MAR-2-05 CO:R:C:V 735086 RSD
Mr. Fred Gunzer
Dalex
302 W. Evergreen
P.O. Box 787
Redmond, Oregon 97756
RE: Country of origin marking requirements for circular or rotary
cutting tools or saw blades; substantial transformation;
grinding; cutting; polishing; costs; 19 CFR 134.35
Dear Mr. Gunzer:
This is in response to your letter of March 3, 1993,
addressed to the Regional Commissioner of Customs at the New York
Seaport concerning the country of origin marking requirements for
circular saw blades. The National Import Specialist forwarded
your letter to Customs headquarters for a response. Two sample
saw blades, one without the carbide tips and one with carbide
tips that have been attached and sharpened have been submitted.
FACTS:
Dalex imports components and manufactures and markets
carbide cutting tools, including rotary saw blades. This case,
concerns rotary steel saw blades imported from China.
The blank is manufactured in China. The cutting carbide tips and
silver soldering are made in the United States and are shipped to
China. The cutting tips are then soldered to the saw blade
blanks which are then exported to the United States. In the
United States the saw blades are sandblasted, polished, and the
top and the sides are ground. The two sample saw blades look
very similar except on one of the blades the carbide tips have
not been ground, while on the other blade the tips have been
ground to a sharp edge.
Dalex states that the total cost of making a saw blade is
$2.15 of which $1.47 or 75% of the cost is attributable to U.S.
operations or components. In its breakdown of the cost of making
a saw blade, Dalex indicates that the cost of each tip is $.03
and there are 24 tips on a saw blade, for a total of $.72 per
blade. The labor cost of attaching the carbide tips to the saw
blades is $.20. The cost of the steel blank from China is
$.40. The shipping cost is $.05. The cost of the U.S.
processing (sandblasting, polishing, and grinding the sides and
tips) is $.75.
ISSUE:
Whether or not the imported rotary saw blades are
substantially transformed by the grinding of the carbide tips and
other operations performed in the U.S.?
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.
Friedlaender & 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
transformation 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).
Customs ruled in HQ 740134 (February 6, 1987) that the
grinding of geometrically shaped teeth on to blank saw blades and
other minor processing substantially transformed the blank saw
blade into a new article of commerce. It was noted that without
the teeth the finished item could not function and that the
creation of the teeth determines the essential character of the
finished blade. In HQ 733837 (February 5, 1991) we followed the
reasoning of HQ 740134, and concluded that very similar
processing of grinding the teeth onto saw blade blanks in the
U.S., was a substantial transformation.
In this case, the sharpening the carbide tips of the blades
through grinding is a minor change to the blades. The identity
of the article is already established before the U.S. processing
takes place. Unlike HQ 740134 and 733387, the imported articles
have all the basic characteristics of saw blades. The U.S.
processing of the blades only further refines the products but
does not change their character. The imported blades are readily
recognizable as rotary blades and cannot be used to make any
other products. The basic size and shape of the blades are
unchanged by the U.S. processing operations. Even though the
tips are unsharpened as imported, the blades would still be
called saw blades, and thus the U.S. processing does not change
the name of the article. There is no indication that the U.S.
processing involves highly skilled or complex operations. We
find that the name character or use of the saw blades are
unchanged by the U.S. processing operation.
Dalex maintains that most of the costs in making the saw
blades are attributable to U.S. components or U.S. operations and
therefore the saw blades should be considered as U.S. products.
We disagree. First, an increase in the value of an article does
not automatically indicate that there is a substantial
transformation. See National Hand Tool Corp. v. United States,
Slip Op. 96-61 (April 27, 1992) aff'd 989 F.2d 1201 (1993)
unpublished.
Furthermore, even if we did consider the costs to be a
significant factor in determining whether the blades were
substantially transformed, the costs of the U.S. materials sent
to China are not relevant because the country of origin of an
article for marking purposes is determined by where the last
substantial transformation takes place not by where most of the
costs of making article are incurred. Once an article is
substantially transformed, it becomes a product of the country
where the substantial transformation took place, and the cost of
prior components and work are not considered in determining
whether the additional processing in a second country results in
another substantial transformation. In this case, the cost of
the carbide tips and silver soldering ($.72 per blade) is not
pertinent because they were substantially transformed in China
when they were used to make the unfinished blade and therefore
became part of a Chinese product. Accordingly, only the $.75
attributed to the U.S. operations of grinding, polishing, and
sandblasting, which occurs after the blades are exported into the
U.S., should be considered in determining whether the blades were
substantially transformed in the U.S. The added cost of these
U.S. operations is not significant enough to persuade us that the
blades are substantially transformed in the U.S.
Moreover, although the costs of the U.S. operations and
components account for most of the cost in making the saw blades,
this may because the costs of doing business in the United States
is greater than China. It does not mean that the U.S. operations
and components are more significant than the Chinese operations
and components or that the work in the United States contributes
more to the making of the final product. We do not find the U.S
operations to be highly significant relative to the work done in
China, and it is therefore our opinion that the saw blades remain
articles of foreign origin even after processing in the United
States.
HOLDING:
The imported saw blade are not substantially transformed by
the U.S. operations. Therefore, the saw blades must be marked to
indicate their country of origin, China, at the time of
importation.
Sincerely,
John Durant, Director
Commercial Rulings Division
cc: Area Director, New York Seaport