MAR-2-05 734750 ER
S. Richard Shostak, Esq.
Stein, Shostak, Shostak & O'Hara
Suite 1240
3580 Wilshire Blvd.
Los Angeles, California 90010-2597
RE: Country of Origin Marking Requirements for Computer Switch
Housing Subassemblies; Substantial Transformation; Ultimate
Purchaser; Assembly; 19 U.S.C. 1304(a)(3)(H); 19 CFR
134.32(h); 19 CFR 134.35.
Dear Mr. Shostak:
This is in response to your letter dated July 31, 1992, and
your supplemental submissions dated March 18 and May 27, 1993, on
behalf of your client, Maxi Switch, in which you request a ruling
concerning the country of origin marking requirements for switch
housing subassemblies for computer keyboards which are imported
into the U.S. from Mexico and assembled into finished computer
keyboards subsequent to importation.
FACTS:
Maxi Switch assembles switch housing subassemblies in Mexico
from U.S. and foreign components, and imports them into the U.S.
under subheading 9802.00.80 of the Harmonized Tariff Schedule
("HTS"). After importation, the switch housings are shipped to
Maxi Switch's Tucson, Arizona plant where they are subjected to
further assembly operations. In essence, these assembly
operations consist of attaching the keywire brackets and keyrods
to the switch housing by means of an adhesive; attaching the
keycaps in the correct configuration; placing the printed circuit
board ("PCB") into the switch housing and plugging the cable into
the connector on the PCB; placing the enclosure top over the
switch housing and securing it with six screws; affixing labels;
testing and packaging.
Included in your submission was a flow chart describing the
assembly operation and bills of materials identifying which
subassemblies and components are foreign or domestic in origin.
The value of the imported Mexican switch housing is $ , of
which $ is non-dutiable as U.S. goods returned. Also of
foreign origin are the button set valued at $ ; the Mexican PCB
valued at $ ; the cable valued at $ and the Led Label valued
at $ . The total value of the keyboard after assembly in the
U.S. (without labor) is $ of which approximately $ is
attributable to the foreign subassemblies. A sample keyboard
(before U.S. assembly operations) was submitted with the ruling
request.
ISSUE:
What are the country of origin marking requirements for
switch housing subassemblies from Mexico which are subjected to
further assembly operations subsequent to importation into the
U.S.?
LAW AND ANALYSIS:
The marking statute, 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 the English name of the country of origin of the
article. Part 134, Customs Regulations (19 CFR Part 134),
implements the country of origin marking requirements and
exceptions of 19 U.S.C. 1304.
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,
by 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).
The "ultimate purchaser" is defined generally as the last
person in the U.S. who will receive the article in the form in
which it was imported. 19 CFR 134.1(d). If an imported article
will be used in domestic manufacture, the manufacturer may be the
"ultimate purchaser" if he subjects the imported article to a
process which results in a substantial transformation of the
article. However, if the manufacturing process is a minor one
which leaves the identity of the imported article intact, the
consumer or user of the article, who obtains the article after
the processing, will be regarded as the "ultimate purchaser." 19
CFR 134.1(d)(1) and (2).
For country of origin marking purposes, a substantial
transformation of an imported article occurs when it is used in
the U.S. in manufacture, which results in an article having a
name, character, or use differing from that of the imported
article. Under this principle, the manufacturer or processor in
the U.S. who converts or combines the imported article into the
different article will be considered the "ultimate purchaser" of
the imported article, and the article shall be excepted from
marking. However, the outermost containers of the imported
articles must be marked. 19 CFR 134.35. The issue of whether a
substantial transformation occurs is determined on a case-by-
case basis.
In determining whether the combining of parts or materials
constitutes a substantial transformation, the issue is the extent
of operations performed and whether the parts lose their identity
and become an integral part of the new article. Belcrest Linens
v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2
Fed. Cir. 105, 741 F.2d 1368 (1984). Assembly operations which
are minimal or simple, as opposed to complex or meaningful, will
generally not result in a substantial transformation. See,
C.S.D.s 80-111, 85-25, 89-110, 89-118, 89-129, 90-51 and 90-97.
In your submission you request an exception to marking the
switch housing subassemblies pursuant to section 134.32(h),
Customs Regulations (19 CFR 134.32(h)). 19 U.S.C. 1304(a)(3)(H)
and 19 CFR 134.32(h) authorize an exemption from marking where an
ultimate purchaser, by reason of the character of the article or
by reason of the circumstances of its importation, must
necessarily know the country of origin of the article even though
it is not marked to indicate its origin. To qualify for this
exception, the importer must be the ultimate purchaser of the
imported article. See, HQ 730243 (March 5, 1987). Therefore, in
the instant case Customs must be satisfied that a substantial
transformation has occurred pursuant to 19 CFR 134.35, thereby
establishing that the manufacturer in the U.S., Maxi Switch, is
the "ultimate purchaser" of the imported article.
At issue before the Court of International Trade in National
Hand Tool Corp. v. U.S., Slip Op. 92-61 (CIT April 27, 1992),
aff'd, No. 92-1407 (CAFC February 3, 1993) was whether certain
imported hand tool components underwent a substantial
transformation in the U.S. There, plaintiff imported hand tool
components, most of which were either cold-formed or hot-forged
into their final shape in Taiwan before importation into the U.S.
Certain articles were heat-treated in the U.S. while others
underwent heat treatment in Taiwan. (The heat treatment is a
multi-stage operation in which the articles are heat treated,
oil-quenched and tempered, strengthening the steel by
carburization which increases the carbon content of the steel's
surface.) In Taiwan or the U.S., after heat treatment, the
components were cleaned by sand-blasting, tumbling and/or
chemical vibration to prepare their surfaces for electroplating.
Subsequent to the post-importation processing, the
components in National Hand Tool Corp. were assembled. The
assembly operations were manual and required some skill and
dexterity. The court found that the character of the articles
remained unchanged after the heat treatment operations, the
electroplating and the assembly and noted that, except for the
speeder handle bars, the components retained their final shape
formed in Taiwan. Additionally, the court noted that the use of
the imported articles was predetermined at the time of
importation. Accordingly, the court held that the imported
articles did not undergo changes in name, character or use and
therefore were not substantially transformed in the U.S. and the
articles had to be marked with country of origin.
In HQ 734566 (June 25, 1992), Customs determined that the
essential components of a water pump were not substantially
transformed when assembled in the U.S. even though none of the
imported parts were to be sold individually or as replacement
parts. Generally the major components, notably the casting, were
of foreign origin but on occasion were sourced in the U.S.
Customs noted that the casting was the most costly and largest
component used in the completed water pump and remained visible
after assembly. Relying on the rationale followed in National
Hand Tool, Customs ruled that the casting could not be considered
to be substantially transformed when merely assembled with the
other essential components. In so finding, Customs noted that
"none of the essential components is substantially transformed
when assembled in the U.S. Each essential component, including
the casting, does not change in name, character or use as a
result of the assembly." Additionally, at the time of
importation, the use of the components was predetermined and the
assembled components retained their original shape, form and no
change in the components' microstructure or chemical composition
resulted. Consequently, the components were not excepted from
marking.
In HQ 734382 (February 19, 1992), Customs determined that
wheels are not substantially transformed when they are assembled
with other parts to make casters. Specifically, Customs found
that the wheels did not lose their identity when assembled with
the other parts; that the wheels were probably the most
significant components of a completed caster and provided the
essential character; the wheels were the dominant components
enabling mobility; the buyers of casters were likely to be
concerned about the wheels they would be buying; assembly of the
caster did not change the characteristics of the wheel; and the
wheels were clearly recognizable before and after assembly.
Customs also noted that at the time of importation, the wheels
are completely finished. Accordingly, the wheels were found not
to be substantially transformed when combined with the other
parts to form the finished caster and therefore had to be
individually marked to indicate their country of origin. Because
the wheels are combined with other articles before delivery to
the ultimate purchaser, the wheel had to be marked in a manner
which clearly showed that the origin indicated was that of the
wheels alone (e.g. "Wheel Made in Taiwan").
The circumstances in this case are similar to those in the
rulings and National Hand Tools case, described above, where no
substantial transformation was found to result. The switch
housing subassembly is the most costly component and is one of
the most significant components of the keyboard imparting to the
keyboard its overall shape and size. Its use is predetermined at
the time of importation and it remains visible after assembly
with the other components, retaining its original shape and form.
Aside from the attachment of various components to the
subassembly, no other processing is performed. Significantly,
like the switch housing, one of the other most important
components, the PCB, is also of Mexican origin. Additionally,
almost all of the keyboard components are imported and only the
less significant components are of U.S. origin.
The end result of the assembly operations performed by Maxi
Switch is not a new and different article. The switch housing,
in its condition after all processing performed by Maxi Switch is
complete, is an article which retains its separate identity and
remains clearly recognizable as a switch housing. Consequently,
based on the totality of the evidence presented, we find that the
switch housing is not substantially transformed by virtue of the
operations performed after importation and accordingly that it
must be marked with country of origin.
Because the switch housings are combined with other articles
before delivery to the ultimate purchaser, the origin of the
switch housing should be clearly designated by means of a marking
such as "Switch Housing Made in Mexico", or words to similar
effect. See 19 CFR 134.14.
HOLDING:
Switch housing subassemblies imported into the U.S. and
assembled with other components into finished computer keyboards
are not substantially transformed into new an different articles.
Accordingly, the provisions of 19 U.S.C. 1304(a)(3)(H) and 19 CFR
134.32(h) are not applicable and the switch housings are not
excepted from country of origin marking.
Sincerely,
John Durant, Director
Commercial Rulings Division