MAR-05 RR:TC:SM 559964 BLS
Sidney H. Kuflik, Esq.
Lamb & Lerch
233 Broadway
New York, N.Y. 10279
RE: Country of origin of decorated paper gift bags
Dear Mr. Kuflik:
This is in reference to your letter dated July 11, 1996, on
behalf of Jeanmarie Creations, Inc. ("Jeanmarie"), requesting a
ruling with regard to the proper country of origin of certain
paper decorated gift bags that Jeanmarie intends to import into
the U.S. Samples of the gift bags are included with your
submission.
FACTS:
You state the following:
Jeanmarie contracts with a South Korean manufacturer to
produce decorative paper gift bags. The production of the gift
bags involve work performed in three countries, namely, the U.S.,
South Korea ("Korea"), and China.
In the U.S., the work will consist of graphic design
concepts and layouts for each gift bag, performed by Jeanmarie's
in-house art staff. This design and artwork is then furnished to
the manufacturer in Korea.
In Korea, the design and art work will be processed by either
computer or high-tech camera, depending upon the particular bag's
design and size, so as to produce the color-separation films that
lay out the process-color components required to reproduce the
design image via an offset printing process. The color
separation films are used to produce the Litho printing plates
that are, in turn, used to print the design on the paper that
will constitute the gift bag.
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The paper on which the designs will be offset is produced in
Korea by Korean
paper mills. The paper is cut in Korea to the precise dimensions
needed to assemble the specific gift bags that Jeanmarie has
ordered. The cutting of the paper to the exact gift bag size is
done either by the Korean paper mill, or, for some of the smaller
gift bags, by the Korean bag manufacturer. Special heavy weight
paper is also produced in Korea for the handle gift tags that
will be placed on the handle of each bag.
The gift bag and the handle gift tag paper are then printed
with the appropriate design and art work that have been
reproduced in Korea. The manufacturer's factory in Korea has
three offset litho printing presses in Korea that perform this
printing operation on the paper and paper board.
In addition to the paper for the gift bag and handle gift
tag, paperboard of Korean origin will also be used in the gift
bags to reinforce the bag's front and back top portions, as well
as to reinforce the bottom portion of each bag. In this regard,
you have orally advised that the paperboard is sent to China from
Korea in sheets of 31" x 43".
A laminating film, which will later be affixed to the
printed paper, is also produced in Korea. Additionally, the
yarn for macrame handles, the metal grommets and the plastic hang
tabs that will be attached to the top of the gift bag are all
manufactured in Korea. Finally, the glue that will be used in
holding the formed bag together and in affixing the laminated
film to the printed paper is produced in Korea. Thus, every
component used to produce the imported decorative paper gift bags
is a product of Korea.
The Korean components are then shipped to China for
assembly, which involves the following steps: The laminated film
will first be affixed by gluing to the printed paper, followed by
the bag being folded and glued by an automatic bag forming
machine. Because some bag sizes cannot be shaped in the bag
forming machinery, they will be hand folded. The paperboard
bottom components are cut to length and width to the required
size and inserted into each bag. Reinforcement of the front and
back of the bag is accomplished by cutting the paperboard to
length and width into strips in the size required, and by folding
over the top of the bag on all sides, and enclosing the cut
paperboard strips by gluing and tieing with the macrame handles.
In some cases, the paperboard strips are cut to shape, to conform
to the bags with scalloped tops. Four holes are punched into
the top of each bag to hold the macrame
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handles; and, where applicable, metal grommets will be inserted
into each hole. The Korean printed gift hang tags will be cut
and the macrame handles which are braided in China from the
Korean yarn will be threaded through the bag's holes and knotted,
with one handle having a gift hang tag. Following this assembly
process, the completed decorative gift bags are then packed for
shipment to the U.S.
ISSUE:
What is the country of origin of the imported gift bags?
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 its 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. 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 at 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 the "country of
origin" within the meaning of the marking laws and regulations.
A substantial transformation occurs when an article loses
its identity through processing and emerges as a new article
having a new name, character, or use. Koru North America v.
United States,12 CIT 1120, 701 F. Supp. 229, 234 (1988); see
also, Anheuser-Busch Brewing Ass'n v. United States, 207 U.S.
556, 562 (1908); United States v. Gibson-Thomsen Co.,27 C.C.P.A.
267, 273 C.A.D. 98 (1940).
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In determining whether the combining of parts or materials
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, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2
Fed. Cir. 105, 741 F.2d 1368 (1984). Assembly operations which
are minimal or simple, as opposed to complex or meaningful, will
generally not result in a substantial transformation. See C.S.D.
85-25 (September 25, 1984).
Headquarters Ruling Letter (HRL) 734671 dated October 8,
1992, involved the production of picture frames in two countries,
Hong Kong and China. In that case unfinished metal picture
frames were manufactured in Hong Kong and shipped to China where
they were polished, the brass frames were lacquered and the
silver plate frames were plated. The metal frames were then
assembled with a piece of glass, plastic backs, velvet easels,
hinges, and face paper to yield the finished picture frames.
In that case we found that the metal frame constituted the very
essence of the finished article in that it possessed all the
essential qualities of the finished picture frame. Accordingly,
we held in that case that a substantial transformation of the
unfinished picture frames did not occur in China, and that Hong
Kong was the country of origin of the imported articles.
In C.S.D. 80-111 dated September 24, 1980, Customs
considered whether the domestic manufacturing processes through
which imported ceiling fan components become finished fans
constituted a substantial transformation. In this ruling,
Customs concluded that the assembly of the fan was not a
substantial transformation because the processes were basically
assembly line procedures which did not physically alter the
components. We further pointed out in that case that the
manufacturing processes were simple combining processes that did
not require a great deal of skill.
In the instant case, we find that the operations to be
performed in China on those components other than the paperboard
supports consist primarily of simple assembly operations on ready
made components which do not amount to a substantial
transformation. These operations consist largely of gluing,
folding and other processes which do not ordinarily result in a
substantial transformation. Further, the Korean-origin yarn
which is braided in China to make macrame handles does not
undergo a substantial transformation as a result of such
operations, as the country of origin of the handles is Korea,
where the yarn is extruded. See 19 U.S.C. 3592(b)(1)(B)(ii).
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Therefore, we find that with the exception of the paperboard
supports, the country of origin of the gift bag is Korea.
The paperboard supports which are cut in China to length and
width and sometimes to shape for bags with scalloped tops are
transformed from material with generic purposes to components
suitable for use only as supports for the gift bags.
Accordingly, we find that the paperboard rolls undergo a
substantial transformation in China when cut to specific sizes as
gift bag supports and would otherwise be required to be marked
with China as the country of origin.
However, in T.D. 91-7 (January 16, 1991), Customs noted that
in certain circumstances, the marking of every item in a
collection of goods may not be consistent with the purpose of
section 1304, or may be impractical and/or undesirable. This may
be because one or more items in the collection are relatively
insignificant and would have no influence on the purchasing
decision, or because the items in the collection are too
numerous, making it impractical to specify the country of origin
of each item, or for various other reasons. Accordingly, Customs
stated that it will continue to employ a "common sense" approach
to determine the marking requirements applicable to articles
which comprise a collection of imported and domestic goods.
An example of this approach is found in HRL 555365
(September 7, 1990), which concerned the tariff treatment and
country of origin marking requirements applicable to U.S.-made
junction boxes packaged abroad with foreign-made screws (three to
a box) and returned to the U.S. In that ruling, Customs found
that the foreign screws were excepted from the requirements of
section 1304 even though nothing was being done to the screws
other than packaging them with U.S. junction boxes. Applying a
"common sense" approach, Customs concluded that marking of the
screws was not required because they lost their separate identity
and became an integral part of the U.S.-origin junction boxes as
a result of their inclusion in the kit. Customs also recognized
that what the ultimate purchaser in the U.S. was buying was a
junction box kit and not individual screws, and that the marking
of the screws would not be consistent with the purpose of section
1304. (See also HRL 733089 dated May 30, 1990, where Customs
held that a scarf and tie made from the same fabric and design as
a blouse did not have to be separately marked with the country of
origin. We noted in that ruling that the tie and scarf which
were imported together from the same country with the blouse were
intended to be worn exclusively
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with the blouse. Accordingly, we found that the scarf and the
tie lost their separate identity when they were combined and sold
with the blouse.)
Similarly, in the present case, we find that the paperboard
supports lose their separate identity and become an integral part
of the Korean-origin gift bags as a result of their inclusion
and/or assembly with the bags. Therefore, using the common sense
approach, the paperboard supports do not have to be separately
marked to indicate their country of origin.
HOLDING:
Gift bag components produced in Korea do not undergo a
substantial transformation as a result of simple assembly
operations performed in China. Supporting paperboard sheets
which are cut in China to width and length and sometimes to shape
to conform to the scalloped top of some gift bags do undergo a
substantial transformation. However, since the paperboard
components lose their separate identity and become an integral
part of the gift bags as the result of the operations performed
in China, they do not have to be separately marked to indicate
their country of origin. Accordingly, the imported gift bags
should be marked with Korea as the country of origin.
A copy of this ruling 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