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HQ 562803




September 30, 2004

MAR-05 RR:CR:SM 562803 SS

CATEGORY: MARKING

William A. Zeitler, Esq.
Sullivan & Worcester
1666 K Street NW
Washington DC 20006

RE: Revocation of HQ 562537 (December 12, 2002); Country of origin marking requirements applicable to flexible magnets manufactured in the U.S. from imported flat flexible magnet material in sheets and rolls

Dear Mr. Zeitler:

This is in reference to Headquarters Ruling Letter (“HQ”) 562537, issued to you on behalf of Magnet LLC on December 12, 2002, regarding the country of origin marking requirements applicable to flexible magnets.

In HQ 562537, Customs found that imported sheets and rolls of “magnetized rubber material” were substantially transformed into new and different articles of U.S. origin when further processed in the U.S. by cutting and printing operations.

We have had an opportunity to review the previous ruling and additional information and now believe the ruling to be incorrect for the reasons explained below. This ruling also provides the correct marking determination for the flexible magnets.

Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed revocation of HQ 562537, as described below, was published in the Customs Bulletin, Volume 38, No. 8, on February 18, 2004. CBP received seven comments. Six comments supported the proposed revocation. One comment opposed the proposed revocation. We note that we also met with counsel and representatives of Magnet LLC on August 19, 2004.

FACTS:

The flexible magnets were described in HQ 562537 as follows:

We are informed that Magnet LLC is a U.S. producer and importer of promotional products such as key chains, flat flexible magnets, pens, and desk accessories. You indicate that Magnet LLC plans to import flat sheets and/or rolls of magnetized rubber material from China into the U.S. for further processing into flexible magnets. The finished magnets will be custom-made to the specifications of its customers to advertise and display specific customer products, services, trademarks, trade names and logos.

Subsequent to importation into the U.S., the flat sheets/rolls of magnetized rubber material are subject to a variety of processing operations that include designing, cutting, shaping, silk screening and printing, which result in the creation of promotional magnets.

The flat flexible magnets, whether or not in sheet or roll form, are thermoplastic bonded, permanent ferrite magnets with a multi-pole magnetic arrangement designed to grip metallic surfaces. Flat flexible magnets are magnetic materials that are consolidated in polymeric binders by blending and then formed by calendaring.

Flat flexible magnets are made by a process that begins with ferric oxide and yields sheets or rolls of flexible magnets. The manufacturing process begins with the preparation of strontium ferrite by milling iron oxide and strontium carbonate to desired particle size and combining the milled ingredients. This slurry is fired in kilns to produce strontium ferrite.

The strontium ferrite is ground to a prescribed uniform particle size to create a fine magnetic ferrite powder. The precise composition and quality of the powder is one determinant of the uniformity and strength of a flexible magnet. The powder is combined with a binder of rubber, plastic and/or other components into a blended material of uniform composition. The composition of the binder affects the magnet’s ultimate attractive power, mechanical characteristics, compatibility with adhesives, resistance to chemical attack and ability to meet child safety requirements. The binder utilized in the instant flat flexible magnets is suitable for magnets used in advertising applications.

After blending, the resulting magnetic material is ground into a particulate. The magnetic particulate is fed into a calendar where it is pressed between two large steel rolls in a heated, temperature-controlled environment, so as to produce a magnetic sheeting of uniform thickness and surface finish. The flat flexible magnet material is wound up on a roll as it exits the calendar. The operating conditions of the calendar are significant determinants of the quality and functionality of the flat magnet produced. The roll of flat flexible magnet material is taken from the calendar to a line where it is magnetized by passing it through magnetic rolls that orient the ferrite particles in the magnet.

At the conclusion of these processes, the finished product is flat flexible magnet material in sheets or rolls. Its magnetic properties are set and the product will adhere to metal objects. The sheets or rolls can be cut into smaller shapes or used in sheet form (for example, advertising applied to the side of a commercial motor vehicle). The flat flexible magnet material can be printed and laminated.

ISSUE:

Whether the flat flexible magnet material imported in rolls or sheets are substantially transformed by printing and cutting operations performed in the United States?

LAW & 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 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. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the requirements and exceptions of 19 U.S.C. 1304. “Country of origin” is defined in 19 C.F.R. 134.1(b) as follows:

“Country of origin” means 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.

As stated in HQ 562537, 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.” The question in this case is whether the flat flexible magnet material imported in rolls or sheets is substantially transformed by the printing and cutting operations that occur in the United States.

In HQ 562537, the ruling that is being revoked, we stated that the sheets or rolls of flat flexible magnet material were substantially transformed because we believed that the sheeting was not a finished object but rather a raw material with a variety of potential applications. We indicated that the sheeting possessed little or nothing in its character to indicate its ultimate shape or use. We also indicated that the flat flexible magnets’ essential character as promotional material was permanently determined only after the U.S. processing.

However, we now find that the imported flat flexible magnet material in sheets or rolls is not a raw material with a wide variety of uses. The composition and manufacturing process create a specific type of magnet differentiated from other types of magnets. The selection of the magnetic ferrite powder and binders serve to pre-determine the performance characteristics and applications of the resulting magnet. Thus, the use of the flat flexible magnet is pre-determined by the character of the imported flat flexible magnet sheeting.

You contend that Customs erroneously concludes that the rolls or sheets of flat flexible magnet material are finished products. In the notice of proposed revocation, Customs did not find that the rolls or sheets were finished products, but rather that they were not raw materials with a wide variety of uses. While we agree that the rolls and sheets must be further processed to be used as promotional magnets, the imported sheets or rolls have been processed to the point where their future use is determined. You argue that flat flexible magnets have a variety of applications such as point of purchase displays, visual aids, retail signage, bin markers, menus and message boards. However, flat flexible magnets are used in all these applications because they are magnetic and can be applied and removed repeatedly without damage to the articles on which they are placed and because they have a flat surface on which information or designs can be displayed.

The ruling that is being revoked cited to rulings which support the view that cutting or shaping materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length or width which does not render the article suitable for a particular use, constitutes a substantial transformation. The rationale was that prior to the cutting or shaping operations, the imported material was a raw material which possessed nothing in its character which indicated anything regarding its final use. However, we now find those rulings to be inapplicable.

In each of the cited rulings, the imported material was a raw, multi-use material which was not dedicated to a particular use. Multiple and substantial manufacturing operations were carried out on the material. The manufacturing operations not only changed the form or shape of the material into a newly recognizable product but also changed the material’s character. The finished items (gift bags, components for a high-density hydraulic baler, venetian blind slats) were clearly distinguishable from the material from which they were made (decorative paper, steel plates, aluminum strip). Furthermore, the cutting and shaping of the metal sheets or strips transformed the material into identifiable components used in making finished goods. In contrast, the imported flexible magnet material in sheets or rolls are not raw materials. The flat flexible magnet material is at an advanced stage of manufacture. It is committed to a single use, as a magnet, at the time of import.

Furthermore, the cutting process differs dramatically from the complex shaping processes described in the cited rulings. The cutting performed in the instant case merely serves to make smaller magnets out of larger magnet sheeting. The process typically involves nothing more than stamping smaller shapes (e.g., business card-sized magnets) out of large sheets. Customs has held that cutting sheets of trading cards into individual cards does not effect a substantial transformation of imported card stock. HQ 560155, dated April 10, 1997. The cutting process does not affect the magnet’s fundamental character and use as a magnet.

Additionally, the printing of advertising information on the magnets does not constitute a substantial transformation. The printing does not materially alter the name, character or use of the imported articles. At the time of importation, the articles have magnetic properties. The use of the articles is as magnets. After the printing of the advertising information, they remain articles properly referred to as magnets. The fact that the magnets may also be used for advertising purposes does not materially change their underlying use as magnets. The printing does not transform the imported article so that it is no longer the essence of the final product. Customs has held that similar promotional items processed and printed in the United States were not substantially transformed. See HQ 735401, dated April 5, 1994, HQ 734053, dated September 20, 1991, and HQ 734202, dated November 12, 1991. Both before and after the printing, the essence of the article in question is a finished magnet. Based on these considerations, we find that printing is merely a minor manufacturing process which leaves the identity of the imported articles intact.

In the notice of proposed revocation, we indicated that the processes performed in the U.S. were “not as many or as character-altering as originally believed.” We stated that the cutting and printing were “modest finishing operations” which were in stark contrast to the complex manufacturing operations performed in producing the rolls of flexible magnetic material.

In your comments and during our meeting, you presented evidence that supported the view that the processing in the United States is complex and adds value. You described a multi-step process that is performed on the imported rolls and sheets which includes artistry and design. You indicated that the sheets and rolls represent less than 20 percent of the total expenses in producing the finished magnets. You emphasized a high labor component and the use of complex machines. Upon review of all the information you submitted, we agree that the production that occurs in the U.S. is significant. However, the question is whether or not that production is enough to effect a substantial transformation. The answer in this case comes down to whether the essence of the product is the advertising or the magnet. You emphasized that the products are sold as “advertising.” However, the medium for the “advertising” that you chose is a magnet. Customs finds that the manufacturing operations involved in creating the rolls or sheets of flexible magnet material establish the essential character and fundamental use of the product which remain unchanged after the essentially decorative processing that occurs in the United States.

In HQ 734091, dated June 2, 1992, Customs ruled that the production of stainless steel sheets with a mirror finish from sheets of stainless steel was not a substantial transformation. Customs stated that although the processing was complex involving considerable time, skill and complicated machines, the basic character of the stainless steel did not change. The commodity was still a sheet of stainless steel. Customs also relied on the fact that the importer had not changed the underlying chemical, physical and mechanical properties or structure of the stainless steel. Customs stated that cosmetic changes in metal products are generally not considered significant in light of predetermined qualities and specifications. The importer argued that the complexity of the process and the increase in value of the product should establish that the product was substantially transformed. Customs stated that “[a]lthough the processing may be complex and adds significant value, these are secondary criteria which are not dispositive of a substantial transformation.” Similarly, in the instant case, we find that the processing in the United States does not effect a substantial transformation because it does not change the character of the magnet. Despite the complex processing that may have been done, the products do not lose their identity as magnets.

In HQ 561025, dated October 21, 1998, Customs considered whether the processing of bulk film into 110 and 135 photographic film cartridges constituted a substantial transformation. Bulk photographic film was imported into the U.S. in “jumbo” rolls. The jumbo rolls were slit into smaller rolls, cut to exact lengths, subjected to latent image flashing (where images such as frame numbers and arrows were printed on the film), and assembled into film cartridges. Customs stated:

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.

Applying this rationale to the present case, Customs finds that the processing of the large rolls of flexible magnetic material into smaller promotional magnets does not create a product with a new name, character and use. The changes which occur in the U.S. do not change the imported product’s character or its intended use as magnets.

In Superior Wire v. United States, 867 F.2d. 1409 (Fed.Cir. 1989) the Court of Appeals for the Federal Circuit affirmed the Court of International Trade holding that the drawing of wire rod into wire does not substantially transform wire rod into a new product for the purpose of determining the country of origin. The CAFC stated:

The Court of International Trade considered the “transformation of wire rod to be minor rather than substantial.” . . . The court found there was no significant change in use or character, but there was a change in name, . . . and concluded that “wire rod and wire may be viewed as different stages of the same product.” . . .

Although noting that “the wire emerges stronger and rounder after” drawing the wire rod, the court found “its strength characteristic . . . is . . . metallurgically predetermined . . . through the fabrication of the wire rod.” . . . The court explained that “the chemical content of the rod and the cooling processes used in its manufacture . . . determine the properties that the wire will have after drawing.” . . . There was evidence of record to show that the rod producer determines the tensile strength of the drawn wire by the chemistry of the steel, particularly by the mix of carbon and manganese in the molten steel rods, and that the properties desired in the drawn wire dictate the selection of the scrap grade.

867 F.2d. at 1414 (citations omitted). It concluded that there was ample evidence from which the Court of International Trade could determine that there is no change in use between the wire rod and the wire. The Court reasoned that the end use of the wire is generally known before the rolling stage and the specifications are frequently determined by reference to the end product for which the drawn wire will be used.

Similar to the wire, the key characteristic of the flat flexible magnets processed in the United States is predetermined by the nature of the imported flexible magnetic sheeting. The chemical/metallurgical composition, resistance to heat or chemicals, thickness, consistency or dimension, resistance to tearing, and, most importantly, the magnetic properties, have been predetermined and are not and cannot be altered by the finishing processes performed in the United States. The composition of the binder is a critical factor in determining the magnet’s strength. Furthermore, one of the comments received indicates that the grade of iron oxide powders will affect the performance characteristics of the strontium ferrite powder produced, and ultimately, the flat flexible magnet produced. There is no change in use between the flexible magnetic sheeting and the flat flexible magnets sold by the distributors/printers. Both are magnets and are used as such.

In Anheuser-Busch Brewing Association v. United States, 207 U.S. 556 (1908), the issue was whether the operations performed on hand cut corks in order to make them suitable for use in bottling beer constituted “manufacture” in the United States. The operations included sorting, branding with a brewer’s name and logo, removing dust and bugs, and coating in order to prevent a cork taste from migrating to the beer. The Appellant argued that the corks were not suitable for use to bottle beer until these processes were performed. The Court held that, “A cork put through the claimants process is still a cork.” Id. at 562. The corks did not become articles of U.S. manufacture “by reason of the special treatment to which they had been subjected, making them better or necessary for their purpose.” Id. at 563. Similarly, the imported flat flexible magnets are still flat flexible magnets after being put through the cutting and printing processes. They retain their essential characteristic. The ultimate consumer uses them mainly for their magnetic properties. Printing a magnet with advertising information is no more a substantial transformation than branding a cork with a brewer’s name and logo.

In Ferrostaal Metals Corp. v. United States, 11 C.I.T. 470, 664 F. Supp. 535 (1987), the Court addressed whether hard cold-rolled steel was substantially transformed when it was processed into continuous hot-dip galvanized steel. The processing consisted of galvanizing and annealing. The Court found that strength and ductility constituted important characteristics of the steel and that annealing significantly affected the character by dedicating the sheet to uses compatible with the strength and ductility of the steel. The Court also found that the alloy-bonded zinc coating affected the character of the sheet by changing its chemical composition and by providing corrosion resistance. The Court held that the continuous hot-dip galvanizing process transforms a strong, brittle product which cannot be formed into a durable, corrosion-resistant product which is less hard, but formable for a range of commercial applications. It had a different character from the standpoint of durability. The Court found that the annealing and galvanizing process resulted in a change in character by significantly altering the mechanical properties and chemical composition of the steel sheet. In contrast, the mechanical properties and chemical composition of the imported rolls or sheets of flexible magnet material are not altered by the cutting and printing operations that occur in the United States.

Customs finds that there is no material change in the name

The original ruling request referred to the imported material as “magnetized rubber material” to suggest a change in the name of the product. However, a commenter indicates that such terminology is not used in the trade. The imported product is flat flexible magnet in sheet form. Flexible magnet in sheet form is already a “flat flexible magnet.” Regardless of the size or length of the sheet or whether the sheet is in a roll, the imported material is flat flexible magnet. , essential character or use of the imported articles that results from printing them with promotional material and cutting them to make smaller flat flexible magnets. As imported, the flexible magnetic sheeting fully evidences its ultimate use by consumers as magnets. Although the size of the resulting magnets may not be fully established on importation, their thickness and maximum length and breadth, the degree to which they are flexible, their magnetic characteristics, and such properties as tensile strength, child safety, and resistance to heat or chemicals all have been fixed prior to that time. The imported article already has its final character and is dedicated to its specific use as a magnet at the time of import. Accordingly, the operations performed in the United States do not substantially transform the imported rolls or sheets of flat flexible magnet material.

We note that the processing in the United States will not result in a change of tariff classification. Both the imported product and the finished good are classified under subheading 8505.19.0040, HTSUSA, as flexible permanent magnets. Although a change in tariff classification is not required in order for there to be a substantial transformation, we find the fact that there is no change in tariff classification to be an additional factor to consider in this case. You objected to this argument stating that change in classification was only relevant in the NAFTA context. However, in Ferrostaal, the Court stated that it also considered relevant whether the operations underlying the asserted transformation had effected a change in the classification of the merchandise and stated that change in tariff classification may be considered as a factor in the substantial transformation analysis. Id. at 478.

HOLDING:

HQ 562537, dated December 12, 2002, is hereby revoked. In accordance with 19 U.S.C. 1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.

Based on the facts provided, imported flat flexible magnet material in sheets and rolls are not substantially transformed into new and different articles of U.S. origin when further processed in the U.S. by printing and cutting operations to form flexible promotional magnets. Accordingly, the flat flexible magnets must be properly marked to indicate the country of origin to the person who receives them as a promotional item.

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 Customs officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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