HQ 559453 - Reconsideration of HRL 559067; country of origin marking of cordless telephone sets; request for marking exception; substantial transformation; HRL 734560; - United States International Trade Commision Rulings

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HQ 559453

July 16, 1996

MAR-2-05 RR:TC:SM 559453 DEC

Mr. J. Kevin Horgan deKieffer, Dibble & Horgan
Suite 900
915 Fifteenth Street, N.W.
Washington, D.C. 20005

RE: Reconsideration of HRL 559067; country of origin marking of cordless telephone sets; request for marking exception; substantial transformation; HRL 734560;
HRL 734363; T.D. 91-7; HRL 734505; HRL 734172; economically prohibitive

Dear Mr. Horgan:

This is in response to your letter dated September 27, 1995, on behalf of your client, Thomson Consumer Electronics, Incorporated (TCE), in which you request a delay in the effective date of Headquarters Ruling Letter (HRL) 559067, dated September 19, 1995, regarding the country of origin marking requirements for certain cordless telephone sets. In addition, this ruling letter is in response to your letter dated October 10, 1995, on behalf of TCE requesting Customs to review its decision in HRL 559067.

Pursuant to section 625, Tariff Act of 1930 (19 U.S.C. Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993) (hereinafter section 625), notice of the proposed modification of HRL 559067 was published on June 5, 1996, in the Customs Bulletin, Volume 30, Number 23.

FACTS:

TCE imports cordless telephone sets produced in China, Malaysia, and the Phillippines. You submitted samples of the two telephone units that were the subject of HRL 559067 in the boxes that will reach the ultimate purchaser in the United States. Model 2-9615 is a cordless telephone that includes an extra recharge cradle with a recharging cord incorporated into the cradle and Model 2-9635 is a cordless telephone which features a speaker phone in the base unit. You provided the following information with respect to the cost, origin, and marking of each component as imported.

Component Cost Origin Marking

Model 2-9615
Base Unit $10.614 Malaysia Made in
Malaysia
Handset $12.084 Malaysia None

Recharge Cradle $01.451 Malaysia Made in
Malaysia
Power Cord $01.520 China Made in China
Telephone Line $00.197 Malaysia None
Manuals $00.163 Malaysia Printed in
Malaysia
Packing $00.513 Made in
Malaysia
Total Cost $26.542

The suggested retail price for Model 2-9615 is $64.99

Model 2-9635
Base Unit $20.938 Malaysia Made in
Malaysia
Handset $12.724 Malaysia None
Telephone Line $00.185 Malaysia None
Manuals $00.202 Malaysia Printed in
Malaysia
Packing $00.810 Made in
Malaysia
Total Cost $34.859

The suggested retail price for Model 2-9635 is $89.99

You stated that the power cords and the telephone lines may be sourced in one or more Asian countries, including Malaysia, China, the Philippines, Indonesia, Korea, Singapore, and Hong Kong. Each telephone set will be packaged in Malaysia prior to exportation in an individual box that will reach the retail customer marked "Made in Malaysia".

The operations performed to package the various components to form the telephone sets as described in HRL 559067 were found in that case to be extremely simple. Accordingly, Customs concluded that the gathering of the components and placing them in the cartons in Malaysia for retail sale would not result in a substantial transformation of the non-Malaysian components. The country of origin of each component was required to be identified.

ISSUES:

1. Will Customs grant a delayed effective date for HRL 559067 or an exception to marking on the basis that it would be economically prohibitive to require TCE to mark the telephones already imported in accordance with HRL 559067? 2. Will Customs modify HRL 559067 so that the imported cordless telephones described above may be legally marked "Made in Malaysia" without referring to the country of origin of any of the other components packaged in the retail container?

LAW AND ANALYSIS:

Delayed Effective Date

The Custom Service will from time to time issue a ruling letter covering a transaction or issue not previously the subject of a ruling letter and which has the effect of modifying the treatment previously accorded by the Customs Service to substantially identical transactions of either the recipient of the ruling letter or other parties. In situations where a party has relied, not on a previously-issued ruling letter, but on past Customs treatment, Customs requires that the affected party submit an application requesting a delay in the effective date of a ruling letter. In these situations, 19 CFR 177.9(e)(2), sets forth specific requirements for such applications. According to this provision, the applicant must demonstrate to the satisfaction of the Customs Service that the treatment previously accorded relates to substantially identical transactions, and was sufficiently consistent and continuous that the party reasonably relied on the past treatment in the arrangement of future transactions.

Specifically, section 177.9(e)(2) requires that the applicant must submit evidence of past treatment by the Customs Service covering the 2-year period immediately prior to the date of the ruling letter, listing all substantially identical transactions by entry number. In addition, the applicant must provide the quantity and value of merchandise covered by each such transaction, the ports of entry, and the dates of final action by the Customs Service. Section 177.9(e)(2) further notes that, "[t]he evidence of reliance shall include contracts, purchase orders, or other materials tending to establish that the future transactions were arranged based on the treatment previously accorded by the Customs Service." Finally, in order to grant a delay pursuant to 177.9(e)(1), the regulations require that Customs examine all relevant factors regarding the issue of reliance. Section 177.9(e)(3) requires that Customs carefully review the past transactions on which reliance is claimed to determine whether there was an examination of merchandise by Customs. Furthermore, in making the determination to delay, the weight accorded to the documented history of consistent and continuous Customs treatment, will be diminished in the following instances: transactions involving small quantities or values, informal entries, and situations where Customs, in the interest of commercial facilitation and accommodation, processes expeditiously and without examination and/or import specialist review. See 19 CFR 177.9(e)(3).

You submit that the previous treatment accorded by the Customs Service to substantially identical transactions involving cordless telephones was sufficiently consistent and continuous since 1986, so that TCE reasonably relied thereon in arranging future transactions and thus, you contend that TCE has satisfied its claim for detrimental reliance. You state that TCE has been importing and selling 3,149,000 G.E. brand telephone sets annually since 1986 and that the imported telephones have undergone numerous Customs examinations including country of origin marking examinations. Despite the fact that the transformer power supply cords were routinely marked with a country of origin that is different from the origin of the telephone set disclosed on the consumer packaging, you state that TCE was never advised that it was required to reference the origin of minor accessories on the outside consumer packaging.

We find that under the facts in this case, a claim for detrimental reliance has not been established. You have not demonstrated with the specificity that the regulations require that the past import transactions upon which reliance is claimed were examined for proper country of origin marking requirements. In addition, you did not offer evidence of a particular entry where Customs scrutinized and approved of the country of origin marking for cordless telephones that contain power cords and/or telephone lines marked with a country of origin different from the origin of the telephone set disclosed on the consumer packaging. Mere evidence of liquidation of an entry of cordless telephones is not sufficient to establish that the country of origin marking in the prior transaction was substantially identical to the subject entries. Therefore, a delay in the effective date of HRL 559067 is not warranted because insufficient evidence was submitted.

Country of Origin Marking

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or container) will permit, in such manner as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Neither the statute nor Part 134 of the Customs Regulations contains any special requirements regarding the marking of sets. In the absence of any special requirements, the general country of origin marking rule applies which requires that every article that is imported into the United States must be marked to indicate its country of origin as determined by where the article underwent its last substantial transformation.

In HRL 559067, Customs concluded that the operations performed to package the various components to form the telephone sets are extremely simple and that no substantial transformation of the non-Malaysian components will occur by virtue of the gathering of the components and placing them in the retail cartons in Malaysia. Accordingly, the country of origin of each component should be identified on the retail container. See HRL 734560, dated July 20, 1992. Alternatively, Customs stated that the importer could mark each individual component with its country of origin instead of adopting the marking of the retail container and opt not to exercise the 19 CFR 134.32(d) exception for the telephone sets. If this approach is used, Customs emphasized that, without exception, each and every component would have to be marked with its country of origin. By marking each component, we indicated that it would remain clear to the ultimate purchaser that only the marked component, and not the telephone set as a whole, originates from the country designated on any one component.

You cite to HRL 734363, dated February 18, 1992, in which Customs addressed the issue of whether a country of origin marking for a modem that is produced in the United States, but contained a foreign-made transformer (or power cord as it will be referred to in this ruling) and telephone cable (or telephone line), was properly marked if the origin of the two foreign articles (the power cord and telephone line) was not indicated on the sealed container. The importer sought approval of a marking which stated "Transformer and telephone cable of foreign origin are individually marked with specific country of origin." Customs approved this marking because the power cord and the telephone line represented a very small part of the cost of the modem kits, they were of relatively minor significance, and there were difficulties associated with marking the containers with the country of origin of the telephone line and power cord because the country of origin of the power cord and telephone line would vary. In accordance with the "common sense" approach to marking articulated in T.D. 91-7, Customs concluded that it was not necessary to mark the containers to indicate the country of origin of the power cord and the telephone line, provided the container referenced the fact that these articles were of foreign origin and informed the consumer that the articles at issue were individually marked with their specific country of origin. Customs would have no objection to the marking of each of the articles of foreign origin included in the cordless telephone sets in the manner that was deemed acceptable in HRL 734363.

We disagree with your conclusion that HRL 555365, dated September 7, 1990, T.D. 91-7, and HRL 734172, dated December 16, 1992, mandate a completely different conclusion than was reached in HRL 559067. Customs has stated that, in certain circumstances, the marking of every item in a collection of goods may not be consistent with the purpose of section 1304, or may be impractical and/or undesirable. This may exist because one or more items in the collection are relatively insignificant and would have no influence on the purchasing decision because the items in the collection are too numerous, thereby making it impractical to specify the country of origin of each item, or for various other reasons.

You claim that the marking of each article or identifying the origin of each article included in the cordless telephone set on its retail container is economically prohibitive. We disagree and refer you to HRL 734505, dated August 27, 1992, where Customs addressed the marking requirements of a portable light/lantern consisting of five major components: the lantern body, a plastic charging rack, a charging cord/converter, a rechargeable battery, and a flood lamp. These components were produced in various countries and were imported into the United States to be packaged. Customs determined that the packaging of these components did not result in a substantial transformation noting that some of the parts, after assembly, retained their independent function. Customs also rejected the importer's claim that it would be economically prohibitive to mark the article's actual country of origin given the variety of different combinations of packaged components because no evidence in support of this claim was submitted. As a possible option, Customs suggested that another possibility would be the use of a pre-printed label that contains all the possible countries of origin printed on it for each component. Then, upon assembly, the actual country of origin could be punched or marked on the pre-printed label. This marking scheme must comply with the Customs statutes and regulations 19 U.S.C. 1304, and 19 CFR Part 134. Customs would have no objection to a marking on the retail container referring to each of the specific articles of foreign origin as was suggested in HRL 734505.

Upon reconsideration of the application of the "common sense approach" of marking to the cordless telephone sets, it is our opinion that the marking of the telephone line is analogous to the loose screws for the junction boxes (HRL 555365) and the metal channels and branch-off clips included in the finished insulation kit (HRL 734172). In both of these cases, Customs determined that certain articles were of minor importance to the product as a whole (the screws in HRL 555365 and the branch of clips in HRL 734172). Accordingly, the container was not required to be separately marked to indicate the country of origin of the screws in HRL 555365 and the metal channels and branch-off clips in HRL 734172. Similarly, Customs would not require that the telephone line when incorporated into the cordless telephone set be separately marked with its country of origin. In determining whether a particular component need not be marked under the "common sense approach", Customs emphasizes the role of the given component with respect to the complete set over any other consideration. The value alone of the component relative to the article's total cost is not necessarily determinative of whether the component is excepted from marking based on T.D. 91-7. In this case, the fact that the telephone line for either model represents less than one percent of the cost of the imported telephone set, however, supports our conclusion that the telephone line need not be marked.

However, the power cord presents a situation that is distinguishable from that relating to the loose screws for the junction boxes (HRL 555365), the metal channels and branch-off clips included in the finished insulation kit (HRL 734172), and the telephone line for the telephone sets at issue in this ruling. While the value of the power cord may not be substantial relative to the total cost of the cordless telephone set, its role of recharging the battery is critical to the operation of the telephone. As noted above, HRL 555365 presented a situation in which Customs determined that the country of origin of three foreign-made screws packaged with a U.S.-made metal junction box did not need to be noted on the retail package because the screws lost their separate identity when they were packaged with the junction box. Customs noted that the ultimate purchaser was buying a junction box and not individual screws. In contrast, the power cord will retain its separate identity. In fact, the ultimate purchaser is buying a cordless telephone because it is capable of converting electricity into stored
power for the telephone. We disagree with your contention that our position in HRL 559067 and in this ruling letter represents a departure from past practice and T.D.
91-7. Accordingly, the notice and comment procedure described in 19 U.S.C. 1625(c) was not deemed necessary when HRL 559067 was first issued.

You state in your submission that TCE will incur substantial additional marking expenses if TCE is required to mark each individual component with its individual country of origin or if TCE indicates the origin of each component on the consumer carton. You estimate that TCE will incur approximately a $1 per unit additional cost to comply with the country of origin marking requirements using stick-on labels or $2 per unit to have new cartons printed.

It is the opinion of this office that you have not provided sufficient information upon which to grant an exception from individual marking based upon prohibitive economic expense. While we do not doubt the veracity of your statement that marking by means of placing labels on each component would be economically burdensome, the mere assertion that a $1 per unit increase in cost will be "prohibitive" does not provide a sufficient basis for granting this exception to the marking requirement. In addition, we note that it is our policy not to allow a permanent marking exception based upon the prohibitive economic expense provisions under 19 U.S.C. 1304(a)(3)(C) and 19 CFR 134.32(c). While Customs appreciates the fact that TCE is a consumer products company that must be concerned about the appearance of their products for marketing purposes, the fact remains, however, that TCE must comply with the statutorily-mandated marking requirements. The mere assertion, without supporting evidence, that stick-on labels may have an adverse marketing impact which may cause a loss in consumer appeal is not a basis upon which Customs may grant an exception from marking. Accordingly, we find that the components may not be excepted from country of origin marking under 19 U.S.C. 1304(a)(3)(C) and 19 CFR 134.32(c).

HOLDING:

Upon reconsideration of HRL 559067, Customs affirms its holding that telephone components packed together as a set are not substantially transformed by virtue of being packaged as a unit for sale as a telephone set. However, we find that pursuant to the "common-sense approach" to marking articulated in T.D. 91-7, the telephone line does not need to be marked. Consequently, HRL 559067 is modified to reflect this finding. The country of origin of the telephone power cord, however, must be identified as described above. Customs is not persuaded that the power cord does not need to be marked based on the "common-sense approach" to marking. In addition, Customs is not persuaded that there is sufficient evidence to allow a marking exception for the power cord based on the assertion that it would be economically prohibitive to comply with the marking requirements. Your request for a delayed effective date of HRL 559067 is denied for the reasons set forth above.

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.

In accordance with 19 U.S.C. 1625(c)(1), this modification of HRL 559067 will become effective 60 days after its publication in the Customs Bulletin. Publication of rulings or decisions pursuant to 19 U.S.C. 1625(c)(1) does not constitute a change of practice or position in accordance with section 177.10(c)(1), Customs Regulations (19 C.F.R. 177.10(c)(1)).

Sincerely,

John Durant, Director
Tariff Classification Appeals

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