United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 560811 - HQ 561018 > HQ 560871

Previous Ruling Next Ruling

---

HQ
560871

MARCH 16,
1998

MAR-05 RR:TC:SM 560871 BLS

CATEGORY: MARKING

Kathleen M. Murphy, Esq.
Katen Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693

RE: Country of origin marking of engine parts and components

Dear Ms. Murphy:

This is in reference to your letter dated February 27, 1998, on behalf of General Electric Aircraft Engines ("GEAE") and General Electric Engine Services ("GEES"), requesting a ruling concerning country of origin marking of engine parts that GEAE intends to import from Brazil.

FACTS:

The following information is submitted:

GEAE and GEES are subsidiaries of General Electric. GEAE is a manufacturer of commercial civil aircraft engines, marine and industrial aircraft engines, and military aircraft engines, and GEES performs services which include engine overhaul, engine component maintenance and repair, and warranty work. As part of each contract of purchase, GEAE agrees to provide to its customers repair and maintenance service for the gas turbines and engines ("engines"), which services are performed by GEES. GEES may also negotiate separate service contracts with GEAE's customers to repair GEAE-built engines. In addition, GEES will contract to repair engines built by its competitors.

The majority of the aircraft engines are produced by GEAE in the U.S. In a few instances where military aircraft engines are involved, the customer's country may require that the final assembly of the engines take place in that country. Military aircraft engines sold to U.S. customers are assembled by GEAE in the U.S., and may also be assembled in part by co-producers abroad.

The production of the engines involves thousands of part, thousands of different assembly processes, and hundreds of tests to ensure accurate installation of
the components. Parts are assembled into modules (subassemblies), which are then assembled to produce the engine. You state that the process requires close attention to detail, high levels of technical skill and strict quality control. The various parts may be sourced from vendors located in the U.S. and/or other countries. Many parts may be sourced from multiple vendors.

GEES' foreign repair facility is located in Brazil. At this facility, engines received from GEAE and others are disassembled and inspected for routine service or necessary repairs. When an engine arrives at a facility, it is assigned a work order number, based on its manufacturer serial number. This serial number is listed both on the engine itself and in its technical records book, which contains information such as the engine's maintenance record and hours of operation.

A typical overhaul involves stripping down the engine by removing a group of parts or subassemblies. The subassemblies are further broken down into piece parts. You state that during this tear-down process, parts from a particular engine are segregated from parts of engines. The Brazil facility then makes as many on-site repairs or replacement of parts for each engine as possible and separates scrap parts from those which still need repair. Those parts that cannot be repaired or replaced are sent off-site. Parts and components that are readily ascertainable as being sourced or manufactured in the U.S. or by manufacturers located in foreign countries are returned to those parties for repair. In cases where the manufacturer of a part or component is not ascertainable, the Brazil facility identifies an approved vendor of the part. Thus, the Brazil facility sends the parts to the engine manufacturer or to an approved vendor for repair or replacement. The engines themselves usually stay at the Brazil facility, in tear-down condition, awaiting the reinstallation of the repaired or replacement parts.

When GEES or other U.S. repair vendors receive engine parts in the U.S., they repair or replace the parts as necessary. In certain cases, if the parts cannot be repaired expeditiously, they are immediately replaced on a one-to-one basis and the original defective part is scheduled for repair and then placed in a parts pool. The parts that are shipped back to the Brazil facility are reinstalled in the same engine model from which they were removed. Upon reassembly, each engine conforms to its original or upgraded design specifications.

While the Brazil facility can readily track the manufacturer of engine, based on the serial number, it cannot determine the original country of origin of each and every part during the tear-down process. In some cases, individual parts may not be marked with a country of origin. In other cases, country of origin markings can wear off during use. In the case of parts from non-GEAE engines, it is unlikely that competitors will reveal
sensitive sourcing information.

ISSUE:

What are the country of origin marking requirements for the parts disassembled from the engines and imported into the U.S. for repair or replacement?

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. The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297 at 302 C.A.D. 104 (1940), where the court stated that: "Congress intended 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."

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines the country of origin of an article 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 for country of origin marking purposes. A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940).

Accordingly, the first question we must address is whether the imported parts initially undergo a substantial transformation as a result of their assembly into engine modules, and then into the aircraft engine, either in the U.S. or abroad.

In C.S.D. 85-25, 19 Cust. Bull. 544 (1985) (HRL 071827 dated September 25, 1984), Customs held that for purposes of the Generalized System of Preferences (GSP), an assembly process will not constitute a substantial transformation unless the operation is "complex and meaningful." Whether or not an operation is "complex and meaningful" depends on the nature of the operation, including the number of components assembled, number of different operations involved, and whether a
significant period of time, skill, detail and quality control are necessary for the assembly operation.

In Headquarters Ruling Letter (HRL) 555756 dated March 25, 1991, chain saws were manufactured in Mexico with the use of engines that were assembled in Mexico from Mexican and other foreign origin components, and 125 U.S. components. These components were first formed into various subassemblies of the engine (manual oil pump, fuel and oil tank, flywheel, starter, pump, handle/throttle lock and crankshaft piston), which were then further assembled into the engine. The engine was then assembled with 20 additional components to form the chain saw. Customs held that the components which made up the gasoline engine had undergone a substantial transformation because there clearly was a name change from components such as nuts, bolts, contact ignition switch, sparkplugs, cylinders, etc., to a gasoline engine. Moreover, the processing operations changed the character and use of the components by designating them to a specific use, i.e., an engine to start and operate chain saws. In that case, over 100 discrete components were combined in operations, such as mounting, welding, bolting, and quality control testing which increased the components' value and endowed them with new attributes. Therefore, the engine was held to be a substantially transformed constituent material of the chain saw, thereby enabling the cost or value of the engine materials to be counted toward the 35 percent value-content requirement for purposes of the GSP.

In HRL 559703 dated June 21, 1996, we addressed a situation also involving the assembly of aircraft engines. As in the instant case, thousands of individual parts were assembled to create the various modules, which in turn were assembled to produce the aircraft engine. In that case, Customs noted that the assembly of the engine was a complex operation and that as a result of such assembly the individual components and subassemblies underwent a change in use, character and identity and become an integral part of the aircraft engine. Therefore, we found that the operations performed in the U.S. or abroad leading to production of the engine resulted in a substantial transformation of the imported parts. As a result, we held that the country of origin of the parts when integrated as part of the engine was the country where the engine was produced.

The operations in this case similarly involve assembly of numerous parts into modules, and assembly of the modules into aircraft engines. As in HRL 559703, we find that such assembly processes require complex operations, and result in a change in use, character and identity of the parts and modules, as these components become an integral part of the aircraft engine. Accordingly, we find that the parts undergo a substantial transformation when they are assembled as part of an engine, and
accordingly, the country of origin of the parts is the country of origin of the engine.

The next issue to be addressed is whether the subsequent disassembly of the engines at the Brazil facility and removal of the parts effects a change in the country of origin of such parts.

Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), provides in pertinent part that "Country of origin" means country of manufacture, production, or growth of any article of foreign origin entering the United States. 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." Emphasis added.

In HRL 732258 dated March 28, 1990, Customs held that for country of origin marking purposes automotive alternators that were sent to Mexico to be cleaned, disassembled, rebuilt with new parts and electronically tested were not substantially transformed and did not become products of Mexico. We found in that case that the rebuilt alternators did not have a new name, character or use, but merely were made functional again. See also HRL 556609 dated July 23, 1992, where we held that the disassembly of steering gear assemblies in Mexico for purposes of repair did not substantially transform the assemblies into a product of Mexico for country of origin marking purposes.

In HRL 559703, supra, we stated the following:

In the instant case, the various parts assembled to produce the aircraft engine are substantially transformed during this process. The parts of the engine which are subsequently disassembled and imported by GEAE for repair (or replacement) do not undergo a change in character or use as a result of such disassembly, but retain their identity as parts of the engine from which they were removed. Therefore, since these parts do not undergo a substantial transformation as a result of such disassembly, the country of origin of such parts remains the country where the engine was produced and they must be marked accordingly. Foreign parts remaining in the U.S. and subsequently re-exported must undergo a substantial transformation in order to effect a change in the country of origin.

Similarly, we find under substantially identical facts that the parts in the instant case do not undergo a substantial transformation in Brazil as a result of the disassembly of the engines. Therefore, the country of origin of the parts remains the country where the
engines were produced. As in HRL 559703, foreign parts remaining in the U.S. and subsequently re-exported must undergo a substantial transformation in order to effect a change in the country of origin.

HOLDING:

Foreign and domestic parts used in the production of aircraft engines undergo a substantial transformation as a result of such operations. Subsequent disassembly of the engines abroad and removal of parts for purposes of repair and reassembly will not effect a substantial transformation of the parts. Therefore, the country of origin of the parts imported for repair (or replacement) will be the country where the related engine was produced and the parts must be marked accordingly. Foreign parts remaining in the U.S. and subsequently re-exported and returned must undergo a substantial transformation in the U.S. in order to render the U.S. the country of origin. This decision relates to country of origin marking determinations only.

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.

Sincerely,

John
Durant, Director
Commercial
Rulings Division

Previous Ruling Next Ruling