MAR-2-05 RR:TC:SM 559453 DEC
Mr. J. Kevin Horgan
deKieffer, Dibble & Horgan
Suite 900
915 Fifteenth Street, N.W.
Washington, D.C. 20005
RE: Reconsideration of HRL 559067; country of origin marking of
cordless telephone
sets; request for marking exception; substantial
transformation; HRL 734560;
HRL 734363; T.D. 91-7; HRL 734505; HRL 734172; economically
prohibitive
Dear Mr. Horgan:
This is in response to your letter dated September 27, 1995,
on behalf of your client, Thomson Consumer Electronics,
Incorporated (TCE), in which you request a delay in the effective
date of Headquarters Ruling Letter (HRL) 559067, dated September
19, 1995, regarding the country of origin marking requirements
for certain cordless telephone sets. In addition, this ruling
letter is in response to your letter dated October 10, 1995, on
behalf of TCE requesting Customs to review its decision in HRL
559067.
Pursuant to section 625, Tariff Act of 1930 (19 U.S.C.
1625), as amended by section 623 of Title VI (Customs
Modernization) of the North American Free Trade Agreement
Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993)
(hereinafter section 625), notice of the proposed modification of
HRL 559067 was published on June 5, 1996, in the Customs
Bulletin, Volume 30, Number 23.
FACTS:
TCE imports cordless telephone sets produced in China,
Malaysia, and the Phillippines. You submitted samples of the two
telephone units that were the subject of HRL 559067 in the boxes
that will reach the ultimate purchaser in the United States.
Model 2-9615 is a cordless telephone that includes an extra
recharge cradle with a recharging cord incorporated into the
cradle and Model 2-9635 is a cordless telephone which features a
speaker phone in the base unit. You provided the following
information with respect to the cost, origin, and marking of each
component as imported.
Component Cost Origin Marking
Model 2-9615
Base Unit $10.614 Malaysia Made in
Malaysia
Handset $12.084 Malaysia None
Recharge Cradle $01.451 Malaysia Made in
Malaysia
Power Cord $01.520 China Made
in China
Telephone Line $00.197 Malaysia None
Manuals $00.163 Malaysia Printed in
Malaysia
Packing $00.513 Made in
Malaysia
Total Cost $26.542
The suggested retail price for Model 2-9615 is $64.99
Model 2-9635
Base Unit $20.938 Malaysia Made in
Malaysia
Handset $12.724 Malaysia None
Telephone Line $00.185 Malaysia None
Manuals $00.202 Malaysia Printed in
Malaysia
Packing $00.810 Made in
Malaysia
Total Cost $34.859
The suggested retail price for Model 2-9635 is $89.99
You stated that the power cords and the telephone lines may be
sourced in one or more Asian countries, including Malaysia,
China, the Philippines, Indonesia, Korea, Singapore, and Hong
Kong. Each telephone set will be packaged in Malaysia prior to
exportation in an individual box that will reach the retail
customer marked "Made in Malaysia".
The operations performed to package the various components
to form the telephone sets as described in HRL 559067 were found
in that case to be extremely simple. Accordingly, Customs
concluded that the gathering of the components and placing them
in the cartons in Malaysia for retail sale would not result in a
substantial transformation of the non-Malaysian components. The
country of origin of each component was required to be
identified.
ISSUES:
1. Will Customs grant a delayed effective date for HRL
559067 or an exception to marking on the basis that it would be
economically prohibitive to require TCE to mark the telephones
already imported in accordance with HRL 559067?
2. Will Customs modify HRL 559067 so that the imported
cordless telephones described above may be legally marked "Made
in Malaysia" without referring to the country of origin of any of
the other components packaged in the retail container?
LAW AND ANALYSIS:
Delayed Effective Date
The Custom Service will from time to time issue a ruling
letter covering a transaction or issue not previously the subject
of a ruling letter and which has the effect of modifying the
treatment previously accorded by the Customs Service to
substantially identical transactions of either the recipient of
the ruling letter or other parties. In situations where a party
has relied, not on a previously-issued ruling letter, but on past
Customs treatment, Customs requires that the affected party
submit an application requesting a delay in the effective date of
a ruling letter. In these situations, 19 CFR 177.9(e)(2), sets
forth specific requirements for such applications. According to
this provision, the applicant must demonstrate to the
satisfaction of the Customs Service that the treatment previously
accorded relates to substantially identical transactions, and was
sufficiently consistent and continuous that the party reasonably
relied on the past treatment in the arrangement of future
transactions.
Specifically, section 177.9(e)(2) requires that the
applicant must submit evidence of past treatment by the Customs
Service covering the 2-year period immediately prior to the date
of the ruling letter, listing all substantially identical
transactions by entry number. In addition, the applicant must
provide the quantity and value of merchandise covered by each
such transaction, the ports of entry, and the dates of final
action by the Customs Service. Section 177.9(e)(2) further notes
that, "[t]he evidence of reliance shall include contracts,
purchase orders, or other materials tending to establish that the
future transactions were arranged based on the treatment
previously accorded by the Customs Service." Finally, in order
to grant a delay pursuant to 177.9(e)(1), the regulations require
that Customs examine all relevant factors regarding the issue of
reliance. Section 177.9(e)(3) requires that Customs carefully
review the past transactions on which reliance is claimed to
determine whether there was an examination of merchandise by
Customs. Furthermore, in making the determination to delay, the
weight accorded to the documented history of consistent and
continuous Customs treatment, will be diminished in the following
instances: transactions involving small quantities or values,
informal entries, and situations where Customs, in the interest
of commercial facilitation and accommodation, processes
expeditiously and without examination and/or import specialist
review. See 19 CFR 177.9(e)(3).
You submit that the previous treatment accorded by the
Customs Service to substantially identical transactions involving
cordless telephones was sufficiently consistent and continuous
since 1986, so that TCE reasonably relied thereon in arranging
future transactions and thus, you contend that TCE has satisfied
its claim for detrimental reliance. You state that TCE has been
importing and selling 3,149,000 G.E. brand telephone sets
annually since 1986 and that the imported telephones have
undergone numerous Customs examinations including country of
origin marking
examinations. Despite the fact that the transformer power supply
cords were routinely
marked with a country of origin that is different from the origin
of the telephone set disclosed on the consumer packaging, you
state that TCE was never advised that it was required to
reference the origin of minor accessories on the outside consumer
packaging.
We find that under the facts in this case, a claim for
detrimental reliance has not been established. You have not
demonstrated with the specificity that the regulations require
that the past import transactions upon which reliance is claimed
were examined for proper country of origin marking requirements.
In addition, you did not offer evidence of a particular entry
where Customs scrutinized and approved of the country of origin
marking for cordless telephones that contain power cords and/or
telephone lines marked with a country of origin different from
the origin of the telephone set disclosed on the consumer
packaging. Mere evidence of liquidation of an entry of cordless
telephones is not sufficient to establish that the country of
origin marking in the prior transaction was substantially
identical to the subject entries. Therefore, a delay in the
effective date of HRL 559067 is not warranted because
insufficient evidence was submitted.
Country of Origin Marking
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that every article of foreign origin (or its
container) imported into the United States shall be marked in a
conspicuous place as legibly, indelibly and permanently as the
nature of the article (or container) will permit, in such manner
as to indicate to the ultimate purchaser in the United States the
English name of the country of origin of the article.
Neither the statute nor Part 134 of the Customs Regulations
contains any special requirements regarding the marking of sets.
In the absence of any special requirements, the general country
of origin marking rule applies which requires that every article
that is imported into the United States must be marked to
indicate its country of origin as determined by where the article
underwent its last substantial transformation.
In HRL 559067, Customs concluded that the operations
performed to package the various components to form the telephone
sets are extremely simple and that no substantial transformation
of the non-Malaysian components will occur by virtue of the
gathering of the components and placing them in the retail
cartons in Malaysia. Accordingly, the country of origin of each
component should be identified on the retail container. See HRL
734560, dated July 20, 1992. Alternatively, Customs stated that
the importer could mark each individual component with its
country of origin instead of adopting the marking of the retail
container and opt not to exercise the 19 CFR 134.32(d) exception
for the telephone sets. If this approach is used, Customs
emphasized that, without exception, each and every component
would have to be
marked with its country of origin. By marking each component, we
indicated that it would remain clear to the ultimate purchaser
that only the marked component, and not the telephone set as a
whole, originates from the country designated on any one
component.
You cite to HRL 734363, dated February 18, 1992, in which
Customs addressed the issue of whether a country of origin
marking for a modem that is produced in the United States, but
contained a foreign-made transformer (or power cord as it will be
referred to in this ruling) and telephone cable (or telephone
line), was properly marked if the origin of the two foreign
articles (the power cord and telephone line) was not indicated on
the sealed container. The importer sought approval of a marking
which stated "Transformer and telephone cable of foreign origin
are individually marked with specific country of origin."
Customs approved this marking because the power cord and the
telephone line represented a very small part of the cost of the
modem kits, they were of relatively minor significance, and there
were difficulties associated with marking the containers with the
country of origin of the telephone line and power cord because
the country of origin of the power cord and telephone line would
vary. In accordance with the "common sense" approach to marking
articulated in T.D. 91-7, Customs concluded that it was not
necessary to mark the containers to indicate the country of
origin of the power cord and the telephone line, provided the
container referenced the fact that these articles were of foreign
origin and informed the consumer that the articles at issue were
individually marked with their specific country of origin.
Customs would have no objection to the marking of each of the
articles of foreign origin included in the cordless telephone
sets in the manner that was deemed acceptable in HRL 734363.
We disagree with your conclusion that HRL 555365, dated
September 7, 1990, T.D. 91-7, and HRL 734172, dated December 16,
1992, mandate a completely different conclusion than was reached
in HRL 559067. Customs has stated that, in certain
circumstances, the marking of every item in a collection of goods
may not be consistent with the purpose of section 1304, or may be
impractical and/or undesirable. This may exist because one or
more items in the collection are relatively insignificant and
would have no influence on the purchasing decision because the
items in the collection are too numerous, thereby making it
impractical to specify the country of origin of each item, or for
various other reasons.
You claim that the marking of each article or identifying
the origin of each article included in the cordless telephone set
on its retail container is economically prohibitive. We disagree
and refer you to HRL 734505, dated August 27, 1992, where Customs
addressed the marking requirements of a portable light/lantern
consisting of five major components: the lantern body, a plastic
charging rack, a charging cord/converter, a rechargeable battery,
and a flood lamp. These components were produced in various
countries and were imported into the United States to be
packaged. Customs determined that the packaging of these
components did not result in a substantial
transformation noting that some of the parts, after assembly,
retained their independent function. Customs also rejected the
importer's claim that it would be economically
prohibitive to mark the article's actual country of origin given
the variety of different combinations of packaged components
because no evidence in support of this claim was submitted. As a
possible option, Customs suggested that another possibility would
be the use of a pre-printed label that contains all the possible
countries of origin printed on it for each component. Then, upon
assembly, the actual country of origin could be punched or marked
on the pre-printed label. This marking scheme must comply with
the Customs statutes and regulations 19 U.S.C. 1304, and 19 CFR
Part 134. Customs would have no objection to a marking on the
retail container referring to each of the specific articles of
foreign origin as was suggested in HRL 734505.
Upon reconsideration of the application of the "common sense
approach" of marking to the cordless telephone sets, it is our
opinion that the marking of the telephone line is analogous to
the loose screws for the junction boxes (HRL 555365) and the
metal channels and branch-off clips included in the finished
insulation kit (HRL 734172). In both of these cases, Customs
determined that certain articles were of minor importance to the
product as a whole (the screws in HRL 555365 and the branch of
clips in HRL 734172). Accordingly, the container was not
required to be separately marked to indicate the country of
origin of the screws in HRL 555365 and the metal channels and
branch-off clips in HRL 734172. Similarly, Customs would not
require that the telephone line when incorporated into the
cordless telephone set be separately marked with its country of
origin. In determining whether a particular component need not
be marked under the "common sense approach", Customs emphasizes
the role of the given component with respect to the complete set
over any other consideration. The value alone of the component
relative to the article's total cost is not necessarily
determinative of whether the component is excepted from marking
based on T.D. 91-7. In this case, the fact that the telephone
line for either model represents less than one percent of the
cost of the imported telephone set, however, supports our
conclusion that the telephone line need not be marked.
However, the power cord presents a situation that is
distinguishable from that relating to the loose screws for the
junction boxes (HRL 555365), the metal channels and branch-off
clips included in the finished insulation kit (HRL 734172), and
the telephone line for the telephone sets at issue in this
ruling. While the value of the power cord may not be substantial
relative to the total cost of the cordless telephone set, its
role of recharging the battery is critical to the operation of
the telephone. As noted above, HRL 555365 presented a situation
in which Customs determined that the country of origin of three
foreign-made screws packaged with a U.S.-made metal junction box
did not need to be noted on the retail package because the screws
lost their separate identity when they were packaged with the
junction box. Customs noted
that the ultimate purchaser was buying a junction box and not
individual screws. In contrast, the power cord will retain its
separate identity. In fact, the ultimate purchaser
is buying a cordless telephone because it is capable of
converting electricity into stored
power for the telephone. We disagree with your contention that
our position in HRL 559067 and in this ruling letter represents a
departure from past practice and T.D.
91-7. Accordingly, the notice and comment procedure described in
19 U.S.C. 1625(c) was not deemed necessary when HRL 559067 was
first issued.
You state in your submission that TCE will incur substantial
additional marking expenses if TCE is required to mark each
individual component with its individual country of origin or if
TCE indicates the origin of each component on the consumer
carton. You estimate that TCE will incur approximately a $1 per
unit additional cost to comply with the country of origin marking
requirements using stick-on labels or $2 per unit to have new
cartons printed.
It is the opinion of this office that you have not provided
sufficient information upon which to grant an exception from
individual marking based upon prohibitive economic expense.
While we do not doubt the veracity of your statement that marking
by means of placing labels on each component would be
economically burdensome, the mere assertion that a $1 per unit
increase in cost will be "prohibitive" does not provide a
sufficient basis for granting this exception to the marking
requirement. In addition, we note that it is our policy not to
allow a permanent marking exception based upon the prohibitive
economic expense provisions under 19 U.S.C. 1304(a)(3)(C) and 19
CFR 134.32(c). While Customs appreciates the fact that TCE is a
consumer products company that must be concerned about the
appearance of their products for marketing purposes, the fact
remains, however, that TCE must comply with the statutorily-mandated marking requirements. The mere assertion, without
supporting evidence, that stick-on labels may have an adverse
marketing impact which may cause a loss in consumer appeal is not
a basis upon which Customs may grant an exception from marking.
Accordingly, we find that the components may not be excepted from
country of origin marking under 19 U.S.C. 1304(a)(3)(C) and 19
CFR 134.32(c).
HOLDING:
Upon reconsideration of HRL 559067, Customs affirms its
holding that telephone components packed together as a set are
not substantially transformed by virtue of being packaged as a
unit for sale as a telephone set. However, we find that pursuant
to the "common-sense approach" to marking articulated in T.D. 91-7, the telephone line does not need to be marked. Consequently,
HRL 559067 is modified to reflect this finding. The country of
origin of the telephone power cord, however, must be identified
as described above. Customs is not persuaded that the power cord
does not need to be marked based on the "common-sense approach"
to marking. In addition, Customs is not persuaded that there is
sufficient evidence to allow a marking exception for the power
cord based on the assertion that it would be economically
prohibitive to comply
with the marking requirements. Your request for a delayed
effective date of HRL 559067 is denied for the reasons set forth
above.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this
ruling should be brought to the attention of the Customs officer
handling the transaction.
In accordance with 19 U.S.C. 1625(c)(1), this modification
of HRL 559067 will become effective 60 days after its publication
in the Customs Bulletin. Publication of rulings or decisions
pursuant to 19 U.S.C. 1625(c)(1) does not constitute a change of
practice or position in accordance with section 177.10(c)(1),
Customs Regulations (19 C.F.R. 177.10(c)(1)).
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division