MAR-2-05 CO:R:C:V 732844 NL
Dr. Lewis B. Udis, Chairman
United Instrument Corporation
P.O. Box 20924
Philadelphia, PA 19141-0855
RE: Country of Origin Marking of Surgical Instruments
Dear Dr. Udis:
This is in response to your letter of September 18, 1989,
and subsequent correspondence in which you seek a ruling
concerning the country of origin marking of surgical instruments
to be sold by United Instrument and its Alan Scott Division to
the U.S. government and other entities. Specifically, you ask
whether the marking "United Instrument U.S. Forged Stainless
Steel" is acceptable in light of the fact that the instruments
are to undergo processing and assembly in Pakistan.
FACTS:
United Instrument plans to import surgical instruments from
Pakistan. The instruments will be machined, finished and
assembled in Pakistan from stainless steel forged instrument
blanks produced in the U.S. by Schilling Forge. The blanks are
rough forgings consisting of the unassembled halves of pairs of
forceps. From examination of the submitted samples it is evident
that in Pakistan they are machined, cut, curved, riveted,
assembled and polished. The articles as imported from Pakistan
are substantially finished products which, as you state, require
only testing for conformity with FDA, ASTM and federal government
specifications, passivization (anticorrosion treatment) and
packing to be marketable.
The objective of United Instrument is to arrange for the
production of surgical instruments which satisfy the requirements
of the Preference for Domestic Specialty Metals of the Department
of Defense Acquisition Regulations (48 CFR 252.225-7012). That
provision requires a contractor to certify that specialty metals
furnished to the federal government were melted in the U.S., its
possessions or Puerto Rico. Accordingly, United Instrument
proposes to mark each article with the legend, "United Instrument
U.S. Forged Stainless Steel."
Samples were submitted of three instruments to demonstrate
their condition as blanks produced by Schilling Forge and as
finished and assembled articles as imported from Pakistan. Cost
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data also was submitted indicating that the F.O.B. prices of the
instrument blanks from Schilling Forge range from $1.09 to $2.50,
while the F.O.B. prices from Pakistan range from $1.60 to $3.35.
United Instrument's costs in the U.S. for final testing and
preparation for the three sample instruments are between $1.50
and $2.00.
ISSUES:
For country of origin marking purposes, does the machining,
finishing and assembly in Pakistan substantially transform the
U.S. forgings into products of Pakistan?
How may the U.S. origin of the forgings be indicated?
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 manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article.
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)), provides that "country of origin" means 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". The term "foreign origin" is defined in section
134.1(c), Customs Regulations (19 CFR 134.1(c)), as a country of
origin other than the U.S.
As provided in section 134.32(m), Customs Regulations (19
CFR 134.32(m), products of the U.S. exported and returned are
specifically excepted from country of origin marking
requirements. 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 into an article of foreign
origin. This exception from country of origin marking does not
apply to articles assembled abroad in whole or in part from U.S.-
made components and eligible for entry under subheading
9802.00.80 of the Harmonized Tariff Schedule of the United
States. See section 10.22, Customs Regulations (19 C.F.R.
10.22). They 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.
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If the U.S. product is substantially transformed abroad, it
becomes an article of foreign origin and must be marked with its
country of origin. In order for a substantial transformation to
be found, a new and different article having a distinctive name,
character, or use must emerge from the processing. See,
Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556
(1908).
In several previous rulings Customs has considered the
circumstances under which the processing of forged blanks into
finished or semifinished surgical instruments is a substantial
transformation. In HRL 055703 (September 24, 1979), we ruled
that German forgings sent to Malaysia for milling and machining,
including widening the holes for joining matching pieces,
machining small ridges for locking or gripping, and machining to
define the edges and surfaces, substantially transformed the
forgings into surgical instruments whose country of origin was
Malaysia. In C.S.D. 80-15 (June 25, 1979), we determined that
machining in the U.S. of United Kingdom forged blanks
substantially transformed them into products of the U.S. In
that same ruling we found that the subsequent finishing,
polishing, assembly and passivization (anticorrosive treatment)
of the instruments in Pakistan did not substantially transform
them into products of Pakistan. In HRL 553197 (February 11,
1985), we determined that machining of forged blanks in the U.S.,
consisting of deburring, milling, assembly and riveting,
constituted a substantial transformation. Correspondingly, we
found that the subsequent rough polishing, hand shaping and
curving, heat treatment and final polishing of the instruments in
Pakistan was not a substantial transformation. It was our
opinion that all the key machining operations were performed in
the U.S. and the articles imported from Pakistan were eligible
for treatment as articles of the U.S. returned after further
processing.
Guidance is also offered by a recent ruling on rough
forgings imported into the U.S. for processing into parts of a
socket set. HQ 731572 (C.S.D. 89-121)(July 25, 1989). The
processing consisted of lathing, drilling, centerless grinding,
marking, heat treatment, hardness and torque testing, sand
blasting, tumbling, chemical vibration, acid dipping, plating,
painting and quality control. We distinguished the machining
operations of lathing, drilling, and grinding to achieve a
specified diameter and wall thickness from the other more
cosmetic or minor processing operations on the basis that the
former change the forgings to sockets and enable the products to
be used as tools. This significant amount of machining was
needed before the finishing operations could be accomplished.
The ruling followed the rationale of Midwood Industries v. United
States, 64 Cust. Ct. 449, C.D. 4026, 313 F.Supp. 951(1970), in
which a finding of substantial transformation was based on the
numerous machining operations performed in the U.S. on forgings
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which imparted the essential characteristics enabling them to be
used as fittings and flanges. Under Midwood the transition from
"producers' goods" to "consumers' goods" is recognized as a
change in the utility of the product and is indicative of a
substantial transformation.
On the basis of these precedents and upon examination of the
sample instruments submitted, it is our conclusion that the
processing of the U.S.-made forgings in Pakistan into surgical
instruments substantially transforms them into products of that
country. While the U.S.-made forgings resemble the size and
shape of the finished articles, they are not yet machined to
their actual dimensions and and lack essential characteristics
such as the capacities to grip, close, lock in place and be
adjusted. Without the machining, bending, cutting, riveting,
assembly and polishing the articles cannot be used as surgical
instruments and do not have the characteristics thereof. The
final quality control, inspection and processing operations
conducted in the U.S. do not substantially transform the
Pakistan-made products into U.S.-made articles, but are minor
finishing processes.
As articles produced in Pakistan, the instruments must be
marked with their country of origin, in accordance with 19
U.S.C. 1304 and 19 CFR Part 134.
Since United Instrument wishes to indicate the U.S. origin
of the forgings on the instruments, the requirements of section
134.46, Customs Regulations (19 CFR 134.46), are applicable.
That section provides that in any case in which the words "U.S.,"
or "American," or the letters "U.S.A.," appear on an imported
article or its container, the name of the article's country of
origin must appear in close proximity, in lettering of at least
comparable size, preceded by "Made in," "Product of," or other
words of similar meaning. The purpose of 19 CFR 134.46 is to
avoid misleading or possible deception of the ultimate purchaser
in the U.S.
In this case, you propose to mark the instruments "United
Instrument U.S. Forged Stainless Steel." To accomplish the
purposes of 19 CFR 134.46 and of 19 U.S.C. 1304 generally, it is
necessary that the ultimate purchaser be given an unambiguous
marking which plainly discloses that the instruments are
manufactured in Pakistan. To that end, we would approve
markings such as "Made in Pakistan of U.S. Forged Stainless Steel
for United Instrument", or "Made in Pakistan by United Instrument
of U.S. Forged Stainless Steel". Other markings may also be
acceptable, provided that they are equally plain and clearly
indicate that the instruments are made in Pakistan. The marking
must be located in close proximity to the reference to the U.S.
and in lettering of comparable size.
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HOLDING:
1) The processing in Pakistan of the U.S.-origin forged blanks
into surgical instruments is a substantial transformation of the
blanks into products of Pakistan which must be marked, for
purposes of 19 U.S.C. 1304, as originating in that country.
2) Indicating that the forging is of U.S. origin is acceptable,
provided that the requirements of 19 CFR 134.46 are satisfied.
Sincerely,
Marvin M. Amernick
Chief, Value, Special Programs
and Admissibility Branch