MAR-2-05 CO:R:C:V 734566 AT
Jacalyn N. Kolk, Esq.
Hilton, Hilton, Kolk & Penson
1610 Beck Avenue
Panama City, Florida 32405
RE: Country of origin marking of imported components used in
the manufacture of automotive water pumps; 19 U.S.C. 1304;
19 U.S.C. 1304 (a)(3)(G); 19 CFR 134.32(g); 19 CFR 134.35;
19 CFR 134.1(d); HQ 732940 revoked; Gibson-Thomsen;
Friedlaender; National Juice; Belcrest Linens; National
Hand Tool; T.D. 67-173; C.S.D. 80-111; C.S.D.
89-110; C.S.D. 89-129; C.S.D. 90-51; HQ 709570; HQ 730069;
HQ 732196; HQ 733676; HQ 734259; substantial transformation;
concealed marking; assembly; addition of domestic components
Dear Ms. Kolk:
This is in response to your letter of March 25, 1992 on
behalf of Eastern Industries, Inc. (Eastern), requesting a ruling
on the country of origin of imported components used in the
manufacture of automotive water pumps. A sample of a completed
water pump and the unassembled components were submitted with
your letter for review. As we requested, you have provided us
with further cost and assembly information by letter dated May 5,
1992. This request supplements Eastern's original ruling request
of November 30, 1989, and April 6, 1990, and Customs subsequent
Headquarters Ruling Letter 732940 dated July 5, 1990.
FACTS:
You state that Eastern Industries imports components of
water pumps which it then assembles for sale to automotive parts
stores. Each completed water pump generally consists of a
casting, bearing, impeller, hub, seal, gasket, and in certain
circumstances a backplate. You claim that Eastern carries a
water pump line of approximately 600 part numbers, of which,
approximately 120 part numbers are manufactured by Eastern. From
the additional cost information that you submitted on May 5,
1992, it appears that Eastern sells approximately 106 different
water pump models and that any component can be either
domestically or foreign made. You also state that Eastern does
not offer for sale nor sell the individual components, but only
utilizes said components in the manufacturing process to produce
water pumps.
The assembly of the water pump initially involves random
checking of a given lot for casting quality, machining quality
and finish. Parts, i.e. bearings, seals, hubs, impellers, back
plates and gaskets are randomly checked by Eastern's quality
control personnel. Following this, tooling is designed and
built, then tested for accuracy. A casting is heat treated, then
sent forward for assembly. The assembly procedure involves the
combining of the bearing, hub, impeller, casting, seal,
backplate, and gaskets. Following assembly, a completed water
pump is subjected to a 100% vacuum test. A final quality control
check precedes delivery to Eastern's shipping department, where
each pump is boxed with any miscellaneous parts required and sent
to automotive parts stores. No information was submitted which
suggests that the assembly procedure is complex.
During the preliminary planning of a production number,
samples of each component in a particular water pump are
submitted to vendors for quotation, both domestically and
foreign. Although you state that most of the castings are of
foreign origin, at times, the castings may be purchased
domestically and the other components, such as a bearing, hub or
impeller may be sourced from a foreign vendor. Each part number
is analyzed to determine whether it will be profitable to put the
new number into production, and thus it is important to be able
to source a quality component at the lowest price. Consequently,
various sources are used, both domestic and foreign.
ISSUE:
What are the country of origin marking requirements of
imported water pump components assembled by Eastern from imported
and domestic parts?
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 (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."
The country of origin marking requirements of imported
water pump components that are assembled by Eastern in the U.S.
with domestic parts depend upon whether Eastern is the ultimate
purchaser of the imported pump components.
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 domestic manufacture, the manufacturer may be
the "ultimate purchaser" if [s]he subjects the imported article
to a process which results in a substantial transformation of the
article. However, if the manufacturing process is a minor one
which leaves the identity of the imported article intact, the
consumer of 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
transformation occurs when articles lose their identity and
become new articles having a new name, character or use. United
States v. Gibson-Thomsen Co., 27 CCPA 267 (1940); National Juice
Products Association v. United States, 10 CIT 48. Under this
principle, the manufacturer or processor in the U.S. who converts
or combines the imported article into a 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 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 Linen 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,
C.S.D.s 80-111, 89-110, 89-129, 90-51.
The issue involved in this case is whether the imported
components which are combined in the U.S.to form a completed
water pump are substantially transformed into a new article
having a new name, character or use.
In this case, review of the completed water pump and
unassembled components indicates that the water pump is comprised
of four essential components, which are the casting, bearing,
impeller and hub. This is also supported by the fact that in
most cases the cost of these individual parts (as indicated by
the additional cost information provided to Customs by your
letter dated May 5, 1991), exceeds the cost of any other
component used to make the completed water pump, irrespective of
whether the individual component is domestic or foreign.
Thus, it is our decision to only focus on these four essential
components for purposes of determining whether a substantial
transformation occurs as a result of the U.S. operations
performed.
You contend that Eastern's manufacturing process of
assembling both domestic and foreign components into a completed
water pump in the U.S. results in a substantial transformation of
the imported article, and that Eastern is the "ultimate
purchaser" of the imported components, and marking of the
outermost container in which the articles are imported is
sufficient to indicate the country of origin. We disagree.
In National Hand Tool Corp., v. United States, Slip Op. 92-
61 (April 27, 1992), the Court of International Trade held that
imported hand tool components which were used to produce flex
sockets, speeder handles and flex handles were not substantially
transformed when further processed and assembled in the U.S. One
of the factors considered by the court in reaching its conclusion
was that the name of the imported components did not change as a
result of the U.S. processing and assembling operations. The
court found that the name of each article imported had the same
name in the completed tool. In support of this conclusion, the
court cited the following example:
"For example, when the lug or "G-head", component of a
flex handle imported from Taiwan (Ex. E) was shown,
plaintiff's witness called it a "G-head." When the
government counsel asked the name of the part where the
lug component is attached to a completed flex handle
(Ex. J.), the witness also called it a "G-head."
The court also considered whether the use of the imported
components changed as a result of the processing and assembling
operations performed in the U.S. In finding that the use of the
imported components did not change, the court stated that the use
of the imported articles was predetermined at the time of
importation due to the fact that each component was intended to
be incorporated in a particular finished mechanics' hand tool.
Although the court recognized the fact that only one
predetermined use of imported articles does not preclude the
finding of substantial transformation (See, Torrington Co., v.
United States, 764 F.2d. 1563 (1985)), it went on to say that the
determination of substantial transformation must be based on the
totality of the evidence.
Similarly, based on the totality of the evidence in this
case, we find that none of the four essential components of a
completed water pump is substantially transformed when it is
combined with the other components, due to the fact that the U.S.
operations do not change the name, character or use of the said
four components. Examination of the four components reveals that
they are all completely finished articles. No further processing
needs to be performed to the individual components in the U.S.
except assembly of the various components. In fact both the
casting and hub already have the requisite number of holes
drilled into them to assure proper mounting in the automobile.
Like the hand tool components in National Hand Tool, an imported
casting, bearing, impeller or hub has the same name after
assembly. Although each component becomes an essential part of a
completed water pump, each component is still referred to as a
casting, bearing, impeller or hub after assembly. Thus, none of
the essential components would change in name as a result of the
U.S. operations. Likewise, as in National Hand Tool, the use of
an imported casting, bearing, impeller or hub is predetermined at
the time of importation. Each component is intended to be
incorporated in a water pump. Also, as you state, none of the
components are to be sold individually or as replacement parts,
but are only used in the manufacturing of water pumps by Eastern.
Clearly, these essential components do not change in character as
a result of the assembly operation. After being assembled into
the completed water pump the form of a casting, bearing, impeller
or hub remains the same of that of its original shape and form.
There is no change in the components' microstructure or chemical
composition after assembly. See Ferrostaal Metals Corp., v.
United States, 11 CIT 470, 664 F.Supp. 535 (1987). In addition,
there is no indication that the assembly operation is complex.
Applicability of Headquarters Ruling Letter (HQ) 732940
In HQ 732940 (July 5, 1990), issued to Eastern, Customs
ruled that imported castings were substantially transformed in
the U.S. when assembled with domestic components into a
completed water pump and were not required to be individually
marked. (No samples of either the individual components or the
finished water pump were submitted prior to the issuance of the
ruling). In reaching this conclusion, Customs noted that
although the casting was generally the most costly component and
was clearly an essential component of a water pump, other costly
domestic components (bearing, impeller, hub, seal) were added
which were also essential to the functioning of the water pump.
Customs further noted that the addition of the impeller (an
essential component) along with a domestic bearing, hub and seal
was essential to create a functional article of commerce.
(Emphasis added).
You contend that HQ 732940 should either already or should
be amended to except from marking all foreign components used in
the assembly of Eastern's water pumps, regardless of the origin
of the various other components. We disagree.
As set forth above, Eastern proposes to use any amount of
foreign components with other domestic components in the assembly
of its water pump models, including any number of the four
essential components. This we find to be outside the scope and
rationale of HQ 732940. In that ruling we emphasized that a
substantial transformation occurred due to the fact that all the
essential components were domestic, except for the castings
and/or gaskets. However, in this case one or more essential
components added to the completed water could be foreign. This
certainly is outside the scope of our previous holding.
Furthermore, after examination of the samples you have now
submitted and in light of the recent National Hand Tool case
decided after the issuance of HQ 732940, we find that we must
reconsider the substantial transformation issue presented in HQ
732940 in accordance with the holding in that case. The casting
is the most costly and largest component used in the completed
water pump which remains visible after it is assembled with the
other components. Under the rationale in National Hand Tool the
casting can not be considered to be substantially transformed
when merely assembled with the other essential components. As we
have decided above, none of the essential components is
substantially transformed when assembled in the U.S. Each
essential component, including the casting, does not change in
name, character or use as a result of the assembly. Accordingly,
we are revoking HQ 732940. However, as set forth in the holding
below, in order to allow Eastern time to adjust to the new
requirements for these castings, the effective date of this
portion of our ruling is delayed until September 23, 1992.
Marking Exception Under 19 U.S.C. 1304(a)(3)(G) and 19 CFR
134.32(g) For Imported Water Pump Components
In the alternative, you state that regardless of whether
Customs finds that the foreign imported components are
substantially transformed as a result of the U.S. operations, the
imported components are excepted from country of origin marking
under 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g) and only the
outermost containers must be marked with the country of origin.
Pursuant to 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g), an
imported article is excepted from marking if it is to be
processed in the United States by the importer or for his account
otherwise than for the purpose of concealing the origin of such
article and in such manner that any country of origin marking
would necessarily be obliterated, destroyed, or permanently
concealed. Customs has ruled that articles excepted from marking
under these provisions at the time of importation must be marked
to indicate the country of origin after processing unless such
processing constitutes a substantial transformation. The purpose
of such requirement is to ensure that the ultimate purchaser is
advised of the country of origin. See, HQ 732196, May 16, 1989;
HQ 733676, December 6, 1990.
In this case, some of the water pump components, such as the
impeller, may not remain visible after assembly. Any such
components would be excepted from marking at the time of
importation pursuant to 19 U.S.C. 1304(a)(3)(G) and 19 CFR
134.32(g), since any marking thereon would necessarily be
permanently concealed during the U.S. processing. However, in
accordance with the above rulings, the completed water pump must
be marked to indicate the country of origin of the various
components, including those that are obscured during assembly.
Practical Considerations
In determining the marking requirements of the imported
water pump components that are the subject of this ruling
request, various practical considerations should be considered.
These include the fact that Eastern sells numerous models of
water pumps, and that, according to its submission, any of the
individual components can be either domestically or foreign made.
As provided above, and in light of the recent National Hand Tool
case, none of the four essential components whether domestic or
foreign is substantially transformed when assembled in the U.S.
into a completed water pump and therefore must be marked with
its country of origin. However, some of the components will be
concealed during the assembly process and are excepted from
marking at the time of importation on this basis, while others
will not. Accordingly, the various components are subject to
different marking requirements depending on how they will be
used by Eastern. This makes compliance with marking requirements
at the time of importation difficult.
In view of these practical considerations, in order to
facilitate marking while at the same time providing adequate
notice to the ultimate purchaser of the country of origin, we
will permit Eastern to import the various components used in the
assembly of the water pumps without country of origin marking
provided:
1. the containers in which such components are imported are
marked to indicate the country of origin of their contents
2. Eastern certifies to Customs at the time of entry that
the finished water pump will be marked to indicate the country of
origin of the essential foreign components used therein. For
purposes of this requirement, the essential components of the
water pump include the casting, impeller, bearing and hub. A
single, centrally-located, country of origin marking on the
finished article (or its container) that denotes the actual
countries of origin of the essential foreign components of the
water pump, but does not specify with particularity which
component comes from which country is acceptable. If the pump
contains essential domestic components, this may be noted. The
fact that the pumps are assembled in the U.S. may also be
included. For example, Model No. 18-008, which utilizes a
casting, impeller and hub from Taiwan and a bearing from the U.S.
could be marked, "Assembled in U.S. from components manufactured
in Taiwan and U.S." Alternatively, "Components Made in Taiwan",
or "Components Made in Taiwan and U.S." are acceptable markings.
3. Customs officials at the port of entry are satisfied
that the imported water pump components will be used by Eastern
only in the assembly of automotive water pumps and will not
otherwise be sold and that Eastern is marking the completed pumps
as set forth above.
Failure by Eastern to comply with its certification will
result in the imposition of marking duties and/or other
appropriate measures.
HOLDING:
In view of the Court of International Trade's recent holding
in National Hand Tool none of the essential components (casting,
bearing, impeller and hub) of a completed water pump is
substantially transformed when assembled in the U.S., and the
imported components are subject to marking as set forth above.
HQ 732940 is revoked.
In order to provide Eastern time to adjust its marking
practices for the castings which were the subject of HQ 732940 to
the requirements set forth herein, any castings which are entered
or withdrawn from warehouse for consumption prior to September
23, 1992, which are to be combined with domestic components, as
described in HQ 732940, are not subject to the above marking
requirements. With respect to other imported components which
are outside the scope of HQ 732940, this ruling is effective
immediately.
Sincerely,
John Durant, Director
Commercial Rulings Division