MAR-2 RR:CR:SM 560728 RSD
Port Director
United States Customs Service
New Montgomery Street
Room 1501
San Francisco, California 94105
RE: Application for Further Review of Protest Number 2809-97-101056; marking duties; mother boards
Dear Director:
This is in reference to Application for Further Review of
Protest Number 2809-97-101056 filed by counsel on behalf of EFA
Corporation of America (EFA) regarding the assessment of marking
duties on a shipment of computer motherboards. The date of
liquidation was April 25, 1997, and the protest was filed on July
23, 1997. Counsel made two supplemental submissions dated March
27, 1998 and May 28, 1998
FACTS:
The record indicates that EFA entered a shipment of
Taiwanese-made computer motherboards without CPUs or DRAMs
through the port of San Francisco on February 8, 1997. The
motherboards were not individually marked to indicate their
country of origin. The motherboards were packed in individual
boxes which also were not marked to indicate the country of
origin of the boards. The individual boxes were, in turn, packed
in larger shipping boxes of ten motherboards each. Counsel for
EFA claims that the larger boxes (the outermost containers) were
marked to indicate the country of origin of the motherboards, but
no specific evidence has been presented to establish that these
larger boxes were actually marked with the country of origin of
the motherboards.
On February 14, 1997, Custom issued a Notice To Mark and/or
Redeliver, Custom Form 4647, notifying EFA that the motherboards
were not legally marked. The notice stated:
Sample of the M/B by our Inspector shows no C/O on the
immediate box. For this shipment you can use a rubber
stamp or a sticker with good adhesive to indicate Made
in Taiwan. When you inform the mfr. to correct future
shipments, please provide us with a copy of the letter.
Although EFA claims that it certified on the CF 4647 form
that they had properly marked the merchandise, there is no
evidence that Customs ever received EFA's certification. In
addition, EFA shipped the merchandise to its customers before
Customs could verify that it was properly marked.
Counsel indicates that the largest purchasers of EFA's
products are known in the computer industry as systems
integrators. Systems integrators do not sell boards individually
but use them in making computer products and systems products.
Typically, orders are shipped to systems integrators in boxes of
ten which according to counsel would always be marked as "Made in
Taiwan". However, counsel concedes that in rare instances less
than 10 units may be repacked and shipped in a separate box,
which may not have a country of origin marking on it.
Counsel further points out that EFA also sells products to
distributors who, like systems integrators often use the
motherboards to build complete computer systems under their own
logo. In other cases, they will also supply the boards to other
resellers, corporations, and small size integrators. On some
occasions, the distributors will ship the boards in the outermost
containers which are marked with the country of origin, but in
other cases the boards are repacked and relabeled into containers
that do not have a proper country of origin disclosure.
The boards are also sold to retailers who resell individual
boxes of motherboards to consumers. Counsel does not contest
that the individual boxes in which the boards were sold to
consumers by retailers were not marked with the country of origin
of the boards.
Counsel concedes that as EFA did not record the serial
numbers of the boards, it is impossible to determine exactly who
purchased the boards contained in the shipment in question.
Instead, counsel contends that EFA generally uses an accounting
system known as last-in-first-out (LIFO) in distributing its
inventory. Based on the LIFO accounting method, counsel contends
that EFA could approximate where it sent the shipment of
motherboards. Counsel furnished copies of the EFA's shipping
records and, by using a LIFO method, indicated how many of the
boards were sold to systems integrators, who substantially
transform the boards in the U.S. Using a LIFO analysis, counsel
calculates that 55% of the boards in the shipment were sent to
companies who substantially transformed them, and consequently,
these boards were not required to be individually marked with
their country of origin. Thus, according to counsel, marking
duties should not have been assessed on 55% of the boards in the
shipment because the ultimate purchasers of these boards would
have received them in the outermost containers properly marked
with the boards' country of origin.
ISSUE:
Under the circumstances described, whether the assessment of
marking duties on the shipment of motherboards was proper.
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed (i.e.,
within 90 days of the date of liquidation) and the matter is
protestable under 19 U.S.C. 1514(a)(5).
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 United States 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 United
States the English name of the country of origin of the article.
By enacting 19 U.S.C. 1304, Congress intended to ensure that the
ultimate purchaser would be able to know, by inspecting the
marking on the imported goods, the country of which the goods are
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, 302 C.A.D. 104 (1940).
Merchandise which is not legally marked is subject to a 10
percent ad valorem marking duty. 19 U.S.C. 1304(h) provides, in
pertinent part:
If at the time of importation any article...is not
marked in accordance with the requirements of this
section, and if such article is not exported or
destroyed or the article...marked after importation in
accordance with the requirements of this section (such
exportation, destruction, or marking to be accomplished
under customs supervision prior to the liquidation of
the entry covering the article, and to be allowed
whether or not the article has remained in continuous
customs custody), there shall be levied, collected, and
paid upon such article a duty of 10 per centrum ad
valorem, which shall be deemed to have accrued at the
time of importation, shall not be construed to be
penal, and shall not be remitted wholly or in part nor
shall payment thereof be avoidable for any cause. Such
duty shall be levied, collected, and paid in addition
to any other duty imposed by law and whether or not the
article is exempt from the payment of ordinary customs
duties (emphasis added).
The regulations implementing most of the provisions of the
marking statute are contained in Part 134, Customs Regulations
(19 CFR Part 134). The general marking requirement is set forth
in section 134.11, Customs Regulations (19 CFR 134.11). Section
134.35(a), Customs Regulations (19 C.F.R. 134.35(a)), states
that the manufacturer or processor in the U.S. who substantially
transforms the imported articles into articles having a new name,
character or use will be considered the ultimate purchaser of the
imported article within the scope of 19 U.S.C. 1304. In such
cases, the article will be excepted from marking, although the
outermost container in which the articles are transported to the
U.S. processor must be marked with the origin of the articles.
Where articles are not properly marked, the Customs Regulations
provide for the assessment of marking duties in section 134.2 (19
CFR 134.2), which states, in pertinent part:
Articles not marked as required by this part shall be
subject to additional duties of 10 percent of the final
appraised value unless exported or destroyed under
Customs supervision prior to liquidation of the entry,
as provided in 19 U.S.C. 1304(f). The 10 percent
additional duty is assessable for failure to mark the
article (or container) to indicate the English name of
the country of origin of the article or to include
words or symbols required to prevent deception or
mistake.
In HQ 731775, dated November 3, 1988, Customs ruled that two
prerequisites must be present in order for it to be proper to
assess marking duties under 19 U.S.C. 1304(f): I) the
merchandise was not legally marked at the time of importation;
and II) the merchandise was not subsequently exported, destroyed
or marked under Customs supervision prior to liquidation.
In the case before us, both prerequisites for assessing
marking duties are present. The record indicates that the
subject merchandise was not legally marked at the time of
importation. The marking notice issued by Customs indicates that
neither the articles nor their individual containers were marked.
Although Protestant claims that the outermost containers were
marked with the country of origin of the boards, no evidence has
been provided that these containers were, in fact, so marked.
Even if the outermost containers were marked with the country of
origin of the boards, EFA has not presented sufficient evidence
to establish that the motherboards actually reached the ultimate
purchasers in these marked outermost containers.
Counsel claims that 55% of the motherboards were sold to
systems integrators/computer manufacturers, who substantially
transformed the boards in the U.S. by using them to make finished
computers. The systems integrators/computer manufacturers
allegedly received the boards in the outermost containers which
were marked with the country of origin of the boards. Thus,
according to counsel, there was no marking violation for 55% of
the boards in the shipment, pursuant to 19 CFR 134.35(a).
Although Customs may have previously held that the assembly of
various components, including partially completed motherboards,
into a finished computers constituted a substantial
transformation (See HRL 735608 April 21, 1995), EFA has not been
able to identify which, if any, of the boards in the shipment
were sold to these systems integrators/computer manufacturers.
The estimate of the number of boards that were sold to systems
integrators/computer manufacturers is based solely on counsel's
analysis using the LIFO accounting method. However, counsel has
not provided any evidence that EFA actually used the LIFO
accounting system with respect to the merchandise contained in
the specific shipment in question. Counsel only claims that EFA
generally uses a LIFO system to control its inventory. (emphasis
added).
We cannot rely only on counsel's assertion, without any
substantiation, that EFA sold the boards in properly marked
outermost containers to customers who used them to make
computers. There is no description in the record concerning how
the boards were used to make finished computers. No proof was
submitted, such as statements from EFA's customers, to establish
that boards in this shipment were actually used in the manner
claimed by counsel. Without specific evidence clearly showing
which of the motherboards in the shipment were delivered in
properly marked containers to computer manufacturers who
substantially transformed the boards, we must conclude that the
entire shipment of motherboards was not legally marked.
The second prerequisite for assessing marking duties is also
present in this case because it is undisputed that the
merchandise was not remarked, exported, or destroyed under
Customs supervision prior to liquidation. Therefore, we conclude
that marking duties were properly assessed in this case.
HOLDING:
Based on the record provided, there is insufficient evidence
to establish that the shipment of motherboards was legally marked
with their country of origin at time of importation. There is
also no evidence to show that the merchandise was remarked,
exported, or destroyed under Customs supervision prior to
liquidation. Therefore the imposition of ten percent ad valorem
marking duties was appropriate. Accordingly, this protest should
be denied in full.
In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter.
Any reliquidation of the entry in accordance with the decision
must be accomplished prior to mailing of the decision. Sixty
days from the date of the decision the Office of Regulations and
Rulings will take steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the public
via the Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division