CLA-2 CO:R:C:S 558747 MLR
Patricia M. Hanson, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
RE: Country of origin marking of steel surgical instruments;
needle-holder; machine; cut; forge; polish; assemble;
substantial transformation; 19 CFR 134.32(m)
Dear Ms. Hanson:
This is in response to your letter of September 8, 1994 and
November 30, 1994, requesting a ruling on behalf of Baxter
Healthcare Corporation ("Baxter"), regarding the country of
origin marking of certain steel surgical instruments from either
Russia or Hungary. Samples representative of each manufacturing
stage described below are submitted with your request.
FACTS:
You have described the operations involved in producing the
surgical instruments as follows. Rough forgings or "blanks" are
made in Germany from German stainless steel. The blanks, as
imported into the U.S., consist of two roughly forged shapes for
each instrument. In the U.S., the layer of impurities from the
rough forgings is removed, a series of metal cuttings is
performed to further refine the shape and define the edges and
surfaces. In your letter dated November 30, you further state
that the rough forgings "undergo additional forging" in the U.S.
Specifically, the "locator cut is forged in each component."
After the locator cut is forged into the components in the
U.S., the ratchets are cut into the handles. It is stated that
the ratchets define the increments at which the needle-holder's
grasp can be adjusted. In addition, the tips of each of the
components which will constitute the "jaw" of the finished
instrument are cut-to-size and refined for the tungsten insert.
A hole is reamed into the back of the boxlock for insertion of
the connecting pin. Based on the forged locator cut, the edges
are then further cut and refined, and all the surfaces of the
components are deburred and "scaled down." Thereafter, the
pieces are cleaned and polished, the male and female pieces of
the boxlock are fit together, and the connecting pin is inserted
to complete assembly of the needle-holder. Lastly, the jaws are
aligned and set so that they are capable of gripping, closing,
and locking in place.
These articles are then sent to either Russia or Hungary for
the final polishing process which includes a heat treatment and a
final cleaning. The heat treatment oven brazes the tungsten
carbide inserts into the tips of the articles. After polishing
and heat treating, the ring handles are gold-plated. After these
operations, the articles are then cleaned and returned to the
U.S.
ISSUE:
Whether the surgical instruments are substantially
transformed in the U.S., and thereby excepted from country of
origin marking when they are returned to the U.S.
LAW AND ANALYSIS:
The marking statute, section 304, Tariff Act of 1930, as
amended (19 U.S.C. 1304) provides that, unless excepted, every
article of foreign origin imported into the U.S. 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 U.S. 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. Inc.,
27 CCPA 297, 302, C.A.D. 104 (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 U.S. 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.
For country of origin marking purposes, a substantial
transformation of an imported article occurs when it is used in
the U.S. in manufacture, which results in an article having a
name, character, or use differing from that of the imported
article. In such circumstances, the manufacturer or processor in
the U.S. who converts or combines the imported article into the
different article will be considered the "ultimate purchaser" of
the imported article, and the article is excepted from marking
and only the outermost container is required to be marked. See
19 CFR 134.35.
As provided in 19 CFR 134.32(m), products of the U.S.
exported and returned are specifically excepted from country of
origin marking requirements. Therefore, if a U.S. product is
sent abroad for processing, the article remains a product of the
U.S. excepted from the country of origin marking requirements
unless prior to its return it is substantially transformed in
that country and, therefore, becomes an article of foreign
origin.
Baxter contends that the instruments are substantially
transformed in the U.S., particularly because when the locator
cut is forged in each component, "this is the point from which
the proportions of the finished instruments are determined" in
the U.S. In C.S.D. 90-101 (June 6, 1990), a case involving
surgical scissors and other surgical instruments, Customs ruled
that the milling and the intricate cutting of forged blanks that
create the ratchet, teeth, inside rings, and boxlock on surgical
instruments were extensive operations that "give the surgical
instruments their actual dimensions and essential characteristics
such as the capacities to grip and close" and that these
operations coupled with heat treating and polishing gave the
surgical instruments their basic character and resulted in a
substantial transformation.
In contrast, in Headquarters Ruling Letter (HRL) 733565
dated September 11, 1990, Customs ruled that unfinished household
scissors exported to Pakistan for further processing including
grinding, polishing, nickel plating, heat treating, and assembly
did not constitute a substantial transformation. It was
determined that these processes were nothing more than finishing
operations which did not alter the basic character of the shears.
In HRL 732844 dated February 12, 1990, Customs ruled that
U.S.-made forgings not machined to their actual dimensions and
which lacked the capacities to grip, close, lock in place, and to
be adjusted, were substantially transformed into surgical
instruments by extensive machining, bending, cutting, riveting,
assembly, and polishing operations performed in Pakistan. It was
noted that these operations gave the surgical instruments their
basic characteristics. In HRL 734904 dated April 30, 1993,
Customs considered strip stainless steel forged in Germany and
exported to Pakistan, where the forgings were milled, machined,
or forged. The parts were then assembled into surgical
instruments, riveted, adjusted, heat treated, annealed, polished,
passivated, stamped or marked, ultrasonically cleansed, and
packaged. It was determined that these operations performed in
Pakistan constituted a substantial transformation, so that the
country of origin was Pakistan.
In HRL 553197 dated February 11, 1985, however, steel
forgings were machined, which mainly consisted of deburring,
swagging, and broaching. These articles were then exported to
Pakistan, where they were rough polished, hand shaped and curved,
subjected to a heat treatment, and final polished. In that case,
it was held that because the key machining operations occurred in
the U.S., and the processes in Pakistan were finishing
operations, the instruments would be exempt from individual
marking pursuant to 19 CFR 134.32(m).
Finally, in HRL 734835 dated February 3, 1993, shear blade
castings from Taiwan were imported into the U.S., where a hole
was further drilled; the rough surface from the casting was
ground off; a cutting edge was made; various polishing operations
were performed which resulted in a rough finish; the blades were
racked and nickel plated by moving the blades through six
consecutive liquid solutions; the blade edges and points on the
blades were ground and sharpened; the rivet was inserted; the
finger and thumb pieces were assembled; the scissors were buffed;
a process called "Japanning" was performed which consisted of
dipping, racking, and baking; and lastly, the scissors were
tested and oiled. It was held that the imported castings were
substantially transformed in the U.S. as a result of the further
processing in the U.S., and therefore became a product of the
U.S.
In the Customs Bulletin dated January 11, 1995, Customs
published, pursuant to section 625(c)(1) of Title VI ("Customs
Modernization") of the North American Free Trade Agreement
Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice
advising interested parties that Customs intends to modify past
rulings pertaining to the substantial transformation of hand
tools "and similar items," to the extent required to conform them
with the court's decision in National Hand Tool Corp. v. United
States, Slip Op. 92-61 (CIT April 27, 1992), aff'd, 92-1407 (CAFC
February 3, 1993). Specifically, Customs states that the
criteria set forth in National Hand Tool, to be applied "based on
the totality of the evidence," include:
[1] whether the tool forging has the same name as the
finished tool,
[2] whether the tool forging has a predetermined use, and
[3] whether the tool forging has the essential character of
the finished tool.
In the November 30 letter, it is claimed that the facts in
this case are distinguishable from the facts presented in
National Hand Tool. Consequently, it is claimed that National
Hand Tool does not preclude the finding of a substantial
transformation in this case in the U.S. In National Hand Tool,
sockets and flex handles were either cold formed or hot forged
into their final shape, speeder handles were reshaped by a power
press after importation, and the grip of the flex handles were
knurled in the U.S. The imported parts were then heat treated
which strengthened the surface of the steel, and cleaned by
sandblasting, tumbling, and/or chemical vibration before being
electroplated. In certain instances, various components were
assembled together which the court stated required some skill and
dexterity. The court determined that the imported components
were not substantially transformed by the strengthening,
cleaning, and assembly performed in the U.S.; therefore, they
remained products of Taiwan. In making its determination, the
court focused on the fact that the components had been cold-formed or hot-forged "into their final shape before importation",
and that "the form of the components remained the same" after the
assembly and heat-treatment processes performed in the U.S.
Although the court stated that a predetermined use would not
preclude the finding of a substantial transformation, but rather,
must be based on the totality of the evidence, no substantial
change in name, character or use was found. Slip. Op. 92-61, at
7, 8.
In this case, it is claimed that unlike the imported
components in National Hand Tool, which were in their final shape
and ready for assembly when they were imported, the imported
forgings are not capable of being assembled until after they
undergo the additional forging, machining, and cutting processes
performed in the U.S. We disagree. In this case, although the
proportions of the finished instruments are determined by the
forging of the locator cut, and the cutting of the ratchets
defines the increments at which the needle-holder's grasp can be
adjusted, the speeder handles in National Hand Tool were reshaped
as well. Since this reshaping did not constitute a substantial
transformation, we find that the cutting and scaling-down
operations are not extensive enough to change the overall shape,
characteristics, and use of the imported forgings. Furthermore,
the assembly only involves a few pieces, as it did in National
Hand Tool.
In addition, although C.S.D. 90-101 is similar to the case
at issue and held that the forgings did not possess the essential
characteristics of needle-holders until the locator cut was
forged, the ratchets were cut, and the components were scaled
down to their final dimensions before being assembled together,
the facts are not identical. In C.S.D. 90-101, the total
processing of the imported forgings occurred in a single country.
Thus, while we believe that C.S.D. 90-101 is not in conformance
with the standards of National Hand Tool, the facts of C.S.D. 90-101 are not the same as those at issue here. Therefore, we find
that Baxter is not the ultimate purchaser of the imported German
forgings.
Lastly, it is claimed that cleaning, polishing, inserting
tungsten carbide in the tips of the instruments, and gold-plating
the handles in Russia or Hungary constitute cosmetic finishing
touches and do not impart the essential characteristics to the
instruments or change their dimensions in any way. We agree.
Therefore, the German country of origin must be marked on the
finished surgical instruments returned from Russia or Hungary.
HOLDING:
Based upon the information provided, we find for purposes of
19 U.S.C. 1304, the processing in the U.S. of the surgical
instrument forgings imported from Germany in the manner set forth
above does not constitute a substantial transformation;
therefore, the finished surgical instruments are not excepted
from country of origin marking . In addition, the further
described operations to be performed in Russia or Hungary, also
will not substantially transform the instruments into new and
different articles. Therefore, under the facts of this case, the
finished surgical instruments must be marked with the country of
origin of the forgings (Germany).
A copy of this ruling letter should be attached to the entry
documents filed at the time the goods are 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,
John Durant, Director
Commercial Rulings Division