CLA 02: RR:CR:SM 561493 MFC
Mr. Tom Stewart
Your Supply Depot, Ltd.
632 W. Algonquin Road
Des Plaines, IL 60016
RE: Reconsideration of NY E85345; substantial transformation; embossing; dog tags
Dear Mr. Stewart:
On June 24, 1999, you were issued New York ruling letter (NY) E85345 (“the ruling”), which held that identification tags, commonly called “dog tags,” imported from Taiwan into the U.S., where they are embossed with personalized information and sold at retail, must be marked with their foreign country of origin. You requested reconsideration of that ruling by letter of July 22, 1999.
We have reviewed that decision and affirm the decision of NY E85345. Samples of the dog tags in imported form and in the finished embossed form were forwarded to us by our New York office.
FACTS:
The merchandise at issue consists of metal dog tags imported from Taiwan. Sample “Exhibit A” is a box of plain metal tags which measure 1 1/8” x 2.” The tags are not individually marked, but the box is marked with a small gold sticker that says “MADE IN TAIWAN.” NY E85345 indicates that you plan to import the tags and sell them to your dealers in the United States. The dealers will emboss the individual tags with the customer’s information and combine them with a chain set manufactured in the U.S. Sample “Exhibit B” consists of two embossed tags. One tag is attached to a short steel chain which is attached to a longer steel chain, to which the second tag is attached. You indicate that a country of origin marking on each individual tag would be obliterated during the embossing process.
NY E85345 found that the subject merchandise is excepted from marking pursuant to 19 CFR §134.32(g), which allows an exception where an imported article is to be processed in the U.S. by the importer or for his account, otherwise than for the purpose of concealing the origin of the article, and in such manner that any country of origin marking would necessarily be obliterated, destroyed or permanently concealed. The ruling noted that while the exception would apply at the time of importation, the embossing process does not result in a substantial transformation and therefore the finished tags would have to be marked in a manner to indicate the country of origin to the ultimate purchaser.
In your letter of July 22, 1999, you argue that the embossing process does result in a substantial transformation of the blank dog tags. You state that the finished product is sold at retail for approximately $6.95. Thus, the finished product consists of two imported dog tags at a cost of $0.33 per piece; a 24 inch stainless steel chain of U.S. origin which costs $0.16175; and a 4.5 inch stainless steel chain of U.S. origin costing $0.0245. The cost of labor to emboss the tags is $0.50.( You assert that the cost of the imported items represents less than 10% of the total wholesale cost of materials and labor and that the embossing adds the most value to the finished product. You ask that the finished product be considered a product of the U.S. or, in the alternative, that it not be required to be marked.
ISSUE:
Whether the foreign blank dog tags are substantially transformed by embossing in the U.S.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930 (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 purchaser in the U.S. the English name of the country of origin of the article. The primary purpose of the country of origin marking statute 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.C.P.A. 1940).
Part 134, Customs Regulations (19 CFR §134), implements the country of origin marking requirements and exceptions of 19 U.S.C. §1304. Section 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. In order for a substantial transformation to be found, the article must emerge from the processing having a new name, character, or use. United States v. Gibson-Thomsen Co. Inc., 27 C.C.P.A. 267 (1940).
One factor relevant to the issue of substantial transformation is whether the processing in the U.S. transforms the article so that it is no longer the essence of the final product. National Juice Products v. United States, 10 CIT 48, 628 F.Supp. 978 (CIT 1986). In that case, the Court of International Trade held that manufacturing concentrate imported into the U.S. for use in making frozen concentrated orange juice and reconstituted orange juice was not substantially transformed. The court stated that the imported concentrate was the very essence of the retail product and that the addition of water, orange essences and oils to the concentrate, while making it suitable for retail sale, did not change the fundamental character of the product.
In National Hand Tool v. United States, 16 CIT 308, 312 (CIT 1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), 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. The components were cold-formed or hot-forged into their final shape prior to importation, except for the speeder handle bars, which were reshaped by a power press after importation. The grip of the flex handles were also knurled in the U.S. by turning the grip portion of the handle against a set of machine dies that formed a cross-hatched diamond pattern. The articles were heat treated, cleaned, electroplated, and marked with a trademark and size. The imported parts were then assembled with other parts, which required some skill and dexterity on the part of the workers.
The court stated that the determination of a substantial transformation must be based on the totality of the evidence, and applied a 3-pronged test utilizing name, character, and use, in determining whether a substantial transformation had occurred. The court found in that case that the components were unchanged as to form after processing in the U.S., that the use of the imported articles was predetermined at the time of importation, and that the name of the components also remained the same after entry into the U.S.
Customs has issued several Headquarters Ruling Letters (“HQ”) which are instructive. In HQ 731779 (December 9, 1988), Customs considered whether wooden pens in the shape of baseball bats, hockey sticks, and rulers, imported from Taiwan were substantially transformed in the U.S. when they were imprinted with advertising information. Customs found that both before and after the printing, the essence of the article was a finished writing implement with an unusual shape and that the printing did not materially alter the name, character, or use of the imported articles. Based on these considerations, Customs found that the printing was merely a minor processing and that the pens would have to be marked with the foreign country of origin. Similarly, in HQ 734152 (August 26, 1991), Customs found that the printing of U.S.-origin balloons in Canada did not materially alter the name, character, or use of the balloons, and therefore the balloons were not substantially transformed into products of Canada.
Customs considered a case analogous to this request in HQ 734062 (April 22, 1991). Customs held that blank keys imported from Mexico were not substantially transformed in the U.S. when the keys were cut to customers’ specifications. It was found that the process “of grinding teeth into the imported key blanks by using key cutting machines only constitutes a minor change to the key blanks and the creation of the teeth does not determine the essential character of the finished key.” Customs concluded that the key blanks were not substantially transformed and accordingly, the key blanks were required to be individually marked with the country of origin. The cutting of foreign blank keys in the U.S. is analogous to the embossing of foreign dog tags in the U.S., and we find that the reasoning employed in HQ 734062 is equally applicable to this case.
You assert that the value of the dog tags is significantly increased as a result of the embossing process and that this increase in value supports a finding of a substantial transformation. However, evidence of an increase in value alone is not determinative of whether a substantial transformation occurs. We note that in response to a similar argument, the court in National Hand Tool discounted plaintiff’s argument that a substantial transformation should be found based on the value of the processing performed in the U.S., which plaintiff had described as significant, but decided the issue based solely on whether the processing resulted in a change in the name, character, and use of the article. Accordingly, based on National Juice, National Hand Tool, and the cited Customs rulings, above, we find that the dog tags are not substantially transformed by the embossing process in the U.S. and must be marked with their foreign origin.
You request that, if we find no substantial transformation of the dog tags in the U.S., that we find that the individual dog tags need not be marked. In order to find that the individual dog tags need not be marked, there must be an applicable exception in the Customs marking regulations.
As noted above, NY E83318 ruled that the marking exception in 19 CFR §134.32(g) is applicable and that the process of embossing the dog tags would obliterate any marking on the individual tags. The ruling found, however, that the finished tags must be marked to indicate that country of origin to the ultimate purchaser. In this case, the ultimate purchaser is the retail customer who orders the dog tags to specification. This holding is in accord with HQ 733676 (December 6, 1990), which held that when an article is excepted from country of origin marking under 19 CFR §134.32(g) (and the container exception in 19 CFR §134.22(d)(1)), but is not substantially transformed as a result of domestic processing, the article (or its container) thereafter must be marked by the U.S. processor who would have obliterated the marking during the processing. HQ 733676 reasoned that the purpose of the marking statute would be frustrated if a processor who is not the ultimate purchaser obliterates the mark and does not thereafter mark the article, thereby denying the ultimate purchaser his or her right to make an informed decision. Therefore, the finished article, in this case, the dog tags, must be marked in a manner to indicate the country of origin to the ultimate purchaser.
HOLDING:
Based on the information and the samples submitted, we affirm the finding in NY E83318 that the finished dog tags are not substantially transformed as a result of the embossing process performed in the U.S., and therefore the finished tags, or the container, if any, in which they are sold to the retail customer, must be marked with the foreign country of origin.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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.
Sincerely,
John Durant, Director
Commercial Rulings Division