MAR 2-05 CO:R:C:V 734873 AT
John E. Brady, Esq.
Western Overseas Corporation
343 SO. Glasgow Ave.
Inglewood, California 90301
RE: Country of origin marking requirements for imported
castings further processed in the U.S.; substantial
transformation; ultimate purchaser; 19 CFR 134.35
Dear Mr. Brady:
This is in response to your letter dated October 26, 1992,
on behalf of SBC, Ltd. ("SBC"), concerning the country of origin
marking requirements for iron castings imported from China that
are to be further processed in the U.S. into automobile brake
rotors. Samples of the imported casting and finished brake
rotor, and additional information detailing the U.S. operations
were submitted on May 12, 1994, and received by this office on
May 19, 1994. We regret the delay in responding.
FACTS:
You state that SBC intends to import castings which are made
in China, into the United States. Once imported, SBC further
processes the castings into automobile brake rotors. The U.S.
processing consists of the following operations:
1. The imported castings are chucked up twice on a
computer controlled turning center to remove
.06-.12 inch of material from almost all external
surfaces.
2. The part then has 5 to 10 large diameter holes
drilled, counter bored, and sometimes tapped, for
stud or bolt installation. 2
3. Bearings and studs are then installed by means of
manual or power assisted action presses, and
balanced if necessary.
4. The part then is ground on the two friction surfaces
producing a fine finish, after which it is inspected
and boxed.
You also state that the approximate cost of the imported castings
compared to the total cost of a finished brake rotor ranges
between 55 to 60 percent depending on the size of the casting.
An examination of the samples indicates that the imported
casting is a substantially finished article. The iron casting is
disc-like and round. A large hole runs through the middle of the
casting. Small slots appear around the entire outer
circumference of the casting. You submit that in China, the
imported castings are cast in a standard automotive grade of grey
iron called SAE J431 G3000. The finished brake rotor has the
same characteristics and exact diameter as the imported casting
except that some of the surface area on the top and bottom of the
casting has been removed, five holes with their respective bolts
have been inserted and almost the entire surface area has a
smooth and fine finish appearance. Some surface area of the
center hole of the casting has also been removed.
You contend that the imported castings are substantially
transformed as a result of the U.S. processing and thus the
finished brake rotors are of U.S. origin.
ISSUE:
What are the country of origin marking requirements for
imported castings which are to be used in the production of
finished brake rotors in the U.S. in the manner described above?
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 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. 27
C.C.P.A. 297 at 302; C.A.D. 104 (1940).
The country of origin marking requirements for the imported
castings that are to be further processed by SBC in the U.S.
depends upon whether SBC is the ultimate purchaser of the
imported article.
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. See, 19 CFR 134.1(d). If an imported
article will be used in domestic manufacture, the manufacturer
may be the "ultimate purchaser" if he or she 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).
Substantial Transformation and Domestic Operations
For country of origin marking purposes, a substantial
transformation occurs when an article loses its identity and
becomes a new article having a new name, character or use. United
States v. Gibson-Thomsen Co., 27 CCPA 267 (1940); National Juice
Products Association v. United States, 10 CIT 48 (1986). Under
this principle, the manufacturer or processor in the U.S. who
converts or combines the imported article into a different
article will be considered the "ultimate purchaser" of the
imported article, and the article shall be excepted from marking.
However, the outermost container of the imported article must be
marked (See, 19 CFR 134.35). 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 Linen 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, 89-110, 89-129, 90-51.
The issue involved in this case is whether the imported
casting which is processed as described above in the U.S. to form
a finished brake rotor is substantially transformed into a new
article having a new name, character or use. You contend that the imported castings are substantially
transformed by SBC as a result of the U.S. processing, making SBC
the ultimate purchaser. Therefore, the imported castings should
be excepted from marking provided the outermost container which
reaches the ultimate purchaser is marked with the country of
origin "China. We disagree.
In National Hand Tool Corp., v. United States, Slip Op. 92-
61 (April 27, 1992), aff'd, 989 F.2d 1201 (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. One of the factors considered by the
court in reaching its conclusion was whether the use of the
imported components changed as a result of the processing and
assembly operations performed in the U.S. In finding that the
use of the imported components did not change, the court stated
that the use of the imported articles was predetermined at the
time of importation; each component was intended to be
incorporated in a particular finished mechanic's hand tool.
Although the court recognized that a predetermined use for
imported articles does not preclude a finding of substantial
transformation (See, Torrington Co., v. United States, 764 F.2d.
1563 (1985)), it went on to say that the determination of
substantial transformation must be based on the totality of the
evidence.
Similarly, based on the totality of the evidence in this
case, we find that the U.S. operations do not substantially
transform the imported castings.
Arguably, there may be a change in the name of the imported
casting after the U.S. processing is performed, in that it is a
raw casting before, and a brake rotor after the processing.
However, a change in the name of the product is the weakest
evidence of a substantial transformation. See, Uniroyal, Inc. v.
United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 702
F.2d. 1022 (Fed. Cir. 1983).
What is critical in ascertaining whether a substantial
transformation has occurred is whether, based on the totality of
the evidence, there has been a change in the character or use of
the imported article after the U.S. processing.
A review of the samples of the imported casting and the
finished brake rotor indicates that the imported casting is an
essentially complete article. No further processing needs to be
performed to the individual casting except finishing operations
such as drilling holes for the bolts, insertion of the bolts,
removing between .06 - .12 inch of material from almost all
external surfaces of the casting, quality checking, balancing and
packaging. The process of inserting the bolts into the drilled holes is a very simple one which involves merely pressing the
bolts in. Like the hand tool components in National Hand Tool,
the use of the imported casting is predetermined at the time of
importation. Each casting is intended to be processed into a
brake rotor. Thus, the use of the imported casting does not
change as a result of the U.S. processing.
The imported casting does not change in character as a
result of the U.S. processing. The overall shape, form as well
as outer diameter of the finished brake rotor is essentially the
same as the imported casting. None of these features of the
finished brake rotor have changed as a result of the U.S.
processing. After being assembled with the bolts, the casting
retains its original shape and form. There is no change in the
microstructure or chemical composition as a result of the U.S.
processing. See, Ferrostaal Metals Corp., v. United States, 11
CIT 470, 664 F.Supp. 535 (1987). In addition, the imported
casting is not an insignificant component, but is the essential
component, representing approximately 55 to 60 percent of the
total cost to manufacture the completed product.
Accordingly, the imported castings are not substantially
transformed when they are used to produce finished brake rotors
in the U.S. Therefore, SBC is not the ultimate purchaser of the
imported castings. Rather, the ultimate purchaser is the
person(s) who purchases the finished brake rotor in the U.S., and
the imported castings must be conspicuously, legibly and
permanently marked to indicate the country of origin "China" to
such person(s).
In the alternative, the importer may seek approval of local
Customs officials for a repacking operation conducted under
Customs supervision as provided under 19 CFR 134.34. Section
134.34, Customs Regulations (19 CFR 134.34), provides that an
exception may be authorized in the discretion of the district
director under 19 CFR 134.32(d) for imported articles which are
to be repacked after release from Customs custody under the
following conditions: (1) the containers in which the articles
are repacked will indicate the origin of the articles to an
ultimate purchaser in the U.S.; and (2) the importer arranges for
supervision of the marking of the containers by Customs officers
at the importer's expense or secures such verification, as may be
necessary by certification and the submission of a sample or
otherwise, of the marking prior to the liquidation of the entry. If approval is granted by the district director under 19 CFR
134.34, it would be acceptable to mark the finished article (or
its container) with a single, centrally-located, country of
origin marking that denotes the foreign casting as well as the
U.S. components.
HOLDING:
Imported iron castings which are used by SBC to manufacture
brake rotors in the U.S. in the manner described above, are not
substantially transformed as a result of the U.S. operations.
Thus, SBC is not the ultimate purchaser of the imported castings
and the castings must be individually marked with their country
of origin "China", unless the district director at the port of
entry approves marking after importation pursuant to 19 CFR
134.34.
Sincerely,
John Durant, Director
Commercial Rulings Division