HQ 563110 - Country of origin marking requirements applicable to Zebco fishing reels; C – Vex Fly Reels; ultimate purchaser; substantial transformation; 19 U.S.C. §1304 - United States International Trade Commision Rulings

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HQ 563110

October 20, 2004

MAR-2-05 RR:CR:SM 563110 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; C – Vex Fly Reels; ultimate purchaser; substantial transformation; 19 U.S.C. §1304

Dear Mr. Murphy:

This is in response to your letter, dated August 31, 2004, requesting a ruling on behalf of Zebco, pertaining to the country of origin marking requirements applicable to certain imported fishing reel components and assembled reels. In making the following determination, consideration has been given to additional correspondence received by our office on September 22, 2004.

FACTS:

The items at issue in this case are referred to as “C-Vex Fly Reels.” The C-Vex reels, in sizes 7/8, 9/10 and 11/12, are described as super premium reels that are comprised of high-quality materials such as billet aluminum, hardened stainless steel, and titanium. The C-Vex reels utilize a large-arbor design which incorporates convex engineering that provides greater strength without increasing the overall weight of the reel.

The C-Vex reels are assembled within the United States from various domestic- and foreign-origin parts. The C-Vex 7/8 and 11/12 consist of 22 parts whereas the C-Vex 9/10 consists of 23. Two of the parts are of U.S. origin with the remainder being of foreign origin. Many of the foreign-origin parts are produced overseas from U.S.-origin raw materials (such as billet aluminum, high-quality stainless steel and naval brass) and are subject to finishing operations within the United States prior to assembly.

You state that the three major components of the reel, in terms of function and cost, are the spool and housing of U.S. origin and the drag assembly of Chinese origin. We are advised that the spool is a critical component because it holds the fishing line and links the user, fishing line and/or fish. The housing is described as the backbone of the reel. It connects the drag cartridge to the rod (through the spool). An inferior housing will flex under certain fishing conditions, thereby making the fishing experience uncomfortable and unsatisfactory, and can prevent the spool and drag from working correctly. The third major component, the drag cartridge assembly, actually connects the spool to the housing. In describing the functionality of the drag cartridge assembly, you state that all fishing line is rated to a certain strength and that the drag cartridge sets the maximum amount of load that will transfer to the line. If the applied load from a fish is too high, the drag assembly will simply slip to prevent the high load from being transferred to the fishing line. Without such slippage, the fishing line may break. In your opinion, the spool and housing are slightly more important than the drag assembly cartridge because the spool and housing are involved with every cast of the reel and with every fish that is hooked, whereas the drag cartridge is only critical when a hooked fish is larger than the selected drag setting. It is further noted that the U.S.-origin spool and housing account for over 50 percent of the total cost of each assembled reel.

Many of the other components are subject to certain processing and finishing operations within the United States prior to assembly. The primary operations which occur in the United States before assembly are “anodizing” and “passivating.” Parts that are exposed to the elements and remain visible to the consumer after purchase are those which are subject to the anodizing operation. These components include the foot, spool cover, handle spindle, button base, release button, counter weight base as well as several of the parts that are used to form the drag cartridge assembly. The anodizing operation involves: a 4-stage, ultrasonic cleaning process to remove polishing compound and oil; subjecting the parts to an electrically-driven anodization process to form a porous aluminum oxide layer on the surface of each part; rinsing and dyeing to the desired color, and rinsing again; and sealing to create a hard and smooth surface that is corrosion resistant.

Passivating, on the other hand, is a process designed to improve the corrosion resistance capability of machined stainless steel parts. Passivating involves removing surface contamination through cleaning, submersion in a passivating acid bath, and rinsing. The entire passivating process generally takes less than one hour. The parts that undergo such processing are the handle cap screw, counter weight and two of the parts that form the drag cartridge assembly.

Upon completion of the anodizing and passivating operations, the various domestic and imported components are inspected by individuals trained to use devices that produce very precise measurements. Examples of such devices are coordinate measuring machines, optical comparitors, micrometers and other instruments capable of producing measurements to 0.0001 of an inch. Parts that are even slightly out of tolerance are rejected for use in the assembly process.

After inspection, the parts are assembled together by skilled machinists trained to use specialized and/or customized machines and tooling which permit adherence to strict tolerance requirements. As an example of such requirements, the axial play of the spool must be no more than 0.004 of an inch. The machinists check this dimension by using a height gauge. Custom tooling (such as man-powered pressing machines), custom reaming drill attachments (required to correct seals that are out of tolerance from the catalog vendor), and custom wrenches (formed from plastic to ensure that anodized parts are not damaged) are also required to assemble the reels. We are informed that each assembled reel sells at retail for approximately $400 - $600.

ISSUE:

Whether Zebco is considered the ultimate purchaser of imported fishing reel parts when such parts are assembled to form C-Vex Fly 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. 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. The case of United States 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).

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 that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, C.S.D.s 80-111, 85-25, 89-110, 89-118, 89-129, 90-51 and 90-97. In Uniroyal, Inc. v. United States, 3 CIT 220 (CIT 1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), the court held that an upper was not substantially transformed when attached to an outsole to form a shoe and that the upper was “the very essence of the completed shoe.”

In T.D. 67-173, 1 Cust. Bull. 366 (1967), we 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 items. In consideration of the foregoing, we 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 Headquarters Ruling Letter (“HRL”) 563001 dated May 17, 2004, U.S. Customs and Border Protection (“CBP”) considered assembly operations similar to those in this case. In HRL 563001, spinning reels were assembled in the United States from 7 parts of U.S. origin and 80 of foreign origin. After entry, a number of the imported parts were subject to an electrically-driven anodizing operation through which a porous aluminum oxide layer was formed on each part. The parts were thereafter rinsed, colored in a dye tank, rinsed again, and sealed to prevent corrosion. The 87 parts were then assembled to completion by skilled machinists in a process that took approximately 50 minutes. In consideration of the foregoing, CBP held that the foreign-origin components were substantially transformed within the United States because the most significant component (stated to be the drive gear assembly) of the completed reels was of U.S. origin, the domestic assembly operations were complex and meaningful, and the various components were subsumed into a final product that had a new name, character and use.

As the cases and rulings 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, and 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 believe that the foreign-origin components used in the assembly of the C-Vex reels are substantially transformed within the United States. In making this determination, we initially note that the C-Vex reels are comprised of 20 separate parts. As opposed to the situation in T.D. 67-173, supra, two of the U.S.-origin parts in this case are described as major reel components and account for more than half of the value of the final products. Additionally, a number of the imported parts undergo anodizing and passivating operations within the United States prior to assembly. With respect to actual assembly, we note that skilled machinists, using specialized machines and tooling designed to maintain close tolerances, assemble the various parts during a process that can be described as complex and meaningful. 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. Accordingly, under 19 CFR 134.35(a), Zebco is considered to be the ultimate purchaser of the imported components since the components are substantially transformed when assembled within the United States to form C-Vex 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 C-Vex 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 foreign-origin parts are substantially transformed when Zebco assembles them with U.S.-origin spools and housings in the United States to form C-Vex Fly Reels (sizes 7/8, 9/10 and 11/12) in the manner set forth above. 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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