MAR-2-05 RR:CR:SM 561661 KSG
Tahir Choudhry
East West Instruments, Inc.
189 Poplar Place, Suite #6
North Aurora, Illinois 60542
RE: Country of origin of surgical instruments; substantial transformation; subheading 9802.00.60; “further processing” requirement
Dear Mr. Choudhry:
This is in reference to your letter of February 28, 2000, requesting a binding ruling concerning the country of origin marking and eligibility for classification in subheading 9802.00.60 of the Harmonized Tariff Schedule of the United States (“HTSUS”) of certain surgical instruments. Samples were submitted with your request.
FACTS:
This case involves five types of surgical instruments: operating scissors; iris scissors; mayo scissors; a mayo hegar needle holder; and a crile forcep. The surgical instruments will be manufactured in a three-stage process. The first step, which is performed in the U.S., involves: cutting the U.S.-origin stainless steel bars to length; heating and forging the cut bars into the basic shape of the intended instrument; inspecting the forgings; annealing and trimming the forgings; and subjecting the forgings to a cold stamping process in which the trimmed forgings are straightened. The cost of these operations that are performed in the U.S. is estimated to represent 55% of the total manufacturing cost of the finished instruments.
The forgings are then shipped to Pakistan where the following processing is performed: initial machining and surface grinding of the forgings; the initial assembly of the forgings (the boxlock pins are inserted into the hinge pins and the instruments are aligned); the initial finishing of the instruments, which involves grinding over the entire length to obtain a uniform finish; the jaw and teeth area are beveled to remove sharp edges; and the scissors blade edges are sharpened. The forgings undergo heat treatment and final alignment. The forgings are then shipped back to the U.S. for final finishing.
The cost of the operations performed in Pakistan is estimated to represent 9.5% of the total cost of manufacture.
The third step of processing, which is performed in the U.S., includes: an initial ultrasonic cleaning; passivation bath; final buffing and machine polishing; inspection; stamping the instruments with its model number and etching with the logo; and ultrasonic cleaning and packaging for retail sale. The cost of the final operations performed in the U.S. is estimated to represent 25% of the total cost of manufacture.
ISSUES:
What is the country of origin of the surgical instruments manufactured as described above?
Whether the returned unfinished surgical instruments are eligible for a partial duty exemption under subheading 9802.00.60, HTSUS.
LAW AND ANALYSIS:
Country of origin marking
Section 304 of the Tariff Act of 1930, as amended (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. 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. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940).
Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and 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.
For country of origin marking purposes, a substantial transformation of an
article occurs when it is used in manufacture, which results in an article having a name, character, or use differing from that of the article before the processing However, if the manufacturing or combining process is merely a minor one which leaves the identity of the article intact, a substantial transformation has not occurred. Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026, 1029 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983).
In National Hand Tool Corp. v. United States, 16 CIT 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), the court considered sockets and flex handles which were either cold formed or hot forged into their final shape prior to importation, speeder handles which were reshaped by a power press after importation, and the grip of flex handles which were knurled in the U.S. The imported articles were then heat treated which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together which the court stated required some skill and dexterity.
The court determined that the imported articles were not substantially transformed and that they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold formed or hot forged “into their final shape before importation,” and that “the form of the components remained the same” after the assembly and heat treatment processes performed in the U.S. The court also found that there was no change in use as a result of the processing performed in the U.S. Although the court stated that a predetermined use would not necessarily preclude a finding of a substantial transformation, it noted that such determination must be based on the totality of the evidence. The court then concluded that no substantial change in name, character or use occurred as a result of the processing performed in the U.S.
In HRL 559847, dated January 2, 1997, Customs considered U.S. origin stainless steel sheets cut into strips of suitable width, which were further cut into surgical instrument blanks. The blanks were then heated and hammer forged into their final shape and size. The forgings were annealed and trimmed, and cold stamped to straighten the trimmed forgings. The forgings were then shipped to Pakistan where they underwent milling operations to cut the box, ratchet, and jaw serrations into the forceps; assembled; ground; filed; heat treated, including tempering and testing for hardness; acid pickled; polished; chemical cleaned; and buffed. It was held that inasmuch as the forgings resembled the shape and size of the completed instruments upon importation into Pakistan, the operations performed in Pakistan did not substantially transform the forgings into a new and different article of Pakistani origin. Accordingly, the origin of the finished instruments was determined to be the U.S.
In HRL 560441 dated November 18, 1997, it was held that German rough forgings of surgical and medical instruments sent to Hungary where they were machined, assembled, rough polished, heat treated and cleaned, did not undergo a substantial transformation in Hungary. Similarly, in HRL 561189, dated November 5, 1998, Customs concluded that surgical instruments forged in Germany and processed into completed articles in Pakistan were a product of Germany.
We find the finishing processes performed in Pakistan in this case to be similar to those considered in HRL 559847, HRL 560441 and HRL 561189. Accordingly, pursuant to those rulings and National Hand Tool, we find that the forgings do not undergo a substantial transformation in Pakistan, and therefore, the country of origin of the finished instruments will be the U.S.--the country of origin of the forging. We note that, prior to the operations performed in Pakistan, each forging has the final shape of the finished surgical instrument. As in HRL 560441, HRL 561189 and HRL 559847, the surgical instrument forging is not changed in Pakistan to such a degree to result in a new and different article with a new name, character or use.
Since the country of origin of the finished surgical instruments is the U.S.,
19 U.S.C. 1304 is inapplicable and no country of origin marking is required by this provision.
The Federal Trade Commission (“FTC”) has jurisdiction concerning the use of the phrase “Made in the U.S.A.,” or similar words denoting U.S. origin. Consequently, any inquiries regarding the use of such phrases reflecting U.S. origin should be directed to Steven Ecklund at the FTC, at the following address: Federal Trade Commission, 6th & Pennsylvania Avenue, N.W., Washington, D.C. 20508 or by telephone at (202) 326-2841.
Subheading 9802.00.60 eligibility
Subheading 9802.00.60, HTSUS, provides a partial duty exemption for certain articles of metal which are manufactured or subjected to a process of manufacture in the U.S., exported for further processing, and returned for further processing. Duty is assessed only on the cost or value of the foreign processing, provided the documentary requirements of 19 CFR 10.9 are satisfied.
This tariff provision imposes a dual “further processing” requirement on qualifying metal articles: one foreign, and when returned, one domestic. However, not all “processing” to which articles of metal can be subjected are significant enough to qualify as “further processing,” within the purview of subheading 9802.00.60, HTSUS. See Intelex Systems, Inc. v. United States, 460 F.2d 1083 (CCPA ;1972). In C.S.D. 84-49, 18 Cust. Bull. 957 (November 15, 1983) Customs stated that:
For purposes of item 806.30, TSUS, (the precursor provision), the term “further processing” has reference to processing that changes the shape of the metal or imparts new and different characteristics which become an integral part of the metal itself and which does not exist in the metal before processing; thus, further processing includes machining, grinding, drilling, threading, punching, forming, plating, and the like, but does not include painting or the mere assembly of finished parts by bolting, welding, etc.
Pursuant to U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS, for purposes of subheading 9802.00.60, the term “metal” covers (1) the base metals enumerated in Note 3 to section XV, HTSUS; (2) arsenic, barium, boron, calcium, mercury, selenium, silicon, strontium, tellurium, thorium, uranium and the rare-earth elements; and (3) alloys of any of the foregoing. The base metals enumerated in Note 3 to section XV, HTSUS, include steel. Because stainless steel is an alloy steel, the instruments are eligible articles of metal as defined in U.S. Note 3(e) of subchapter II, Chapter 98, HTSUS.
The issue presented, however, is whether the dual processing requirement is satisfied in this case. The processing of the forgings in Pakistan, which involves machining, grinding, beveling, initial assembly and heat treatment, constitutes sufficient “further processing” to satisfy the initial foreign processing requirement of subheading 9802.00.60, HTSUS. The processing clearly imparts new and different characteristics which become an integral part of the metal itself and which did not exist in the metal prior to the processing.
The third step of processing, which is performed in the U.S., satisfies the domestic “further processing” requirement. In Headquarters Ruling Letter (“HRL”) 555536, dated October 29, 1990, Customs held that surgical instruments processed in Pakistan and returned to the U.S. for processing, including passivation, qualified for a partial duty exemption under subheading 9802.00.60, HTSUS. Customs determined that the passivation process performed in the U.S. satisfied the domestic “further processing” requirement. Customs stated that the passivation process results in the formation of a thin oxide film which restores the corrosion resistant surface to the instruments. This imparts a new and different characteristic which becomes an integral part of the metal. Also see HRL 553197,dated February 11, 1985. It appears that the passivation operation in this case is identical to that in HRL 555536. Therefore, the dual “further processing” requirement is satisfied and the surgical instruments are entitled to the partial duty exemption set forth at subheading 9802.00.60, HTSUS, provided the documentary requirements of 19 CFR 10.9 are satisfied.
HOLDING:
Based on the facts and samples presented, we find that the country of origin of the finished surgical instruments is the U.S. There is no marking requirement in accordance with 19 U.S.C. 1304 with regard to surgical instruments made in the U.S.
The surgical instruments are eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, provided the documentary requirements set forth at 19 CFR 10.9 are satisfied.
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