MAR-2-05 CO:R:C:V 735133 RSD
Marianne P. Basham, Esq.
121 South Wilke Road
Arlington Heights, Illinois 60005
RE: Country of origin marking for padlocks with imported parts
assembled in the United States; locks; assembly; substantial
transformation; parts; container marking; using pressure
sensitive tape; permanent; 19 CFR 134.35; 19 CFR 134.32(d); 19
CFR 134.32(g); HQ 733299
Dear Ms. Basham:
This is in response to your letter dated April 23, 1993,
requesting a ruling concerning the country of origin marking
requirements of imported components which are assembled in the
United States to make a finished padlock. Letters dated May 27,
1993, and October 15, 1993, supplementing your request, have been
received. Samples of the components and the finished lock were
also submitted. We regret the delay in responding. You also
request that your client's name, the lock manufacturer, and
information regarding one of the manufacturing processes
[plating] be kept confidential because if this information became
public, it could injure your client's competitive position. Your
client's name will not be disclosed in the ruling and all
bracketed information regarding the manufacturing process will
not be disclosed on copies of this ruling made available to the
public. In a telephone conversation on April 28, 1994, with a
member of my staff, you indicated that because of the issuance of
proposed rules for determining the country of origin of imported
merchandise, you do not want Customs to rule on the marking of
the padlocks when there are multiple source countries for the
lock components. Accordingly, this ruling is limited to facts as
presented in your ruling request and subsequent submissions. If
the facts change, an additional ruling regarding those changed
facts may be necessary.
FACTS:
Your client [ ] will be producing several styles of
padlocks made of steel or brass from imported parts and
assemblies. Currently your client intends to import certain lock
parts and assemblies manufactured by various firms located in
Taiwan. The manufacturers of the parts and assemblies will vary
depending on market conditions, quality and competitive pricing.
The following sample parts of the lock were submitted: a) lock
body, b) shackle, c) shackle spring, d) retainer, e) locking
balls, f) cylinder, g) coverplate, h) assembled lock and keys.
All of the parts of the lock will be of foreign origin except for
the coverplate screw. For purposes of this ruling, it is assumed
that all the parts, except for the U.S. coverplate screw are
products of Taiwan. The coverplate screw will be manufactured
and sourced in the United States.
The individual parts and assemblies will be purchased in
bulk. You indicate that the imported parts will be subjected to
further processing the United States which will result in a
finished padlock. Our examination of the imported parts reveals
that the post importation processing is minor. Although it is
indicated that the parts will be subjected to some sizing by
filing, and/or grinding, finishing of the cylinder by coding,
cutting, and final assembly of the individual parts into the
finished units, the samples of the imported parts seem to be
almost completely finished. Therefore, any alternations that are
performed appear to be minor in order to permit smooth operation
of the parts. The processing is described as follows:
The first step in assembling the pad lock in the U.S. is to
inspect and alter the shackle fit. The next step is to inspect
and alter the retainer. After the retainer is inserted, the
actuator tool is inserted and rotation action is enacted. The
worker checks for smooth movement. If the movement is binding or
restrictive, the retainer will be removed and will be altered by
filing or milling, and the worker will reinstall the retainer.
The Z-body component is assembled by having the shackle
spring installed and altered. The fitted shackle is inserted.
The locking balls are greased and positioned. Then the altered
retainer is inserted. An actuator tool is inserted and the lock
is opened and closed for the testing of smooth operation of the
complete locking mechanism. If the operation is not smooth, the
product is rejected and inspected for needed alteration.
The machine operators will code the keys in accordance to
customers' specifications. In doing this, the operator must set
cutting blades to the proper code. The cylinder must also be
coded. The technician will insert the blade tool into the
cylinder and will rotate the cylinder 180 degrees. Then the
technician will insert the proper code series of pins which match
the code of the key pair. The cylinder is then rotated 90
degrees forward and returned to zero position and then rotated 90
degrees in reverse, checking for smooth operation in both
directions.
The final assembly consists of installing the cylinder into
the z-body. The cylinder cover plate is positioned and the cover
plate nut is positioned. A screw is inserted and rotated into
the nut to the prescribed torque. The shackle is closed and the
padlock shackle is opened and closed numerous times for the
inspection of the fully assembled padlock. The duplicate key is
inserted and tested. If the padlock does not function smoothly,
it will be disassembled and altered as needed in order to pass
final inspection. In addition, certain customization options
will be offered on the brass locks, which will be performed in
the United States subsequent to importation. It is estimated
that thirty to forty percent of the cost of the finished product
is attributable to work performed in the United States. No
information concerning the amount of time involved in making the
lock has been presented.
The finished padlock will be sealed in a plastic bag and
packed into a chipboard box with keys cut to code. The chipboard
box will be sealed with pressure sensitive tape and marked
"Assembled U.S.A." "Parts Taiwan". The padlock is intended to be
sold to the ultimate purchaser at retail in the United States in
this packed condition.
ISSUES:
Do the imported components used in making the padlocks have
to be individually marked to indicate their country of origin?
Can the finished padlocks be marked "Assembled U.S.A. Parts
Taiwan"?
Can the package in which the padlock is sold be marked
instead of marking the lock itself?
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).
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and the 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. In such circumstances, the
imported article is excepted from marking. The outermost
containers of the imported articles shall be marked. (See 19 CFR
134.35).
This case concerns the assembly of imported parts in the
United States to make the finished padlocks. In determining
whether the combining of parts or materials constitutes a
substantial transformation, the issue is the extent of the
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).
In C.S.D. 85-25, (HQ 071827), (September 25, 1984), Customs
held that an assembly will not constitute a substantial
transformation unless the operation is "complex and meaningful."
Customs criteria for whether an operation is "complex and
meaningful" depends on the nature of the operation, including the
number of components assembled, number of different operations
involved, and whether a significant period of time, skill, detail
and quality control are necessary for the assembly operation.
This criteria for determining whether a substantial
transformation occurs is applied on a case-by-case basis. In
C.S.D. 80-111, HQ 710564, (September 24, 1980), Customs
considered whether the domestic manufacturing processes through
which imported ceiling fan components become finished fans
constituted a substantial transformation. In this ruling, it was
stated that mere assembly of parts will not constitute a
substantial transformation. We concluded that the assembly of
the fan was not a substantial transformation because the
processes were basically assembly line procedures which did not
physically alter the components. Furthermore, we noted that the
manufacturing processes were simple combining processes that did
not require a great deal of skill.
Customs on several occasions has considered whether imported
components used in making a locking apparatus were substantially
transformed when they were combined with U.S. components. In HQ
734440 (March 30, 1992), Custom ruled that a lock apparatus was
substantially transformed in the U.S. as a result of combining it
with the U.S. manufactured pieces. We noted that the predominant
expense of the assembled lock was in the parts produced in the
U.S. The imported piece was a generic mechanism which was
inserted into the remaining pieces which required extensive
manufacturing and development.
In HQ 734629 (October 1, 1992), we ruled that a lock
cylinder was not substantially transformed after entry into the
U.S. The lock cylinder was not attached to the remaining pieces
of the lock until after it was received by the installer. The
lock cylinder did not lose its separate identity when combined
with the remaining pieces. The cylinder remained visible even
after assembly by the installer. The attachment process was a
simple screw mount, that could be easily replaced by screwing it
in or out.
In HQ 734227 (June 26, 1992), Customs found that chrome
plated levers that were to be assembled with locksets did not
lose their separate identity when they were combined with
domestic locksets to form completed lever locksets. The levers
were a significant component of the completed article and their
assembly in no way changed the character of the levers. The
levers were clearly recognizable both before and after the
assembly. The lever was a separate component which had to be
disassembled from the rest of the lockset prior to its
installation.
In cases where Customs has determined that there was a
substantial transformation of imported locked components that
were assembled in the United States, there were usually
significant U.S. components involved. This case differs from
these prior rulings because the padlock, with the exception of a
U.S. screw, is assembled from components made in one country,
Taiwan. The question that must be resolved in this case is
whether the assembly of these imported components is complex and
meaningful enough to constitute a substantial transformation.
Based on the description of the assembly process and an
examination of the sample parts and finished lock, we conclude
that the U.S. processing is not complex enough to constitute a
substantial transformation. Rather, the production in the United
States appears to be a simple manual assembly operation of
basically finished parts. Most of the cost in making the
finished lock is attributable to the operations performed in
Taiwan and there is no indication that a great deal of time or
significant skill level is involved in assembling the lock. Much
of the work done in the United States involves testing the locks
to see that they function properly. Accordingly, the imported
parts are not substantially transformed, and the finished
padlocks must be marked to indicate that their country of the
origin is Taiwan.
Although the individual components for the padlocks are not
substantially transformed by the assembly done in the United
States, the individual components of locks can be excepted from
marking under 19 CFR 134.32(g). Under 19 CFR 134.32(g) imported
merchandise is excepted from marking if it will be processed in
the U.S. by the importer or for his account other than for the
purpose of concealing the origin of such article and in such
manner that any country of origin marking would necessarily be
obliterated, or destroyed, or permanently concealed. Many of the
components are internal to the lock and will be concealed when
lock is fully assembled. The ultimate purchaser of the lock will
be unable see any marking on these parts. You also claim that
the lock body and shackle could not be marked prior to
importation into the U.S. without damaging these parts or driving
up the costs significantly. Therefore, it makes little sense to
require each individual part of the lock to be marked at the time
of importation, and the individual lock parts are excepted from
marking under 19 CFR 134.32(g). However, Customs has ruled that
an article excepted from marking at the time of importation under
19 CFR 134.32(g) must be marked to indicate the country of origin
after processing unless such processing constitutes a substantial
transformation. The purpose of such a requirement is to ensure
that the ultimate purchaser is advised of the country of origin.
See HQ 734566 (June 25, 1992). Since the lock parts are not
substantially transformed by their assembly in the United States,
the finished lock must be marked to indicate that its country of
origin is Taiwan.
Instead of marking the lock itself, your client wants to
mark the box in which the lock is sold. Articles for which the
marking of the containers will reasonably indicate the country of
origin of the article can be excepted from country of origin
marking under 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d).
Because the imported components for the lock will be taken out of
the containers they are imported in and repacked into a new
container after assembly, 19 CFR 134.34 is applicable. 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 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.; (2) The importer arranges for supervision of the
marking of the containers by Customs officers at the importer's
expense or to secure such verification, as may be necessary by
certification and the submission of a sample or otherwise, of the
marking prior to liquidation of the entry. Accordingly, the
padlock can be excepted from marking provided that the Customs
officals at the port of importation are satisfied that the box in
which the lock will be sold to the ultimate purchaser is properly
marked to indicate the country of origin of the lock and the
requirements of 19 CFR 134.34 are followed.
You first proposed to mark the padlocks and packaging
"Assembled in U.S.A., Parts Taiwan" In a later submission, the
proposed marking was modified to "Assembled in U.S.A. from parts
made in Taiwan". In HQ 733299 (July 17, 1990) Customs ruled that
the assembly of Japanese guitar parts in the United States was
not a substantial transformation, but approved the marking
"Assembled and Finished in U.S. from Parts Made in Japan", or
words to similar effect which clearly indicated the Japanese
origin of the parts. Accordingly, the proposed marking for the
locks "Assembled in U.S.A from parts made in Taiwan" would be
acceptable country of origin marking. However, the marking
Assembled In U.S.A., Parts Taiwan is unacceptable because the
words "made in" or a similar phrase was not included in the
marking. See 19 CFR 134.46.
HOLDING:
The Taiwanese lock components are not substantially
transformed by the processing done in the United States. The
finished locks can be marked "Assembled in the U.S. from Parts
Made in Taiwan" or a similar phrase. The individual components
of the pad locks do not have to be marked if the finished lock is
marked. The container, in which the finished lock is sold to the
ultimate purchaser, can be marked to indicate the country of
origin of the padlock provided that the district director at the
port of entry is satisfied that the finished locks will be sold
only in a properly marked container, and the other provisions of
19 CFR 134.34 are followed.
Sincerely,
John Durant, Director
Commercial Rulings Division