HQ 561269 - Country of origin marking requirements applicable to gun parts imported from Bulgaria for assembly into finished firearms or repackaging for retail sale; 19 CFR 134.26; 19 CFR 134.34 - United States International Trade Commision Rulings

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HQ 561269

February 29, 2000

MAR-05 RR:CR:SM 561269 KKV

CATEGORY: MARKING

Lawrence W. Hansen, Esq.
Grunfeld, Desiderio,
Lebowitz & Silverman LLP
1100 Louisiana
Suite 1275
Houston, TX 77002

RE: Country of origin marking requirements applicable to gun parts imported from Bulgaria for assembly into finished firearms or repackaging for retail sale; 19 CFR 134.26; 19 CFR 134.34

Dear Mr. Hansen:

This is in response to your letter dated July 12, 1999 (which supplements earlier related correspondence submitted by Archer Freight Systems, Inc., dated May 13, 1999, and January 15, 1999), and subsequent facsimile dated October 7, 1999, on behalf of your client Global Trades Company, concerning a request for a “waiver” of the country of origin marking requirements with regard to gun parts imported into the U.S., either for assembly into finished firearms or repackaging for retail sale. Samples of the retail labels have been submitted for our consideration.

FACTS:

We are informed that Global Trades Company/Arsenal USA, LLC imports assorted gun parts into the United States in bulk and subsequently divides them into two categories: parts which will be assembled into completed AKA-47 firearms in the U.S. and parts which will be repackaged for retail sale.

We are informed that the parts to be assembled into firearms in the U.S. will be denoted on entry documents as “kits” and will undergo the following processing steps at the Crown Point, Indiana, assembly plant in the U.S.:

1) Inspection and Qualification
2) Assembly of the Barrel into the Receiver

3) Installation of the Rear Sight Support 4) Installation of the Lower Handguard Flange 5) Installation of the Gas Block
6) Installation of the Front Sight Support 7) Qualification of the Alignment of the Barreled Action 8) Installation of the Muzzle Brake
9) Fitting of the Gas Tube and Upper Handguard 10) Installation of the Fire Control Parts 11) Installation of the Bolt Carrier and the Breechblock 12) Installation of the Recoil Assembly and Receiver Cover 13) Checking of the Headspace of the Breechblock and Barreled Action 14) Test firing of the Barreled Action
15) Examination of the Barreled Action for Damage from Proof Firing

Upon completion of these operations, the barreled actions are shipped from the Indiana facility to the Houston facility where the following steps are performed:

16) Inspection of the Barreled Action
17) Removal of the Receiver Cover, Recoil Assembly, Bolt Carrier, Breechblock, and Gas Tube with Handguard 18) Dismantling of the Fire Control Mechanism 19) Degreasing of the Barreled Action
20) Sandblasting of the components to be “Parkerized” 22) Neutralizing
23) Draining
24) Rinsing
25) Oiling
26) Re-installation of the Fire Control System 27) Re-installation of the Breechblock, Bold Carrier, Recoil Assembly, and Receiver Cover 28) Installation of the Buttstock
29) Installation of the Lower Handguard
30) Re-installation of the Gas Tube and Upper Handguard 31) Installation of the Pistol Grip
32) Inspection of the Finished Rifle
33) Boxing of the Rifle for Shipment

With regard to those parts that are imported and subsequently processed in the U.S., you assert that the assembly of these parts substantially transforms them into a new and different article, an AK-47 firearm which is a product of the U.S. With regard to those parts that are imported and distributed as spare parts, we are informed that many of the pieces are either too small or too delicate to permit individual marking. Therefore, you propose to repackage each individual part into a clear, plastic casing, permanently sealed, into which has been placed a laminated information sheet which clearly, legibly and permanently identifies the country of origin of the part contained within. Samples of the proposed labels have been submitted for our consideration.

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 United States 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 United States the English name of the country of origin of the article. By enacting 19 U.S.C. 1304, Congress intended to ensure that the ultimate purchaser would be able to know by inspecting the marking on the imported goods the country of which the goods are 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, 302 C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. "Country of origin" is defined in section 134.1(b), Customs Regulations (19 CFR 134.1(b)), as

The 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" within the meaning of this part.

Section 134.1(d), Customs Regulations (19 CFR 134.1(d)) provides that:

The ‘ultimate purchaser’ is generally the last person in the United States who will receive the article in the form in which it was imported; however, for a good of a NAFTA country, the ‘ultimate purchaser’ is the last person in the United States who purchases the good in the form in which it was imported.”

Under the principle set forth in U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940), if an imported article will be used in domestic manufacture, the manufacturer may be the "ultimate purchaser" if he subjects the imported article to a process which results in a substantial transformation of the article. In these circumstances, the manufactured article, as a good of the U.S., is excepted from country of origin marking and only the outermost container of the imported article must be marked with the article’s origin. See section 134.35(a), Customs Regulations (19 CFR 134.35(a)). However, if the manufacturing process is a minor one which leaves the identity of the imported article intact, the consumer or user of the article, who obtains the article after the processing, will be regarded as the "ultimate purchaser" (19 CFR 134.1(d)(1) and (2)).

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 C.C.P.A. 152, 681 F.2d 778 (1982) (cited with approval in Torrington Co. v. United States, 764 F. 2d 1563, 1568 (1985)). The issue of whether a substantial transformation occurs is determined on a casebycase basis.

In determining whether the processing operations constitute a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. If the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. See, Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, Customs Service Decision (C.S.D.) 80111, C.S.D. 89129, and C.S.D. 90-51.

Where, as here, the imported gun parts are subjected to a series of complex operations by which the individual parts are assembled into a finished firearm, the U.S. assembly operations are sufficient to effect a substantial transformation. Consequently, the U.S. processor is the “ultimate purchaser,” of the imported parts. Accordingly, upon importation into the U.S., these parts are exempt from individual marking and only the outermost container of these parts must be marked with the country of origin.

However, not all of the imported gun parts are assembled into finished firearms. Imported in bulk, they are commingled with other parts which are subsequently packaged into sealed plastic containers and sold at retail as spare parts. These minimal packaging operations are insufficient to effect a substantial transformation of the imported parts into a new and different article. Consequently, in the absence of a substantial transformation, the “ultimate purchaser” of these articles is not the U.S. processor, but the retail purchaser. Accordingly, upon importation into the U.S., these parts must be marked to indicate to the ultimate purchaser their country of origin.

In this regard, we note section 134.26, Customs Regulations (19 CFR 134.26) may be applicable. Section 134.26(a) provides that if an article subject to country of origin marking is intended to be repacked after its release from Customs custody, or the port director having custody of the article has reason to believe that the article will be repacked after its release, the importer shall certify to the port director that: 1) if the importer does the repacking, he shall not obscure or conceal the country of origin marking appearing on the article, or else the new container shall be marked to indicate the country of origin of the article; or 2) that if he does not repack the article he will give notice to subsequent purchasers or repackers of their obligations under section 19 U.S.C. 1304 and Part 134, Customs Regulations.

It is important to note that the procedures set forth at 19 CFR 134.26 apply only to articles which are legally marked at the time of importation. If the articles are not legally marked at the time of importation, the presentation to Customs of the certification and notice to subsequent purchasers or repackers specified in 19 CFR 134.26 will not serve to satisfy the importer's obligations under 19 U.S.C. 1304 and Part 134, Customs Regulations (19 CFR Part 134). In determining whether the imported articles are legally marked, however, we point out that an article otherwise subject to individual marking may be excepted from this requirement where its container will reasonably indicate the country of origin, pursuant to 19 CFR 134.32(d). Therefore, where the outermost container of the gun parts to be repacked in the U.S. is correctly marked with the country of origin of the articles contained within, the certification procedures of 19 CFR 134.26 may be utilized, provided that the containers in which the repackaged spare parts will reach the retail purchaser will be marked in accordance with the requirements of 19 U.S.C. 1304 and 19 CFR Part 134.

However, individually unmarked gun parts whose outermost container is also unmarked are not included within the scope of 19 CFR 134.26. In such instances, the separate procedures of 19 CFR 134.34 may be available. Under this provision, an exception from individual country of origin marking may be authorized in the discretion of the port director pursuant to 19 CFR 134.32(d), provided that the articles are repacked after importation under the supervision of the port director such that the marking on the new containers will indicate the country of origin of the articles to their ultimate purchasers. Thus, although the requirements for exception from marking are not satisfied at importation, they are met after repacking under Customs supervision in the United States. The port director retains broad discretion concerning whether the exception should be granted, and, if so, the type of supervision required, which may include direct inspection, the submission of verifications or samples, or such other demonstration of compliance as the port director may require. It is noted that the port director may, under the authority of 19 CFR 134.34, require an importer to provide certification that new containers will be marked in accordance with Part 134; such certification may contain the same language as that set forth at 19 CFR 134.25 and 19 CFR 134.26. In cases in which the importer is not the repacker, the port director may require such assurances as he/she deems necessary to assure that others will repack the articles in such a manner as to satisfy all the requirements of 19 U.S.C. 1304 and Part 134, Customs Regulations.

With regard to the domestic repacking operations, the imported gun parts will be permanently sealed into a clear plastic casing, into which has been placed a laminated information sheet which identifies the country of origin of the part contained within. Upon review, we find the submitted samples meet the requirements for legibility, permanency and conspicuousness under 19 U.S.C.1304 and 19 CFR Part 134.

HOLDING:

Based upon the facts provided, imported gun parts which are assembled into a finished firearm in the U.S. undergo a substantial transformation into a new and different product. Consequently, the U.S. processor is the “ultimate purchaser,” of the imported parts. Accordingly, upon importation into the U.S., these parts are exempt from individual marking and only the outermost container in which these parts reach the ultimate purchaser must be marked with the country of origin.

Where the outermost container of the gun parts to be repacked in the U.S. and distributed as spare parts is correctly marked with the country of origin of the articles contained within, the imported gun parts are excepted form individual marking at the time of importation pursuant to 19 U.S.C. 1304(A)(3)(D) and CFR 134.32(d), provided that the certification set forth in 19 CFR 134.26 is executed, and the container in which the repackaged spare parts will reach the retail purchaser will be marked in accordance with the requirements of 19 U.S.C. 1304 and 19 CFR Part 134. Where neither the parts nor the outermost container is marked, the imported gun parts may, at the discretion of the port director at the port of entry, be excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D) and 19 CFR134.32(d), provided that the containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S. and such marking on the containers is verified by Customs prior to liquidation of the entry.

The holding set forth above applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 19 CFR 177.9(b)(1), which states that a ruling letter is issued on the assumption that all information furnished in connection with the ruling request and incorporated therein, either directly, by reference, or by implication, is accurate and complete in every material respect. Should it be subsequently determined that the information furnished is not complete and does not comply with 19 CFR 177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished, this may affect the determination of origin or eligibility of the articles for an exception to marking requirements of 19 U.S.C. 1304.

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

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