HQ 559964 - Country of origin of decorated paper gift bags - United States International Trade Commision Rulings

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HQ 559964

November 14, 1996

MAR-05 RR:TC:SM 559964 BLS

CATEGORY: MARKING

Sidney H. Kuflik, Esq.
Lamb & Lerch
233 Broadway
New York, N.Y. 10279

RE: Country of origin of decorated paper gift bags

Dear Mr. Kuflik:

This is in reference to your letter dated July 11, 1996, on behalf of Jeanmarie Creations, Inc. ("Jeanmarie"), requesting a ruling with regard to the proper country of origin of certain paper decorated gift bags that Jeanmarie intends to import into the U.S. Samples of the gift bags are included with your submission.

FACTS:

You state the following:

Jeanmarie contracts with a South Korean manufacturer to produce decorative paper gift bags. The production of the gift bags involve work performed in three countries, namely, the U.S., South Korea ("Korea"), and China.

In the U.S., the work will consist of graphic design concepts and layouts for each gift bag, performed by Jeanmarie's in-house art staff. This design and artwork is then furnished to the manufacturer in Korea.

In Korea, the design and art work will be processed by either computer or high-tech camera, depending upon the particular bag's design and size, so as to produce the color-separation films that lay out the process-color components required to reproduce the design image via an offset printing process. The color separation films are used to produce the Litho printing plates that are, in turn, used to print the design on the paper that will constitute the gift bag.

The paper on which the designs will be offset is produced in Korea by Korean paper mills. The paper is cut in Korea to the precise dimensions needed to assemble the specific gift bags that Jeanmarie has ordered. The cutting of the paper to the exact gift bag size is done either by the Korean paper mill, or, for some of the smaller gift bags, by the Korean bag manufacturer. Special heavy weight paper is also produced in Korea for the handle gift tags that will be placed on the handle of each bag.

The gift bag and the handle gift tag paper are then printed with the appropriate design and art work that have been reproduced in Korea. The manufacturer's factory in Korea has three offset litho printing presses in Korea that perform this printing operation on the paper and paper board.

In addition to the paper for the gift bag and handle gift tag, paperboard of Korean origin will also be used in the gift bags to reinforce the bag's front and back top portions, as well as to reinforce the bottom portion of each bag. In this regard, you have orally advised that the paperboard is sent to China from Korea in sheets of 31" x 43".

A laminating film, which will later be affixed to the printed paper, is also produced in Korea. Additionally, the yarn for macrame handles, the metal grommets and the plastic hang tabs that will be attached to the top of the gift bag are all manufactured in Korea. Finally, the glue that will be used in holding the formed bag together and in affixing the laminated film to the printed paper is produced in Korea. Thus, every component used to produce the imported decorative paper gift bags is a product of Korea.

The Korean components are then shipped to China for assembly, which involves the following steps: The laminated film will first be affixed by gluing to the printed paper, followed by the bag being folded and glued by an automatic bag forming machine. Because some bag sizes cannot be shaped in the bag forming machinery, they will be hand folded. The paperboard bottom components are cut to length and width to the required size and inserted into each bag. Reinforcement of the front and back of the bag is accomplished by cutting the paperboard to length and width into strips in the size required, and by folding over the top of the bag on all sides, and enclosing the cut paperboard strips by gluing and tieing with the macrame handles. In some cases, the paperboard strips are cut to shape, to conform to the bags with scalloped tops. Four holes are punched into the top of each bag to hold the macrame
handles; and, where applicable, metal grommets will be inserted into each hole. The Korean printed gift hang tags will be cut and the macrame handles which are braided in China from the Korean yarn will be threaded through the bag's holes and knotted, with one handle having a gift hang tag. Following this assembly process, the completed decorative gift bags are then packed for shipment to the U.S.

ISSUE:

What is the country of origin of the imported gift bags?

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 the "country of origin" within the meaning of the marking laws and regulations.

A substantial transformation occurs when an article loses its identity through processing and emerges as a new article having a new name, character, or use. Koru North America v. United States,12 CIT 1120, 701 F. Supp. 229, 234 (1988); see also, Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 562 (1908); United States v. Gibson-Thomsen Co.,27 C.C.P.A. 267, 273 C.A.D. 98 (1940).

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 Linens 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. 85-25 (September 25, 1984).

Headquarters Ruling Letter (HRL) 734671 dated October 8, 1992, involved the production of picture frames in two countries, Hong Kong and China. In that case unfinished metal picture frames were manufactured in Hong Kong and shipped to China where they were polished, the brass frames were lacquered and the silver plate frames were plated. The metal frames were then assembled with a piece of glass, plastic backs, velvet easels, hinges, and face paper to yield the finished picture frames. In that case we found that the metal frame constituted the very essence of the finished article in that it possessed all the essential qualities of the finished picture frame. Accordingly, we held in that case that a substantial transformation of the unfinished picture frames did not occur in China, and that Hong Kong was the country of origin of the imported articles.

In C.S.D. 80-111 dated September 24, 1980, Customs considered whether the domestic manufacturing processes through which imported ceiling fan components become finished fans constituted a substantial transformation. In this ruling, Customs concluded that the assembly of the fan was not a substantial transformation because the processes were basically assembly line procedures which did not physically alter the components. We further pointed out in that case that the manufacturing processes were simple combining processes that did not require a great deal of skill.

In the instant case, we find that the operations to be performed in China on those components other than the paperboard supports consist primarily of simple assembly operations on ready made components which do not amount to a substantial transformation. These operations consist largely of gluing, folding and other processes which do not ordinarily result in a substantial transformation. Further, the Korean-origin yarn which is braided in China to make macrame handles does not undergo a substantial transformation as a result of such operations, as the country of origin of the handles is Korea, where the yarn is extruded. See 19 U.S.C. 3592(b)(1)(B)(ii).

Therefore, we find that with the exception of the paperboard supports, the country of origin of the gift bag is Korea.

The paperboard supports which are cut in China to length and width and sometimes to shape for bags with scalloped tops are transformed from material with generic purposes to components suitable for use only as supports for the gift bags. Accordingly, we find that the paperboard rolls undergo a substantial transformation in China when cut to specific sizes as gift bag supports and would otherwise be required to be marked with China as the country of origin.

However, in T.D. 91-7 (January 16, 1991), Customs noted 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 be because one or more items in the collection are relatively insignificant and would have no influence on the purchasing decision, or because the items in the collection are too numerous, making it impractical to specify the country of origin of each item, or for various other reasons. Accordingly, Customs stated that it will continue to employ a "common sense" approach to determine the marking requirements applicable to articles which comprise a collection of imported and domestic goods.

An example of this approach is found in HRL 555365 (September 7, 1990), which concerned the tariff treatment and country of origin marking requirements applicable to U.S.-made junction boxes packaged abroad with foreign-made screws (three to a box) and returned to the U.S. In that ruling, Customs found that the foreign screws were excepted from the requirements of section 1304 even though nothing was being done to the screws other than packaging them with U.S. junction boxes. Applying a "common sense" approach, Customs concluded that marking of the screws was not required because they lost their separate identity and became an integral part of the U.S.-origin junction boxes as a result of their inclusion in the kit. Customs also recognized that what the ultimate purchaser in the U.S. was buying was a junction box kit and not individual screws, and that the marking of the screws would not be consistent with the purpose of section 1304. (See also HRL 733089 dated May 30, 1990, where Customs held that a scarf and tie made from the same fabric and design as a blouse did not have to be separately marked with the country of origin. We noted in that ruling that the tie and scarf which were imported together from the same country with the blouse were intended to be worn exclusively
with the blouse. Accordingly, we found that the scarf and the tie lost their separate identity when they were combined and sold with the blouse.)

Similarly, in the present case, we find that the paperboard supports lose their separate identity and become an integral part of the Korean-origin gift bags as a result of their inclusion and/or assembly with the bags. Therefore, using the common sense approach, the paperboard supports do not have to be separately marked to indicate their country of origin.

HOLDING:

Gift bag components produced in Korea do not undergo a substantial transformation as a result of simple assembly operations performed in China. Supporting paperboard sheets which are cut in China to width and length and sometimes to shape to conform to the scalloped top of some gift bags do undergo a substantial transformation. However, since the paperboard components lose their separate identity and become an integral part of the gift bags as the result of the operations performed in China, they do not have to be separately marked to indicate their country of origin. Accordingly, the imported gift bags should be marked with Korea as the country of origin.

A copy of this ruling 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,

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