HQ 734569 - Country of Origin Marking of Day Organizers/Time Management Systems; Substantial Transformation; Conspicuous; Close Proximity; U.S. Locality; Sets; 19 CFR 134.34; 19 CFR 134.46; T.D. 91-7. - United States International Trade Commision Rulings

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HQ 734569

March 17, 1993

MAR-2-05 CO:R:C:V 734569 ER

CATEGORY: MARKING

Michelle S. Bratsafolis, Esq.
Coudert Brothers
200 Park Avenue
New York, NY 10166

RE: Country of Origin Marking of Day Organizers/Time Management Systems; Substantial Transformation; Conspicuous; Close Proximity; U.S. Locality; Sets; 19 CFR 134.34; 19 CFR 134.46; T.D. 91-7.

Dear Ms. Bratsafolis:

This is in response to your letters of March 20, and July 27, 1992, on behalf of your client, Day Runner, Inc. ("Day Runner") in which you request a ruling regarding the country of origin marking of "day organizer"/"time management system" kits which consist of a collection of paper articles (calendars, expense registers, check registers, blank note pads, "contacts" sheets, telephone/address books), plastic rulers, pens, and similar organizational items arranged inside a cover.

FACTS:

Day Runner is contemplating a change in its sourcing patterns and seeks a Customs ruling as to (1) whether the origin of the merchandise may be indicated on the containers in which the merchandise will be packaged for sale to ultimate consumers in the U.S. and (2) what indication of origin must be placed on the containers in which the merchandise is sold.

The kits consist of covers with outer surfaces composed of leather, polyvinyl chloride (PVC), or polyurethane (PU), and filled with polyurethane foam, loose-leaf ring mechanisms, paper products of various types, plastic rulers, pens, and similar organizational tools. The covers may consist of leather, PU or PVC originating in Mexico, Singapore or Thailand; the paper products are printed in Singapore; the ring mechanisms originate in West Germany; the plastic rulers originate in Taiwan; the pens originate in Japan; and other articles which may be included in various editions of the time management systems (plastic sheets designed to hold business cards, plastic envelopes designed to hold loose items such as spare pencils, papers, etc.) may originate in Taiwan, China, or Korea. Each of the separate pieces is marked to indicate the English name of its country of origin.

Day Runner contemplates importing these articles under any one of the following three scenarios.

Scenario I

The materials and components described above will be shipped to Thailand. The leather, PU and PVC will be cut into rectangular shapes, the corners cut and rounded to shape, and either sewn (leather only) or heat-sealed (PU and PVC), to form a firm outer cover. The cut leather may also be split and skived, to achieve uniform thickness of the body of the cover and to reduce the thickness of the edges. Velcro closures, snap closures, or zipper closures will be fabricated and incorporated into the covers so that they may be closed. The leather covers will be lined with fabric, and the PVC covers will be lined with plastic material.

The covers may contain additional layers of leather or plastics material (as appropriate to each cover) which are cut and sewn to form pockets. The inside of the covers may be slit to accommodate credit cards or similar items. The inside center of the cover will be fitted with rivets and scored so that ring loose-leaf mechanisms may be assembled with the covers to form binders into which the various paper products, plastic rulers, dividers, and other articles will be inserted to form complete time management systems.

The complete kits will be shipped to the U.S. in bulk for importation, repacking and distribution by Day Runner. Following importation, the kits will be packaged for retail sale in cardboard boxes. The boxes will display the logo, an illustration of the kit, product information, trademark and copyright information, the name, address and telephone number of Day Runner in California and a statement to the effect that the boxes are printed in Singapore.

Scenario II

Partially processed leather, PU and PVC covers originating in Mexico or Singapore will be shipped to Thailand, and further fabricated after importation by slitting the covers, fitting them with rivets and loose-leaf ring mechanisms. The paper products, plastic rulers, pens, and other organizational items will then be compiled to complete the kits before they are shipped to the U.S. and repacked, as described in "Scenario I", above.

Scenario III

Finished leather, PU and PVC covers originating in Mexico and Thailand ( i.e., covers which are fully fabricated and require no further processing before insertion of the paper, etc.) will be shipped to Thailand and combined with the paper and plastic products (collated in Thailand). The kits will then be shipped to the U.S. and repacked, as described in "Scenario I", above.

ISSUE:

What are the country of origin marking requirements for day organizer/time management system kits which are fabricated in the manner described above?

LAW AND ANALYSIS:

The marking statute, Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides 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 a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

The primary purpose of the country of origin marking statute 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 CCPA 297, 302, C.A.D. 104 (1940).

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. 19 CFR 134.1(d). If an article is to be sold at retail in its imported form, the purchaser at retail is the "ultimate purchaser." 19 CFR 134.1(d)(3).

The country of origin for marking purposes is defined at section 134.1(b), Customs Regulations (19 CFR 134.1(b)), 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 Part 134. A substantial transformation occurs when articles lose their identity and
become new articles having a new name, character, or use. Koru North America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988).

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. As a general rule, materials/components which are not substantially transformed as a result of their inclusion in a set of mixed/composite goods, then each item must be individually marked to indicate its own country of origin. See, T.D. 91-7.

What is the country of origin for marking purposes of the covers?

In "Scenario I" the cutting to shape, slitting, sewing, etc. of the leather, PU and PVC to form the covers in Thailand would constitute a substantial transformation. Customs has repeatedly held that the cutting of fabric into specific patterns and shapes suitable for use in an assembly operation constitutes a substantial transformation. See, HQs 555189 (June 12, 1989), 554027 (January 13, 1987) and 554025 (December 16, 1986). Therefore, we find that the materials to be used to create the covers will become new and different articles of commerce as a result of the operations performed in Thailand. Consequently, the covers will be products of Thailand for country of origin marking purposes.

In "Scenario II", partially processed leather, PU and PVC covers from Mexico or Singapore will be shipped to Thailand where the components will be assembled to create covers. The "partially processed" leather, PU and PVC covers have been cut roughly to shape and skived (leather only) in Mexico or Singapore. The subsequent assembly operations to be performed in Thailand on the pre-cut pieces do not constitute a substantial transformation of the pieces; consequently, the covers remain products of Mexico or Singapore. This finding is mandated in view of Customs' long held position that the mere assembly of parts will not necessarily constitute a substantial transformation. See, C.S.D. 80-111 (September 24, 1980) (manufacturing processes used to produce ceiling fans from foreign components did not constitute a substantial transformation, and HQ 087439 (October 30, 1990)(modified in HQ 088681 dated May 14, 1991 and subsequently revoked on other grounds in HQ 087439 dated January 23, 1992)(the assembly of components of an imitation leather portfolio was not sufficient to confer country of origin).

In "Scenario III", the finished leather, PU and PVC covers originate in Mexico and Thailand. No other details were provided about these covers. For purposes of this ruling, we will therefore assume that the covers in scenario III are products of either Mexico or Thailand for country of origin marking purposes.

Are the various components making up the kits substantially transformed by virtue of their inclusion into a kit?

The subsequent assembly of the covers, paper, plastic items, and other organizational materials into kits, does not result in a substantial transformation of the various articles as each article retains its individual identity. In T.D. 91-7 (January 21, 1991), Customs issued an interpretative rule which addressed the treatment of kits or sets for country of origin marking purposes. There Customs stated:
in most cases, the mere inclusion of an item in a collection will not substantially transform it into an article with a new name, character or use and, therefore, each item must be separately marked with its own country of origin. (Where the marking of the container will reasonably indicate the country of origin to the ultimate purchaser, the container may be marked instead of the individual articles. See 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d). This result is consistent with the purpose of the marking statute since the ultimate purchaser's decision as to whether to buy the set might be influenced by the country of origin of any of the items in the set, whether or not an item gives the set its essential character.

Since the components making up the kit retain their respective identities, the various countries of origin of the components must be designated in the marking on the kit. We believe that the ultimate purchaser is most likely to be interested in the origin of the major features of the kit including such items as the cover, the paper and plastic inserts, the ruler and the pen and less interested in the origin of such items as the three-ring mechanism and the rivets. Accordingly, in the interest of minimizing the burden upon the importer of marking of sets/kits comprised of items sourced from a variety of countries while also providing the ultimate consumer with the country of origin information likely to be significant to his purchasing decision, only the countries of origin of the major components must be designated in marking legend. This departure from requiring each component in a set to be marked with country of origin is strictly limited to the facts in the instant case.

In your July 27, 1992, submission, you cite to M.B.I. Merchandise, Inc. v. United States, U.S.C.I.T. Slip Op. 92-95 (June 26, 1992), as support for your belief that the country of origin of the kit is the country where the various articles making up the kit are combined. In M.B.I., the Court found that the assembly of photo album pages originating in one country and album covers originating in another country resulted in a substantial transformation. In so holding, the Court noted that the pages were not the essence of the photo albums and in any event lost their identity when incorporated into the albums. By contrast, the instant case involves the inclusion of a number of items into a kit. As discussed above in reference to T.D. 91-7, an assembly of this nature -- compiling a collection of goods (cover; paper and plastic inserts; plastic rulers; pens; and similar organizational items) to create a set/kit -- does not constitute a substantial transformation since each item making up the kit retains its identity.

Whether the Imported Merchandise is Excepted from Individual Country of Origin Marking?

An article is excepted from marking under 19 U.S.C. 1304(a)(3)(D) and section 134.32(d), Customs regulations (19 CFR 134.32(d)), if the marking of a container of such article will reasonably indicate the origin of such article. T.D. 91-7, discussed above, noted that in the case of sets "[w]here the marking of the container will reasonably indicate the country of origin to the ultimate purchaser, the container may be marked instead of the individual articles. See 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d)." Accordingly, subject to the approval of the district director and pursuant to the requirements of section 134.34, Customs regulations (19 CFR 134.34), the individual articles making up the set may be excepted from country of origin marking so long as the district director is satisfied that the imported articles are repacked after release from Customs' custody under the following conditions: (1) [t]he containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S. and (2) [t]he importer arranges for supervision of the marking of the containers by Customs officers at the importers' 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.

Locality other than country of origin appearing on the submitted sample container and wording of the country of origin marking.

The presence of the words "Culver City, CA" on the back of the sample container, trigger the special marking requirements of section 134.46, Customs Regulations (19 CFR 134.46). This section provides that when the words "United States," or "America," the letters "U.S.A.," any variation of such words or letters, or the name of any city or locality other than the country of origin appear on the imported article or its container, the name of the actual country of origin must appear "in close proximity" to the U.S. reference (on the same side of the container) and in lettering of at least comparable size.

In the instant case, the marking "Cover Product of (name of country)/ Other articles from (name of countries)" satisfies the requirements of the marking statute. Alternatively, since each item in the kit, except for the cover, is already individually marked with its own country of origin, the container may display a legend such as "Cover Product of (name of country)/See Other Articles for Country of Origin" so long as the kits are repacked in retail containers which can easily be opened by the ultimate purchaser to check the various articles for country of origin marking. Such a marking scheme was previously approved in HQ 734285 (April 13, 1992) where Customs found that the marking "See Part Number Label For Country of Origin" appeared in close proximity to the U.S. reference and was easy to see.

HOLDING:

So long as the district director authorizes an exception from individually marking the imported day organizer/time management system kits pursuant to 19 U.S.C. 1304(a)(3)(D), 19 CFR 134.32(d) and 19 CFR 134.34, the method and wording of marking, discussed above in the ruling, are in accordance with the requirements of the marking statute.

Sincerely,

John Durant, Director
Commercial Rulings

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