HQ 560169 - Country of origin marking requirements of certain printed matter imported from Canada; lottery tickets; NY Ruling 806608; NAFTA; - United States International Trade Commision Rulings

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HQ
560169

FEBRUARY 23,
1998

MAR-05 RR:TC:SM 560169 BLS

CATEGORY: MARKING

Area Director
New York Seaport
6 World Trade Center
New York, New York 10048

RE: Country of origin marking requirements of certain printed matter imported from Canada; lottery tickets; NY Ruling 806608; NAFTA;
Article 509

Dear Sir:

This is in reference to a ruling request dated October 28, 1996, on behalf of Pollard Banknote Ltd. ("Pollard"), concerning country of origin marking requirements for certain printed matter imported into the U.S. from Canada.
This matter was the subject of NY Ruling 806608 dated February 15, 1995. We regret the delay.

FACTS:

Pollard exports to the U.S. lithographically printed cards (hereinafter "tickets") to U.S. Lottery Commissions ("Commissions") in various states (such as Illinois and New York). The tickets are exported to the particular state warehouse in the U.S. where they are packaged for distribution to individual retailers. The retailers remove the tickets from their shrink-wrapped packages and place them into dispensers. When a sale is made, the retailer detaches the perforated ticket and provides it to the consumer.

The Commissions advertise and sell (through retail agents) to U.S. consumers Lottery Tickets or other games of chance, including Bingo game cards. As a result of the Commissions' distribution, advertising, and validation activities, these tickets and cards confer the chance to win money.

Depending on the value of the prizes, the Commission sells the tickets and cards to consumers for $1.00, $2.00, $5.00, or $10.00. In general, the Commissions sell the Lottery Tickets to consumers for about 50 to 200 times the value of the printed matter they import from Pollard.

The printed matter Pollard exports to the Commissions is usually bar-coded.
The tickets are printed so that the play data is linked to a validation number under the scratch-off area, and a bar code is printed on the ticket away from the play area.

The play data validation number and the bar-code information are also stored on a computer validation tape that Pollard sends to the Commissions along with the tickets. In most cases, the lottery tickets are "dead" until the retailer activates each book of tickets by "wanding" the bar code of any ticket in a book.

When presented with a winning ticket, retailers must authenticate the ticket by keying into their terminal the validation number and reading the bar code. The retailer's bar code then electronically transmits the request to the Commission's main computer onto which the validation number tape information has been loaded.

The Commission's computer searches this information and reports back to the retailer's terminal regarding the winning/losing status of the ticket. If the ticket is confirmed to be a winner, the amount is flagged and the price is paid out.

When the price is greater than $600, the consumer must usually have the ticket validated at the Commission's headquarters.

NY Ruling Letter 806608

In NY Ruling Letter 806608 dated February 15, 1995, Customs found that the lottery tickets are to be sold at retail in their imported form. Therefore, the ruling held that the purchaser at retail is the ultimate purchaser and that the tickets must be marked individually with their country of origin. Marking of the shipping containers only was therefore deemed insufficient to apprise the ultimate purchaser of the country of origin of the lottery tickets.

ISSUE:

What are the country of origin marking requirements for the imported printed matter?

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 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 country the "country of origin" within the meaning of this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (Emphasis added.)

Section 134.1(j), Customs Regulations (19 CFR 134.1(j)), provides that the "NAFTA Marking Rules" are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. A "good of a NAFTA country" is defined in 19 CFR 134.1(g) as an article for which the country of origin is Canada, Mexico, or the U.S. as determined under the NAFTA Marking Rules set out at 19 CFR Part 102.

Pursuant to section 134.35(b), Customs Regulations (19 CFR 134.35(b)), goods of a NAFTA country are excepted from marking if they are to be processed in the U.S. in a manner that would result in the good becoming a good of the U.S. under the NAFTA Marking Rules. That is, if an article undergoes processing after its importation so as to become a good of the U.S., it will not have to be marked. Furthermore, if such a good is processed by the importer or on its behalf, its outermost container is excepted from marking as well.

Section 102.11, Customs Regulations (19 CFR 102.11), sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. Paragraph (a) of this section provides that the 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 applicable requirements of these rules are satisfied.

The imported products are neither "wholly obtained or produced," or "produced exclusively from domestic (U.S.) materials." Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good.

Pollard argues that the tickets are classified under heading 4911, Harmonized Tariff Schedule of the United States (HTSUS), upon importation, and under heading 4907 after the validation and other operations by the Commissions in the U.S. As a result, Pollard is of the opinion that pursuant to the applicable rule under section 102.20, there is a change in tariff classification, and that accordingly the country of origin of the tickets after such processing is the U.S. Therefore, Pollard contends that the individual tickets do not have to be marked, as the ultimate purchaser is the individual Commission.

Heading 4911, HTSUS, provides for "Other printed matter, including printed pictures and photographs." Heading 4907 provides for " "Unused postage, revenue or similar stamps of current or new issue in the country to which they are destined; stamp-impressed paper; banknotes; check forms; stock, share or bond certificates and similar documents of title."

The applicable rule in tariff classification set out in section 102.20(j), Section X,

Chapters 47 through 49, 4901-4911 of the regulations provides:

4901-4911 .... A change to heading 4901 through 4911 from any heading, including another heading within that group.

With respect to whether the processes performed by the Commissions upon the printed matter transform the merchandise from goods classified under heading 4911 into "bearer instruments" classified under heading 4907, we look to the language of that heading, above.

The EN to heading 4907, HTSUS, state that "The characteristic of the products of this heading is that on being issued (if necessary, after completion and validation) by the appropriate authority, they have a fiduciary value in excess of the intrinsic value. (Emphasis added) Webster's New World Dictionary of the American Language (1972), defines "fiduciary" as: "trust, thing held in trust...to trust 1. Designating or of a person who holds something in trust for another; of a trustee or trusteeship 2. Held in trust 3. Valuable only because of public confidence and support: said of certain paper money...."

The EN to heading 4907 further state, in pertinent part, that "Banknotes, cheque forms, and stock, etc., certificates are generally printed on special paper bearing special watermarkings or other marks, and are usually serially numbered. Lottery tickets printed on special security paper and serially numbered are, however, excluded from this heading and are generally classified in heading 49.11." (Emphasis in original)

It is our opinion that lottery tickets are not ejusdem generis with the exemplars enumerated in the tariff language of heading 4907, HTSUS. The EN to heading 4911 include lottery tickets as an example of printed matter covered by the heading. The EN to heading 4907 indicate that lottery tickets are excluded from that heading. We note that packaging and distribution are the only processes performed by the Commissions prior to purchase at retail by an individual. The "validation" process is performed by the Commission only for tickets asserted or believed to be winners. Although there is a substantial increase in purchase price paid for a lottery ticket at retail by an individual purchaser, the fact that it is paid is attributable less to any fiduciary value in the ticket, or to the processes performed on the printed matter/lottery ticket by the first purchaser, than to the lure of gambling through the purchase of a chance to win money. Accordingly, it is
our conclusion that the required tariff shift from heading 4911 to 4907, HTSUS, does not occur, as upon retail sale the lottery ticket continues to be classified under heading 4911.

Therefore, in order to determine the country of origin of the tickets, we must apply 19 CFR 102.11(b), the next rule in the hierarchal order. 19 CFR 102.11(b) provides in pertinent part that:

Except for a good that is specifically described in the Harmonized
System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a):

(1) 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.

When determining the essential character of a good under 19 CFR 102.11, 19 CFR 102.18(b)(1) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. Section 102.18(b)(1)(iii), Customs Regulations (19 CFR 102.18(b)(1)(iii)), provides that if there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed, then that material will represent the single material that imparts the essential character to the good under 19 CFR 102.11.

Pursuant to 19 CFR 102.18(b)(1)(iii), the single material that imparts the essential character of the lottery tickets when sold at retail are the imported tickets, which are a product of Canada. Accordingly, the country of origin of the completed lottery tickets when sold to U.S. purchasers is Canada, and the individual tickets must be marked accordingly.

HOLDING:

Lottery tickets imported from Canada do not undergo a tariff change pursuant to 19 CFR 102.20 as a result of bring activated by the retailer by "wanding" the bar code of the tickets. As the imported tickets are the "single material that imparts the essential character" of the lottery tickets when sold at retail, the country of
origin of the completed tickets when sold to U.S. consumers is Canada, and the individual tickets must be marked accordingly. See 19 CFR 102.11(b)(1) and 102.18(b)(1)(iii).

NY Ruling 806608 is affirmed by this decision.

Sincerely,

John

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