HQ 563001 - Country of origin marking requirements applicable to Zebco fishing reels; substantial transformation; 19 U.S.C. §1304 - United States International Trade Commision Rulings

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HQ 563001

May 17, 2004

MAR-2-05 RR:CR:SM 563001 EAC

CATEGORY: MARKING

Mr. Michael E. Murphy, Esq.
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078

RE: Country of origin marking requirements applicable to Zebco fishing reels; substantial transformation; 19 U.S.C. §1304

Dear Mr. Murphy:

This is in response to your letter, dated March 8, 2004, requesting a ruling on behalf of Zebco, pertaining to the marking requirements applicable to certain imported fishing reel components. In making the following determination, consideration has been given to additional correspondence received by our office on April 6 and April 8, 2004.

FACTS:

The items at issue in this case are referred to as “VS100”, “VS150”, “VS200”, “VS250”, and “VS300” spinning reels (hereinafter collectively referred to as “VS” spinning reels). The VS spinning reels are described as high-end reels that are manufactured from billet aluminum, hardened stainless steel and titanium. Each reel sells at retail for approximately $500 - $600.

The VS spinning reels are assembled in the United States from 87 various parts. Of these 87 parts, 7 are of U.S. origin and 80 are of foreign origin. The foreign-origin parts are imported into the United States in bulk. After entry, a number of the imported parts are cleaned and subjected to a four-stage “electrically-driven anodizing” operation through which a porous aluminum oxide layer is formed on each part. Each stage of the anodizing process is unique (i.e., requires varying amounts of time and temperature levels) and is essential in creating a properly coated part. After anodization, the parts are rinsed and colored (either black or gold) in a dye tank. The parts are thereafter rinsed again and subjected to a two-step sealing operation that creates a hard and smooth surface on the parts which is corrosion resistant. You state that thirteen components are anodized, including the drag knob, spool, body, foot, and handles. The anodized parts will be exposed to the elements and remain visible after assembly.

We are advised that the most significant component of the VS spinning reel is the drive gear assembly which is produced within the United States. Extremely close tolerances are observed when producing the drive gear assembly. For example, the assembly’s drive gear and pinion gear must have a tooth-to-tooth measurement of less than 0.0006 of an inch and a run-up measurement of less than 0.002 of an inch. In order to achieve these tolerances, a gear shaft is machined and ground to a precise outer diameter. The gear shaft is then electron beam welded to a second part that is machined and shaped like a disc. Before cutting the gear teeth, the following three dimensions are checked: (1) the pitch angle, (2) the crown-to-large face, and (3) the crown-to-bearing face. The crown-to-large face and crown-to-bearing face require tolerances of 0.002 of an inch and can only be measured using an optical comparitor. After the gear shaft and disc are welded together, the components must be re-machined to the required tolerances before cutting the teeth because the welding process does not allow for a precise alignment. In this respect, we note that the run-out must be less than 0.005 of an inch on each face. Once the required tolerances are reconfirmed, the cutting operations are performed.

As stated above, in order to ensure that proper tolerances are maintained during assembly, the 87 various parts which form the reels must be assembled by skilled machinists using specialized machines and tooling. In describing such assembly operations, you state that the first step is to inspect the parts. Since the parts are precision machined (usually by Computer Numerically Controlled Machines) to very close tolerances, they must be inspected by individuals skilled at using a Coordinate Measuring Machine, optical comparitor, micrometers and many other instruments capable of measuring to within tolerances of 0.0001 of an inch. Any parts that are even slightly out of tolerance are not used in the reels.

After inspection and the processes incident thereto, the parts are actually assembled. In order to ensure a good “gear mesh” is obtained during assembly, play of no more than 0.004 of an inch is allowed between the drive gear and pinion gear. Additionally, custom tooling, such as human powered pressing machines (used to assemble press fits), custom reaming drill attachments (which correct seals which may be out of tolerance) and custom wrenches (which ensure anodized parts are not damaged) are required to assemble a VS spinning reel. It takes a skilled machinist approximately 50 minutes to assemble a VS spinning reel to completion.

ISSUE:

Whether Zebco is considered the ultimate purchaser of the imported fishing reel parts when such parts are assembled into VS spinning reels within the United States in the manner described above.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930 (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. 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. Friedlander & 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 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 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 the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35(a).

Therefore, the first issue we must analyze in this case is the identity of the ultimate purchaser of the imported fishing reel components when such components are combined with U.S.-origin items to form VS spinning reels within the United States. Section 134.1(d)(1), Customs Regulations (19 CFR 134.1(d)(1)), states that if an imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he or she subjects the imported article to a process which results in a substantial transformation of the article.

If the manufacturing or combining process is a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. See Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (CIT 1982). 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, and C.S.D. 90-97.

In T.D. 67-173, 1 Cust.Bull. 366 (1967), Customs and Border Protection (“CBP”) considered whether imported components used in the assembly of fishing rods and reels were substantially transformed within the United States during assembly. With respect to the fishing reels, it was understood that the reels were imported in either an unassembled or partially assembled condition and that some “minor” parts of U.S. origin were used in completing the reels. In consideration of the forgoing, CBP held that “the assembly of such reels, where all or substantially all of the components are imported, cannot be considered to result in the manufacture of a new and different article in the United States.” As such, the imported reel components were not substantially transformed within the United States. The domestic manufacturer of the fishing rods, on the other hand, was considered the ultimate purchaser of the imported rod components when “major” U.S.-origin components were used during assembly because, in such cases, the imported components were substantially transformed.

In C.S.D. 80-111, supra, CBP considered whether imported ceiling fan components which were assembled into finished fans within the United States were substantially transformed during such assembly. The only components of U.S. origin used in the fans in this particular case were industrial fasteners. In finding that the imported parts were not substantially transformed during assembly, it was noted that: (1) the parts were not physically altered during assembly; (2) the assembly processes did not require large amounts of skilled labor or specialized equipment; (3) the cost of the processing operations was low; and, (4) the components did not lose their identity by becoming an integral part of a new article.

CBP ruled in Headquarters Ruling Letter (“HRL”) 561734 dated March 22, 2001, 66 Fed. Reg. 17222, that Sharp multifunctional machines assembled in Japan were a product of that country for purposes of government procurement. The machines in that case were comprised of 227 various parts which were sourced from various countries and assembled within Japan. The scanner unit, a subassembly also produced within Japan, was characterized as "the heart of the machine." In finding that the parts obtained from abroad were substantially transformed when assembled to form the multifunctional machines, we noted that the imported parts had lost their separate identities when assembled to completion and that the assembled machines clearly possessed a name, character and use distinct from the individual components from which they were made. See also, HRL 562901 dated November 6, 2003 (Chinese- or Taiwanese-origin golf club heads are substantially transformed when assembled with U.S.-origin shafts and grips within the United States to form finished golf clubs; however, no substantial transformation occurs when a head and shaft of foreign origin are combined with a grip of U.S. origin); HRL 562763 dated August 1, 2003 (under certain circumstances, foreign-origin parts are substantially transformed when assembled with various U.S.-origin parts within the United States to form fire hydrants); HRL 562558 dated December 31, 2002 (imported lamp components assembled with various U.S.-origin parts within the United States to form finished lamps are substantially transformed during assembly); and, HRL 561568 dated March 22, 2001, 66 Fed. Reg. 17222 (foreign-origin components assembled to form bowling pinsetters within the United States were substantially transformed during such assembly).

As the cases set forth above demonstrate, in order to determine whether components of various origins are substantially transformed when assembled to form certain end products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the components used during assembly, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, or use are primary considerations in such cases. Additionally, factors such as resources expended on product design and development, extent and nature of post-assembly inspection procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred; however, no one factor is determinative.

As applied to the facts of this case, we find that the foreign-origin components used in the assembly of the VS spinning reels are substantially transformed within the United States. In making this determination, we initially note that the domestic operations under consideration in this case are significantly more substantial than those which were considered in T.D. 67-173, supra. For example, the VS spinning reels in this case are produced from approximately 87 unassembled parts. A number of these parts are anodized prior to assembly to create a surface on the parts that is corrosion resistant. Certain other parts are machined and ground to very precise tolerances. Other components undergo electron beam welding operations. Concerning actual assembly, we note that skilled machinists, using specialized machines and tooling to maintain close tolerances, assemble the various parts during a complex and meaningful process. During such assembly operations, the various components lose their separate identities and are subsumed into a product that has a new name, character and use. We further note that the drive gear assembly, which has been described as the most significant component of the reels, is of U.S. origin. Accordingly, under 19 CFR 134.35(a), Zebco is considered to be the ultimate purchaser of the imported components since such components are substantially transformed when assembled within the United States to form VS spinning reels. Therefore, assuming Zebco receives the imported components in a properly marked container which indicates the country of origin of the parts, the parts are not required to be individually marked with country of origin information. In addition, the finished reels would be exempt from the country of origin marking requirements of 19 U.S.C. §1304.

Please be advised, however, that whether the VS spinning reels may be marked "Made in the U.S.A." or with similar words, is an issue under the authority of the Federal Trade Commission (“FTC”). We suggest that you contact the FTC, Division of Enforcement, 6th and Pennsylvania Avenue, NW, Washington, DC 20508, on the propriety of markings indicating that articles are made in the United States.

HOLDING:

Based upon the facts of this case, we find that the foreign-origin parts are substantially transformed when Zebco assembles them to completion within the United States to form VS spinning reels. In accordance with 19 CFR 134.35(a), Zebco is considered to be the ultimate purchaser of the imported parts in such cases. Therefore, if Zebco receives the imported parts in a properly marked container indicating the country of origin of the parts, the individual parts are not required to bear country of origin information. In addition, the finished reels would be exempt from the country of origin 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 this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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