CLA-2 RR:TC:SM 559703 BLS
Kathleen M. Murphy, Esq.
Katen Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
RE: Country of origin marking of engine parts and components
Dear Ms. Murphy:
This is in reference to a letter from your office dated
February 20, 1996, on behalf of General Electric Aircraft Engines
("GEAE"), requesting country of origin marking requirements for
certain engine parts and components.
FACTS:
GEAE is engaged in a joint venture with a foreign company
("X"), to produce and sell civil aircraft engines to various
purchasers in the U.S. Each party has the responsibility for
the production or sourcing of designated components of the
finished engine, and either party may assemble the engine in part
from components and subassemblies ("modules") produced internally
and in part from components imported from the other party.
The production parts used by GEAE and X Company to
manufacture their respective modules may be sourced from vendors
located in the U.S. and/or other countries. Many parts may be
sourced from multiple vendors. Each module consists of
thousands of parts and is assembled by GEAE in the U.S., or by X
Company at its facility abroad, as designated. Engines sold to
customers in the U.S. may be assembled by GEAE in the U.S. or by
X Company at its foreign location.
As part of the customary contract of purchase, GEAE agrees
to provide repair and maintenance services for these engines.
When required, the engines are sent to GEAE's facility in Wales,
England, where they are taken apart and inspected for routine
service or necessary repairs. Each engine is assigned a work
order number, based on its manufacturer's serial number.
- 2 -
A typical engine overhaul involves stripping down the engine
by removing a
group of parts or subassemblies. The subassemblies are then
further broken
down into production parts. The Wales facility then makes as
many on-site repairs or replacements of parts for each engine as
possible. Those parts that cannot be repaired or replaced by
the Wales facility are returned to GEAC or X Company, depending
on place of manufacture or source of the individual part, or
directly to an approved vendor of the part, for repair or
replacement. Under certain circumstances, where a short turn-around time is required, the Wales facility does not clean or
examine the parts, but merely ships the removed parts to the
engine's manufacturer or an approved vendor for inspection,
determination of work scope, replacement, and/or repair or
return.
You state that during the tear-down process, parts from a
particular engine are separated from those removed from other
engines, and if shipped, are never commingled with parts from
other engines. The engines themselves usually stay at the Wales
facility, in tear-down condition, awaiting the reinstallation of
the repaired or replacement parts.
When GEAE receives an engine's parts in the U.S., it repairs
or replaces the parts as necessary. In certain cases, if the
parts cannot be repaired expeditiously, they are placed in GEAE's
parts pool to meet future production (for an aircraft engine to
be built in the U.S.), as a spare part, or for re-exportation.
You state that the parts that are shipped back to the Wales
facility are reinstalled into the same engine model from which
they were removed, and that parts from one engine model serviced
by the Wales facility are never used to repair or replace parts
from another engine model, even in an engine made by the same
manufacturer.
ISSUE:
What is the country of origin of the imported engine parts?
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 U.S. 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 U.S. the English name
of the country of origin of the article. The purpose of the
marking statute is outlined in United States v. Friedlaender &
Co., 27 CCPA 297 at 302 C.A.D. 104 (1940), where the court stated
that: "Congress intended that the ultimate purchaser should be
able to know by an
- 3 -
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."
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR
134.1(b)), defines the country of origin of an article 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 for country of origin marking purposes. A substantial
transformation occurs when articles lose their identity and
become new articles having a new name, character or use. United
States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940).
Accordingly, the first question we must address is whether
the imported parts initially undergo a substantial transformation
as a result of their assembly into engine modules, and then into
the aircraft engine, either in the U.S. or abroad.
In C.S.D. 85-25, 19 Cust. Bull. 544 (1985) (HRL 071827 dated
September 25, 1984), Customs held that for purposes of the
Generalized System of Preferences (GSP), an assembly process will
not constitute a substantial transformation unless the operation
is "complex and meaningful." Whether or not an operation is
"complex and meaningful" depends on the nature of the operation,
including the number of components assembled, number of different
operations involved, and whether a significant period of time,
skill, detail and quality control are necessary for the assembly
operation.
In Headquarters Ruling Letter (HRL) 555756 dated March 25,
1991, chain saws were manufactured in Mexico with the use of
engines that were assembled in Mexico from Mexican and other
foreign origin components, and 125 U.S. components. These
components were first formed into various subassemblies of the
engine (manual oil pump, fuel and oil tank, flywheel, starter,
pump, handle/throttle lock and crankshaft piston), which were
then further assembled into the engine. The engine was then
assembled with 20 additional components to form the chain saw.
Customs held that the components which made up the gasoline
engine had undergone a substantial transformation because there
clearly was a name change from components such as nuts, bolts,
contact ignition switch, sparkplugs, cylinders, etc., to a
gasoline engine. Moreover, the processing operations changed the
character and use of the components by designating them to a
specific use, i.e., an
- 4 -
engine to start and operate chain saws. In that case, over 100
discrete components
were combined in operations, such as mounting, welding, bolting,
and quality control testing which increased the components' value
and endowed them with new attributes. Therefore, the engine was
held to be a substantially transformed constituent material of
the chain saw, thereby enabling the cost or value of the engine
materials to be counted toward the 35 percent value-content
requirement for purposes of the GSP. See also HRL 556976 dated
June 9, 1994, where we held that the production of automobile
engines in a Foreign Trade Zone (FTZ) resulted in a substantial
transformation of the foreign and domestic parts, for purposes of
determining the applicability of subheading 9802.00.80,
Harmonized Tariff Schedule of the United States (HTSUS).
In the instant case, the assembly of numerous parts to
create various subassemblies ("modules"), and the assembly of
these modules to produce the aircraft engine, ultimately
involving thousands of individual parts, is a complex operation
requiring specialized skills and expertise. The assembled
individual components and subassemblies undergo a change in use,
character and identity and become an integral part of the
aircraft engine. Accordingly, we find that the operations
performed in the U.S. or abroad leading to production of the
engine result in a substantial transformation of the imported
parts. Therefore, the country of origin of the parts will be
the country where the engine was produced.
The next issue to be addressed is whether the subsequent
disassembly of the engines and other operations which take place
at the Wales facility results in a change in the country of
origin of the imported parts from the country of origin of the
engines.
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)),
provides in pertinent part that "Country of origin" means 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." Emphasis added.
In Headquarters Ruling Letter (HRL) 732258 dated March 28,
1990, Customs held that for country of origin marking purposes
automotive alternators that were sent to Mexico to be cleaned,
disassembled, rebuilt with new parts and electronically tested
were not substantially transformed and did not become products of
Mexico. We found in that case that the rebuilt alternators did
not have
- 5 -
a new name, character or use, but merely were made functional
again. See also
HRL 556609 dated July 23, 1992, where we held that the
disassembly of steering gear assemblies in Mexico for purposes of
repair did not substantially transform the assemblies into a
product of Mexico for country of origin marking purposes.
In the instant case, the various parts assembled to produce
the aircraft engine are substantially transformed during this
process. The parts of the engine which are subsequently
disassembled and imported by GEAE for repair (or replacement) do
not undergo a change in character or use as a result of such
disassembly, but retain their identity as parts of the engine
from which they were removed. Therefore, since these parts do
not undergo a substantial transformation as a result of such
disassembly, the country of origin of such parts remains the
country where the engine was produced and they must be marked
accordingly. Foreign parts remaining in the U.S. and
subsequently re-exported must undergo a substantial
transformation in order to effect a change in the country of
origin.
HOLDING:
Foreign and domestic parts used in the production of
aircraft engines undergo a substantial transformation as a result
of such operations. Subsequent disassembly of the engines
abroad and removal of parts for purposes of repair and reassembly
will not effect a substantial transformation of the parts.
Therefore, the country of origin of the parts imported for repair
(or replacement) will be the country where the related engine was
produced and they must be marked accordingly. Foreign parts
remaining in the U.S. and subsequently re-exported and returned
must undergo a substantial transformation in the U.S. in order to
render the U.S. the country of origin. This decision relates to
country of origin marking determinations only.
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,
John Durant,
Director
Tariff
Classification Appeals Division