HQ H004649 - Country of Origin Marking of Mugs, Further Processing in Intermediary Country; Substantial Transformation - United States International Trade Commision Rulings

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HQ H004649

March 20, 2007

RR:CTF:TCM H004649 HMC

CATEGORY: MARKING

Martin W. Bloch
Vice President
Dell Will Customs Brokers (USA), Inc.
26480 Northline Commerce Drive, Ste. 912
Taylor, MI 48180

RE: Country of Origin Marking of Mugs, Further Processing in Intermediary Country; Substantial Transformation

Dear Mr. Bloch:

This is in response to your electronic correspondence of November 1, 2006, on behalf of Marck & Associates, requesting a ruling concerning the country of origin marking for a mug manufactured in China and further processed in an intermediary country before being imported into the United States.

FACTS:

You state in your ruling request that your client is considering purchasing mugs in China, which you call “blanks,” and sending them to either Thailand or Taiwan for sublimation coating before importing the mugs into the United States. You state that the work performed in Thailand or Taiwan would involve a coating application of a clear polymer that when heated would allow for the acceptance of a sublimation image transfer. You explain that the clear polymer application is a two-step process involving coating and application and that the cost of the coating and application would be greater than the value of the mug. You indicate that the cost of the “blank” mug produced in China would be 38% to 44% of the cost of the blank coated mug prior to its importation into the United States. The blank coated mugs would be imported and sold to companies in the United States that would sublimate images onto the mugs. You inquire as to the actual country of origin of the blank coated mug.

ISSUES:

What is the country of origin marking for the blank coated mug manufactured in China and subject to additional processing in an intermediary country?

Is the blank coated mug eligible for duty free treatment under the Generalized System of Preferences (“GSP”)?

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 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 of the Customs and Border Protection (CBP) Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), CBP Regulations (19 CFR 134.1(b)), provides that: "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" for marking purposes.

A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. Only one of the three prongs needs to be satisfied for a product to achieve substantial transformation. The name element, however, has received less weight and is considered “the weakest evidence of substantial transformation.” Koru North America v. U.S., 12 CIT 1120, 1126, 701 F. Supp. 229, 234 (1988)(citing U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 269 (1940)). In determining whether the combining of parts or materials in an intermediary country 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 Linens v. United States, 573 F. Supp.1149 (CIT 1983), aff'd, 741 F.2d 1368 (Fed. Cir. 1984). If the manufacturing or combining process is merely a minor one which leaves the identity of the imported article intact, a substantial transformation has not occurred. To determine whether a substantial transformation has occurred, each case must be decided on its own particular facts. Uniroyal, Inc. v. United States, 3 CIT 220, 224, 542 F. Supp. 1026, 1029 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).

In Uniroyal, Inc. v. United States, the Court of International Trade held that no substantial transformation occurred because the attachment of a footwear upper from Indonesia to its outsole in the United States was a minor manufacturing or combining process which left the identity of the upper intact. The court found that the upper was readily recognizable as a distinct item apart from the outsole to which it was attached, that it did not lose its identity in the manufacture of the finished shoe in the United States and that the upper did not undergo a physical change or a change in use. The court concluded that the upper was the essence of the completed shoe and was not substantially transformed.

In HQ 559366, August 29, 1995, CBP reviewed the country of origin marking requirements for an ulu knife that consisted of a semi-circular blade and a handle. The ulu knife could be used in the kitchen for culinary and cutlery purposes. It also could be used as a utility knife, and it was also stated to be a collector's item. We ruled that the imported blade was not substantially transformed in the United States by the etching and assembly operations to which it was subjected. The ruling noted that CBP has distinguished between the kind and amount of further processing performed, i.e., between machining operations performed to achieve a specified form and those performed to achieve more cosmetic or minor processing operations. It reaffirmed CBP’s longstanding view that embellishment and finishing operations, such as polishing, enameling and cleaning, are not regarded as extensive processes that result in a new and different article of commerce. Similarly, in HQ 734062, dated April 22, 1991, CBP ruled that cutting teeth into imported Mexican key blanks, was a minor finishing process that did not alter the keys’ basic character. Other rulings have held that further processing operations, including grinding, polishing, nickel-plating, heat-treating and assembly, were considered finishing operations that did not effect a substantial transformation. (See HQ 733565, dated September 11, 1990; HQ 553197, dated February 11, 1985; HQ 722066 dated August 3, 1983).

Furthermore, it is a well-established policy that the decoration of imported ceramic or china articles by means of painting or decalcomania does not substantially transform articles. (See Treasury Decision (T.D.) 89-21, 23 Cust. Bull. 157 (1989); See also HQ 707057, dated December 10, 1976; HQ 058996, dated June 21, 1979; HQ 724978, dated July 13, 1984 (also published as Customs Service Decision (C.S.D.) 84-113, 18 Cust. Bull. 1111 (1984); HQ 732964, dated August 3, 1990; HQ 735595, dated August 2, 1994 and HQ 558734, dated November 4, 1994). In HQ 734052, October 17, 1991, we held that the application of decals in the United States to porcelain plates imported from Japan did not effect a substantial transformation to the plates. The ruling found that the name of the plates did not change, that the plates retained their essential identity as plates, albeit decorated ones, and that they did not undergo a substantial change in use.

Based on the analysis set forth in the previously cited cases and rulings, we believe in this instance, that the blank coated mug from China is not substantially transformed when a clear polymer coating is applied in the intermediary country (Thailand or Taiwan). Here, the application of a clear polymer coating onto the Chinese blank mug appears to be fairly minimal. There is no indication on the record that any other further processing would be performed on the mug. Thus, the mug would not be subjected to any transformation. It would be simply prepared in the intermediary country to accept sublimation image transfer. This, we find, would be a minor finishing process that does not change the identity of the mug, but would allow for its decoration in the United States. Such processing would not cause a physical change in the article or a change in the character of the mug. Its name and intended use would also not be changed. Although the value of the coating application in the intermediary country is slightly higher than the manufacturing of the mug in China, such value difference is not significant. Further, value alone is not dispositive in the determination of substantial transformation. See HQ 734052, citing Superior Wire v. United States, 11 CIT 608, 669 F. Supp. 472 (1987), aff’d, 867 F.2d 1409 (Fed. Cir. 1989). Thus, because the application of the clear polymer coating in the intermediary country did not change the mug’s character, name or use, as in the polishing or nickel-plating rulings cited above, we find that the mug would not be substantially transformed and that the country of origin of the mug is China.

We note that in HQ 734387, dated June 8, 1992, CBP considered the country of origin of a lead crystal stemware (made of a bowl, stem and foot) that was given its shape in Continental Europe and sent to Ireland for further processing. The importer considered the crystal stemware shaped in Continental Europe a blank even though the final stemware dimensions of the blank were fixed. In Ireland the stemware underwent an extensive labor-intensive and exacting process, entailing considerable expertise in the art of hand-cutting crystal to provide a decorative and outward appearance. The process in Ireland included ink marking the stemware with the appropriate grid pattern, having a team of glass cutters variously cut the pattern on the blank, performing various finishing operations – washing and acid polishing and dipping the cut piece, which produced a glossy finish and finally inspecting and packaging the finished consumer product (hand cut lead crystal stemware) for export to the United States. The finished stemware value was substantially higher than the blank. CBP held that the imported glassware blanks were substantially transformed functionally into formal, elegant stemware by the extensive hand cutting operation performed in Ireland. See also HQ 734283, dated June 16, 1992, for a similar holding.

The process applied to the lead crystal stemware in the rulings cited above is distinguishable from the process performed to the blank mug considered in this ruling. While the processing performed in Ireland on the lead crystal stemware blank was significantly extensive and sophisticated, the processing performed in the intermediary country on the subject mug, the record shows, would not involve such extensive work. Inasmuch as the finishing operation performed on the mug in the intermediary country does not involve extensive processing and does not change the identity of the mug, the mug has not been substantially transformed.

HOLDING:

Based on the information provided, the blank mug made in China is not substantially transformed when a clear polymer coating is applied in an intermediary country (Thailand or Taiwan) to allow a sublimation image transfer. As a product of China, the blank coated mug is not eligible for duty-free treatment under the GSP. Accordingly, the mugs must be individually marked to reflect China as their country of origin, in accordance with 19 CFR §§ 134.1(d)(2) and 134.11. This ruling is limited to the merchandise and facts provided in the electronic ruling request of November 1, 2006.

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 with a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Gail A. Hamill, Chief

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