OT:RR:CTF:TCM H237742 CKG
Port Director
U.S. Customs and Border Protection
Port of Laredo
P.O. Box 3130 Laredo, TX 78044-3130
Attn: Ray Peña
Supervisory Import Specialist
RE: Application for Further Review of Protest No. 2304-12-100141;
Country of origin marking of medical kits.
Dear Port Director:
This is in response to the Application for Further Review of Protest No. 2304-12-100141, filed on behalf of Medline, Inc. (‘Protestant”), contesting Customs and Border Protection’s assessment of marking duties on entries of medical kits.
The entries at issue were made between January 31, 2011, and February 15, 2011. Then entries were initially liquidated on December 16, 2011, December 23, 2011, and December 30, 2011, and were reliquidated on March 23, 2012, and March 30, 2012. Marking duties of 10% ad valorem were assessed on all the subject entries upon reliquidation. The Protest was timely filed on September 17, 2012.
FACTS:
At issue are entries of various medical kits, imported into the U.S. from Mexico. The kits contained numerous components, which were organized and packaged into sub-kits. The components included items such as needles, scissors, towels, catheters, sponges, scalpels, plastic bowls, forceps, gauzes, etc. The sub-kits grouped various components together into a single container—for example, a box with scissors of different sizes or a sealed bag with a catheter, needles, and blades. The components were sourced from various countries, including the U.S., Canada, Mexico, China, the Dominican Republic, South Korea, Thailand and Vietnam, were assembled into sub-kits by outside suppliers, and were packaged into a single container—the final medical kit—in Mexico. No manufacturing operations took place in Mexico. The components in the sub-kits may have had different countries of origin. Upon importation into the U.S., some kits were sold directly to hospitals and some were repacked, with additional components inserted into the finished kit.
The entries at issue were marked on their outer containers with labels containing the country of origin statement “Products of USA except those listed below:”, followed by a list of individual components and their country of origin. For example, for the pack labeled “Hand 1”, which is representative of the subject entries, the list of components is as follows:
Bag Bedside China Thailand
Bowl China Drape China
Gown/Towel China or Towel China
Stockinet China
Table cover China
Undercst pad China
Blade India
Cup Assy China
Gauze China
Ndl counter China
Skn MRK rulr China
Syringe China
Tray Prep China
On all the containers, this country of origin statement was followed by a barcode and control #, with the following statement listed below: “Assembled in Mexico by Medline Industries, Inc. Mundelein, IL 60060.”
On the opposite side of the boxes were labels containing various references to localities in the U.S., Europe, and Australia, including:
“Manufactured and Distributed By:
Mectra Labs, Inc.
Two Quality Way P.O. Box 350
Bloomfield, Il 47424.”
“EC REP European Authorized Rep:
Medical Device & QA Services
78, Stockport Road * Timperley Chesire * WA157SN
United Kingdom”
“EC REP
MDSS GmbH
Schiffgraben 41
D-30175 Hannover
Germany”
“Atrium Australia-Pacific Rim Pty. Ltd.
Level 6, 579 Harris Street
Ultimo NSW 2007 Australia”
“4G/Y18.2/S/11/USA/+A12991”
The examples listed above are representative of the entries at issue.
Your office further states that upon examining thousands of Medline kits, all of their labels contained country of origin marking errors. For example, the labels listed that the boxes contained components from China, the U.S., and Mexico, but when the boxes were opened, they had in some cases hundreds of components from countries other than those listed. Furthermore, many of the articles themselves were not marked, so the ultimate purchaser would not know the country of origin of the individual articles. Due to the errors in country of marking discovered in the Port’s examination of the subject kits, the port issued CF 4647 Notice to Mark and/or Redeliver for entries dated July 13, 2011, which had been physically examined. The port then proceeded to assess marking duties of 10% ad valorem on those entries of Medline kits which had been physically examined, as well as prior entries of Medline kits made up to 6 months earlier in January and February of 2011.
We note that the Protestant does not contest the assessment of marking duties on those entries examined by the Port, for which the CF 4647 notices were issued. Medline is protesting only those prior entries made in January and February of 2011, for which it claims it received no notice of any marking violations.
Finally, the Protestant claims that because the reliquidation of the subject entries occurred more than ninety days after the initial liquidation date, the reliquidation exceeded the 90 day reliquidation period provided for in 19 CFR 173.3 and was therefore untimely.
Based on telephone conversations between Medline and CBP, as well as additional submissions from counsel to CBP dated October 4, November 2 and December 30, 2011, Medline in fact did not know the countries of origin of many of the individual components of some or most of the imported medical kits because an outside supplier declined, for unspecified business reasons, to identify where these components were sourced. Thus, the country of origin of the articles was not readily ascertainable, and Medline claims that it could only be ascertained, if at all, with the expenditure of considerable time and expense. Finally, during the teleconference held with CBP officials on December 19, 2011, Medline stated that even if their supplier did identify the countries of origin of the kit components, there would be no way to verify the truth or accuracy of those statements.
ISSUES:
Whether the subject Medline kits were properly marked with the correct country/countries of origin.
Whether the assessment of marking duties by the port on past entries was proper.
Whether the subject entries were timely liquidated.
LAW AND ANALYSIS:
Initially, we note that the matter protested is protestable under 19 U.S.C. §1514(a)(2) as a decision on country of origin marking duties. The protest was timely filed, within 180 days of liquidation of the first entry for entries made on or after December 18, 2004. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub.L. 108-429, § 2103(2) (B) (ii), (iii) (codified as amended at 19 U.S.C. § 1514(c) (3) (2006)).
Further Review of Protest No. 2304-12-100141 was properly accorded to Protestant pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was filed is alleged to be inconsistent with a ruling of the Commissioner of Customs or his designee, or with a decision made at any port with respect to the same or substantially similar merchandise.
Country of Origin Marking:
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 United States 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 United States the English name of the country of origin of the article.
Part 134, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. § 134 (2011)) implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b) defines “country of origin” as:
[T]he country of manufacture, production, or growth of any article of foreign origin entering the United States. 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Following the hierarchy, 19 C.F.R. 102.11(c) is applicable. 19 C.F.R. 102.11(c) provides that the country of origin of the kits is the country or countries of origin of all materials that merit equal consideration for determining the essential character of each respective kit.
The port alleges the following marking violations, which we will address individually:
The Port alleges that the countries of origin of some components were not
listed on the labels.
Medline must list the countries of origin of all the components of its medical kits on the outermost container of the kits. The reluctance of a supplier to disclose the exact country of origin is not sufficient to warrant an exception to the marking requirements of 19 U.S.C. 1304. Nor is the potential expense of applying the correct country of origin marking. Any entries which lack a full list of all the countries of origin of all the components on the outermost container are therefore in violation of 19 U.S.C. 1304.
Medline proposes to correct this violation by removing the list of individual components and their countries of origin, and replacing that with the phrase “Product(s) of…” followed by a list of all the countries of origin represented by the various components in the procedure kit. Medline notes CBP ruling HQ H007964, dated May 8, 2009, which approved similar language (“Packaged in Canada with goods from Taiwan, China, Argentina, etc.”).
However, HQ H007964 is not on point in the instant case because it did require that an accurate list of the countries of origin be provided on the outer container. In the instant case, however, it is not clear whether the proposed list of countries of origin is accurate; in communications with CBP, Medline has indicated that the country of origin of some of the subkits and their components is unknown. Medline must establish to the satisfaction of the port director that the merchandise at issue must have originated from those countries on the list. In other words, this list cannot simply constitute an arbitrary list of countries which may or may not be the country or countries of origin of the subject merchandise.
Use of “assembled in Mexico”:
The Port further alleges improper use of the marking “assembled in Mexico” on
the outer containers of the subject kits. The Port cites various CBP rulings equating the term “assembled in” to the phrases “made in” or “product of”—i.e., a phrase that denotes country of origin. The Port thus asserts that because the components of the kit were only packaged in Mexico, and nothing was made or assembled there, Mexico is not the country of origin.
Part 134, Customs Regulations (19 C.F.R. Part 134), implements the country of
origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.43(e), provides that:
[w]here an article is produced as a result of an assembly operation and the country of origin of such article is determined under this chapter to be the country in which the article was finally assembled, such article may be marked, as appropriate, in a manner such as the following: (1) Assembled in (country of final assembly); (2) Assembled in (country of final assembly) from components of (name of country or countries of origin of all components); or (3) Made in, or product of, (country of final assembly).
As a result of 19 C.F.R 134.43(e), the terms "Made in," "Product of," and "Assembled in" are words of similar meaning. Accordingly, it is no longer acceptable to use "Made in," "Product of, " or words of similar meaning, along with the words "Assembled in" in a single country of origin marking statement on articles of foreign origin imported into the U.S. See 61 FR 37678, 37679 (1996). See also, HQ 560604 August 8, 1997; HQ 561967, dated March 2, 2001. It follows that marking merchandise not made in Mexico with the phrase “assembled in Mexico” incorrectly denoted Mexico as the country of origin in violation of 19 U.S.C. 1304.
Medline proposes to correct the “assembled in Mexico” marking by replacing the phrase “assembled in” with “packaged in”. This is an acceptable solution for future
entries, along with the proper indication of the countries of origin of the components contained in the kit, but does not negate the violation of 19 U.S.C. 1304 for past entries.
The boxes were labeled or stamped on the side with statements referencing
additional localities in the U.S. and Germany, the UK, the Netherlands, and Australia which were not the country of origin.
Section 134.46, Customs Regulations (19 C.F.R. 134.46), requires that in any case in which the words "United States," or "American," the letters "U.S.A.," any variation of such words or letters, or the name of any city or locality in the United States, or the name of any foreign country or locality other than the country or locality in which the article was manufactured or produced, appears on an imported article or its container, there shall appear, legibly and permanently, in close proximity to such words, letters, or name, and in at least a comparable size, the name of the country of origin preceded by "Made in," Product of," or other words of similar meaning. The purpose of this section is to prevent the possibility of misleading or deceiving the ultimate purchaser as to the actual origin of the imported goods. Pursuant to 19 CFR 134.46, references to localities other than the country of origin must be accompanied by a country of origin statement such as “Made in” or “Product of”, in close proximity and in lettering of comparable size.
Because the names of localities in the United States or other countries other than the country of origin appeared on the outer containers of the Medline kits, and these references were not accompanied by a reference to the actual country/countries of origin, the Port concluded that this marking was in violation of 19 CFR 134.46 and should be corrected.
We concur with the Port. With respect to the marking: “Manufactured and Distributed By: Mectra Labs, Inc. Two Quality Way P.O. Box 350 Bloomfield, Il 47424,” “Manufactured by” is a statement implying origin similar to “product of” or “made in”. Thus, to the extent that these containers contained merchandise not of U.S. origin, this marking was misleading and in violation of 19 U.S.C. §1304, even if accompanied by a statement indicating the correct country of origin of the foreign components. See e.g., HQ 732900, dated April 24, 1990.
With respect to the additional markings such as “EC REP European Authorized Rep: Medical Device & QA Services 78, Stockport Road * Timperley Chesire * WA157SN United Kingdom” or “Atrium Australia-Pacific Rim Pty. Ltd. Level 6, 579 Harris Street Ultimo NSW 2007 Australia”, we find that these markings are potentially misleading. The company names and addresses on the containers therefore should be accompanied by a statement which includes the name of the actual country of origin preceded by "Made in," Product of," or other words of similar meaning.
We further note that drugs and medical devices are also subject to special labeling requirements by the U.S. Food and Drug Administration (FDA). Information regarding the FDA’s labeling requirements of medical devices can be obtained by calling the FDA at 1-888-463-6332, or by visiting their website at www.fda.gov.
Marking Duties:
Also in dispute is the assessment of 10% marking duties based on the improper marking and subsequent failure to export or redeliver the merchandise to CBP’s custody. Protestant asserts that the assessment of marking duties on past entries was improper because the marking duties were assessed based on extrapolation from alleged marking violations on entries occurring six to twelve months later in time. Thus, the merchandise subject to those entries had not been examined by CBP, and Medline had not received any notice from CBP, such as a CF 4647 form, indicating that there were problems with those specific entries. Medline also protests the assessment of marking duties on the basis that the merchandise in question was in fact exported under CBP’s supervision and thus was not subject to marking duties per 19 U.S.C. 1304(i).
19 U.S.C. 1304(i) provides, in pertinent part, as follows:
If at the time of importation any article (or its container, as provided in subsection (b) of this section) is not marked in accordance with the requirements of this section, and if such article is not exported or destroyed or the article (or its container, as provided in subsection (b) of this section) marked after importation in accordance with the requirements of this section (such exportation, destruction, or marking to be accomplished under customs supervision prior to the liquidation of the entry covering the article, and to be allowed whether or not the article has remained in continuous customs custody), there shall be levied, collected, and paid upon such article a duty of 10 per centum ad valorem, which shall be deemed to have accrued at the time of importation, shall not be construed to be penal, and shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause.
In HQ 731775, dated November 3, 1988, Customs ruled that two prerequisites must be present in order for marking duties to be properly assessed under 19 U.S.C. 1304(i). These two prerequisites are:
1. the merchandise was not legally marked at the time of importation, and 2. the merchandise was not subsequently exported, destroyed or marked under Customs supervision prior to liquidation.
With respect to past entries of the subject medical kits, assessment of marking duties was proper as long as the above prerequisites were fulfilled. There is no requirement that CBP must physically examine all merchandise before issuing such duties if it can be verified that the marking violations were present. In the instant case, CBP had physically examined numerous entries of Medline’s medical kits and found the marking violations outlined above. CF 4647 forms were issued for these entries. Furthermore, CBP was able to establish via physical examination of thousands of Medline kits imported during the investigation period that they were all marked identically. In conversations and meetings conducted with the port, the Protestant further confirmed that it had been marking its medical kits in the same manner for years. Thus it was reasonable for the Port to conclude that the same violations of 19 U.S.C. 1304 discussed above were also present in past entries. Thus, given the evidence that the marking violations were present in past entries and consistent with those observed by direct physical examination of the entries during the investigation period, the assessment of marking duties on past entries was proper.
With respect to the issuance of a CF 4647 form, we note that the courts have held that the fact that a redelivery/marking notice was not issued pursuant to a regulatory prerequisite for the assessment of a claim for liquidated damages does not void the original statutory basis for the assessment of marking duties. See, A.N. Deringer, Inc. v. United States, C.D. 2408, 51 Cust. Ct. 21 (1963) ("Plaintiff may not ignore the clear requirement of a statute by pleading that notice pursuant to an administrative regulation was not received, telling it what the statute required it to do"). Therefore, the timeliness of the issuance or receipt of a Notice to Mark/Redeliver does not affect the underlying obligation to pay marking duties. See also, HQ H077355, dated October 28, 2009; HQ 562084, dated July 16, 2002.
Medline alleges that these prerequisites were not met because the merchandise was properly marked at the time of importation, and that in any case, “a significant quantity of the merchandise imported on the subject entries” (it does not specify which merchandise, how much, when, or where) was re-exported after importation under Customs supervision. Specifically, Medline claims that a substantial portion of the merchandise at issue was imported into the U.S. initially only for sterilization in Medline’s facilities in Laredo, Texas, then exported to their facility in Mexico for further processing.
However, as noted above, Medline has not provided any evidence that the improperly marked merchandise was exported and not entered into the stream of commerce in the U.S. To the contrary, Medline states that the merchandise was shipped directly to hospitals in the U.S. However, even if Medline did export the merchandise at issue before it entered into the stream of commerce in the U.S., we note that the mere fact of exportation from the United States does not establish that such exportation occurred under Customs' supervision as that term is used in the applicable regulations. Some supporting evidence must be provided indicating that 1) exportation occurred; and 2) that it occurred under Custom’s supervision. See 19 C.F.R. 134.51 (“Supervision. Verification of marking, exportation, or destruction of articles found not to be legally marked shall be at the expense of the importer and shall be performed under Customs supervision unless the port director accepts a certificate of marking as provided for in § 134.52 in lieu of marking under Customs supervision.”) In this case, any exportation of the subject articles was not performed under Customs supervision, and there is no evidence that export documentation of any kind even exists or was ever filed with Customs.
In addition, there is also no indication that Customs was ever permitted the opportunity to verify that the merchandise alleged to have been exported was, in reality, the merchandise that was subject to the CF 4647 Notice. In HQ 733907, dated October 15, 1991, we indicated that an importer's failure to hold articles on his premises for verification and/or acceptance and the failure to identify the re-marked merchandise to the satisfaction of Customs officials established a strong presumption that the merchandise was not properly marked at the time of liquidation, such that marking duties accrued in accordance with 19 U.S.C. 1304(i). In that case, the importer was able to overcome the presumption by submitting letters from the importer's customers, which enumerated the invoice numbers and styles of the merchandise, and describe the manner in which the goods were marked as delivered to them. Here, there is no such evidence to establish that the goods were properly marked before they were sold and before the entry was liquidated. As such, the importer has not persuaded us that the assessment of marking duties should be cancelled. See HQ 735472, dated July 8, 1994.
Accordingly, we find that both of the prerequisites for the assessment of marking
duties under 19 U.S.C. 1304(i) were met for all that merchandise which: 1) was marked “assembled in Mexico” at the time of importation; 2) was marked with statements referencing additional localities in the U.S., Germany, the UK, the Netherlands, and Australia which are not the country of origin; or 3) was not marked with the correct countries of origin of all the imported merchandise. The assessment of marking duties on the subject entries was therefore proper.
Liquidation:
Protestant claims that the reliquidation of the subject entries was untimely because it exceeded the 90 day reliquidation period provided for in 19 CFR 173.3 (wherein an entry may be reliquidated within 90 days of the date of notice of deemed or of original liquidation. A voluntary reliquidation may be made even though a protest has been filed, and whether the error is discovered by the port director or is brought to his attention by an interested party). We note that the reliquidation of the majority of the entries occurred more than 90 days after the initial liquidation date. However, the port asserts that while this 90 day period was exceeded for the entries noted by Medline in its protest submission, the liquidation of many other entries was (it does not specify which entries) unset or extended. Thus, the Port claims that the reliquidation of these entries fell within the 90-day time period.
19 CFR 159.12(d) provides that if an extension has been granted because Customs needs more information and the district director thereafter determines that more time is needed, he may extend the time for liquidation for an additional period not to exceed 1 year provided he issues the notice required by paragraph (b) of this section (requiring notice to be given to the importer via CBP Form 4333-A) before termination of the prior extension period. This additional period will expire 1 year from the expiration of the initial extension, or in other words it will expire on the third year anniversary of the entry date.
The Port states that proper notice of extension of liquidation was provided to the protestant pursuant to 19 CFR 159.12(d). The reliquidation of the subject entries would have been proper for those entries which were subject to the extended/unset liquidation, because the reliquidation fell within the one-year extension period and because CBP had a valid reason for extending the liquidation period because it required additional information.
Thus, for those entries which were subject to the extended/unset liquidation and which were reliquidated within the 90 days of the of the extended liquidation date, the reliquidation was timely and the assessment of marking duties is proper.
HOLDING:
The assessment of marking duties was proper for all entries of the subject merchandise which were timely reliquidated.
You are hereby ordered to deny the protest for those entries timely liquidated.
The protest is approved for those entries in which the reliquidation was untimely, and those entries for which the total amount of marking duties assessed is less than $20.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division