MAR-2-05 CO:R:C:V 734246 AT
Mr. Anthony Kania
Test-Rite Products Corporation
2 Daniel Road East
Fairfield, New Jersey 07004
RE: Country of origin of imported semi-finished tools;
substantial transformation; 19 CFR 134.35; U.S. v.
Gibson-Thomsen Company, Inc.; Midwood Industries v.
United States; T.D. 74-12(3); HQ 711320; HQ 717662;
HQ 721462; HQ 723857; HQ 731572
Dear Mr. Kania:
This is in response to your letter dated February 20, 1991,
forwarded by the National Import Specialist (New York Seaport) by
memorandum and received by our office on July 2, 1991, requesting
a prospective and binding country of origin ruling regarding
marking requirements applicable to certain imported semi-finished
hand tools (claw hammers, wrenches, and pliers). Charts,
estimated cost breakdowns, and numerous photographs depicting the
various intermediate steps required to produce each of these
tools has also been submitted with your letter. We also note
that although you have requested Customs to specify the specific
processes that are needed to be performed in the U.S. to
constitute a substantial transformation this ruling will only
address the specific transactions proposed and no other
situations.
FACTS:
You state that you intend to import semi-finished tools
(claw hammers, wrenches and pliers) manufactured in Taiwan and
further process them into finished tools.
With respect to the semi-finished claw hammers, you indicate
that the hammer heads will be imported entirely as finished
articles in that all the manufacturing processing and machining
operations are performed in Taiwan. After the finished hammer
heads are imported you intend to attach them in the U.S. to
hickory wooden handles which are entirely manufactured in the
U.S. You also state that the additional costs incurred in the
U.S. to perform the hammer head and hickory handle assembly
exceeds the foreign cost to make the finished hammer head.
In regards to the processing of the semi-finished wrenches
(open end, combination) in the U.S., you claim that the following
operations are performed in Taiwan: (1) forging, (2) trimming,
and (3) broaching. After importation, the following operations
will be performed to these semi-finished wrenches in the U.S.
producing the finished tool: (1) stamping/marking, (2) heat
treatment, (3) sand blasting, (4) polishing, (5) plating, and (6)
packaging. In the case of the semi-finished adjustable wrench
the following additional operations are performed in Taiwan:
(1) annealing, (2) grinding handle, (3) punching square hole, (4)
pressing the head, (5) punching handle hole, (6) reaming and
beveling, (7) tapping set screw, and (8) machining fixed jaw,
slot, slide face, grip face and worm gear. Also, the following
additional steps are performed in the U.S. to produce the
finished tool: (1) alignment/reaming, (2) machining slide (3)
deburring, (4) body and jaw assembly, (5) grinding surface, and
(6) assembling worm, spring and pin. Further, with respect to
all three wrenches you claim that the additional costs incurred
as a result of the processing performed in the U.S. exceeds the
foreign cost to produce the semi-finished wrenches in Taiwan.
Finally, concerning the semi-finished pliers (7" linesman,
6" long nose, and 6" diagonal pliers) you state that the
following processing operations will take place in Taiwan to
produce the semi-finished tools: (1) forging, (2) trimming, (3)
annealing and stamping (4) sand blasting, (5) pressing, (6)
riveting hole drilled, (7) machining teeth, joint face and
cutting face, (8) grinding face, and (9) alignment. Then you
intend to further process these semi-finished pliers into
finished pliers by performing the following operations: (1) heat
treatment, (2) adjustable joint, (3) induction harden edge, (4)
polishing, (5) ultrasonic cleaning, (6) laser marking, (7)
lacquer finishing, (8) PVC handle coating, and (9) packaging.
Again, you claim that the additional costs incurred from the
processing performed in the U.S. exceeds the foreign cost to
produce the semi-finished pliers in Taiwan.
ISSUE:
Whether the above-described processing operations performed
in the U.S. substantially transform the imported semi-finished
tools so that they are excepted from individual country of origin
marking requirements.
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. Friedlander & 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 transform-
ation in order to render such other country the "country of
origin" within the meaning of the marking laws and regulations.
The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267
(C.A.D. 98) (1940), provides that an article used in manufacture
which results in an article having a name, character or use
differing from that of the constituent article will be considered
substantially transformed. In such circumstances the U.S.
manufacturer is the ultimate purchaser. The imported article is
excepted from individual marking and only the outermost container
is required to be marked. See 19 CFR 134.35.
In Midwood Industries v. United States, 64 Cust. Ct. 499,
C.D. 4026, 313 F.Supp. 951 (1970), the Customs Court considered
the effect of U.S. processing on the country of origin marking
requirements of imported steel forgings. Although the edges of
the forgings were legibly and conspicuously marked with the
country of origin at the time of importation, the mark was
obliterated or destroyed during the course of the domestic
processing. The processes involved in finishing the imported
articles included cutting, boring, facing, spotfacing, drilling,
tapering, threading, bevelling, heating and compressing. The
court found that the marking was sufficient because the
processing substantially transformed the imported forgings into
fittings and flanges. As such, the court found that the U.S.
processor was the ultimate purchaser of the imported merchandise
and that the removal of the marking during processing was
acceptable.
Although the court based its decision in part on the fact
that the processing changed a producer's forging to a consumer's
flange, the decision makes clear that numerous machining
operations were performed in the U.S. which imparted essential
characteristics to the forgings that enabled then to be used as
fittings and flanges. For example, there was testimony that the
rough forgings have no connecting ends and therefore, cannot be
used to connect pipes of matching size, the essential purpose of
fittings.
Customs has previously ruled on the amount and kind of
further processing which would substantially transform a socket
blank. In T.D. 74-12(3), November 1, 1973, Customs determined
that the processing of fully machined components of socket wrench
sets by heat treating, grinding, vibrating, polishing to remove
scale or blemishes resulting from the heat treatment, plating,
assembly, inspection and identification marking, does not result
in a substantial transformation of the imported components within
the meaning of 19 CFR 134.35.
This decision was affirmed in a subsequent Headquarters
Ruling Letter (HQ 711320, March 6, 1981). In that case, socket
blanks from Japan were to be processed in the U.S. in the
following manner: removal of minor imperfection from the imported
socket blanks by a grinding or wrenching process, die-stamping
the blanks with an appropriate logo, a multi-step heat treatment,
vibratory roto-finishing, chrome plating, and further assembly
and packing. Customs determined that none of these processes
substantially transformed the imported articles.
The underlying rationale for these determinations is that
the domestic processing operations are minor finishing operations
which do not change the name, character or use of the article.
In HQ 721462 (March 17, 1981), Customs applied this rationale and
ruled that imported ratchet sets subjected to the various minor
finishing operations of the kind described in T.D. 74-12(3) are
not substantially transformed, and therefore are required to be
individually marked with the country of origin. However, in HQ
717662 (October 25, 1991) Customs ruled that the processing
performed in HQ 711320 would constitute a substantial
transformation if coupled with substantial machining operations
(e.g. machining the drive end or the wrench end, drilling hole
for pin in drive end, drilling ball and spring hole). See also
HQ 731572, July 25, 1989 (forgings imported from Taiwan for
manufacture into sockets, socket wrench extensions and adapters
and further processed in the U.S. through various operations
including lathing, drilling, and centerless grinding, were
substantially transformed and excepted from country of origin
marking).
In this case, we find that with respect to the semi-finished
wrenches and pliers no substantial transformation occurs in the
U.S. The processing operations, described above, performed to
both the semi-finished wrenches and pliers do not change the
name, character, or use of the semi-finished tools and can only
be considered as finishing operations, as in HQ 711320.
Examination of the submitted picture diagrams indicate that as
imported the semi-finished wrenches and pliers look like the
finished articles, and have the essential characteristics of the
finished article. Despite the fact that the imported tools are
not yet finished, virtually all the machining is done in Taiwan
and the articles have advanced well beyond the stage of being
mere forgings. Also, although you state that the additional
costs incurred in the U.S. to further process both the semi-
finished wrenches and pliers exceeds the foreign costs, this fact
is not determinative. We conclude that the processing to be
performed in the U.S. does not change the name, character or use
of the imported tools and is not a substantial transformation.
Furthermore, with respect to the semi-finished claw hammers,
we note that Customs has previously ruled that the assembly
operation involved in attaching a finished hammer head to a
domestic wooden handle does not constitute a substantial
transformation of the finished tool. In HQ 723857 (December 1,
1988), Customs ruled that finished hammer heads imported from
Brazil to be assembled to domestic wooden handles in the U.S. did
not constitute a substantial transformation and required the
article to be individually marked with the country of origin.
Customs stated that the single most costly item in producing the
finished hammer was the cost of the imported forged steel hammer
head.
Similarly, in this case, the submitted evidence indicates
that the hammer heads are imported as finished hammer heads in
that all processing operations and machining are performed in
Taiwan. The processing of attaching the imported finished hammer
heads to domestic wooden hickory handles only constitutes a minor
change to the finished tool and the attachment of the wooden
handle does not determine the essential character of the finished
claw hammer. As imported, the hammer heads have the appearance
of a finished hammer head and the processing of attaching a
hickory wooden handle to the hammer head is nothing more than a
finishing process, which although important, does not alter its
basic character of that of a finished hammer head. This type of
processing must be considered minor. Based on these
considerations, we conclude that attaching a hickory wooden
handle to a imported finished claw hammer head in the U.S., is
not a substantial transformation, and in accordance with 19 CFR
134.35, you would not be considered the ultimate purchaser of
the hammer heads.
HOLDING:
For purposes of 19 U.S.C. 1304, the processing of imported
semi-finished tools (claw hammers, wrenches and pliers) in the
U.S. in the manner set forth above does not constitute a
substantial transformation and you, the U.S. importer/
manufacturer, cannot be considered the ultimate purchaser of the
unfinished tools. Accordingly, the imported semi-finished tools
are not excepted from country of origin marking and must be
individually marked with the country of origin to reflect
"Taiwan" as the country of origin.
Sincerely,
John Durant, Director
Commercial Rulings Division