MAR-2-05 CO:R:C:V 734387 GRV
Scott Blake Harris, Esq.
Williams & Connolly
839 Seventeenth Street, N.W.
Washington, D.C. 20006
RE: Country of origin marking of certain lead crystal
stemware (Lismore pattern) hand-cut in a country
other than the country where it was first
produced. 134.1(b); uncut glassware; foreign
processing (decorative pattern cutting); substan-
tial transformation (degree and extent of manufac-
ture affects character); Koru North America;
Madison Galleries; Superior Wire; National Hand
Tool Corp.; 043004; 045106; 047663; 733036
(distinguished); 556060; 555787; O.C.O.D. 91-1;
C.S.D. 89-49(9)
Dear Mr. Harris:
This is in response to your letters of October 17, November
8, and December 12, 1991, on behalf of Waterford Crystal, Inc.,
requesting a country of origin marking ruling regarding certain
lead crystal stemware formed in a Continental Europe country and
hand-cut in Ireland. Photographs and sample stemware showing the
various stages of the hand-cut crystal stemware were submitted
for examination.
We have considered in connection with this ruling request
the information provided by you and your client in a meeting held
at Customs Headquarters on February 6, 1992.
FACTS:
This ruling is limited to the merchandise submitted for
examination, identified as the "Lismore" pattern of
Waterford crystal stemware.
Waterford Crystal, Inc., intends to import uncut, lead
crystal stemware from unspecified Continental Europe countries,
hand-cut a certain decorative pattern onto the exterior of all
areas of the stemware--the bowl, stem and foot, perform certain
finishing operations on the cut stemware, and export the finished
stemware to the U.S. for retail sales to individual consumers. The stemware is given its shape in Europe, where the
production of the crystal is a completely automated, unskilled
operation, requiring one to two and a half minutes to perform.
You denominate the crystal stemware product at this stage of its
production a "blank," although its utility as stemware was
established when it was first formed. The condition of the
"blank" following this forming process is such that the lip of
the bowl portion of the stemware is smooth (not rough) and the
height of the stemware and the capacity of the bowl are already
determined. Thus, while the "blanks" do not constitute finished
consumer products, their final stemware dimensions are fixed.
The price of a "blank" currently ranges from $2.50-$3.00 each.
The stemware is given its decorative, outward appearance in
Ireland, where the production of the finished crystal stemware
product is labor-intensive and exacting, entailing considerable
expertise in the art of hand-cutting the crystal. Overall, the
hand-cutting operation entails (1) ink marking the three areas of
the "blank" stemware--the bowl, stem and foot--with the appropri-
ate grid pattern ("Lismore") to be cut, (2) having a team of
glass cutters variously cut the pattern onto the "blank," which
takes on average seven minutes, (3) performing various finishing
operations--washing and acid polishing and dipping the cut piece
--a one hour process, which produces a glossy finish, and
(4) inspecting and packaging the finished consumer product--
hand-cut lead crystal stemware--for export to the U.S. The
finished stemware carries an ex-factory price ranging from
$15.00-$25.00 each: an increase of more than 500% increase in
cost as a result of the processing in Ireland.
Regarding the hand-cutting aspect of the operation, it is
extremely labor-intensive, as it is accomplished by skilled
cutters without mechanical assistance. The cutters normally
serve an apprenticeship of five year perfecting the various
cutting skills necessary to create a particular pattern on the
stemware, and even then work under the direction of a master
cutter, who possesses at least ten years cutting experience. The
pattern cutting is accomplished in teams specializing in certain
cuts; each team being comprised of a master cutter and four other
cutters, denominated as either wedge cutters, who produce deep,
diamond-shaped cuts on the stem portion of the stemware, or flat
cutters who produces shallow smooth cuts on the bowl and foot
portion of the stemware. Further regarding the flat cutting, it is stated that, typically, they have to be made twice using
different wheels, which adds to the labor intensity of the
cutting process.
The cutting of the Lismore pattern affects a large portion,
approximately 80%, of the stemware's surface area, as all three
areas of the stemware--the bowl, stem and foot--are subjected to
cutting operations. The bowl area of the stemware is variously
cut in two separate areas: in the middle of the goblet's bowl,
the main, 16-leaf Lismore, pattern is both flat and wedge cut;
the bottom of the bowl is flat cut to create a scalloped effect.
Together, these cuttings affect approximately 75% of bowl area.
The entire stem area of the stemware (round in shape) is flat cut
into a hexagon design. And approximately 90% of the foot area is
variously cut to complement the main, 16-leaf Lismore, pattern.
The material result of these various cutting operations is that
approximately 80% of the surface area of the crystal stemware is
removed, making the finished stemware approximately 25% lighter.
However, while the various flat and wedge cuts create a large
variety of visual effects--faceting and scaling--on the surface
of the stemware, the exterior cutting does not otherwise affect
the crystal "blank's" shape or utility; its capacity and height
as glassware and use as stemware remain unchanged.
You claim that the "blanks" imported into Ireland are
substantially transformed by the operations performed there, such
that the country of origin of the finished stemware imported into
the U.S. is Ireland. You argue that the processing in Ireland
causes a change in the "blanks" (1) name, (2) character, and
(3) use, as follows:
(1) a change in name--from "blanks" (the accepted,
descriptive name for such items in the crystal industry
because the imported articles are not cut) into "hand-
cut crystal stemware";
(2) a change in character--the "blanks" are unsuitable for
use by consumers and are in fact not merchantable;
their only demand is as raw material for further pro-
cessing. You state that the "blank's" significantly
altered "appearance" demonstrates its changed charac-
ter, as the finished stemware can now be used both as
formal tableware and as display items. In this regard
you reference Headquarters Ruling Letter (HRL) 555250
(abstracted as C.S.D. 89-49(9) and distinguish Customs
determination in Office of Commercial Operations
Decision (O.C.O.D.) 91-1, which revoked a previous
country of origin determination involving lead crystal;
and, (3)a change in use--repeating the character argument above
that the finished stemware can be used both as formal
tableware and as display items.
ISSUE:
Whether the hand-cutting and other operations performed in
Ireland to effect the finished Lismore-pattern on crystal
stemware substantially transform the uncut crystal stemware for
purposes of country of origin marking under 19 U.S.C. 1304 and 19
CFR 134.1(b).
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 purpose of the country of origin marking laws "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. Friedlaender & Co., 27 CCPA 297,
302, C.A.D. 104 (1940). 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 article is to be sold at retail in its imported form, the
purchaser at retail is the "ultimate purchaser." 19 CFR
134.1(3).
The country of origin for marking purposes is defined at
134.1(b), Customs Regulations (19 CFR 134.1(b)), to mean 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 trans-
formation in order to render such other country the "country of
origin" within the meaning of Part 134. A substantial transfor-
mation occurs when articles lose their identity and become new
articles having a new name, character, or use. Koru North
America v. United States, 12 CIT 1120, 701 F.Supp. 229 (1988).
The question of when a substantial transformation occurs for
marking purposes is a question of fact; to be determined on a
case-by-case basis. Uniroyal Inc. v. United States, 3 CIT 220,
542 F.Supp. 1026 (1982), aff'd, 1 Fed.Cir. 21, 702 F.2d 1022
(1983).
Although the substantial transformation criteria speak to
the condition of the article as it emerges from a substantial
manufacturing operation, the focus of the inquiry is on the
nature of the particular processing operation. In Madison
Galleries, Ltd. v. United States, 12 CIT 485, 688 F.Supp. 1544
(1988), aff'd, 7 Fed.Cir. 56, 870 F.2d 627 (1989), the court
stated that the starting point for resolving substantial-
transformation issues was the definition of manufacture, citing
Ferrostaal Metals Corp. v. United States, 11 CIT 470, 664 F.Supp.
535 (1987). And in Superior Wire v. United States, 11 CIT 608,
669 F.Supp. 472 (1987), aff'd, 7 Fed.Cir. 43, 867 F.2d 1409
(1989), the same court stated that:
[i]n recent years the courts have concentrated on
change in use or character, finding various subsidiary tests
appropriate depending on the situation at hand. An inquiry
that is sometimes treated as a type of cross-check or
additional factor to be considered in substantial transfor-
mation cases is whether significant value is added or costs
are incurred by the process at issue. (Citations omitted).
A value added test has appeal in many situations
because it brings a common sense approach to a fundamental
test that may not be easily applied to some products. ...
related concepts, including the amount of labor required to
accomplish the change and the capital investment required
relative to that required to produce the entire article, are
also relevant to a determination of whether the change
involves minor processing. .... By itself such analysis
may not provide the entire answer as to whether a substan-
tial transformation has taken place, but it should comprise
part of the analysis in a case involving the type of
products and processing at issue here.
Customs has previously considered the issue of cutting
patterns onto certain merchandise and generally found that such
processing in a country other than the country where the
merchandise was first produced does not substantially transform
the cut article from its original country of origin. For rulings
concerning certain wine glasses, see Headquarters Ruling Letters
(HRLs) 043004 dated January 7, 1976, 045106 dated April 22, 1976,
047663 dated March 21, 1977, and 733036 dated April 9, 1990. For
rulings concerning the cutting of jewelry, see HRLs 556060 dated
August 27, 1991 and 555787 dated October 2, 1991. However, your
arguments respecting the difference between the present
transaction and the transactions previously ruled on have merit.
The O.C.O.D. you reference concerned a Treasury Department
memorandum dated May 21, 1986, wherein the Treasury Department
initially concluded that the proper country of origin of crystal
vases produced and partially cut in Czechoslovakia and finished
in Ireland by additional hand-cutting, grinding, and polishing
was Ireland, based, in part, on the fact that the market value of
the imported product was nearly doubled. On instructions from
the Treasury Department, Customs revoked this country of origin
determination. O.C.O.D. 91-1 dated June 4, 1991, 25 Cust.Bull.
. The present transaction is distinguishable from the
transaction subject of the Treasury memorandum and O.C.O.D.
revocation, in that here the crystal stemware "blanks" are
completely uncut at the time of their importation into Ireland
and the extent of the manufacturing activities in Ireland
radically alters the appearance of the stemware and adds
substantial value--at least 500%--to the finished article.
In HRL 733036, supra, crystal stemware was made in Austria
at a unit cost of $1.60. The uncut stemware was exported to East
Germany--now Germany, where simple flat cuts were made on the
bottom of the flute above the stem at a unit cost of $0.62.
Acknowledging that the hand cuts were attractive, being very
simple flat cuts that did not greatly increase the value of the
stemware, we concluded that it did not substantially increase the
value of the stemware, as it was not very time consuming nor
intricate. Accordingly, we held that the crystal stemware was
not substantially transformed in East Germany. Cf., HRL 555250
dated March 13, 1989 (abstracted at C.S.D. 89-49(9)), domestic-
ally-made glass mugs, produced at a unit cost of $0.34, were
exported to France where they were etched or cut and specially
tempered, at a unit cost of $0.50; held: that the returned mugs
were substantially changed abroad so as to preclude special
tariff treatment under HTSUS subheading 9802.00.50, as articles
altered abroad. You argue that the present transaction is even
more complicated than the simple etching involved in the later
HRL and likewise creates a profound change in the appearance of
the imported "blank" stemware.
Comparing the extent and degree of the crystal stemware
processing in HRL 733036 with that presented here, and consider-
ing the relevance of the Superior Wire value-added analysis, we
find that, taken as a whole and after examining the samples and
photographs submitted, the character of the imported glassware
"blanks" is substantially transformed functionally into formal,
elegant stemware--suitable for indoor decoration--by the exten-
sive hand-cutting operation performed in Ireland. This finding
is based on the following facts: (1) that the hand-cutting
operation is not a minor, but rather a substantial and intricate
processing operation requiring skilled craftsmen; (2) that the
hand-cutting operation not only materially impacts on the
imported "blank" (removes approximately 80% of the surface area
of the stemware, making the finished article approximately 25%
lighter) but also imparts a distinctive, elegantly decorated
appearance to the otherwise bare utilitarian character of the
uncut glassware "blanks," and; (3) that significant value--more
than 500%--is added to the glassware "blanks" because of the
hand-cutting operation. The degree of hand-cutting being so
intricate and elaborate and the extent to which it is accom-
plished to effect the Lismore pattern, affect the glassware's
decorative/display character, thereby causing the initial "blank"
to lose its identity as mere glassware and become a new article:
formal, i.e., elegantly distinctive, stemware, bought primarily
for its functional appearance, rather than for its utilitarian
use. The substantial transformation criteria being disjunctive
in their application, the finding of a functional character
change is sufficient to render Ireland the country of origin of
the Lismore-pattern crystal stemware imported into the U.S.
HOLDING:
The extensive hand-cutting and other operations performed in
Ireland to effect the finished Lismore-pattern on crystal
stemware substantially transform the functional character of the
uncut crystal stemware "blanks" for purposes of the country of
origin marking under 19 U.S.C. 1304 and 19 CFR 134.1(b). Thus,
Ireland is the country of origin of the imported Lismore pattern
crystal stemware.
Sincerely,
John Durant, Director