. The company sells the rod to unrelated U.S. customers who in turn process the rod into wire for resale. The rod is not individually marked upon importation, but its containers or holders, i.e., steel banding or strapping, are marked with the country of origin. Additional marking duties under 19 U.S.C. 1304 have been assessed for failure to comply with the certification and notification requirements of section 134.25, Customs Regulations (19 CFR 134.25), in connection with unliquidated entries filed during 1994. Ivaco is currently complying with the certification requirements of 19 CFR 134.25, but seeks clarification of its obligations pertaining to country of origin marking requirements of the imported product, and believes that marking duties in this situation were improperly assessed.

ISSUES:

1) Whether the U.S. processor or a subsequent purchaser is the "ultimate purchaser" of the imported wire rod.

2) Whether wire rod is on the "J-list", section 134.33 (19 CFR 134.33).

3) Whether the notice and certification requirements of 19 CFR 134.25 are applicable if the imported product is capable of being marked but is not on the "J-list."

4) If wire rod is not on the J-list, whether notices and certifications must be provided by the importer for wire rod pursuant to 19 CFR 134.26 when the product is (a) not entered in bulk containers, and (b) not repacked in retail containers after importation to conceal the country of origin marking.

5) Whether Ivaco, as importer of record, can be liable for marking duties due to its customers' failure to mark and/or notify their customers when Ivaco has properly marked and entered the merchandise with the country of origin, and certified to Customs and provided notice to its customers at the time of sale pursuant to section 134.25 or 134.26,
Customs Regulations (19 CFR 134.25, 134.26).

6) Whether paragraph 9 of NAFTA (North American Free Trade Agreement) Annex 311 limits the imposition of duties or penalties for failure to comply with country of origin marking requirements in situations in which the importer of record has (a) properly marked and entered the merchandise with the country of origin, but (b) has not certified to Customs and provided notice at the time of sale pursuant to 19 CFR 134.25 or 134.26.

LAW AND ANALYSIS:

Ultimate Purchaser

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR 134).

Section 134.1(d), Customs Regulations (19 CFR 134.1(d)), provides that for a good of a NAFTA country, the "ultimate purchaser" is generally the last person in the U.S. who purchases the good in the form in which it was imported. If an imported article will be used in manufacture, the manufacturer may be the "ultimate purchaser"if the process results in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin. If the manufacturing process does not result in one of the changes prescribed in the NAFTA Marking Rules as effecting a change in the article's country of origin, the consumer who purchases the article after processing will be regarded as the ultimate purchaser. Canada is a NAFTA country (see 19 CFR 134.1(g)), and, therefore, the NAFTA Marking Rules set forth under Part 102, Interim Customs Regulations (19 CFR Part 102) are applicable. (For purposes of this ruling, we are assuming that the country of origin of the wire rod is Canada.)

Section 102.11 of the interim regulations sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) of the interim regulations provides that "[t]he country of origin of a good is the country in which:

(1) the good is wholly obtained or produced;
(2) the good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied."

Since the wire is produced in the U.S. from Canadian wire rod, the wire is neither wholly obtained or produced nor is it produced exclusively from domestic materials. Therefore, paragraphs (a)(1) and (a)(2) of section 102.11 cannot be used to determine the country of origin of the finished article. Thus, paragraph (a)(3) of section 102.11 is the applicable rule that we must first apply to determine the origin of the product.

We find that the imported rod will be classified under headings 7213-7215. The wire products resulting from the U.S. processing of the wire rod are classified under heading 7217. The specific tariff rule set out in section 102.20(a), Section XV, Chapters 72 through 83, 7217 of the interim regulations, provides:

7217....A change to heading 7217 from any other heading, except from
7213 through 7215.

Under this rule, the imported rod does not undergo the applicable change in tariff classification set out in section 102.11(a). Therefore, under the hierarchal rules, we must apply the next applicable rule, section 102.11(b), to determine the country of origin of the wire.

Section 102.11(b) of the interim regulations provides, in pertinent part, that where the country of origin cannot be determined under paragraph (a), the country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good. Section 102.18(b)(2) provides that for purposes of section 102.11(b), "only domestic and foreign materials ...that are classified in a tariff provision from which a change in tariff classification is not allowed in the [102.20] rule for the good...shall be taken into consideration in determining the parts or materials that determine the essential character of the good." In the instant case, only the Canadian wire rod is classified under a provision from which a change in
tariff classification is not allowed under the 102.20 rule for the wire.

Therefore, we find that the material that imparts the essential character to the wire is the wire rod. Accordingly, since under the NAFTA Marking Rules the processing of the wire rod does not effect a change in its country of origin, a person who purchases the article after such processing will be regarded as the ultimate purchaser. (See also Headquarters Ruling Letter 558831 dated January 31, 1995.)

J-list - 19 CFR 134.25

The importer of articles which are intended to be repacked for sale to an ultimate purchaser is subject to the certification and notification requirements of 19 CFR 134.25, if the articles are on the "J-list", or are incapable of being marked. See 19 CFR 134.32 and 19 CFR 134.33. While excepted from individual marking requirements, the containers or holders of these articles are required to be marked. The importer of articles intended to be repacked in retail containers not subject to the requirements of 19 CFR 134.25 is subject to the certification and notification requirements of 19 CFR 134.26. In either case, the importer must certify to the district director that if the articles are intended to be sold or transferred to a subsequent purchaser or repacker, the importer will notify such person of the marking requirements. These rules (19 CFR 134.25 and 134.26) are intended to ensure that the ultimate purchaser will be advised of the country of origin, and apply to repacked articles unless the importer is considered to be the ultimate purchaser, in which case the rules do not apply.

Since in the instant case the ultimate purchaser is a person who purchases the imported product after it is processed into wire, the importer of the repacked articles must comply with the requirements of 19 CFR 134.25 or 19 CFR 134.26, depending upon whether the wire rod is on the J-list. That is the issue which we now address.

In HRL 558831, we held that wire rod was on the J-list, and that the importer was subject to the requirements 19 CFR 134.25. However, in an earlier ruling, HRL 723781 dated January 17, 1984, we noted that while "Wire (except barbed wire) " was a J-list article, wire rod was specially and separately defined (under the Tariff Schedules of the United States (TSUS), predecessor to the Harmonized Tariff Schedule of the United States, (HTSUS)). Therefore, we held in HRL 732781 that wire rod was not on the J-list. We note that under the HTSUS, wire rod is classified under headings 7213 through 7215, while wire is separately classified under heading 7217. Accordingly, after reconsideration of our determination in HRL 558831, we now hold that wire rod is not on the J-list.

Since wire rod is capable of being marked, we find that the importer is not subject to the requirements of 19 CFR 134.25, inasmuch as that provision applies only to J-list articles or to
articles incapable of being marked. HRL 558831 is hereby modified to the extent the ruling holds that wire rod is on the J-list, and that 19 CFR 134.25 is applicable to the repacked articles.

Applicability of 19 CFR 134.26

Section 134.26 of the Customs Regulations (19 CFR 134.26),which applies to articles that are repacked or manipulated after importation, provides the following:

(a) Certification requirements. If an article subject to these requirements is intended to be repacked in retail containers
(e.g., blister packs) after its release from Customs custody, or if the district director having custody of the article, has reason to believe such article will be repacked after its release, the importer shall certify to the district director that: (1) if the importer does the repacking, he shall not obscure or conceal the country of origin marked to indicate the country of origin of the article, or else the new container shall be marked to indicate the country of origin of the article in accordance with the requirements of this part; or (2) if the article is intended to be sold or transferred to a subsequent purchaser or repacker, the importer shall notify such purchaser or transferee, in writing, at the time of sale or transfer, that any repacking of the article must conform to these requirements.

Ivaco contends that 19 CFR 134.26 is not applicable to the importation of wire rod, for the reason that this provision applies only to articles that are individually marked, entered in bulk containers, and then repacked in retail containers after importation to conceal the country of origin marking. Thus, Ivaco states that the imported product in this case is not individually marked nor imported in "bulk", and that the repacking does not obscure or conceal the country of origin, since only the steel bands or strapping are marked. Further, the importer points out that its customer does not repack the processed wire for retail sale. Ivaco also notes that in C.S.D. 92-25 (Cust. Bull., Vol 26, 1992), we stated that 19 CFR 134.26 "does not apply to articles imported in bulk, not individually marked, which are to be repackaged after importation for retail sale to ultimate purchasers, unless they are otherwise excepted from country of origin marking ." Ivaco points out that wire rod is not individually marked with the country of origin, and that only its container, i.e., strapping or banding, is so marked. Upon receipt of the rod, the U.S. processor by necessity merely removes the tag identifying the product as wire rod, and does not by its processing obscure or conceal any country of origin marking. Ivaco also argues that the processed wire is not packaged by its customer in "retail" containers, but instead is wound on large spools that are sold to companies that further fabricate the wire.

We disagree with Ivaco's contentions and find that 19 CFR 134.26 is applicable in the instant case. Thus, we have previously held that articles not individually marked upon importation were subject to the requirements of 19 CFR 134.26. (See HRL 734733 dated November 25, 1992, where we found that the importer of frames and parts of safety glasses that were marked with their country of origin on printed stickers affixed to plastic bags was subject to the requirements of 19 CFR 134.26, if the articles were repacked or manipulated.) Further, we find no language in the regulation or other authorities restricting its requirements to articles imported in "bulk", even if we were to find that the wire rod was not imported in this manner. Similarly, while we agree that the regulation was intended in part to minimize the practice of concealing or obscuring country of origin information appearing on repacked articles, we find no language in the regulation which restricts its requirements to that situation only. It is clear that 19 CFR 134.26 also covers situations where the containers and not the articles are marked (as an exception to the marking requirements) and the articles will be repacked. In addition, it is our opinion that the reference to repacking of the article in retail containers refers to the final repacking, which may or may not be performed by the first repacker, and that the importer's obligations under 19 CFR 134.26 apply to the repacker of the articles, whether or not that person is the repacker of the articles for retail sale.

Finally, we find that C.S.D. 92-25 does not provide support for the importer's argument.
The statement in C.S.D. 92-25 was made in the context of an importer of unmarked or improperly marked goods attempting to secure their release by executing a certification under 19 CFR 134.26. We stated that the provision was not applicable in such case, unless the goods were otherwise excepted from country of origin marking. Since under 19 CFR 134.32(d) an exception is provided to the marking requirements if the containers of the imported articles will reasonably indicate their country of origin, as in the subject case, the quoted statement in C.S.D. 92-25 is not applicable to the present situation. We further note that the importer's interpretation of 19 CFR 134.26 would compromise the intent of 19 U.S.C. 1304, and the underlying regulations, i.e., to ensure that the ultimate purchaser is advised of the country of origin of the imported article. An importer is responsible under 19 U.S.C. 1304 to ensure that the article of foreign origin (or its container) remains marked as to its origin when it reaches the ultimate purchaser in the U.S. Sections 134.25 and 134.26 provide a mechanism for an importer to comply with this statutory requirement within the practical limitations of the trading environment.

Under the circumstances, we find that Ivaco is subject to the requirements of 19 CFR 134.26.
Therefore, if Ivaco complies with the requirements of 19 CFR 134.26 in connection with subsequent entries, it will not be liable for marking duties because of a subsequent repacker's failure to properly mark the articles. Similarly, an importer who is subject to and complies with
the requirements of 19 CFR 134.25 will not be liable for marking duties as a result of a subsequent repacker's failure to properly mark the articles.

Marking Duties Under NAFTA

Paragraph 9 of NAFTA Annex 311 generally provides that, except for repeated violations of the marking requirements as set forth in paragraph 8, no special duty or penalty shall be imposed for failure to comply with the country of origin marking requirements of a party, unless the good is removed from Customs custody or control without being properly marked, or a deceptive marking has been used. (The importer contends that since in this case the wire rod was properly marked when released from Customs custody, and the marking was not deceptive, pursuant to this provision marking duties cannot be assessed.)

In this case, the wire rod was not individually marked upon importation into the U.S. Although the articles could have been excepted from marking under 19 CFR 134.32(d), for the reason that the marking of the containers would reasonably indicate the origin of the articles, in the case of imported articles such as the wire rod which are to be repacked this exception is authorized only if the port director is satisfied that:

(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 liquidation of the entry. 19 CFR 134.34.

In this case, since the foregoing conditions for receiving the exception under 19 CFR 134.32(d) were not met, the wire rod (or its container) was not considered properly marked when released from Customs custody. Therefore, paragraph 9 of Annex 311 of the NAFTA cannot be used to limit the imposition of marking duties in this case for failure to comply with the requirements of 19 CFR 134.26.

HOLDING:

1) Under the NAFTA Marking Rules, the processing of the Canadian wire rod in the U.S. into wire does not effect a change in its country of origin. Therefore, a person who purchases the article after such processing will be regarded as the ultimate purchaser of the imported product.

2) Wire rod is not on the "J-list", 19 CFR 134.33, and it is capable of being marked. Therefore, the importer is not subject to the certification requirements of 19 CFR 134.25, which applies only to J-list articles, and articles incapable of being marked. HRL 558831 is modified to the extent it held that wire rod is on the J-list.

3) Metal bands or straps used to secure wire rod are considered containers for purposes of 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d). Since marking of the containers will reasonably indicate the origin of the wire rod, the exception to the individual marking requirements under 19 CFR 134.32(d) is applicable.

4) The importer is subject to the certification and notification requirements of 19 CFR 134.26, inasmuch as the imported product is intended to be sold to a subsequent purchaser or repacker.

5) Marking duties cannot be assessed against the importer due to its customer's failure to properly mark repacked merchandise with the country of origin, if the imported articles are properly marked upon entry, and the importer complies with the certification and notification requirements of 19 CFR 134.26.

6) Since the importer failed to comply with the conditions pertaining to repacked articles for receiving the exception to the marking requirements under 19 CFR 134.32(d) (allowing marking of the containers only), the wire rod was not properly marked when released from Customs custody, and paragraph 9 of NAFTA Annex 311 cannot be used to limit the imposition of marking duties, assessed for failure to comply with the requirements of 19 CFR 134.26.

This decision should be mailed by your office to the person requesting internal advice no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Ruling Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

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