MAR-2-05 CO:R:C:V 734172 AT
District Director of Customs
101 East Main Street
Norfolk, Virginia 23510
RE: Internal Advice request concerning the country of origin
marking requirements for "TRAC" and "XAGA" cable insulation
kits; substantial transformation; 19 CFR 134.35
Dear Sir:
This is in response to your memorandum dated March 19, 1991,
forwarding the February 1, 1991, internal advice request of
counsel on behalf of Raychem Corporation (Raychem), on the
country of origin marking requirements for certain Raychem "TRAC"
and "XAGA" cable insulation kits. Samples of the "TRAC" and
"XAGA" cable insulation kits and a copy of Raychem's practice and
installation instructions for each kit were submitted for review.
A conference was held at Customs Headquarters on August 1, 1991,
with counsel for Raychem and members of my staff. On August 21,
1991, supplemental information was submitted by counsel for
Raychem. By letter dated May 8, 1992, Raychem through counsel,
requested that certain information in the ruling be given
confidential treatment. The confidential information is
bracketed and will not be disclosed in copies of this ruling made
available to the public.
With respect to the TRAC kits, counsel, by letter dated
September 24, 1991, informed Customs that due to a recent
management decision by Raychem the manufacturing of the end cap
shells (a foreign component) will be moved from Denmark to the
United States, and therefore all TRAC end caps will now be of
U.S. origin. Counsel also stated that while Raychem will still
be importing two sizes of TRAC central bodies (a foreign
component), it is phasing out the use of imported central bodies
and will soon manufacture all TRAC central bodies in the U.S. On
August 7 1992, your office informed Headquarters staff by
telephone that Raychem is no longer importing components for the
TRAC insulation kits, and therefore no internal advice is
necessary with respect to these kits. Accordingly, the issues
raised in this internal advice are limited to the country of
origin marking requirements for the XAGA kits.
FACTS:
Each XAGA kit is manufactured in the U.S. by Raychem and is
comprised of domestic components and specifically designed
foreign components from Denmark, Belgium and Ireland. The kits
are used to create an on-site and environmentally-sealed
enclosure around aerial, surface, or subterranean cable splices,
thus protecting them for the long term against damaging
environmental elements such as water, dirt, wind, rodents, etc.
Raychem sells each kit as a unit for use by telecommunication
companies who regularly make and protect cable splices.
Counsel states that pursuant to a meeting between Mr. Bill
Brannon, Distribution Manager of the Raychem Telecommunications
Division (Raychem Telecom) and Assistant District Director
(Norfolk District) David A. Hostetler, Raychem and Customs agreed
to a certain marking scheme to be used until a final decision has
been made on this request. Specifically, Raychem will mark the
subject kits with the country of origin in the following manner:
Assembled in USA Containing
Components Imported From
Denmark, Belgium or Ireland
The XAGA Kit
The XAGA kits are essentially designed to enclose non-
pressurized polyethylene (insulated air core or filled) surface
and subterranean cables. Each kit contains thirteen groups of
items, three of which (the wrap-around sleeves, metal channels
and branch-off clips) contain imported elements. The remainder
of the kit's contents are of domestic origin and include liners,
sealant strips, abrasive strips and a variety of clips. Counsel
states that the XAGA customer uses the kit as follows: the wrap-
around XAGA sleeve and supporting wrapping components are placed
around the cable splice bundle. The sleeve is fastened
lengthwise at the top by its closure rails, joined by the metal
channel strip. The branch-off clips are used to close the ends
of multiple cable splice bundles. Direct heat of a blow-torch is
then directly applied to the wrap-around sleeve, and the sleeve
material shrinks forming a skin-tight jacket around the cable or
splice package, protecting it from damaging environmental
elements.
Counsel claims that the manufacturing of the XAGA closure
device involves []. Counsel also claims that based on the total
average standard cost per kit as calculated for fiscal year 1990
and for 1991, the further manufacturing and processing (measured
by labor plus overhead at Raychem's plant) of the imported
articles account for the majority of the cost in producing an
XAGA kit. For example in 1990 the manufacturing and processing
of the imported articles accounted for [] percent of the cost of
the entire kit and [] percent for 1991. Based on these
considerations counsel contends that through this manufacturing
process, the imported polyethylene sheet is substantially
transformed by Raychem from a commodity product into specially
designed wrap-around XAGA sleeves, the essential component of the
XAGA kit which is identified to this highly specialized use.
Furthermore, the finished wrap-around sleeve, the metal closure
channel and branch-off clips are then combined in the U.S. with
additional specially-designed domestic components and
installation instructions.
ISSUE:
Whether the imported items are substantially transformed
when they are combined in the U.S. with domestic components in
the manufacture of the XAGA insulation kits in the manner
described above.
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 Court of
International Trade stated in Koru North America v. United
States, 701 F.Supp. 229, 12 CIT 1120 (CIT 1988), that "In
ascertaining what constitutes the country of origin under the
marking statute, a court must look at the sense in which the term
is used in the statute, giving reference to the purpose of the
particular legislation involved. 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 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 134.35, Customs Regulations (19 CFR
134.35), states that the manufacturer or processor in the U.S.
who converts or combines the imported article into a different
article having a new name, character or use will be considered
the ultimate purchaser of the imported article within the
contemplation of 19 U.S.C. 1304 and the article shall be excepted
from marking. The outermost containers of the imported articles
shall be marked. As the issue of whether a substantial
transformation occurs is for marking purposes a question of fact,
it is determined on a case-by-case basis.
Substantial transformation occurs when an article loses its
identity and becomes a new article having a new name, character
or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at
270 (1940), National Juice Products Association v. United States,
10 CIT 48, 628 F.Supp. 978 (CIT 1986).
In Gibson-Thomsen, the court held that imported wood brush
block and toothbrush handles which had bristles inserted into
them in the U.S. lost their identity as such and became new
articles having a new name, character and use. One of the
factors considered by the court in reaching its conclusion was
that the domestic bristles used were "by far the most valuable
element." Also, the court looked at whether the imported article
loses its identity as such when combined with other articles. In
that case, the court concluded that wood handles were material to
be used in the manufacture of toothbrushes and hairbrushes. The
court was also concerned that when an imported article was
combined with a domestic material, that the ultimate purchaser
not be confused into thinking that the domestic article was made
in a foreign country. Therefore, the court concluded that a mere
material to be used in the manufacture of a new article having a
new name, character and use, and which became an integral part of
the new article would not be required to be marked.
In this case, three components: polyethylene sheet, metal
closure channel and branch off clips, of each XAGA kit are
imported into the U.S. to be further processed and combined with
domestic components into the finished insulation kits.
As in Gibson-Thomsen the imported polyethylene sheet is
substantially transformed in the U.S. in that the sheet loses its
identity when further processed and combined with the other
domestic components into the finished article. As imported, the
polyethylene sheet has no specific function other than being a
commodity product. However, after the [] is completed the sheet
is transformed into specifically designed wrap-around XAGA
sleeves which can only be used with the XAGA kit. The finished
product is a sleeve with sealant properties which can be used to
environmentally seal cable splices.
Unlike the polyethylene sheet, the imported metal closure
channels and branch-off clips are completely finished articles
when imported into the U.S. requiring no further processing.
There is no manufacturing or processing of the channels or clips
besides simply placing the articles into a cardboard container
during the repackaging operation. Placing these two components
into a cardboard container a long with other domestic and foreign
articles is a very minor operation which is not complex, requires
no skill and is not time-consuming. Furthermore, once the metal
channels and branch-off clips are combined in the U.S. with other
domestic and foreign counterparts, their name, character, and use
are the same as when imported. Accordingly, the metal channels
and branch-off clips are not substantially transformed when
combined with the other domestic and foreign components into the
finished installation kit and individual marking is required.
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, 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 HQ 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.
Similarly, in this case, applying the common sense approach,
we find that requiring the metal channels and branch-off clips to
be individually marked with the country of origin would not be
consistent with the purpose of section 1304. Like the screws in
HQ 555365, both the metal channels and branch-off clips lose
their separate identities and become an integral part of the
finished insulation kit as a result of their inclusion in the
kit. Also, both components are used to fasten the polyethylene
sheet (as the screws were used to fasten the junction box),
around the cable splice so that once heated the sheet because of
its sealant properties will form a permanent seal around the
splice. In our opinion an ultimate purchaser in the U.S. who is
buying the cable insulation kit is interested in the sealant
properties of the polyethylene sheet and is not concerned about
minor fastening components such as the metal channels and branch-
off clips when making his purchasing decision. Accordingly,
neither the metal channels or the branch-off clips are required
to be individually marked, nor is the packaging of the finished
kit required to be marked to indicate the country of origin of
these components. However, the outermost containers in which the
metal channels and branch-off clips are imported must be marked
with the country of origin.
HOLDING:
The imported polyethylene sheets which are further processed
and combined in the U.S. with other foreign and domestic
components into finished XAGA insulation kits lose their separate
identity and are substantially transformed. Accordingly,
pursuant to 19 CFR 134.35, the individual imported polyethylene
sheets are excepted from country of origin marking and only the
container in which they are packaged must be marked with the
country of origin.
The imported metal channels and branch-off clips are not
required to be marked when included in the XAGA kit. Applying
the common sense approach enumerated above, requiring such
marking would not be consistent with the purpose of section 1304
since both the metal channels and branch-off clips are minor
components and each component becomes an integral part of the
finished insulation kit as a result of their inclusion in the
kit. However, the outermost containers in which the metal
channels and branch-off clips are imported must be marked with
the country of origin.
However, for this marking to be acceptable, you must be
satisfied that the ultimate purchaser (Raychem), will receive the
imported articles in their original unopened properly marked
containers and that the imported articles will be sold only in
the manner described above.
Sincerely,
John Durant, Director