MAR 2-05 CO:R:C:V 731572 LR
Rodney O. Thorson
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, NW.
Washington, D.C. 20005
RE: Country of Origin Marking of Sockets
Dear Mr. Thorson::
This is in response to your letter dated July 1, 1988, on
behalf of Mechanics Tools, Inc. requesting an exception from
country of origin marking requirements for certain forgings
imported from Taiwan for manufacture by its National Hand Tool
(NHT) division into sockets, socket wrench extensions and
adapters. Representative samples of the rough forgings, samples
of the finished tools and a video tape of the processing
operations have been submitted. We regret the delay in
responding.
FACTS:
The imported article is a rough forging produced on either
a cold forging press or a former. The operations described below
are performed in the U.S. in order to produce a usable socket,
extension or adapter. The finished items become parts of a
socket set with either 1/4", 3/8" or 1/2" drives, the drive sizes
most commonly used.
Domestic Processing
1. Lathing - consists of two metal removal operations to
achieve shape and dimensional requirements.
2. Drilling - this removes stock from the center of the
blank to provide a cavity necessary for bolt and fastener
clearance.
3. Centerless Grinding - each piece is run between two
grinding wheels which grind the outer wall to a specified
diameter and wall thickness.
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4. Marking - the sockets are marked with the size of the
opening and the brand name.
5. Heat Treatment - to assure that the final hardness
specifications for the product are met. The process includes
heating in a furnace for about 40 - 50 minutes, placing parts in
a "quench tank", washing, and tempering where the items are again
put in a furnace and heated to about 600 degrees F. for about one
hour.
6. Hardness and Torque Strength Tests performed.
7. Sand Blasting - to remove the scale that has formed
during the heat treating process.
8. Tumbling - in rotating drums with sand and water to
remove metal burrs and smooth surface.
9. Chemical Vibration - parts placed in machines with
stone media and chemical compound and physically vibrated to
polish the parts.
10. Acid Dip - immersion into vat of hydrochloric acid to
clean parts.
11. Plating - by nickel-chrome electroplating process.
12. Painting - of inside surfaces to achieve a uniform
appearance.
13. Quality Controls - of the work in progress at various
stages of operations.
ISSUE:
Whether the above-described processing operations
substantially transform the imported articles so that they are
excepted from individual country of origin marking requirements.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19
U.S.C. 1304), generally requires, subject to certain specified
exceptions, that every article of foreign origin imported into
the U.S. be marked to indicate the country of origin to the
ultimate purchaser in the U.S. Part 134, Customs Regulations (19
CFR Part 134), implements the country of origin marking
requirements and exceptions of 19 U.S.C. 1304. An ultimate
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purchaser is defined in section 134.1, Customs Regulations (19
CFR 134.1), as "the last person in the U.S. who will receive the
article in the form in which it was imported." The regulation
further provides if an imported article will be used in
manufacture, the manufacturer may be the ultimate purchaser if he
subjects the imported article to a process which results in a
substantial transformation. However, if the manufacturing
process is merely a minor one which leaves the identity of the
imported article intact, 19 CFR 134.1(d)(2) provides that the
consumer or user of the article, who obtains the article after
the processing, will be regarded as the ultimate purchaser.
According to U.S. v. Gibson-Thomsen Company, Inc. 27 CCPA
267 (1940), a manufacturer is considered to be an ultimate
purchaser if a manufacturing process is performed on an imported
item so that the item is substantially transformed in that it
loses its identity and becomes an integral part of a new article
with a new name, character or use. The court determined that in
such circumstances, the imported article is excepted from
individual marking. Only the outermost container is required to
be marked. See section 134.35, Customs Regulations (19 CFR
134.35).
In Midwood Industries v. United States, 64 Cust. Ct. 499,
C.D. 4026, 313 F. Supp. 951 (1970), the Customs Court considered
the effect of U.S. processing on the country of origin marking
requirements of imported steel forgings. Although the edges of
the forgings were legibly and conspicuously marked with the
country of origin at the time of importation, the mark was
obliterated or destroyed during the course of the domestic
processing. The processes involved in finishing the imported
articles included cutting, boring, facing, spotfacing, drilling,
tapering, threading, bevelling, heating and compressing. The
court found that the marking was sufficient because the
processing substantially transformed the imported forgings into
fittings and flanges. As such, the court found that the U.S.
processor was the ultimate purchaser of the imported merchandise
and that the removal of the marking during processing was
acceptable.
Although the court based its decision in part on the fact
that the processing changed a producer's forging to a consumer's
flange, the decision makes clear that numerous machining
operations were performed in the U.S. which imparted essential
characteristics to the forgings that enabled them to be used as
fittings and flanges. For example, there was testimony that the
rough forgings have no connecting ends and therefore, cannot be
used to connect pipes of matching size, the essential purpose of
fittings.
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Customs has previously ruled on the amount and kind of
further processing which would substantially transform a socket
blank. In T.D. 74-12(3), November 1, 1973, Customs determined
that the processing of fully machined components of socket wrench
sets by heat treating, grinding, vibrating, polishing to remove
scale or blemishes resulting from the heat treatment, plating,
assembly, inspection and identification marking, does not result
in a substantial transformation of the imported components within
the meaning of 19 CFR 134.35.
This decision was affirmed in a subsequent Headquarters
Ruling Letter (HQ 711320, March 6, 1981). In that case, socket
blank from Japan were to be processed in the U.S. as follows:
removal of minor imperfection from the imported socket blanks by
a grinding or wrenching process, die-stamping the blanks with an
appropriate logo, a multi-step heat treatment, vibratory
rotofinishing, chrome plating, and further assembly and packing.
Customs determined that none of these processes substantially
transformed the imported articles.
The underlying rationale for these determinations is that
the domestic processing operations are minor finishing operations
which do not change the name, character or use of the article.
See also HQ 721462 (ratchet set that is subjected to the various
minor finishing operations of the kind described in T.D. 74-12(3)
are not substantially transformed). In a subsequent ruling
involving imported sockets, Customs determined that the
processing performed in HQ 711320 would constitute a substantial
transformation if coupled with substantial machining operations.
See HQ 717662, October 25, 1981.
In contrast to the forgings in T.D. 74-12(3) and HQ 711320
which were fully machined at the time of importation, in the
present case, the forgings are imported in a rough condition with
a significant amount of machining to be done to enable the
finishing operations to be accomplished. While the imported
forgings resemble the size and shape of the finished articles,
they are not yet machined to the actual dimensions. In order to
achieve the shape and dimensional requirements, the forgings have
to be lathed, drilled to remove stock from the center to provide
a cavity necessary for bolt and fastener clearance, and ground to
make the outer wall a specified diameter and wall thickness.
These machining operations, unlike the other more cosmetic or
minor processing operations such as identification marking, sand
blasting, tumbling, and plating, change the fundamental character
of the imported article from forgings to sockets, adapters and
extensions and enable the product to be used as socket wrench
tools. We conclude that the domestic processing substantially
transforms the imported forgings into an article with a new name,
character or use.
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HOLDING:
For purposes of 19 U.S.C. 1304, the processing of imported
forgings in the U.S. in the manner set forth above constitutes a
substantial transformation and the U.S. importer/manufacturer is
considered the ultimate purchaser. Accordingly, the imported
forgings are excepted from country of origin marking under 19 CFR
134.35, provided the district director is satisfied that they
will be used only in this manner and will not be otherwise sold
and that they will reach the ultimate purchaser in their original
containers which are properly marked to indicate the country of
origin of the forgings.
Sincerely,
Marvin M. Amernick
Chief, Value, special Programs
and Admissibility Branch
cc: Special Agent in Charge, Dallas, Texas
(Attn: Nancy Sherman)