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HQ 562541

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December 20, 2002

MAR-2 RR:CR:SM 562541 ALH

CATEGORY: MARKING

Mr. Francis J. Sailer
Counsel
Lafave & Sailer LLP
1101 Connecticut Avenue, N.W.
Washington, D.C. 20036

RE: Ruling Request for Country of Origin Marking for Mechanically Operated Chimney-Top Dampers produced with lid and frame castings from China

Dear Mr. Sailer:

This is in response to your letter of September 18, 2002, on behalf of Copperfield Chimney Supply (“Copperfield”) requesting a ruling regarding the country of origin marking of mechanically operated chimney-top dampers.

FACTS:

Copperfield Chimney Supply, headquartered in Fairfield, Iowa, is a wholesale supplier of parts and accessories used in chimneys. Copperfield intends to produce and sell nine sizes of Lyemance Original dampers and six sizes of Lock-Top dampers. Copperfield will obtain the raw lid and frame castings from [xxxxxx xxxxxxxx xxxxxxx], an unaffiliated company, located in Terre-Haute, Indiana. The [unaffiliated company] will obtain castings from various suppliers located in China. The [unaffiliated company] will not perform any processing on the raw castings prior to shipment to Copperfield. Copperfield will issue purchase orders to [the unaffiliated company] for specified models and sizes of raw castings. When orders are received, the castings will be shipped from [the unaffiliated company’s] Indiana facility to Copperfield’s North Carolina warehouse and production facility. The imported raw castings will be utilized only by Copperfield for production of finished remote controlled dampers. The castings will not be sold to third parties and will not be used as replacement parts. With the exception of the lid and frame casting, all parts are made in the United States. All of the production work is performed in the United States and all inputs used (including packaging materials) are of U.S. origin.

In your letter, you stated that production of a Lyemance Original damper involves three discrete sets of operations. First, the subassemblies must be produced or assembled, including the silicon rubber gasket, the bracket, the chain assembly and the installation parts package. The silicon rubber gasket will be outsourced. The bracket will be manufactured by first laser cutting a blank from sheet stock, then bending the blank. The bracket is then plated by an outside vendor. The chain assembly is prepared using hand tools. Second, the imported raw castings must be finished. This process includes the following steps: drilling the lid casting lug; drilling a second hole in the lid casting; drilling a power pin hole in the lid casting; drilling two axle-rod holes in both the lid and the frame; and painting the lid and frame. Finally, the gasket will be installed and the processed castings (mating daper lid and frame) must be combined with the Power Lever cable guide apparatus. Total parts used in the production of the Lyemance model damper range between [xx] and [xx] total parts (depending on damper size) with all but two parts, the lid and frame castings, made in the United States.

Production of the Lock Top damper undergoes a slightly different set of operations. First, the subassemblies must be produced or assembled, including the silicon rubber gasket, the bracket, the chain assembly, the conduit tube, the spring assemblies and the installation parts package. The silicon rubber gasket will be die-cut in house from sheet stock. The bracket will be manufactured by first laser cutting a blank from sheet stock, then bending the blank. The bracket is then plated by an outside vendor. The chain assembly is prepared using hand tools. The conduit will be cut using a power press and then curled on one end to produce a smaller diameter. The processed conduit tube is then sent to an outside vendor for plating. The compression spring assemblies are prepared using a small punch press. Second, the imported raw castings will be finished with the following steps: drilling a center hole in the lid casting; drilling four holes for stainless steel cover screws in the lid casting; drilling eight spring holes in the lid casting; drilling four Sweep’s Ring holes in the frame casting; and drilling eight spring holes in the frame casting. Finally, the finished casting (mating damper lid and frame) are assembled and the stainless steel cover is attached; the eight compression springs are armed and attached to the lid and frame; and the remote locking and release apparatus (which controls the damper position) is assembled and combined with the spring-loaded damper lid. Total parts used in the production of the Lock Top model damper range between [xx] and [xx] total parts (depending on damper size) with all but two parts, the lid and frame castings, made in the United States.

ISSUE:

Whether lid and frame castings imported from China and used in the U.S. production of mechanically operated chimney-top dampers are substantially transformed for country of origin marking purposes.

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 container) will permit in such manner as to indicate to an ultimate purchaser in the United States 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 markings on the imported goods the country of which the good is the product. “The evident purpose is to mark the goods so 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).

The country of origin marking requirements for the imported castings that are to be further processed by Copperfield in the United States depends upon whether Copperfield is the ultimate purchaser of the imported article. "Ultimate purchaser" is defined generally as the last person in the United States who will receive the article in the form in which it was imported. Customs Regulations (19 CFR 134.1(d)). If an imported article will be used in domestic manufacture, the manufacturer may be the "ultimate purchaser" if it subjects the imported article to a process that results in a substantial transformation of the article. However, if the manufacturing process is a minor one that 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. Customs Regulations (19 CFR 134.1(d)(1) and (2)).

For country of origin marking purposes, a “substantial transformation” occurs when an article loses its identity and becomes a new article having a new name, character, or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A 267 (1940); National Juice Products Association v. United States, 10 CIT 48 (1986). This principle, codified under Customs Regulations 19 CFR 134.35(a), states that the manufacturer or processor in the United States who converts or combines the imported article into a different article will be considered the "ultimate purchaser" of the imported article, and the article shall be excepted from marking. However, the outermost container of the imported article must be marked pursuant to 19 CFR 134.35(a). Whether a substantial transformation occurs is determined on a case-by-case basis.

In determining whether the combining of parts or materials constitutes 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. Belcrest Linen v. United States, 6 CIT 204, 573 F.Supp.1149 (1983), aff’d, 2 Fed.Cir.105, 741 F.2d 1368 (1984). In your letter, you contend that the imported castings are substantially transformed as a result of the U.S. processing, thereby making Copperfield the ultimate purchaser. Therefore, you maintain that the imported castings should be excepted from marking provided the outermost container which reaches the ultimate purchaser is marked with the country of origin "China.” Customs agrees.

In National Hand Tool Corp. v. United States, 16 CIT 308, (1992) aff'd, 989 F.2d 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 United States. One of the factors considered by the court in reaching its conclusion was whether the use of the imported components changed as a result of the processing and assembly operations performed in the United States. In finding that the use of the imported components did not change, the court stated that the use of the imported articles was predetermined at the time of importation; each component was intended to be incorporated in a particular finished mechanic's hand tool. Although the court recognized that a predetermined use for imported articles does not preclude a finding of substantial transformation (See, Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it went on to hold that the determination of substantial transformation must be based on the totality of the evidence.

In applying the National Hand Tool principle of change in name, character, or use to this case, Customs found that the U.S. operations substantially transform the imported castings. A change in the name of the product is the weakest evidence of a substantial transformation. (See, Uniroyal, Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 702 F.2d. 1022 (Fed. Cir. 1983)). Arguably, there may be a change in the name of the imported lid and frame castings after the U.S. processing is performed, in that it is a raw casting before, and a mechanically operated chimney-top damper after the processing. Although each component becomes an essential part of a completed chimney-top damper, each component is still referred to as a lid and frame casting, gasket, chain,
handle, etc. The casting components do not undergo a change in name as a result of the U.S. operation.

However, what is critical in ascertaining whether a substantial transformation has occurred is whether, based on the totality of the evidence, there has been a change in the character or use of the imported article after the U.S. processing. In making a determination as to whether the character or use has changed, the complexity of U.S. processing must be considered. In C.S.D. 85-25 (HRL 561392) dated September 25, 1984, Customs held that an assembly does not constitute a substantial transformation unless the operation is “complex and meaningful.” Customs’ criteria for determining whether an operation is “complex and meaningful” depends upon the nature of the operation, including the number of components assembled and number of different operations involved. Prior Customs’ rulings raise additional considerations such as processing time, costs, visibility of the imported article after processing, and skill required by the assembly operation.

In Headquarters’ Ruling Letter (HRL) 734566 dated June 25, 1992, Customs considered the manufacture of water pumps which consisted of the basic assembly of various foreign and domestic parts including a casting, bearing, impeller, hub, seal, gasket, and, in certain circumstances, a back plate. Customs held that none of the essential components of the water pumps were substantially transformed when assembled in the United States. In HRL 734566, Customs also reexamined and revoked HRL 732940, dated July 5, 1990, which held that imported castings were substantially transformed when assembled with domestic components to create a water pump. The rationale for revoking HRL 732940 was that the Taiwanese-origin casting used to produce the water pump, remained visible after assembly. Similar to HRL 734566 where the foreign casting remained visible after assembly, in this case the imported lid and frame castings also remain visible after assembly.

However, in HRL 560512, dated October 27, 1997, which considered the assembly of hydraulic tie rod cylinders, Customs considered the visibility of the imported component in addition to the fact that a U.S. origin component was important in allowing the foreign component to transmit motion. The ruling also focused on the U.S. origin rings as evidence of a substantial transformation. The rings fit inside the foreign component to provide a seal. Customs ruled in HRL 560512 that since the finished tie rod cylinder is largely comprised of U.S. origin components, one of the most important components being of U.S. origin, and the tie rod cylinder is assembled in the United States, the foreign components undergo a substantial transformation in the United States.

HRL 560512 supports the conclusion of a substantial transformation in the case of the mechanically operated chimney-top dampers. The U.S. origin components are important to the functioning of the product -- the opening and closing of the chimney-top damper. Additionally, a U.S. origin silicon rubber gasket is installed between the imported frame and lid to ensure a positive seal when closed.

Additionally, in HRL 561297 dated June 2, 1999, Customs considered whether a substantial transformation resulted when imported raw castings were processed in the United States into receivers, which were then assembled into rifles. The U.S. processing of the raw castings to produce receivers included machining, heat treatment, drilling four holes, sandblasting, dipping the casting into a hot caustic solution causing it to turn black (a chemical treatment known as “bluing”), stamping, and final inspection. The receivers were then assembled into rifles. Customs noted that the raw castings had the shape, character, and predetermined use of the finished receivers and merely required intermediate finishing operations. Accordingly, Customs held that the processing of the raw castings into receivers in the United States did not result in a substantial transformation.

In HRL 561297, Customs also ruled that the processing of the raw castings into receivers and then assembling them with other components to create finished rifles in the United States resulted in a substantial transformation. The factors considered were the complexity of the assembly operation, number of parts involved, and need for trained technicians to meet very exacting specifications. Similar to HRL 561297, the present case involves a multi-step process. The imported castings are finished in the United States and then assembled with remote opening and closing mechanisms to form the mechanically operated chimney-top damper. Additionally, the imported lid and frame castings are the only two foreign components of [xx] to [xx] components used to manufacture the Lyemance Original dampers or [xx] to [xx] components used to manufacture the Lock-Top dampers.

In Customs’ opinion, the instant case is analogous to HRL 561297, in that initial processing of the imported castings (e.g., drilling) by itself would not constitute a substantial transformation. However, the processing of the imported castings coupled with their assembly with other components manufactured in the United States to create the finished products in the United States results in a substantial transformation of the imported castings.

Finally, in HRL 561405, dated October 23, 2001, most of the imported castings needed extensive processing before they could be assembled with various U.S.-produced components to make the finished regulators, transducers, and valve positioners. Although the imported castings were significant components, Customs noted that the finished products were complex in so far as having different engineering features that allow for varying applications. Also, the number of other components (including U.S. origin castings) besides the foreign castings were incorporated into the finished transducers, regulators, and valve positioners. Consequently, Customs indicated that the imported castings did not constitute the essence of the finished products. Customs also found it significant that, except for the imported castings, all the components in the devices were made in the United States. Also, the assembly of the finished product was a multi-step process that appeared to be far more intricate and involved than the assembly performed in National Hand Tool. The regulators contained more components than the products in National Hand Tool. For example, according to a diagram submitted, one of the simpler devices, the Type 41 Regulator, consisted of 13 individual components. In producing the finished regulating devices, the imported castings were drilled, tapped, machined, components were pressed into the castings, springs and spring guides were positioned, torque was applied to screws, and various other components were aligned. Much of the processing done in the United States consisted of producing subassemblies such as diaphragm assemblies, pintle assemblies, coil and spring assembly baffles, and manifolds, which were then incorporated into the finished products.

In Customs’ opinion, the imported lid and frame castings in this case undergo comparable processing to that described in HRL 561405. The imported castings undergo a finishing process which includes: drilling the lid casting lug; drilling a second hole in the lid casting; drilling a power pin hole in the lid casting; drilling two axle-rod holes in both the lid and the frame and; painting the lid and frame. Further processing in the United States includes producing U.S. subassemblies, which are then incorporated into the finished product. Even though the overall shape, form as well as outer diameter of the finished mechanically operated chimney-top damper is essentially the same as the imported castings, the essential feature of the finished remote operated chimney-top damper is added as a result of the U.S. processing. After U.S. processing, the finished product gains movement with the attachment of the remote opening and closing mechanism. Accordingly, Customs found that the imported lid and frame castings are substantially transformed when they are used to produce finished mechanically operated chimney-top dampers in the United States. Therefore, Copperfield is the ultimate purchaser of the imported castings.

The Federal Trade Commission (“FTC”) has jurisdiction concerning the use of the phrase “Made in the U.S.A.,” or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to:

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Telephone: 202-326-2996
URL address: www.ftc.gov

HOLDING:

When the imported lid and frame castings used by Copperfield are processed and assembled with other domestic components to create finished mechanically operated chimney-top dampers in the United States, a substantial transformation of the foreign components results. Pursuant to 19 CFR 134.35(a), the imported components are excepted from country of origin marking and only the outermost containers in which Copperfield receives the imported components are required to be marked to indicate the castings’ country of origin.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If you have any questions regarding the foregoing, please let us know.

Sincerely,

Myles B. Harmon
Director

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