HQ 968117 - Application for Further Review of Protest No. 0712-05-100146; Country of Origin Marking Duties Assessed on Shipments of Pine Garland Light Sets Imported from Canada under the NAFTA Marking Rules; 19 U.S.C. 1304(i) and 19 CFR 102.18 - United States International Trade Commision Rulings

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HQ 968117

July 24, 2006

MAR-2-RR:CTF:TCM 968117 RSD

CATEGORY: MARKING

Port Director
U.S. Customs and Border Protection
198 West Service Road
Champlain, NY 12919

RE: Application for Further Review of Protest No. 0712-05-100146; Country of Origin Marking Duties Assessed on Shipments of Pine Garland Light Sets Imported from Canada under the NAFTA Marking Rules; 19 U.S.C. 1304(i) and 19 CFR 102.18

Dear Port Director:

This is in response to your memorandum, dated January 25, 2006, forwarding Protest Number 0712-05-100146. The application for further review (AFR) of the protest was approved and sent to this office for our response. The protest is against Customs and Border Protection’s (CBP) assessment of marking duties and interest for protestant’s failure to legally mark shipments of decorative pine garland light sets that are primarily used as Christmas decorations that are imported from Canada. We note that AFR was granted because this case concerns questions of fact and law that have not been ruled upon by CBP or by the courts. See Section 174.24(b) of the CBP Regulations (19 CFR 174.24(b)). The record indicates that the protested entries were liquidated on September 9, 2005, and the protest was timely filed on December 8, 2005.

FACTS:

This protest concerns the assessment of marking duties on shipments of pine garland light sets that are referred to as “lighted garland”. The record indicates that there were a series of entries of this merchandise between June and November 2004. The merchandise is comprised of a light set string originating from China, and pine garland originating from Canada. The light set string is shipped into Canada. In Canada, the light string sets are combined with the Canadian pine garland to make the finished product. Based on copies of advertising materials that are contained in the record, it appears that the finished products are used primarily as Christmas decorations.

The garland light sets were imported into the United States in boxes that were marked to indicate that they were made in Canada. Because you believe that this country of origin marking was improper, your office assessed marking duties of an additional ten percent on the entries of the garland light sets at the time they were liquidated.

We note in this instance, CBP did not issue a marking notice (Customs Form 4647) to the importer. This was because CBP only became aware of the problems with the country of origin marking of the imported garland light sets during a verification of a claim for NAFTA preference. This meant that when the marking dispute arose, the merchandise had already been released into the commerce of the United States. Hence, the merchandise could not be redelivered back to CBP, and thus your office determined that issuing a marking notice would be futile.

In its protest, counsel for the protestant contends that the merchandise was properly marked with the country of origin because the pine garland imparted the essential character to the pine garland light sets. According to counsel, because the pine garland was made in Canada, the country of origin of the light sets was also Canada. Thus, counsel argues that the light sets were properly marked to indicate that Canada was their country of origin, and that marking duties should not have been assessed.

ISSUES:

Whether it was proper to assess marking duties on entries of the pine garland light sets imported from Canada that were made with Chinese origin light strings and Canadian origin pine garland.

LAW AND ANALYSIS:

The marking statute, Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article 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. Part 134, CBP Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), CBP Regulations, defines “country of origin” as the country of manufacture, production, or growth. Section 134.35(a), CBP Regulations (19 CFR 134.35(a)), states that the manufacturer or processor in the U.S. who substantially transforms the imported articles into articles having a new name, character or use will be considered the ultimate purchaser of the imported article within the scope of 19 U.S.C. 1304. In such cases, the article will be excepted from marking, although the outermost container in which the articles are transported to the U.S. processor must be marked with the origin of the articles. In order to change the country of origin, further work or material added to the article in another country must effect a substantial transformation. However, for a good of a North America Free Trade Agreement (NAFTA) country, the NAFTA Marking Rules will determine the country of origin. See 19 CFR 134.1(b).

Section 134.1(j), CBP Regulations (19 CFR 134.1(j)) provides that the “NAFTA Marking Rules” are the rules promulgated for the purposes of determining whether a good is a good of a NAFTA country. A “good of a NAFTA country” is an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. See 19 CFR 134.1(g).

Because the garland light sets were processed in and imported from Canada, in order to determine whether they were marked properly with their country origin when they were imported into the United States, we must apply the NAFTA marking rules. Section 102.11, CBP Regulations (19 CFR 102.11) sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for the purposes of country of origin marking and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2. Paragraph (a) of this section states that the country of origin of a good is the country in which:

(1) The good is wholly obtained or produced; (2) The good is produced exclusively from domestic materials; or (3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

In this case, because the garland light sets were produced in Canada from Chinese and Canadian materials, they were not wholly obtained or produced in a single country, and thus the country of origin cannot be determined under 19 CFR 102.11(a)(1). In this instance, the foreign materials were the light set strings made in China, and the domestic materials were the Canadian made pine garland. Because the garland light sets contained both Chinese and Canadian made materials, they were not produced exclusively from domestic materials. Thus, 19 CFR 102.11(a)(2) is also not applicable in this situation. Pursuant to 19 CFR 102.11(a)(3), the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable change in tariff classification as set forth in 19 CFR 102.20, and satisfies any other applicable requirements of that section. Here, the foreign made material; the Chinese light sets were classified in subheading 9405.40 of the Harmonized Tariff Schedule of the United States (HTSUS). The finished product, the pine garland light sets were also classified in subheading 9405.40, HTSUS. The applicable change in tariff classification for subheadings 9405.10-9405.60, which is set out in section 102.20(s), Section XX: Chapters 94 through 96, provides: ...

A change to heading 9405.10 through 9405.60 from any other subheading outside that group, except from subheading 9405.91 through 9405.99 when that change is pursuant to the General Rule of Interpretation 2(a).

In this instance, the light string sets were initially classified under subheading 9405.40, HTSUS. After the light strings were combined with the pine garland in Canada, the finished garland light sets were also classified under subheading 9405.40, HTSUS. Since there is no applicable change in tariff classification, the requirements of section 102.20 have not been met. Thus, the country of origin of the goods cannot be determined in accordance with this provision.

Because 19 CFR 102.11(a) (incorporating section 102.20), is not determinative of the origin of garland light sets, the next step is to apply Section 102.11(b), CBP Regulations, (19 CFR 102.11(b), which states in part:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country origin cannot be determined under paragraph (a) of this section:

The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good,.

When determining the essential character of a good under section 102.11, CBP regulations at 19 CFR 102.18(b)(1), provides that, for purposes of applying section 102.11, only domestic and foreign materials (including self-produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in section 102.20 shall be taken into consideration in determining the parts or materials that determine the essential character of a good. See HQ 560038 dated February 7, 1997.

Moreover, section 102.18(b)(2), CBP Regulations (19 CFR 102.18(b)(2)), states that for purposes of determining which material imparts the essential character to a good, various factors may be examined depending upon the type of good involved. Those factors may include but not be limited to, the nature of the material as its bulk, quantity, or value and the role the material plays relative to the good's use.

To reiterate, the imported garland light sets are composed of light string sets of Chinese origin, and pine garland made in Canada. In applying the above factors, we note that the purpose of the imported merchandise was to serve as ornamental light sets, and they were adorned with pine garland for use primarily as Christmas decorations. The merchandise was not ornamental pine garland that were decorated with lights. This is supported by the fact that the merchandise was classified in heading 9405, HTSUS, as a light set and not in a heading for decorative garland. Consequently, we find that the single material that imparted the essential character to the garland light sets was the Chinese made light sets. Hence, in accordance with 19 CFR 102.11(b)(1), the country of origin of the pine garland light sets should have been based upon the Chinese light string sets. Therefore, we find that the country of origin of the pine garland light sets was the country where the light sets were made, which in this case was China.

Since the country of origin of the pine garland light sets was China, at the time they were imported into the United States, they should have been marked to indicate that their country of origin was China. However, instead of marking the pine garland sets to indicate that they were made in China, the record indicates that the boxes containing the pine garland light sets were improperly marked to indicate that they were made in Canada. Thus, at the time they were imported into the United States, the pine garland light sets were not legally marked to indicate their country of origin.

Merchandise that is not legally marked at the time of its importation is subject to a 10 percent ad valorem marking duty. 19 U.S.C. 1304(i) provides, in pertinent part:

If at the time of importation any article...is not marked in accordance with the requirements of this section, and if such article is not exported or destroyed or the article...marked after importation in accordance with the requirements of this section (such exportation, destruction, or marking to be accomplished under customs supervision prior to the liquidation of the entry covering the article, and to be allowed whether or not the article has remained in continuous customs custody), there shall be levied, collected, and paid upon such article a duty of 10 per centrum ad valorem, which shall be deemed to have accrued at the time of importation, shall not be construed to be penal, and shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. Such duty shall be levied, collected, and paid in addition to any other duty imposed by law and whether or not the article is exempt from the payment of ordinary customs duties (emphasis added).

In implementing 19 U.S.C. 1304(i), the CBP Regulations provide in section 134.2 (19 CFR 134.2), in pertinent part that where imported articles are not properly marked, that:

Articles not marked as required by this part shall be subject to additional duties of 10 percent of the final appraised value unless exported or destroyed under Customs supervision prior to liquidation of the entry, as provided in 19 U.S.C. 1304(i). The 10 percent additional duty is assessable for failure to mark the article (or container) to indicate the English name of the country of origin of the article or to include words or symbols required to prevent deception or mistake.

In HQ 731775, dated November 3, 1988, CBP ruled that two basic prerequisites must be present in order to assess marking duties under 19 U.S.C. 1304(i):1) the merchandise was not legally marked at the time of importation; and 2) the merchandise was not subsequently exported, destroyed or marked under CBP supervision prior to liquidation.

As previously mentioned, because a potential marking violation was not discovered until after the merchandise was released from CBP custody into the commerce of the United States, in this case CBP did not issue a marking notice (CF 4647). In A.N. Deringer, Inc. v. United States, 51 Cust. Ct. 21 (1963), the United States Customs Court ruled on a situation where CBP had assessed marking duties without issuing a marking notice to the importer. In that case, the plaintiff argued that there was no liability for special marking duties unless and until the collector issued notice on a CF 4647. The court held that the notice provided by a CF 4647 is not a condition precedent to marking duty liability. The court stated that if "imported merchandise of foreign origin isnot marked, and not exempted, and if in such case the merchandise is not destroyed or exported under customs supervision, the marking duties may not be remitted or avoided for any cause. That is the law as Congress enacted it." CBP has also addressed this question and followed Deringer in HQ 734103, dated April 13, 1992, and HRL 559717, dated December 22, 1997. In other words, based on the decision in Deringer, we have ruled that there is no requirement that a CF 4647 must be issued in order to impose marking duties. See also HQ 562048 dated July 11, 2002. Therefore, we find that CBP’s failure to issue a marking notice in this case does not preclude the assessment of marking duties.

As previously explained, since at the time of their importation, the boxes of imported garland light sets were marked Canada instead of China, the pine garland light sets were not legally marked to indicate their country of origin. In addition, there is no evidence in the record to show that the garland light sets were subsequently, exported, destroyed or remarked under CBP supervision prior to liquidation of the entries. Consequently, the evidence presented in the record establishes that the two basic prerequisites for imposing marking duties on the shipments of imported merchandise are present in this case. Therefore, in this case we find that marking duties were properly assessed.

HOLDING:

In this case, the country of origin of the pine garland light sets under the NAFTA marking rules is China. Therefore, the pine garland light sets should have been marked to indicate that their country of origin was China. In this instance, since the goods were not legally marked with their country of origin at the time of their importation, and they were not subsequently exported, destroyed, or remarked under CBP supervision prior to liquidation of the entries, the assessment of marking duties of ten percent against the entries was proper.

Therefore, you are directed to DENY the protest in full. In accordance with the Protest/Petition Processing Handbook, (CIS HB, January 2002, pp 18 and 21), you are to mail this decision, together with the CF19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director

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