CO:R:C:V 733931 NL
Richard S. Hoffman, Esq.
Morgan, Lewis & Bockius
1800 M Street, N.W.,
Washington, D.C. 20036
RE: Country of Origin - Audio Cassettes with Magnetic Tape;
Substantial Transformation; 19 CFR 134.35; Preparing Tape
into "Pancakes"; Assembly with Case.
Dear Mr. Hoffman:
This is in response to your submission of November 9, 1990,
in which you request a ruling concerning the country of origin of
certain magnetic tape and audio cassettes which are subjected to
final assembly in the U.S.
FACTS:
Your client, [----------------------------], imports jumbo
rolls of magnetic tape into the U.S. To prepare the tape for use
in audio cassettes the jumbo rolls are subjected to editing
(cutting to length, adding leader/trailer tape; and recombining
into jumbo rolls) and slitting (cutting each jumbo roll
lengthwise into "pancakes of much smaller width).
The cassette cases are assembled by machine in the U.S.
using U.S. and foreign components. The case and shell are
produced in the U.S. by injection molding. Other parts,
including hubs, guide rollers and felt pads are sourced both in
the U.S. and abroad, depending upon the audio cassette model
being assembled. According to your submission, the material cost
of the U.S.-origin components is not less than [--] percent and
as much as [--] percent of the total material cost. The cost of
U.S. production including labor, materials, and direct and
indirect expenses ranges from [--] percent to [--] percent of the
total costs of manufacture, depending on the model. During
assembly the "pancake" is cut into segments, wound onto the hubs,
and enclosed in the shell and case.
It is your position that the imported components undergo
substantial transformation during production of the completed
audio cassettes such that there is no requirement for the
components or audio cassettes to be marked as to their country of
origin.
ISSUE:
Are the imported components subjected to substantial
transformation such that no country of origin marking
requirements are applicable to the completed audio cassettes?
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
location 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.
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. Under the Regulations the country of origin of an
article is the country in which it was manufactured, produced, or
grown, unless thereafter the article is subjected to processing
which results in a substantial transformation. 19 CFR 134.1(b).
A substantial transformation is said to occur when, within the
principle of the case of United States v. Gibson-Thomsen Co.
Inc., 227 C.C.P.A. 267 (C.A.D. 98)(1940), an article is processed
such that it acquires a new name, character, or use. The
manufacturer who substantially transforms an imported article is
considered its ultimate purchaser, and the article is excepted
from country of origin marking. 19 CFR 134.35.
Turning first to the cassette shells, Customs has previously
ruled, as you note in your submission, that the assembly of
cassette shells from numerous components causes them to lose
their separate identities as foreign articles, and they become
substantially transformed into cassette tapes. HRL 723672
(1983)(Assembly in China of cassette shells from 18 Hong Kong
origin components held to be substantial transformation.) It is
our opinion that your client's U.S. processing of U.S. and
foreign-origin components to produce cassette shells is subject
to the same rationale. Accordingly, we find that the cassette
shells are substantially transformed by processing in the U.S.,
and pursuant to 19 CFR 134.35 the finished cassette shells are
excepted from country of origin marking.
As a separate basis for finding the shells to be
substantially transformed, it is noted that in HRL 709123 (June
14, 1978) and HRL 709801 (May 2, 1979), Customs ruled that a
substantial transformation of cassette shells is effected when
they are wound with magnetic tape. These rulings follow the
principle of Grafton Spools, Ltd. v. United States, 45 Cust. Ct.
16, C.D. 2190 (1960)(empty spools excepted from marking on the
basis of substantial transformation when wound with inked
ribbon). See, HQ 731837 (August 17, 1983)(processors who
purchase empty cassette shells and load them with blank or
prerecorded tape are the ultimate purchasers of the shells).
With respect to the bulk tape in jumbo rolls, Customs has
held that cutting and trimming bulk tape into "pancakes", and
winding segments of the pancake onto the hub of a cassette is a
process which effects a substantial transformation of the bulk
tape. It was determined that the tape when wound on hubs became
a distinct commercially sold article known as "pancake". The
ruling reversed an earlier determination which had considered
only the cutting operations, and not the winding on the hub. HRL
063646 (June 16, 1980). Accord, HRL 061909 (June 30,
1980)(polyester web [tape] which is sliced into preleadered
"pancakes" and wound onto cassettes is substantially
transformed.) The processing done by your client is
indistinguishable for tariff purposes from the processing
previously found by Customs to effect substantial
transformation. Accordingly, it is our opinion that the jumbo
rolls of tape imported by your client are substantially
transformed, and that no country of origin marking requirements
are applicable after processing in the U.S.
Two recent rulings concerning bulk photographic film
indicate a different conclusion; we take this opportunity to note
the reasons for the different outcomes. In HQ 732842 (February
23, 1990), Customs held that bulk color print photograhic film,
when cut to width and length and inserted into cassettes is not
substantially transformed. In HQ 733106 (March 19, 1990) Customs
reached the same conclusion with regard to 35 mm film which was
cut and placed in metal cassettes. The first difference is that
the processing of the bulk magnetic tape is more extensive than
the film, extending beyond mere cutting to width and length to
include adding leaders and rewinding the tape into the jumbo
rolls prior to slitting. Second, it is our opinion that magnetic
tape cassette is a separate article from the tape, both of which
lose their separate identities when they are processed in the
manner set forth above and combined, whereas the cassette holding
the film is merely a container which does not effect a
substantial transformation of the film. Unlike the audio
cassette, which is intended for extended, multiple use, the film
cassette is a disposable container which serves to hold the film
only until it is exposed. The film does not lose its separate
identity when combined with the cassette shell. Finally, we note
that the magnetic tape cassette is a significantly more complex
article with higher performance requirements for multiple use
which stands alone as a separate article and as more than a mere
container. In sum, it is our opinion that whereas loading of
bulk 35mm film into a film cassette does not effect a substantial
transformation, the marrying of magnetic tape with a cassette
shell creates a new article - an audio tape cassette.
Combining these findings, it is clear that the ultimate
purchaser of the bulk tape and the parts for the cassette shells
is the processor who combines them into finished audio tape
cassettes. To the extent that any foreign origin parts are
included, the foreign origin is lost by the creation of a new
article in the U.S. So long as the imported articles are marked
in a manner to indicate the country of origin to the ultimate
purchaser, the requirements of 19 U.S.C. 1304 are satisfied.
Thus, as to the completed cassettes filled with tape, there is
no requirement that they be marked with a foreign country of
origin.
HOLDING:
The jumbo tape and foreign cassette parts are substantially
transformed by processing in the U.S., and the finished cassettes
are not required under 19 U.S.C. 1304 to be marked to indicate
the country of origin.
Sincerely,
John Durant
Director, Commercial
Rulings Division