HQ 560674 - Country of origin marking for rotary metalworking tools; T.D. 84-214; marking the container; 19 CFR 134.32(d) - United States International Trade Commision Rulings

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HQ 560674

January 9, 1998

MAR-2 RR:CR: SM 560674 RSD

CATEGORY: MARKING

Mark Bravin, Esq.
Morgan, Lewis & Bockius
1800 M Street, N.W.
Washington, D.C. 20036-5869

RE: Country of origin marking for rotary metalworking tools; T.D. 84-214; marking the container; 19 CFR 134.32(d)

Dear Mr. Bravin:

This is in reply to your letter dated September 2, 1997, addressed to the Area Director for the Newark Area requesting a ruling regarding the country of origin marking requirements for rotary metalworking tools imported by Sandvik Coromant Division (Sandvik). The National Commodities Specialists Division forwarded your letter to this office at Customs Headquarters for a response. We are in receipt of four sample rotary cutting tools and their containers. On December 5, 1997, we received a second set of sample rotary cutting tools with their containers and copies of Sandvik's catalogs. This ruling is based on and limited to the samples that you have submitted for our consideration.

FACTS:

The material facts you have provided essentially consist of the following:

Sandvik, based in Fair Lawn, New Jersey, imports a variety of proprietary metalworking products, for turning, milling, drilling, and boring as well as tool holding systems and accessories. Sandvik's parent company, Sandvik AB, or one of its European subsidiaries manufactures the rotary metal working tools mainly in Sweden. A significant portion of the tools are sold to direct accounts. In this type of sale, industrial customers place orders for rotary tools based on information from Sandvik's catalogs and price lists. In the case of Sandvik's existing customers, they will simply reorder replacements for their stock as they need them. In most instances, when a direct account customer places an order with Sandvik for rotary tools, the order is filled through Sandvik's central distribution center in Kentucky, and the merchandise is shipped via UPS to the customer in the United States.

In direct order shipments where the tool is not in stock, Sandvik conveys the order to its parent company (or an affiliate) in Europe and the tools are packaged in individual containers and shipped directly to the customer.

Some of the rotary tools are also sold through distributors. Usually, Sandvik "drop ships" more than half of the tools sold through the distributors. In such transactions, the distributor notifies Sandvik that a customer has issued a purchase order and Sandvik sends the order to its central distribution center in Kentucky, which ships the tools directly to the industrial end-user, usually within 24-48 hours. In cases where a product is not in stock in the distribution center, Sandvik conveys the order to its parent company (or an affiliate), and the tools are packaged and shipped directly to the customer, as is done with the Sandvik's direct accounts.

A small percentage of tools are delivered after importation to Sandvik's distributors in the United States. The companies that order Sandvik's tools are sophisticated industrial companies, which make their purchase decisions based on catalogs, demonstrations, or previous experience. Sandvik's tools are never sold "off the shelf" of either the distributors or of a retailer. In other words, the rotary tools are not sold to individual consumers through mass retail channels and do not appear on retail store shelves.

Each rotary metalworking tool that Sandvik imports is packed in an individual container prior to its entry into the United States. The tools are delivered to the industrial purchaser in this packing either directly or through distributors as described above. Many of the containers in which Sandvik imports its tools have been specifically designed for shipment of that tool to the ultimate purchaser and for subsequent storage of the tool. Around 75 percent of Sandvik's rotary metalworking tools are sold in containers that are molded plastic cases, which are specially designed to hold a particular tool. The plastic cases are also designed to be used by the customer throughout the life of the tool. Normally the containers include product information and are imprinted with the Sandvik brand name. The containers holding rotary metal cutting tools are currently not sealed at the time of entry.

In some cases, the tools imported by Sandvik are either too small, or too large or inappropriately shaped to be shipped in molded plastic cases. Small tools are packaged in appropriately sized cardboard boxes. Large tools are packaged in appropriately sized wooden crates. In addition to bearing the Sandvik brand name and including product information, the tools packed in these types of containers are normally wrapped in protective paper.

Presently, the United States is the only country to which Sandvik ships its products that requires each tool be individually marked. Consequently, when Sandvik
orders tools for delivery to customers in the United States, the supplier unpacks each tool and individually etches, engraves or die stamps it. Sandvik would like to end this practice because it is very costly.

You have submitted samples of four rotary cutting tools which are packaged in the containers in which they are delivered to customers:

U-Drill (model no. R416.2-0180W20-31) :
Drilling tool, packaged in a plastic storage tube, etched on the tool with the country of origin.

Delta Drill (model R411.5-15552D-15.08 P20): Drilling tool, packaged in a plastic storage tube, etched on the tool with the country of origin marking.

Delta Drill (model no. R411.5-11034D11.00 P20): Drilling tool, packed in a plastic storage tube, etched on the tool with the country of origin marking.

CAT V Flange (model no. 45 MM-BT4.000-C8): Holding tool, packaged in a plastic storage container, etched on the tool with the country of origin marking.

On March 21, 1996, Customs issued a ruling NY A80675, regarding the country of origin marking for non-rotary cutting tools. The ruling granted an exception from marking the individual non-rotary cutting tools under 19 CFR 134.32(d) if the articles are imported in sealed containers which are marked to indicate the country of origin of the tools and the port director is satisfied that the article will remain in the marked container until it reaches the ultimate purchaser. Sandvik requests that Customs adopt a similar approach to the rotary cutting tools that it will be importing in sealed containers.

Instead of having each rotary tool individually marked by die stamping, etching, engraving or similar type marking, Sandvik proposes to seal the individual containers in which the tools are imported and mark those containers with permanent labels that would indicate the country of origin of each tool. To assure that Sandvik's customers receive the rotary tools in these marked containers, Sandvik proposes to seal each container with a label made of heavy duty sealing tape marked conspicuously with the English name of the country of origin. On the samples submitted, the products are marked on the container by means of a stick-on label which is attached to both the top and bottom sections of the container where they overlap. Counsel alleges that this method of marking effectively seals the container because it cannot be opened unless the label is broken. If the label is broken, counsel contends that Sandvik's customers will know that the container has been opened before purchase.

ISSUE:

Whether the proposed country of origin marking of rotary cutting tools through the use of a sticker label affixed to the containers in which the tools are imported satisfies the requirements of the country of origin marking law.

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. Part 134, Customs Regulations (19 C.F.R. Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. ?1304. Pursuant to 19 U.S.C. ?1304(a)(3)(D) and section 134.32(d), Customs Regulations (19 C.F.R. ?134.32(d)), an exception from individual marking is applicable where the marking of the container of an imported article will reasonably indicate the origin of the article. This exception is normally applied in cases where the imported article(s) is imported in a properly marked container and the ultimate purchaser in the U.S. will receive it in its original marked container.

19 C.F.R. ?134.42 provides that the marking of certain articles shall be by specific methods as may be prescribed by the Commissioner of Customs. Pursuant to this authority, Customs issued T.D. 74-122, and T.D. 84-214, imposing special marking requirements for imported rotary metal cutting tools. In T.D. 74-122, Customs established that rotary metal cutting tools (i.e., tools for hand tools or machine tools which are designed to be fitted to such tools and which cannot be used independently and include tools for pressing, stamping, drilling, tapping, threading, boring, broaching, milling, cutting, dressing, mortising or screw-driving of the kind classified in items 649.43, 649.44 and 649.46, Tariff Schedules of the United States) must be marked by means of die stamping in a contrasting color, raised lettering, engraving, or some other method of producing a legible, conspicuous and permanent mark to clearly indicate the country of origin to the ultimate purchaser in the United States. Specifically excluded from methods of acceptable marking were ink stamping, tagging with adhesive labels or any other impermanent form of marking which could be smudged, blurred or otherwise easily obliterated or removed. However, imported rotary metal cutting tools could be excepted from individual marking if they would reach the ultimate purchaser in the U.S. in individual tubes or containers which were legibly, conspicuously and permanently marked to indicate the country of origin of the tools therein.

Subsequently, two trade associations representing the domestic rotary metal cutting tool industry requested Customs to change its practice in regard to that commodity because of alleged abuses of the exemption allowing tools to be unmarked if they were sold in marked containers. It was claimed that such tools were often removed from their containers before reaching the ultimate purchaser in the U.S.
After reviewing domestic industry's petition, the public comments received in response to the proposed change of practice and the available evidence, Customs concluded that the exception created in T.D. 74-122 to individual tool marking was being abused. To correct this problem the following points were clarified in a decision published as T.D. 84-214:

1. T.D. 74-122 provided for an exception from individual marking requirements in the case of tools imported in individual tubes or containers which are marked to indicate the origin of the tools inside. 2. That exception would continue to be available only if it can be shown to the satisfaction of the Customs officers at the port of entry that the containers are of a kind that are virtually certain to reach ultimate purchasers in the U.S.

3. Rotary metal cutting tools imported in individual tubes or containers of cardboard or plastic must be individually marked in accordance with T.D. 74-122 notwithstanding that the container is marked.

In T.D. 84-214, we further explained that the basis for allowing the exception to continue in the case of certain twist drill sets rests on the substantial nature of various retail packages in which these twist drill sets are sold. The packaging often contains retail information and compartmentalized holders meant to attract consumers and retain their usefulness as holders even after purchase. We also pointed out that in such cases the cost of removing the packaging would outweigh the value of concealing the country of origin marking. However, this cannot be said of larger twist drills imported in individual tube or packets where the quality of such packaging is insubstantial (i.e., cardboard or plastic and small in value in comparison with the drill inside).

Sandvik requests that rather than having to mark the individual rotary cutting tools, by means of die stamping in a contrasting color, raised lettering, engraving, or by some other method which would produce a legible, conspicuous and permanent marking, it be permitted to mark the containers with a stick-on label which would seal the container. In T.D. 84-214, Customs indicated that "Rotary metal cutting tools may not be excepted from individual country of origin marking... unless it can be shown to the satisfaction of Customs officers at the port of entry that the containers are of a kind that are virtually certain to reach the ultimate purchaser unopened." Consequently, in applying T.D. 84-214 to this case, the questions that arise are whether the rotary cutting tools are virtually certain to reach the ultimate purchaser in the marked unopened containers, and whether the containers are substantial enough to permit an exception from marking the individual tools.

In considering the sample rotary cutting tools and their containers and based on the factual information presented, we find that they are virtually certain to reach the ultimate purchasers in the marked containers. First, Sandvik maintains a tight control over how the tools are sold in the United States. In most cases, Sandvik will send the rotary cutting tools to the ultimate purchasers. Even in the few cases where outside distributors are used, the tools are never sold "off the shelf" through mass retailing channels by the distributors or retailers. Moreover, the containers in questions are substantial plastic containers specifically designed to fit the tools and intended to serve as storage for the tools during their life. The containers are also labeled with product information and are imprinted with the Sandvik name. Accordingly, it is highly unlikely that the tools will be removed from their containers and repacked before they are delivered to the ultimate purchaser.

As pointed out above, T.D. 84-214 indicates that whether a drill set may be excepted from marking rests on the substantial nature of the retail package in which it is sold, such that the retail package is meant to attract consumers and retain its usefulness as a holder even after purchase. Although the containers in this case are made of plastic, we nevertheless feel that they are substantial enough to permit the rotary cutting tools to be excepted from individual marking. This is evidenced by the fact that the containers are sturdy, clearly designed to be used as holders for the tools after purchase, and contain important product information.

We also believe that the manner in which the country of origin marking labels are applied effectively seals the container because they are placed at the point where the top and bottom sections of the container overlap. This means that the containers could not be opened and the tool removed unless the country of origin label is torn. Thus, it will be apparent to the ultimate purchaser if the container is ever opened prior to purchase. Therefore, we are satisfied that if the sticker is affixed in the same manner and in the same location as the submitted samples, the rotary cutting tools are virtually certain to reach ultimate purchaser in unopened containers. Consequently, putting the country of origin marking on the labels affixed to the containers will inform the ultimate purchaser of the country of origin of the rotary cutting tools and under 19 U.S.C. ?1304(a)(3)(D) as implemented by 19 CFR 134.32(d) the tools may be excepted from individual marking.

However, this exception from marking the individual tools will be available only if the port director is satisfied that the tools in fact reach the ultimate purchaser in the containers marked as described above.

HOLDING:

The proposed country of origin marking of the rotary cutting tools through the use of a sticker label affixed to the containers in which the tools are imported, satisfies the requirements of the country of origin marking law. Because the sticker is placed on both the top and bottom sections of container where they overlap, it effectively seals the container, and thus the rotary tools are virtually certain to reach the ultimate purchaser in unopened containers. Therefore the rotary cutting tools are excepted from the individual marking requirements of T.D. 84-214.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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, Director

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