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 > 1999 HQ Rulings > HQ 547147 - HQ 561093 > HQ 561025

Previous Ruling Next Ruling
HQ 561025

---

October 21,
1998

MAR-05 RR:TC:SM 561025 BLS

CATEGORY: MARKING

Port Director
610 S. Canal Street
Chicago, Illinois 60607-4523

RE: Country of origin marking of photographic film; substantial transformation;
HRL 732842; HRL 733106; Superior Wire; National Hand Tool; Ferrostaal

Dear Sir:

This is in reference to letters dated November 12, 1997 and October 2, 1998, from Dorsey & Whitney LLP, on behalf of Imation Corp. ("Imation"), concerning country of origin marking of certain photographic film. The importer has advised that the merchandise is currently being entered through your port and through JFK Airport, New York.

FACTS:

Imation imports certain bulk color photographic print film from its affiliate in Italy. This film, described commercially as a "jumbo," weighs about 2,000 pounds and is about 8,000 feet in length. It is about five feet in width, four feet in diameter and seven millimeters thick. The film is sent to Imation's plant in Oklahoma for manufacturing operations leading to the production of 110 and 135 color photographic print film. These operations are described as follows:

Slitting

The jumbo is slit into 38 "pancakes" of a width of 35 millimeters or 83 pancakes of a width of 16 millimeters, each pancake being four feet in diameter. The 35 millimeter width is used to make what is called the 135 color photographic film. The 16 millimeter width is used to make what is called the 110 color photographic film.

Perforating

Each pancake is perforated with perforations of an exact size and spacing, for two reasons. First, the perforations ensure the proper alignment of the film in the camera. Second, the perforations allow the film to be advanced out of, and rewound into, the cartridge during the picture-taking process.

Cutting

The film is cut to the exact lengths required by the 110 and 135 film cartridges, respectively.

Latent Image Flashing

The film is subject to a series of exposing or "flashing" operations, whereby a series of images is applied through chemical changes caused by the application of different wavelengths of light for differing periods. This processing is required during the manufacturing process to image the following:

1) a 31 bit barcode

2) human readable film generation and speed

3) frames numbers

4) numbers identifying the emulsion coating used on the film

5) arrows used for the photo finisher's orientation during processing

6) dots/crosses of specific color to identify the manufacturer and film generation

7) frames for the 110 film

The importer states that the 31-bit barcode provides a means to digitally designate the film manufacturer, film generation, frame number, and film speed (ASA 100, 200, or 400). This barcode is not visible until the exposed film is developed at the photo finisher. The barcode is then read by an automatic printer which sets the color balance based on the film manufacturer, film generation, and film speed. Without this barcode, the proper color balance on the finished prints could not be consistently achieved.

In the manufacturing process, the latent images are produced by flashing a high intensity light through a mask designed to allow the film to be exposed to light for the desired image configuration. The barcode mask uses a technology which allows the mask to change image configurations up to 40 times for each length of film in the
finished cartridge.

Imation explains that by virtue of the light exposure, a molecular change takes place within the film emulsion. The film emulsion contains silver halide crystals, which consist of positively charged ions and negatively charged halide ions, such as bromide or iodine. These ions are a form of molecule. When a light quantum or photon is absorbed by the bromide ion, for example, that ion loses an electron and thereby undergoes a molecular change. This electron eventually combines with a silver ion and reduces it to a neutral silver atom of metallic silver. For frequently absorbed photons, this process is repeated until a small but stable cluster of metallic silver atoms is formed in the crystal, producing a latent image.

Manufacturing 110 Film Cartridge

In the case of the 110 film, the cartridge is made up of the following five parts, the first three of which are wholly made in the United States: a plastic body, a plastic cover, plastic spool, backing paper, and the film. The plastic parts are automatically fed to the transport fixture, which conveys the parts to a darkroom for film loading and assembly.

The darkroom consists of spooling, heat-staking, cartridge-closing, and ultrasonic-welding stations. The spooling station winds the film and backing paper (for light protection) into a scroll, which is transferred to the plastic body. Next, the backing paper is heat-staked to the plastic spool, which is used to advance the film in the camera. After heat-staking, the plastic cover is automatically loaded onto the plastic body and ultrasonically welded to complete the assembly. The 110 film cartridge is now loaded and sealed.

Manufacturing 135 Film Cartridge

In the case of the 135 film, the cartridge is made up of, in addition to the film, four parts, all of which are made in the U.S. These include a metal cylinder, end caps, plastic spool, and velvet strips. The cartridge is made from a section cut from a U.S-printed metal sheet. An electrically readable encodement of speed, exposure index, number of exposures, and recommended exposure latitude is applied to the exterior of the cartridge via a pattern of conductive or insulating areas. The metal cylinder, end caps, plastic spool, and velvet strips are automatically assembled and then conveyed to a darkroom for film loading.

The darkroom consists of a spooler and film-preparing equipment. The spooler inserts the film into the cartridge assembly and mechanically attaches the film to the
plastic spool. The film is then wound into the cartridge assembly with a specified length of film extending from the cartridge. The 135 film cartridge is now loaded and sealed.

Moisture Reduction

During the film emulsion coating process, 3.3% moisture content by weight is incorporated into the chemical makeup of the film emulsion. This is necessary in order to minimize the risk of static discharges during the process of coating the film and converting it to the cartridge film.

The residual moisture content of the film must then be reduced from 3.3% to 2.5% after spooling in order to stabilize the sensitometric properties of the film during its shelf life. The emulsion layers of film that are not dried to 2.5% are subject to drastic change, especially if used or stored for long periods in temperatures above 80 degrees Fahrenheit. Excess heat will cause a chemical reaction to occur between the emulsion stabilizers and the excess moisture in the film. In this chemical reaction, the stabilizers break down, form new compounds, and no longer protect the film's performance integrity. In particular, the photographs will be darker, and both the contrast of colors and the speed will be adversely affected. Film that has undergone this change can no longer provide accurate color reproduction.

Defect Removal

As received from Italy, jumbos are about 3% defective on the average, due to coating defects, base defects under the emulsion layers, and other defects caused by handling or shipping problems. Most defects are coating defects, and most coating defects are linear defects.

Examples of linear defects are emulsion streaks, emulsion side or backcoat scratches, and base or roller marks. Some linear defects may run the entire length of the jumbo. Others, however, may exist at one end of the jumbo or the other and will disappear before the opposite end. Most linear defects are continuous, while others are intermittent, repeating at some interval dictated by the diameter of a roller in the base casting alley or emulsion coating alley.

Accompanying each jumbo from Italy is a defect location sheet, which is basically a map of all the defects that are known by the Italian manufacturer to exist. Prior to slitting a jumbo, the slitter operator will review the defect location sheet to determine what special sampling and/or testing will be required prior to slitting a jumbo.

Once the location of the defect has been confirmed, it may be removed at any one of three stages. The defect may be removed from the jumbo if it runs from side to side. More typically, it is removed from an individual pancake. In some cases, however, the defect is not discovered and removed until the film is being spooled from the pancake. In any event, identifying and removing defects are necessary to insure the integrity of the film.

ISSUE:

Whether the processing of the bulk film in the U.S. constitutes a substantial transformation, thereby excepting the imported article from country of origin marking.

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 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.35(a), Customs
Regulations (19 CFR 134.35(a)), applicable to goods of a non-NAFTA country, provides that an article used in the U.S. in manufacture which results in an article having a name, character, or use differing from that of the imported article will be within the principle of the decision of U.S. v. Gibson-Thomsen Co. Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940). Under this principle, the manufacturer or processor in the U.S. who substantially transforms the imported article into an article with a new name, character, or use will be considered the "ultimate purchaser" of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost containers of the imported articles shall be marked in accord with this part.

In Headquarters Ruling Letter (HRL) 732842 (February 23, 1990), Customs held that bulk color print photographic film, when cut to width and length and inserted into
cassettes was not substantially transformed. In addition, in HRL 733106 dated March 19, 1990, Customs reached the same conclusion with regard to 35 mm photographic film which was cut and placed in metal cassettes.

The importer believes that this case must be distinguished from HRLs 732842 and 733106 as Imation's operations include not only the operations described in those cases, but also additional operations which entail significant physical and chemical changes. The importer argues that this processing, particularly the operations involving latent image flashing, moisture reduction and defect removal, results in both physical and chemical changes which alter the fundamental character of the imported product and its use. As there is also a commercial change in the name of the imported product, from "jumbo" to "pancake" to "film cartridge," Imation contends that the processing in the U.S. constitutes a substantial transformation of the bulk film product. In support of its position, the importer believes that the subject processing satisfies the standard for a substantial transformation as set forth by the court in Superior Wire v. United States, 867 F.2d. 1409 (Fed. Cir. 1989)

In Superior Wire, the Court of Appeals for the Federal Circuit affirmed the determination of the Court of International Trade (CIT) that drawing wire from wire rod was a minor rather than substantial transformation, even though the physical properties of the wire rod, and therefore its use, were affected as a result of the processing. In that case, the wire that emerged from the drawing process was stronger and rounder than the wire rod. However, because these properties of the wire, which affected the use to which it could be put, were predetermined by the chemical content of the rod and the cooling process used in its manufacture, the court found that wire drawn from the rod was not a new and different product, but the last stage in the processing of the same product. The court noted that the "end use of the wire rod is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawing wire will be used." Accordingly, the court found that the character of the final product was predetermined and that the processing did not result in a significant change in either character or use of the imported material.

In reaching its decision, the court also stated the following:

Here only the change in name is clearly met, and such a change has rarely been dispositive. No transformation from producers' goods took place; no change from a product suitable from many uses to one with more limited uses took place; no complicated or expensive processing occurred, and only relatively small value was added. Overall, the court
views the transformation from wire rod to wire to be minor rather than substantial. Accordingly, the country of origin of the wire must be considered Spain rather than Canada.

By contrast with the facts in Superior Wire, the importer is of the opinion that the processing at issue herein satisfies the criteria used by the court in making its determination, and that accordingly, the operations which take place in the U.S. constitute a substantial transformation of the imported product. Thus, it is argued that 1) there is a change in name; 2) the imported product changes from a producer's good to a consumer's good; 3) complicated and expensive processing occurs in the U.S.; and 4) the amount of value added in the U.S. is substantial. Imation concedes that in the instant case there is no change from a product with many uses to one with limited uses.

In National Hand Tool v. United States, 16 CIT 308 (1992), 989 F.d. 1201 (1993), the Court of International Trade held that imported hand tool components which were used to produce flex sockets, speeder handles and flex handles were not substantially transformed when further processed and assembled in the U.S. The components were cold-formed or hot-forged into their final shape prior to importation, except for speeder handle bars, which were reshaped by a power press after importation. The grip of the flex handles were also knurled in the U.S., by turning the grip portion of the handle against a set of machine dies that formed a cross-hatched diamond pattern. The articles were heat treated, cleaned, electroplated, and marked with a trademark and size. The imported parts were then assembled with other parts, which required some skill and dexterity on the part of the workers.

The court stated that the determination of a substantial transformation must be based on the totality of the evidence, and applied a 3-pronged test utilizing name, character, and use, in determining whether a substantial transformation had occurred. The court found that the components were unchanged as to form after processing in the U.S., that the use of the imported articles was predetermined at the time of importation, and that the name of the components also remained the same after entry into the U.S. The court discounted plaintiff's argument that a substantial transformation should be found based on the value of the processing performed in the U.S., which plaintiff described as significant, but decided the issue based solely on name, character and use.

In Uniroyal, Inc. v. United States, 3 C.I.T. 220, 542 F.Supp. 1026 (1982), the CIT found that the attachment of an outsole to a shoe upper was a minor manufacturing or combining process which left the identity of the shoe upper intact, and that the
completed upper was the very essence of the finished shoe. The concept of the "very essence" of a product was also applied in National Juice Products v. United States, 628 F. Supp. 978, 10 CIT 48 (CIT 1986), where the court determined that imported frozen concentrated orange juice was not substantially transformed in the U.S. when it was domestically processed into retail orange juice products. The court agreed with Customs that the orange juice concentrate "imparts the essential character to the juice and makes it orange juice... thus, as in Uniroyal, the imported product is the very essence of the retail product." The court also found that the change in name from "concentrated orange juice for manufacturing" to "frozen concentrated orange juice" and "orange juice from concentrate" is not significant to a finding of substantial transformation. Instead, the court stated that these names "merely refer to the same product, orange juice, at different stages of production." Id. at 989. See also Superior Wire, supra, where the court stated that "[a]lthough the steel and wire industries may have different names for the same products, wire rod and wire may be viewed as different stages of the same product." Id. at 867 F.d. 1414. In this case, we view the name change from "jumbo" to "film cartridge" as the same product at different stages of production, and not evidence of a substantial transformation.

Accordingly, following the three-pronged test of name, character and use, it is our opinion that the imported product is the "essence" of the completed article, and thus does not undergo a substantial transformation. While commercially identified as a "jumbo" upon importation and when completed as "cartridge film" or "film cartridge," we do not find this fact significant as the imported product is bulk color photographic print film with a predetermined use which has the essential chemical properties of the completed product. The chemical and physical changes which occur in the U.S. do not change its character or its intended use as photographic film. As in Superior Wire, supra, the imported and finished articles may be viewed as different stages of the same product.

Further, while Superior Wire treated the cost added, amount of labor, and capital investment as a cross-check in substantial transformation cases, the Court of International Trade has stated in numerous cases that the name, character and use test is entitled to continued adherence in view of its affirmance in recent opinions by the appellate court, and to avoid "ludicrous results" should generally be determinative of the country of origin of imported articles. See Ferrostaal v. United States, 664 F. Supp. at 538; and National Hand Tool Corp., supra. Therefore, as our determination is based on name, character and use, we do not consider material to the issue of substantial transformation the added value in the U.S. or other factors unrelated to these determinants.

HOLDING:

Bulk photographic color print film of Italian origin imported into the U.S. for processing into film cartridges does not undergo a substantial transformation. Therefore, the U.S. processor is not considered the ultimate purchaser, and the imported articles must be marked to indicate Italy as the country of origin in accordance with 19 U.S.C. 1304 and the implementing regulations. Customs officials at the port of entry must be satisfied that such marking will be in compliance with all statutory and regulatory requirements.

Please provide a copy of this decision to John Rehm, Esq., Dorsey & Whitney LLP, 1330 Connecticut Avenue, N.W., Washington, D.C., 20036.

Sincerely,

John
Durant, Director


Previous Ruling Next Ruling