MAR-2-05 CO:R:C:V 734283
Gerald B. Horn, Esq.
Soller, Shayne & Horn
46 Trinity Place
New York, New York 10006
RE: Country of origin marking requirements for crystal, hand-
cutting of crystal, glass, blanks, increase in costs, substantial
transformation; 19 CFR 134.1(b)
Dear Mr. Horn:
This is in response to your letter dated July 29, 1991,
requesting a ruling on behalf of your client, Galway Irish
Crystal, concerning the country of origin marking requirements
for crystal items blown in various countries and cut in Ireland.
A meeting was held at Customs Headquarters on October 8, 1991,
with you, another attorney in your firm, C.J. Ericson, and
officials of the Customs Service to discuss this case. At the
meeting samples of an uncut and a cut crystal bowl, crystal
basket, and crystal vase were presented for our consideration.
Subsequently, a supplemental submission dated January 9, 1992,
including a catalogue was submitted.
FACTS:
Galway Irish Crystal (Galway) is a manufacturer of hand-cut
crystal items. Galway currently is purchasing "blanks" blown in
Czechoslovakia, Ireland, Austria, Portugal and Germany. The
blanks consist of items made from lead crystal pellets and heated
to a molten state in a furnace and placed within a mold in order
to arrive at the basic shape. They are cooled and placed in a
kiln and annealed. The blanks are shipped to Ireland. Although
they have the basic shape of the finished article their edges are
rough, the color is cloudy and they contain numerous
imperfections. All the blanks are manufactured by machine.
In Ireland each piece is individually inspected to determine
if the imperfections in the blanks can be hidden during the
cutting process. Each piece is then individually marked by hand
with the pattern which it will receive. The individual pieces
are then given to a skilled craftsman who performs all of the
hand-cutting and grinding. These are hand-craftsman who work at
individual grinding wheels with cutting blades of different
dimension depending upon the specific cuts that are made. Each
of these craftsman have undergone a seven year apprenticeship
before earning the title "master craftsman". Care is taken to
help to ensure that any impurities in the crystal are hidden by
their being incorporated into the cutting process. All the
cutting done in Ireland is done by hand.
Following the initial cutting process, the pieces are
subject to additional grinding and finishing. The pieces are
then treated to acid polishing at a high temperature to remove
acid or other impurities, and are then sent for final polishing
and packing. In the event that any of these pieces are found not
up to Galway's standards, they are returned for additional
individual cutting, grinding and/or polishing as needed. If they
cannot be brought up to proper standards, they are either
converted to scrap and recycled or sold as factory seconds. It
is noted that all of the hand cuts are done in Ireland. The
finished crystal is inspected and packaged.
You have submitted cost figures which show that more than 71
percent of the cost of the cut crystal is attributable to the
Irish operations. There is also a substantial increase of the
price when these crystal pieces are sold at the retail level.
The sample blanks are cloudy in appearance with rough edges.
There are also numerous imperfections such as air bubbles. The
finished items contain numerous intricate cuts. The appearance
is clear and all the edges are smooth.
The sample vase is cut with a pattern known as leah. This
pattern involves cuts on most of the outer surface area. The
bottom of the vase is cut with a starburst pattern with 12 cuts.
There are a series of deep straight cuts on the bottom 2 inches
about a 1/4 inches wide. In the middle section there are a
series of intricate cuts that they resemble diamonds with sharp
points. Above the pattern with diamond type cuts, there is a
series of cuts that go around the vase that resemble a three leaf
pattern. Separating the patterns are circular cuts. The top
edge of the vase has series of connected oval cuts about 1/2 inch
wide by 1/4 inch in lenghth. All edges are smooth.
The sample bowl is 8 inches wide and 4 inches deep. It is
cut with a leah pattern which the same as the vase. The bottom
has the starbust pattern cut into it. The bottom half of the
outside of the bowl is cut with intricate wedge cut in diamond
with sharp diamonds. Approximately 1/2 inch above the diamonds a
series of cuts in a three leaf pattern that circle around the
entire bowl. Along the top edge of the bowl there is a series
of flat cut in a crescent or semi-circular shape that ring the
entire bowl. The cuts on the bowl appear to be intricate and
cover most of the outter surface area of the bowl.
The sample basket is about 10 inches across and about 6
inches across. It is cut with the same leah pattern as the bowl
and vase. The starburst pattern is on the bottom of the basket.
Above the bottom there is the diamond points which followed by
three leaf pattern, and the edges has the crescent shape cuts.
The handle has a combination of different cuts.
ISSUE:
Does the extensive hand-cutting of the crystal items in
Ireland constitute a substantial transformation of the crystal
blanks?
LAW AND ANALYSIS:
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 U.S. shall be marked in a
conspicuous place as legibly, indelibly, and permanently as the
nature of the article (or 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., 27 C.C.P.A. 297 at 302 (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. The case of U.S. v. Gibson-Thomsen Co., Inc., 27
C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in
manufacture which results in an article having a name, character,
or use differing from that of the constituent article will be
considered substantially transformed.
Although Customs has previously considered the cutting of
crystal, it has never considered a case where the cutting was as
extensive and intricate as it is in this case. In HQ 043004, May
26, 1976, Customs ruled that polishing and placing flower
designs on wine glasses was not a substantial transformation.
Similarly, in HQ 733036, April 9, 1990, Customs ruled that
simple flat cuts done in East Germany did not substantially
transform finished champagne flutes made in Austria. We noted
that the crystal stemware was completed polished glasses.
However, those cases are distinguishable from the present case,
in that the glasses were largely finished and the cuts were
superficial which added only a few decorations, while the blanks
in this case were not nearly finished but in a crude state and
could not be used. The cuts in this case were not simple cuts,
which added only a few decoration but are very extensive that
changed appearance of the articles a great deal.
We believe that the cutting of crystal blanks in this case
is more like a line of cases involving surgical instruments, in
which Customs found that extensive machining of forged blanks
into finished surgical instruments was a substantial
transformation. In HQ 732615, June 6, 1990, we stated that the
raw forgings produced in West Germany lack the essential
characteristics of surgical instruments. The milling and the
intricate series of cuts that create ratchet, teeth, inside rings
and boxlock are extensive operations. The machining, milling,
heat treating, polishing, and other significant amount of
processing done in Pakistan or Hungary results in articles that
have new and different characteristics and give the surgical
instruments their basic character. Similarly, the crystal blanks
in this case are in a crude state that need of a great deal of
further processing before they can be sold as fine pieces of cut
crystal.
To determine if the work done in Ireland results in a
substantial transformation it is necessary to compare the
articles that are brought into Ireland with the articles that are
exported from Ireland. The articles that are brought into
Ireland are crude crystal blanks which are manufactured in a
country such as Czechoslovakia. The blanks do have the general
shape and dimensions of the finished articles, but they are in a
very unfinished condition. The edges of blanks are very rough,
and their appearance is cloudy and they contain numerous
imperfections such as air bubbles. They are then sent to Ireland
for extensive hand-cutting. The blanks are unusable in the
commercial sense until the extensive hand-cuts are made in
Ireland. Extensive work is necessary in order to make the blanks
into the finished articles.
The articles which are exported from Ireland to U.S. are
elaborately finished pieces of cut crystal such as the sample
vase, bowl, and basket. We note that these hand-cuts require an
extensive amount of labor and skill. The cuts are performed by
highly trained skilled craftsman who spend many years
apprenticing to learn the craft of cutting crystal. Most of the
surface area of the finished articles are filled with deep and
intricate hand-cuts.
In applying the traditional substantial transformation test
that of a change in the name, character or use, we believe that
the extensive hand-cuts create a different article of commerce.
The finished crystal pieces are decorative items which are
primarily bought to be displayed while the blanks are crude and
unfinished. Consequently they are in a commercial sense very
different articles. This can be seen from the extensive increase
price of the cut pieces. The blanks costs only a few dollars to
make, but the finished cut pieces sell at wholesale for a great
deal more. The fundamental character can be seen by observing
the sample blanks and the finished cut pieces of crystal.
Although the blanks have the general shape of a bowl or a vase,
or a basket, they are at such a preliminary stage of production
that they have not yet acquired their essential character.
Extensive and intricate processing involving a great time and
skill is necessary to complete the finished articles. It is the
hand-cutting that makes the crystal merchantable.
These are primarily decorative items, which are designed to
be prominently displayed in a home. They are also often given as
gifts for special occasions. The cut crystal pieces are bought
by consumers because of their appearance and it is the intricate
"decorative" cuts that creates their aesthetic appeal. In other
words, the hand-cuts are the key factor which make the crystal
blanks into finished pieces which can be displayed. If a
consumer simply wanted a vase, a bowl, or a basket they would
could buy one for a great deal less money. To dismiss the
extensive cutting operation would be to dismiss the main reason
why consumers are buying the product. In many ways, cut crystal
is similar to a work of art and cutting of the crystal blank is
similar to putting a painting on a canvass or the carving a
piece of wood. The essence of the product is in the design and
its appearance.
The use is also changed as a result of the cutting done in
Ireland. Although the sample blanks are dedicated to use as a
vase, basket, or bowl and have the general size and shape of the
finished article, as already noted, the primary use of these cut
are decorative as items to be displayed. The crude blanks can
not be displayed as fine pieces until they are cut. The
primarily reason why the crystal articles are often given as
gifts on special occasions is because of their aesthetic appeal.
These are not primarily utilitarian articles. In effect, the
blanks have minimal commercial value until they are cut because
they at a such a preliminary stage production. Until cut the
crystal is not merchantable. The name is also changed from a
crystal blank into a piece of fine cut crystal. Customs has
previously indicated that the cutting of a raw diamond into a cut
gem was a substantial transformation. See TD. 44370-11. This
case is similar in that a crude item with a basic form is changed
into an object of which valued primarily for its aesthetic
appearance by the work of highly skilled craftsmen.
Significantly, the cutting of the crystal is not a simple
finishing operation, which only enhances an already complete
item, but a highly skilled labor intensive operation which adds
significant value and changes the character of a crude blank.
In Uniroyal Inc. v. United States, 3 C.I.T. 220, 542 F.Supp 1026
(1982), aff'd, 702 F.2d 1022 (Fed. Cir 1983), the Court of
International Trade considered the extent and nature of the
processing operations performed in the United States and whether
the fundamental character of the article had been changed by such
a process. The processing done in Ireland by cutting the crystal
is far more extensive than the manufacture of the blanks. The
extensive and intricate cuts involve a greater amount of time,
labor, and skill than the manufacture of the blanks. The
operations performed in Ireland are carefully performed in
Ireland by hand, while initial manufacture of the blank is done
entirely done by machine. The costs involved in Ireland
compromise more than 71 percent of production costs of each piece
of crystal.
In Superior Wire, a Div. of Superior Product Co. v. U.S. 11
CIT 608, 669 F.Supp. 472, (1987), aff'd, 7 Fed.Cir 43, 867 F.2d
1409 (1989), the trial court noted that a value added test has
appeal in many situations because it brings a common sense
approach to a fundamental test that may be easily be applied to
some products. Here there can be little doubt that there is an
extensive increase value in cutting the blanks into the finished
pieces. The blank costs only a few dollars to make, but the
finished cut pieces sell at wholesale in the case of the basket
for $, in the case of the vase for $ and for the bowl also for $.
Finally, in accordance in prior rulings, we want to point
out that if the cuts on a piece of crystal are minimal then
there would be no substantial transformation. Additionally, if
the cuts are made in two or more countries, then the work
probably would not be extensive enough for a substantial
transformation to have occurred in any of those countries. In
other words, in order to substantially transform crystal by
cutting, the cutting must be extensive involving a great deal of
work and time and it must be done in a single country.
HOLDING:
For the reasons indicated above, the hand-cutting of the
crystal blanks in Ireland is a substantial transformation.
Therefore, the country of origin of the finished cut crystal
pieces is Ireland.
Sincerely,
John Durant, Director
Commercial Rulings Division