HQ 561116 - Country of origin marking requirements for imported knives and sharpening sheathes; special marking for knives; substantial transformation; container exception; 19 CFR134.43; 19 CFR 134.32(d) - United States International Trade Commision Rulings

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HQ 561116

October 15, 1998

MAR-02 RR:CR:SM 561116 RSD

CATEGORY: MARKING

Ms. Angela Durbrorow
Product Manager
Wolters Group International
954 West Washington MC 37
Chicago, Illinois 60607

RE: Country of origin marking requirements for imported knives and sharpening sheathes; special marking for knives; substantial transformation; container exception; 19 CFR134.43; 19 CFR 134.32(d)

Dear Ms. Durbrorow:

This is in response to your letters dated August 24, and 31, 1998, concerning the country of origin marking requirements for knives and sharpening sheathes imported from Taiwan. We have received a sample of a type of knife that your company will be importing.

FACTS:

You describe two scenarios concerning how the knives will be manufactured and sold. The first scenario describes the logistics involved in the first year of manufacturing the knives and the accompanying sharpening sheathes. The second scenario concerns the logistics of making the same products during the second and subsequent years.

In the first scenario, the knife blades and handles will be manufactured in Taiwan, but due to a labor shortage in Taiwan, both the blades and the handles are shipped to China for assembly and polishing. After assembly, the knives will be returned to Taiwan. The components for the sheathes will be manufactured and assembled in Taiwan. After the assembled knives are returned to Taiwan, they will be packaged together with the sheathes in a heat sealed polybag so that they can be sold as a unit. The heat sealed polybags, each containing a knife, sheath and a leaflet regarding the product, are shipped from Taiwan to the U.S. You state that the sheath costs more to produce than the knife.

You state that normally the marking of the blade would occur after it is stamped and tempered in Taiwan. However, in this instance, the blades and handles will be shipped to China for assembly and polishing, and under the laws of China and Taiwan, a product marked with the words "Taiwan" which is assembled in China is not allowed to re-enter Taiwan. You claim that marking the country of origin on the knife after its' assembly cannot be done without compromising the function and quality of the knife. Therefore, you ask if it would be acceptable to mark the polybag in which the knife and sheath are sold instead of marking the knife itself.

In the second scenario, the knife blade and handle will be manufactured in Taiwan, but due to a labor shortage in Taiwan, both the blade and the handle will be shipped to China for assembly and polishing. The sheath will be manufactured in Taiwan and shipped to China for assembly. The assembled knife and sheath and the leaflet will be packaged in the polybag in China and then shipped directly to the U.S. You indicate that in the second scenario, the county of origin of the knife could be stamped or etched on the blade.

You state that, in regard to both scenarios, the country of origin marking of the sheath would be molded into the plastic of the sheath. To indicate the country of origin of the knives in scenario one, you state that a card would be inserted inside the polybag showing the country of origin of the knife and sheath. This insert card will be visible to customers interested in buying the knives. In other words, potential purchasers of the knife and sheath will be able to see the country of origin of the product on the cards which are inserted inside the heat sealed polybags. It is further stated that the product will never be removed from the polybag until it reaches the final customer in the United States.

ISSUES:

What is the country of origin for the knives and sheathes for the two scenarios described above?

What are the country of origin marking requirements applicable to the finished knives and sheathes?

LAW AND ANALYSIS:

The marking statute, section 304, 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. 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 good 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 the marking laws and regulations. Accordingly, the country of origin of an article is the country in which it was wholly manufactured or, if processed in several countries, the country in which the article last underwent a substantial transformation. Simply stated, a substantial transformation occurs "when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing." See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982) (cited with approval in Torrington Co. v. United States, 764 F. 2d 1563, 1568 (1985)).

Country of Origin of the Knife and Sheath under the First Scenario

The first issue concerns the country origin of the knife if the blade and handle are made in Taiwan but assembled in China. In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of the 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. See C.S.D. 80-111, C.S.D. 85-25, C.S.D. 89-110, C.S.D. 89-118, C.S.D. 90-51, and C.S.D. 90-97. The issue of whether a substantial transformation occurs is determined on a case-by-case basis.

In Headquarters Ruling Letter 733301 dated August 8, 1990, Customs considered a situation in which U.S.- made knife blade blanks, wooden or plastic handles, and rivets were shipped to Mexico for assembly, sharpening of the blade, and packaging for shipment to the U.S.
Although there was little information describing the assembly process, we indicated that the assembly of the parts into a finished knife plus sharpening the blade were minor finishing operations which did not result in a substantial transformation.

In the first scenario, the Taiwanese made knife blade and handle are sent to China for assembly of the knife and for polishing. The assembly of the blade to the handle appears to be a simple operation, similar to the processing described in HRL 733301 and thus would not result in a substantial transformation of these components. Therefore, under the first scenario, the country
of origin of the knife would be Taiwan-- where the blade and handle are made. Because the components of the sheath are made and assembled in Taiwan, its country of origin would also be Taiwan.

Country of Origin of the Knife and Sheath under the Second Scenario

In the second scenario (as in the first), the knife blade and handle will be manufactured in Taiwan but sent to China for assembly into the finished knife. For the reasons articulated above, we find that the country of origin of the knife under the second scenario would be Taiwan. With respect to the sheath, the parts will be made in Taiwan but will be sent to China for assembly. Although no information was submitted regarding the assembly of the sheath, it appears to be a relatively simple operation involving a small number of components. Accordingly, we believe that the assembly of the sheath in China from Taiwanese parts would also not result in a substantial transformation. Therefore, the country of origin of the assembled sheath would also be Taiwan. Consquently, in both scenarios one and two, the country of origin of the finished knives and sheathes would be Taiwan.

Marking Requirements for the Knife and the Sheath under Scenarios One and Two

The next issue concerns how the knives and the sheathes must be marked to indicate their country of origin. In the first scenario, the knife will not be marked with its country of origin, but the sheath will have a country of origin marking molded into the plastic. In the second scenario, the country of orgin marking will etched into the knife blade and the sheath will also continue to be marked with its country of origin molded into the plastic. However, based on the sample submitted, it appears that the country of origin markings on the knife blade as well as the sheath will be obscured and will not be visible through the polybag in which it will be sold.

Section 134.43, Customs Regulations (19 CFR 134.43) requires that certain types of articles be marked in a specified manner. Knives are specifically identified in this regulatory provision as articles that must be marked legibly and conspicuously by die stamping, cast-in-the-mold lettering, etching, or engraving. However, Customs has previously ruled that such articles may be excepted from individual marking if the marking of their containers will reasonably indicate the origin of the articles pursuant to 19 CFR 134.32(d). See HRL 733301, dated August 8, 1990, and HRL 732437, dated October 4, 1989. Here, you indicate that the knives in both scenarios will always be sold to consumers in heat sealed polybags and that they will not be repacked after importation. As such, we find that if the plastic bag as a container is marked with the country of origin of the knife and sheath, then the knife and sheath would be excepted from having to be marked with their country of origin pursuant to 19 CFR 134.32(d). Therefore, under scenario one, the country of origin of knife can be marked on the polybag instead of on the knife itself. Because the country of origin of both the knife and the sheath is the same, one marking on the polybag indicating the country of origin for both the sheath and knife would be acceptable .

In a situation such as scenario two, where the knives and sheathes are individually marked, but such markings are not clearly visible through the sealed polybags, to ensure that potential ultimate purchasers are informed regarding the country of origin of the knives and sheathes, the polybags also must be marked to indicate the country of origin of the knives and sheathes. See Section 134.24(d)(2), Customs Regulations (19 CFR 134.24(d)(2)). However, putting a conspicuous country of origin marking on the insert card which is clearly visible through the polybag is an acceptable method of marking.

HOLDING:

The assembly of the Taiwanese made blade and handle in China in both scenarios does not result in a substantial transformation. Similarly, in scenario two, the assembly of the Taiwanese sheath parts in China does not result in a substantial transformation. Therefore, in both scenarios, the country of origin of the finished knife and sheath is Taiwan. If the knives and sheathes are sold to the ultimate purchasers in unopened heat sealed polybags which are properly marked to show the country of origin of the knives and sheathes, then the knives and sheathes would be excepted from being marked with their country of origin pursuant to 19 U.S.C. 1304(a)(3)(D) 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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