MAR-2-05 CO:R:C:V 732609 EAB
Leslie A. Glick, Esq.
Porter, Wright, Morris & Arthur
1233 20th Street, N.W.
Washington, DC 20036-2395
Re: Country of origin of textile swatch books assembled in
Mexico in part with U.S. goods exported and returned;
ultimate purchaser; 19 CFR 10.16; 19 CFR 10.22; 19 CFR
10.24; 19 CFR 11.12b(a); 19 CFR 12.130(c); 19 CFR
134.1(d); 19 CFR 134.32(d); 19 CFR 134.32(h); HQ
710493; HQ 732082; Pabrini, Inc. v. United States
Dear Mr. Glick:
This is in response to your letter of July 27, 1989, on
behalf of V.I.P., Incorporated, requesting a ruling on the
country of origin marking requirements of swatch cards, swatch
book page sets, complete swatch books and swatch chips assembled
in Mexico in part of U.S. goods and returned to the U.S. We
regret the delay in responding.
FACTS:
V.I.P. is a designer and manufacturer of trade advertising
and promotional materials in the form of swatch cards, swatch
book page sets, complete swatch books and swatch chips. It
contemplates establishment of a plant in Mexico for assembly of
these articles. A swatch card consisting of a sheet of heavy
paperboard or light cardboard is printed in the U.S. by V.I.P.
with information about swatches of fabric to be permanently
glued to the card. During a recent telephone conversation, you
replied that some of the fabric was of foreign origin while some
was domestic. A swatch book page set is a series of related
swatch cards numbered for insertion in a swatch book. A swatch
chip is a single piece of paperboard or cardboard that is printed
with information about a piece of fabric that is to be stapled or
glued to the chip. A small hole is then punched into the corner
of the chip so it can be placed on a pegboard for display or
bound with other chips in a book for the same purpose. The
swatch cards, swatch book page sets, swatch books and swatch
chips are produced under contract for a particular customer that
is a wholesaler of the fabrics represented by the swatches. The
fabric wholesaler provides the swatch books to independent
showrooms, free of charge, to be used as samples for the purpose
of encouraging orders from customers of the showrooms for the
fabrics. The articles are to be assembled in Mexico and packaged
for shipment not to V.I.P., but directly to its U.S. customer.
You state that V.I.P. would indicate the Mexican origin of these
items to its wholesale customer by either marking the shipping
cartons or informing him directly that the articles are assembled
in Mexico.
ISSUE:
What are the country of origin marking requirements of
swatch cards, swatch book page sets, swatch books and swatch
chips assembled in Mexico in part with U.S. components?
LAW AND ANALYSIS:
I. What is the country of origin of the imported articles?
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304) generally provides that all articles of foreign origin (or
their containers) imported into the U.S. are required to be
legibly, conspicuously and permanently marked to indicate the
country of origin to an ultimate purchaser in the U.S. For
purposes of this statute, "country of origin" means the country
of manufacture, product 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 this part.
Products of the U.S. are not subject to these marking
requirements. In general, since 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, a U.S. product sent to another country for minor
processing or mere assembly operations not amounting to a
substantial transformation, remains a product of the U.S. and is
not required to be marked upon its return. An exception to this
is set forth in {10.22, Customs Regulations (19 CFR 10.22), which
provides that articles assembled in whole or in part from U.S.
components which are entitled to entry under subheading
9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS), are considered products of the country of assembly for
purposes of 19 U.S.C. 1304, whether or not the assembly
constitutes a substantial transformation.
Regarding the assembly of some of the merchandise with U.S.
components, HTSUS subheading 9802.00.80 provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of fab-
ricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form,
shape, or otherwise, and (c) have not been advanced in
value or improved in condition abroad except by being
assembled and except by operations incidental to the
assembly process such as cleaning, lubricating, and
painting.
All three requirements of HTSUS subheading 9802.00.80 must
be satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full value of the imported assembled article, less the
cost or value of the U.S. components assembled therein, provided
there has been compliance with the documentation requirements of
section 10.24, Customs Regulations (19 CFR 10.24).
Assembly operations for purposes of HTSUS subheading
9802.00.80 are interpreted at section 10.16(a), Customs
Regulations (19 CFR 10.16(a)), which specifically enumerates
gluing operations or the use of fasteners as acceptable means of
assembly. In HQ 708700 (April 27, 1978) photo album covers were
not substantially transformed when used with sheets, screw posts
and "fly" sheets to form the finished album. In HQ 728269 (July
29, 1985), Customs held that operations performed on greeting
cards, such as pressing out, folding and gluing, were minor and
did not constitute a substantial transformation. Customs also
has determined that while such assembly operations performed in
another country do not substantially transform the greeting cards
into products of that country, if the cards are entitled to entry
into the U.S. under subheading 9802.00.80, HTSUS, then 19 CFR
10.22 requires that they be considered products of the country of
assembly and marked accordingly. See HQ 729758 (February 22,
1988). In HQ 555213 (February 21, 1990), Customs held that the
gluing together in Mexico of printed U.S. paper products to form
greeting cards was an advancement in value for purposes of
subheading 9802.00.80 HTSUS.
Section 10.16(b), Customs Regulations (19 CFR 10.16(b)),
provides that assembly operations may be preceded, accompanied,
or followed by operations incidental to the assembly.
Operations incidental to the assembly process are not
considered further fabrication, as they are of a minor nature and
cannot always be provided for in advance of the assembly
operation. In C.S.D. 81-52, 14 Cust.Bul. 844, Customs concluded
that foreign hole-punching operations that were not substantial
and merely incidental and in connection with the assembly of a
cable televisionn converter did not preclude the application of
item 807.00, Tariff Schedule of the United States (TSUS), the
precursor section to subheading 9802.00.80, HTSUS.
Consequently, in this case we find that while the gluing,
assembly and packing performed in Mexico does not substantially
transform the swatch chips, swatch cards and swatch book page
sets, the U.S. printed material and fabric of whatever origin,
will be advanced in value in Mexico by the foreign assembly
process, are eligible for a partial duty exemption under
subheading 9802.00.80, HTSUS and will be considered to be
products of Mexico pursuant to 19 CFR 10.22, and they must be
marked accordingly. If they are made entirely of American-made
material, the U.S. origin of the material may be disclosed by
using: "Assembled in Mexico from material of U.S. origin," or
some similar phrase; however, if not entirely of U.S. material,
and the origin of the U.S. components is disclosed, then the
origin of all components must be disclosed.
II. Do the imported articles qualify for any exceptions from
marking?
As provided in 19 U.S.C. 1304(a)(3)(D), implemented in 19
CFR 134.32(d), articles for which the marking of the container
will reasonably indicate the origin of the articles are excepted
from marking. As provided in 19 U.S.C. 1304(a)(3)(H), implement-
ed in 19 CFR 134.32(h), an article is excepted from marking where
the ultimate purchaser, by reason of the circumstances of the
importation, must necessarily know the country of origin of such
article even though it is not marked to indicate its country of
origin. The applicability of either exception depends upon the
identity of the ultimate purchaser. Section 134.1(d), Customs
Regulations (19 CFR 134.1(d)), defines the ultimate purchaser as
generally the last person in the U.S. who will receive the
article in the form in which it was imported. Clearly, V.I.P. is
not the ultimate purchaser of the imported articles. As
indicated in your submission, the imported articles are sent
directly to the wholesale customer, who purchases them for its
own use to sell its fabric. The imported samples are not, in
fact, received by V.I.P. The issue remains, however, whether the
last person to "receive" the imported samples is the wholesaler
that purchases them for use in selling its products, or the
fabric showrooms to which the imported articles are given to
facilitate sales of the wholesaler's fabrics, or the retail
customers that view the imported articles.
In Legal Determination 79-0382 (HQ 710493, July 17, 1979),
Customs stated that the ultimate purchaser is not necessarily the
ultimate user or consumer. In that case, dinnerware was imported
for sale by the importer to a company that resold it to an
airline company for its use in serving in-flight meals. The
airline company received the dinnerware in the original, unopened
and properly marked bulk containers. Customs found that the
airline passengers would not keep the dinnerware, but would
return it to the airline company after usage. The ultimate
purchaser was the airline company, not the airline passengers,
and the dinnerware, shipped to and received by the ultimate
purchaser in its original, unopened and properly marked
containers was excepted from marking as provided in 19 U.S.C.
1304(a)(3)(D).
In HQ 732082, March 14, 1989, Customs determined that the
ultimate purchaser of imported samples was the importer who used
them to solicit orders of foreign merchandise from prospective
customers, not the prospective customers. In that case, the
imported samples were neither sold, distributed, nor given away
by the importer. Customs reasoned that since prospective
customers would be expected to return the samples after examining
them, the prospective customers did not "receive" the imported
article within the meaning of 19 CFR 134.1, and could not
properly be considered the ultimate purchaser.
We find in this case that the prospective customer who views
the imported sample swatch books and chips does not "receive"
them and is not the ultimate purchaser. As in HQ 710493 and HQ
732082, the showroom customer is expected to return the swatch
books and chips after selecting a fabric or fabrics represented
by the samples. The only remaining question is whether the
ultimate purchaser is the wholesale purchaser of the imported
articles, or the showroom that displays the imported samples to
prospective purchasers.
In Pabrini, Inc. v. United States, 10 CIT 128 (1986), the
question before the court was whether by paying admission to a
racetrack, the racetrack patrons obtained imported umbrellas by
paying money or its equivalent in order to receive the articles.
The court stated that the ultimate purchaser is the last person
to pay consideration for the imported article, and found that by
purchasing a ticket, the patrons paid consideration for two
promises: admission and the receipt of an umbrella to take away
as their own (cf. 19 CFR 134.1(d)(4): "If the imported article is
distributed as a gift, the recipient of the gift is the ultimate
purchaser"). Applying the foregoing principle to the facts in
this case, we find that the last person in the U.S. who will pay
consideration for the samples is the wholesaler, and not the
showroom that obtains the samples at no cost and for no purpose
other than merely to facilitate sales of the wholesaler's
fabrics. We also note that the showroom is clearly not the
recipient of a gift within the meaning of 19 CFR 134.1(d)(4),
even though it receives the subject articles free of charge.
Therefore, we find that the wholesaler is the ultimate
purchaser of the imported articles, and that the articles may be
excepted from marking under 19 U.S.C. 1304(a)(3)(D). Based upon
your statement that the bulk containers in which the articles are
imported will be clearly marked to indicate the country of origin
of the imported articles and that the articles will be shipped
directly to the wholesale customer, the marking of the container
will reasonably indicate the country of origin to the ultimate
purchaser.
The exception provided in 19 U.S.C. 1304(a)(3)(H) does not
apply. Customs has approved such exceptions only in situations
where there is direct contact between the ultimate purchaser and
the manufacturer. For example, in C.S.D. 80-114, (HQ 711081,
September 26, 1979), Customs found that where the ultimate
purchaser was the importer that owned an interest in the company
from which it imported the articles, and ordered the articles
directly from that company, the exception under 19 U.S.C.
1304(a)(3)(H) applied. In HQ 733096, February 8, 1990, Customs
applied this exception where the ultimate purchaser was the
importer and also the parent corporation of its wholly owned
subsidiary, from which the parent corporation ordered the foreign
articles.
In this case, although V.I.P. has direct dealings with the
foreign manufacturer and necessarily knows the country of origin
of the imported samples by reason of the circumstances of their
importation, V.I.P. is not the ultimate purchaser. Since the
wholesale customer, who is the ultimate purchaser, has no direct
dealings with the foreign manufacturer, the exception does not
apply. The fact that V.I.P. has a close and direct customer
relationship with the wholesaler and will inform him in advance
that these articles will be assembled in Mexico is insufficient
to qualify for an exception under 19 U.S.C. 1304(a)(3)(H).
As provided in 19 CFR 11.12b(a), textile fiber products
imported into the U.S. shall be labeled or marked in accordance
with the Textile Fiber Products Identification Act (15 U.S.C.
70-70k), and the rules and regulations promulgated thereunder by
the Federal Trade Commission (FTC), unless exempt from marking or
labeling under 15 U.S.C. 70j. Customs recommends that you
contact the FTC regarding this matter.
HOLDING:
U.S. printed materials and fabric of foreign or domestic
origin which is imported after having been assembled in Mexico
into swatch cards, swatch book page sets, complete swatch books
and swatch chips are not substantially transformed but qualify
for partial duty exemption under subheading 9802.00.80, HTSUS.
The country of origin of such textile articles is Mexico,
pursuant to 19 CFR 10.22. If the textile fabric books assembled
therefrom are made entirely of American-made components, the U.S.
origin of the components may be disclosed by using "Assembled in
Mexico from material of U.S. origin," or some similar phrase;
however, if not entirely of U.S. material, and the origin of the
U.S. components is disclosed, then the origin of all components
must be disclosed.
The ultimate purchaser of the imported articles is the
wholesale customer who will use them as samples to be shown to
retail customers to solicit sales of fabric represented by the
articles. The articles may be excepted from country of origin
marking pursuant to 19 CFR 134.32(d), and only the outside
container must be marked, provided that Customs officials at the
port of entry are satisfied that the imported articles will be
used only in the manner described above and that wholesale
customer will receive them in their original unopened cartons
that are marked to indicate the country of origin of the textile
articles contained therein.
Sincerely,
Marvin M. Amernick, Chief
Value, Special Programs and
Admissibility Branch