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HQ 561011




September 22, 1998

MAR-2 RR:CR:SM 561011 RSD

CATEGORY: MARKING

Ms. Glenda C. Bass
Manager, Export Control
Lockheed Martin
12506 Lake Underhill Road, MP-819
Orlando, Florida 3282-5002

RE: Country of origin marking requirements for compact disks (CDs) which will be stamped with proprietary software; substantial transformation; made in USA marking; 19 CFR 134.35(b)

Dear Ms Bass:

This is in response to your letter dated May 15, 1998, concerning the country of origin marking requirements for blank compact discs which will be stamped with proprietary software in the United States.

FACTS:

Your letter states that Lockheed Martin will import unrecorded compact discs (CDs) into the United States under subheading 8523.20.00 of the Harmonized Tariff Schedule of the United States (HTSUS). These CDs are blank and are designed for use with automated data processing machines. You do not indicate in which country the blank CDs are produced.

After importation, Lockheed Martin will "stamp" proprietary software programs onto the CDs for use in other Lockheed Martin systems. Once a CD is stamped or loaded with this software, it cannot be used for any other purposes. You indicate that the programed CDs would be classified under subheading 8524.39.4000, HTSUS.

ISSUE:

What are the country of origin marking requirements for the imported blank CDs which will be stamped with proprietary software in the United States?

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.

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 the marking laws and regulations. An imported article used in manufacture which results in an article having a name, character or use different from that of the constituent article will be considered substantially transformed, and the U.S. manufacturer or processor will be considered the ultimate purchaser of the constituent materials. See U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940). The imported article is excepted from marking to the extent that the outermost container is properly marked. See 19 CFR 134.35.

In Headquarter Ruling Letter HRL 732087, dated February 7, 1990, Customs ruled that the writing of a program onto a computer diskette is a substantial transformation of the diskette. We stated that the character of the diskette was changed from one of a blank storage medium to one with a predetermined electronic pattern encoded onto it. The ruling further indicated that use of the diskette had changed from that an unreadable, therefore meaningless, article of software, to that of an encoded instruction guide to enable a computer to perform various commands. See also HRL 735281 (February 24, 1994) and HRL 735409 (May 27, 1994).

In HRL 559211 dated September 21, 1995, like the present case Customs also considered the country of origin marking for imported unrecorded writable CDs that were used to store various types of data and information. One of the two types of CDs considered in HRL 559211 was a writable CD media with "Infoguard" system protection. We noted that some of the "Infoguard" CDs were distributed to companies who recorded information onto the CDs. As in HRL 732087, in HRL 559211 we determined that the companies which recorded the information onto the CDs were the ultimate purchasers of the CDs because the recording of the data and information substantially transformed the blank CDs into a new article, having a new name, character, and use. We also pointed out that if the CDs were goods of Mexico, the recording of the data onto the CDs satisfied the tariff shift rule set forth for products classified in heading 8524, HTSUS, which is a change from any other heading (the heading for blank CDs was 8523, HTSUS). See, 19 CFR 102.20(p), Section XVI: Chapters 84 through 85, 8524. Therefore, an exception from marking the individual CDs was allowed pursuant to 19 CFR 134.32(d) and 19 CFR 134.35.

Based on your description, we believe that HRL 559211 is directly on point to the instant case. Lockheed Martin will be importing the blank CDs and recording the proprietary software onto them for use in automated data processing machines. Consequently, we find that when the software is recorded onto the CDs, they are substantially transformed. Thus, Lockheed Martin will be the ultimate purchaser of the blank CDs, and an exception from marking the individual CDs should be allowed pursuant to 19 CFR 134.32(d) and 19 CFR 134.35. Pursuant to 19 CFR 134.35(a), if the CDs are imported from a Non-NAFTA country, then only the outermost containers of the imported articles should be marked. However, if the the CD's are imported from a NAFTA country, under 19 CFR 134.35(b) the outer container therof need not be marked, if Lockheed Martin will be processing on the blank CDs.

You also inquire regarding whether after the CDs are loaded with Lockheed Martin proprietary software in the United States, they can be marked as "made in U.S.A." Although after the U.S. processing, the CDs are not articles of foreign origin, we advise you to contact the Federal Trade Commission (FTC), Division of Enforcement, 6th & Pennsylvania Avenue, NW Washington, D.C. since use of the phrase "Made in U.S.A." for products of U.S. origin is under the FTC's jurisdiction.

HOLDING:

The blank CDs are substantially transformed in the United States when they are stamped with the proprietary software. The individual CDs are excepted from country of origin marking requirements of 19 U.S.C. 1304 pursuant to 19 CFR 134.35 and 19 CFR 134.32(d).

A copy of this 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
Commercial Rulings Division


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