MAR-2-05 CO:R:C:V 734259 GRV
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, NY 10004
RE: Country of origin marking of industrial high density
hydraulic baler housings imported to be assembled with
U.S. electrical and/or hydraulic systems. Ultimate
purchaser; 19 CFR 134.1(d); substantial transformation;
19 CFR 134.35; domestic assembly; T.D. 67-173; C.S.D.
80-111; C.S.D. 85-25; machining operations; C.S.D. 89-
121; C.S.D. 90-53; C.S.D. 90-51; 734097; article
excepted; 19 CFR 134.32(h); C.S.D. 89-103; C.S.D. 80-
144; 19 CFR 134.22(d)(1); container excepted
Dear Mr. Bodek:
This is in response to your letters of June 21, and November
18, 1991, and March 6, 1992, on behalf of Piqua Engineering,
Inc., requesting, inter alia, a country of origin marking ruling
regarding industrial high density hydraulic baler housings from
Mexico imported in one of two conditions to be assembled with
U.S. electrical and/or hydraulic systems. Photographs showing
the domestic operations performed were submitted, as were cost
and skill data associated with these operations.
The other issues raised by your letter(s) were responded to
in Headquarters Ruling Letters (HRLs) 556103 dated October 7,
1991, and 950464 dated October 30, 1991.
FACTS:
Baler housings produced in Mexico are purchased directly by
your client--pursuant to a series of on-going written work
orders, who will then import the housings in one of two stages of
production for further domestic processing operations to make
them high density hydraulic balers. The two production stages
presented are described as (1) a baler housing with a motor
installed, or (2) a baler housing with a motor and an electrical
system installed. As determined in Headquarters Ruling Letter
(HRL) 950464, the imported housings, in either stage of
production, are classifiable as a "part" of packing or wrapping
machinery under subheading 8422.90.90, Harmonized Tariff Schedule
of the United States (HTSUS); a complete/finished industrial high
density hydraulic baler would be classified under HTSUS
subheading 8422.40.90.
In the U.S., a housing will have either (1) an electrical
panel box and a hydraulic system added to it--the first scenario
presented--or (2) just the hydraulic system added to it--the
second scenario presented. In both scenarios the primary means
of assembly/processing will be accomplished by welding
operations. Other operations performed include soldering,
torching and bolting certain U.S. origin components to the
imported balers.
Regarding the assembly of the electrical panel box, it takes
approximately 7 hours to (1) assemble the various U.S. origin
electrical components (e.g., starter, transformer, control
relays, terminal blocks, switches, and wiring) onto an electrical
panel board assembled from sheet metal purchased on the world
market, (2) install the panel board inside a panel box, (3) mount
the panel box onto the outside of the baler housing, (4) install
a platen electrical switch and a bolt wheel lock assembly on the
baler. To accomplish these wiring operations, a team of 9 vari-
ously experienced electricians, but each possessing a minimum of
5 months of specialized training--in accordance with Underwriter
Laboratories (U.L.) specifications and procedures, work on each
of the 75 types of balers. The value of U.S. materials added
approximately doubles the value of the imported article.
Regarding the installation of the hydraulic system, it takes
approximately 7 hours to install the U.S. origin hydraulic cylin-
der, fittings, and hoses into the frame of the baler and install
the hydraulic cylinder to a platen assembly. To accomplish these
various machining and assembly operations, a team of machinists,
millwriters, welders and hydraulic technicians, each possessing
the knowledge and skills--normally requiring 2 months of special-
ized training--necessary to install and troubleshoot the mechani-
cal variances associated with the 75 types of balers that are
made to order. The value of the U.S. materials added are approx-
imately 80% of the value of the imported article. Regarding this
aspect of the domestic processing operations, you stress that the
very nature of a hydraulic baler is defined by the complex
hydraulic system.
Following these assembly/processing operations, it takes
approximately 7 hours for the completed balers to be painted by
a 5-person team composed of metal preparation technicians and
painters and operationally tested by an inspector. The value
added by these finishing operations is not specified.
You contend that the domestic operations under either
scenario substantially transform the imported baler housings,
such that the articles do not have to be marked for country of
origin marking purposes, as the domestic processor is the
ultimate purchaser. In support of this contention you reference
certain judicial decisions and Headquarters Ruling Letters
(HRLs). Further, you state that because the domestic processor
is the ultimate purchaser and necessarily knows the country of
origin of the imported housings by reason of the direct contrac-
tual circumstances of their importation, the container for the
imported articles should not have to be marked to indicate the
country of origin of the imported balers. Regarding this latter
contention, you submitted an affidavit from your client attesting
that its president (1) issues written work orders to the
production facility in Mexico that specify the merchandise to be
produced and the production schedule to be followed, and (2) is
personally acquainted with the personnel and manufacturing
processes performed at the Mexican facility.
ISSUES:
I. Whether the hydraulic baler housings, imported in either
stage of production, are substantially transformed by the
domestic assembly operations, pursuant to 19 U.S.C. 1304 and
19 CFR 134.35.
II. Assuming the article is excepted from country of origin
marking requirements, whether the outermost container of the
imported balers must be marked, pursuant to 19 CFR 134.35,
or is excepted from marking under 19 CFR 134.22(d)(1).
LAW AND ANALYSIS:
The marking statute, 304 of the Tariff Act of 1930, as
amended (19 U.S.C. 1304), provides that, unless excepted, every
article of foreign origin (or its container) 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 pur-
chaser 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.
The primary purpose of the country of origin marking statute
is to "mark the goods so that at the time of purchase the ulti-
mate purchaser may, by knowing where the goods were produced, be
able to buy or refuse to buy them, if such marking should influ-
ence his will." United States v. Friedlaender & Co., 27 CCPA
297, 302, C.A.D. 104 (1940).
The "Ultimate Purchaser" Consideration
The "ultimate purchaser" is defined generally as the last
person in the U.S. who will receive the article in the form in
which it was imported. 19 CFR 134.1(d). If an imported article
will be used in manufacture, the manufacturer may be the "ulti-
mate purchaser" if [s]he subjects the imported article to a
process which results in a substantial transformation of the
article, even though the process may not result in a new or
different article. But, if the manufacturing process is a minor
one which leaves the identity of the imported article intact, the
consumer or user of the article, who obtains the article after
the processing, will be regarded as the "ultimate purchaser." 19
CFR 134.1(d)(1) and (2).
Substantial Transformation and Domestic Assembly Operations
For country of origin marking purposes, a substantial trans-
formation occurs when an imported article is used in the U.S. in
manufacture, which results in an article having a name, charac-
ter, or use differing from that of the imported article. Under
this principle, the manufacturer or processor in the U.S. who
converts or combines the imported article into the different
article will be considered the "ultimate purchaser" of the
imported article, and the article shall be excepted from marking.
However, the outermost containers of the imported articles must
be marked. 19 CFR 134.35. The issue of whether a substantial
transformation occurs is a question of fact determined on a case-
by-case basis.
In determining whether the combining of parts or materials
constitutes a substantial transformation, the issue is the extent
of operations performed and whether the parts lose their identity
and become an integral part of the new article. Belcrest Linens
v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2
Fed.Cir. 105, 741 F.2d 1368 (1984). Assembly operations which
are minimal or simple, as opposed to complex or meaningful, will
generally not result in a substantial transformation. See, T.D.
67-173, and C.S.D.s 80-111, 85-25, 89-110, 89-118, 89-129, 90-51
and 90-97.
In determining whether machining operations effect a
substantial transformation, Customs distinguishes between the
kind and amount of further processing performed; between
machining operations--such as lathing, drilling, and grinding--
performed to achieve a specified form and those performed to
achieve more cosmetic or minor processing operations. C.S.D.s
89-121 and 90-53.
In C.S.D. 90-51, 24 Cust.Bull. ___ (1990), we considered
whether certain valve components (including a housing component),
imported to be assembled with numerous U.S. components to make
certain valve lines, were substantially transformed so as to
make the importer/manufacturer the ultimate purchaser for
purposes of country of origin marking. Finding that the imported
components lost their separate identities in the finished valve
products, we held that the imported components were substantially
transformed by the assembly operation, and excepted the imported
components from individual country of origin marking. However,
the outermost container of the imported components was required
to be marked to indicate the country of origin of the components.
See also, HRL 734097 dated November 25, 1991 (domestic assembly
of U.S. terminal logic board components into video display
terminal housings substantially transformed the imported
housings). Cf., C.S.D. 80-111 (foreign fan components not
substantially transformed by domestic, 20-step, assembly-line
operations, as the identity of the foreign components was not
lost or physically altered, no skilled labor or specialized
equipment was required, and the assembly costs were relatively
low).
However, in HRL 732170 dated January 5, 1990, we considered,
for the third time, under what conditions television chassis/
cabinets where substantially transformed when assembled with
certain components, and distinguished between non-transforming
assembly operations that constituted a mere combining/affixation
of television sets to chassis, referencing HRL 730515 dated June
29, 1987, and transforming assembly operations that required
technical skills and involved a considerable number of component
parts that when assembled resulted in a new and different article
of commerce, referencing HRL 711967 dated March 17, 1980.
In this case, we find that under either scenario presented
the imported baler housings will be substantially transformed by
the domestic assembly/processing operations, as the extent of the
operations performed is substantial--complex, not simple--and the
imported parts lose their identity--are transformed--and become
integral parts of the new baler articles; articles having a name,
character, or use that is different from that of the imported
baler housings "parts." The clearest evidence of the substantial
transformation concerns the change to the character of the
hydraulic balers by the installation of (1) the platen element--a
significant U.S. component that constitutes the actual contact
surface for the production of dense bales, and (2) the hydraulic
system--claimed to constitute the very nature of a hydraulic
baler. Further, a change in use is evident, in that different
types of balers will be processed; individual uses, i.e., capac-
ities, are determined by the tolerance levels established during
the assembly processes. Also, there is a change in name from a
housing unit to an industrial high density hydraulic baler unit.
Thus, in this case, there is a change in all the substantial
transformation criteria.
The Container Marking Exception
Although 134.35 provides that where the domestic processor
is determined to be ultimate purchaser for purposes of country
of origin marking the outermost containers of the imported
articles shall be marked in accord with this part, 134.22(d)(1)
further provides that if the containers of imported articles are
not required to be marked if the imported articles are with the
exceptions set forth in paragraph (f), (g), or (h) in 134.32.
19 CFR 134.32(h) provides that if the circumstances of the
importation or character of the articles is such that the ulti-
mate purchaser must necessarily know the country of origin of the
unmarked articles imported, then the articles imported do not
have to be marked. Pursuant to this article marking exception,
134.22(d)(1) further provides that containers or holders of
articles within the exception set forth at 134.32(h) are not
required to be marked.
Regarding the circumstances of the importation, in C.S.D.
89-103, we stated that an instance where an ultimate purchaser
would necessarily know the country of origin of an article by
reason of the circumstances of its importation would be where the
ultimate purchaser ordered articles manufactured for his/her
account in a named country in circumstances in which the order
could not be filled with articles manufactured elsewhere, and
that Customs must be satisfied that under the terms of the sale,
that the goods will be made in the country named in the invoice.
And in C.S.D. 80-144 we stated that it has been Customs policy
generally to only grant such exceptions when there is a two party
one-step transaction between an importer and his foreign supplier
with the importer also being the ultimate purchaser. See also
HRLs 732609 dated August 30, 1990, and 730243 dated March 5, 1987
(the exception is limited to instances where the importer is the
ultimate purchaser of the items and has direct contact with the
foreign supplier).
The affidavit submitted adequately assures us that the
ultimate purchaser here must necessarily know the country of
origin of the imported baler "parts," because of the direct
contractual relations between the foreign supplier and the
domestic processor.
HOLDING:
The hydraulic baler housings imported, either with or
without an electrical system installed, are substantially
transformed by the domestic machining and assembly operations
performed in installing a hydraulic system. Accordingly, the
domestic processor will be the "ultimate purchaser" of the
imported articles and the balers will not have to be individually
marked to indicate their country of origin, pursuant to 19 U.S.C.
1304 and 19 CFR 134.35.
Further, because the domestic processor is the "ultimate
purchaser" and necessarily knows the country of origin of the
imported balers by reason of the direct contractual circumstances
of their importation, the outermost container for the imported
balers does not have to be marked either, pursuant to 19 CFR
134.32(h) and 19 CFR 134.22(d)(1).
Sincerely,
John Durant, Director
Commercial Rulings Division