OT:RR:CTF:VS H309801 CMR
Adams Lee, Esq.
Harris Bricken McVay Sliwoski, LLP
600 Stewart Street
Suite 1200
Seattle, Washington 98101
RE: Prospective ruling request; Origin of bolt cutters
Dear Mr. Lee:
This is in response to your request on behalf of your client, Weihai Maxpower Tools Co, Ltd. (“Maxpower”), for a prospective country of origin and marking ruling for certain bolts cutters which are processed in Korea and China. You also seek a determination on the applicability of Section 301 tariffs to the bolt cutters manufactured as described herein.
FACTS:
The imported article is a bolt cutter that is comprised of several components produced in two countries, South Korea and China. These components include two cutter blades, two blade joints, two tubular steel handles, and two steel handle joint units.
The production process in South Korea involves the formation of the bolt cutter heads and blade joints. You describe this process as follows:
. . . [T]he bolt cutter heads are forged in a South Korean production facility[y]. Steel rod of chromoly (CrMo) alloy steel (sourced primarily from China) is heated up and then pressed into molds that are specifically designed for the desired bolt cutter blades and joints by a falling or powered hammer that is dropped from above. . . After the steel is drop forged to the desired bolt cutter blade or joint shape, the blades or joints are removed from the molds and any excess burrs trimmed away. . . .
After the blades and joints are drop forged in South Korea, the components are shipped to China. From the submitted photos of the forged blades when they leave South Korea, they are unfinished. They do not have fully formed cutting edges and are not ready for assembly. In China, the blades and joints are subjected to machining and grinding processes to meet precise measurements and shape specifications. Holes are punched into the blades so that they can be attached to the joints and the handles. The blades and joints are hardened and tempered through a heat treatment.
In China, handles are produced from steel tubes that are cut to length and bent to a specified angle. Steel handle joints, produced in China, are inserted into the handles and riveted together. The handles are painted. Two handles are riveted together to form the finished handle component. The bolt cutter blades are assembled to the blade joints by two bolts, and the blade unit is attached to the handles by bolts. PVC handgrips are then mounted to the handle, and the finished bolt cutter is packed for shipment.
We note you assert that after the forgings have been completed, the bolt cutter blades and joints are dedicated for use only for the specifically designed bolt cutter and cannot be used for any other purpose.
ISSUE:
Whether bolt cutters produced as described above are products of South Korea or of China.
Whether the bolt cutters at issue may be marked “Made in Korea.”
Whether the bolt cutters at issue are subject to Section 301 duties.
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 United States 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 an ultimate purchaser in the United States 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 markings on the imported goods the country of which the good is the product. "The evident purpose is to mark the goods so 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 and Border Protection (CBP) Regulations (19 C.F.R. 134), implements the country of origin marking requirements and exceptions of 19 U.S.C.
§ 1304. Section 134.1(b), CBP Regulations (19 C.F.R. 134.1(b)), defines "country of origin" as “the 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 [the marking regulations]. . . .” A substantial transformation is said to have occurred when an article emerges from a manufacturing process with a name, character, or use which differs from the original material subjected to the process. United States v. Gibson Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940); Texas Instruments v. United States, 681 F.2d 778, 782 (1982).
In order to determine whether a substantial transformation occurs when components of various origins are assembled into completed products, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. The country of origin of the item’s components, extent of the processing that occurs within a country, and whether such processing renders a product with a new name, character, and use are primary considerations in such cases. Additionally, factors such as the resources expended on product design and development, the extent and nature of post-assembly inspection and testing procedures, and worker skill required during the actual manufacturing process will be considered when determining whether a substantial transformation has occurred. No one factor is determinative.
In National Hand Tool Corp. v. United States, 16 CIT 308, 310, aff’d, 989 F.2d 1201 (Fed. Cir. 1993), the court examined whether post-importation processing in the United States substantially transformed certain tools, that is, flex sockets, speeder handles, and flex handles, that had been cold-formed or hot-forged in Taiwan into their final shape prior to importation, with the exception of the speeder handle bars which were reshaped by a large power press after importation. The tools were subjected to a heat treatment which strengthens the steel followed by cleaning which consisted of sand-blasting, tumbling and/or chemical vibration to prepare their surfaces for electroplating. For some of the tools, the heat treatment and cleaning occurred in the United States, but for others, these processes were performed in Taiwan. After cleaning, the tools were electroplated with nickel and chrome to resist rust and corrosion. As with the cleaning, the electroplating took place either in Taiwan or the United States, depending on the tool. After the post importation processing was completed, various components were assembled to produce the tools. In determining that the processing in the United States did not substantially transform the imported tools, the court considered whether there had been a change in the name, character, or use of each tool. The court found that there was no change in the name of the components; and, the character of the articles remained unchanged after the heat treatment, electroplating and assembly as each, with the exception of the speeder handle bars, left Taiwan in its final shape. Further, the use of each tool was pre-determined at the time of exportation, with the exception of one component that could be used as either a universal joint or a flex socket. The court noted that a pre-determined use does not preclude a finding of substantial transformation, but “the determination of substantial transformation must be based on the totality of the evidence.” See National Hand Tool, 16 CIT at 312.
You assert that after the forging of the blades and joints in South Korea, these components are dedicated for a use in the specifically designed bolt cutter. In other words, they have a pre-determined use at the time they are exported from South Korea to China. However, while this is a consideration, as noted by the court in National Hand Tool, this does not preclude a finding of substantial transformation. Unlike the tools in National Hand Tool which were in the final form at the time they left Taiwan and were clearly recognizable by name, although not finished; the blades that leave South Korea are not clearly recognizable as bolt cutter blades and may be mistaken as blades for other tools, such as pruning shears. In addition, the joints are not recognizable by name, but are merely rectangular pieces of steel which require additional processing before use in the assembly of the bolt cutters in China.
As the court stated in National Hand Tool, we must look at the totality of the evidence. We also must consider the product at issue, how it functions and the purpose of the components within it in carrying out its function. Bolt cutters operate based upon the principle of leverage. Thus, while the blades cut material, the handles provide the leverage force to accomplish that function. Therefore, the handles of a bolt cutter are equally important to its function as its blades. When we consider that roughly forged blades are shipped to China where they are machined and ground to create the blade edge necessary for cutting, prepared for assembly and assembled to handles which are produced in China from steel tubes, the totality of the evidence leads us to conclude that the country of origin of the bolt cutters is China.
As products of China, in accordance 19 U.S.C. 1304, the bolt cutters must be marked to indicate that their country of origin is China. In addition, as the bolt cutters are classifiable in subheadings 8203.40.30 or 8203.40.60, of the Harmonized Tariff Schedule of the United States (HTSUS), depending upon the composition of the metal blades, they are subject to Section 301 duties as products of China. Heading 9903.88.03, HTSUS, Subchapter III, Chapter 99, provides:
Except as provided in headings 9903.88.13, 9903.88.18, 9903.88.33, 9903.88.34, 9903.88.35, 9903.88.36, 9903.88.37, 9903.88.38, 9903.88.40, 9903.88.41 or 9903.88.43, articles the product of China, as provided for in U.S. note 20(e) to this subchapter and as provided for in the subheadings enumerated
in U.S. note 20(f)
U.S. Note 20(e), Subchapter III, Chapter 99, provides in pertinent part:
For the purposes of heading 9903.88.03, products of China, as provided for in this note, shall be subject to an additional 25 percent ad valorem rate of duty. The products of China that are subject to an additional 25 percent ad valorem rate of duty under heading 9903.88.03 are products of China that are classified in the subheadings enumerated in U.S. note 20(f) to subchapter III.
Subheadings 8203.40.30, HTSUS, and 8203.40.60, HTSUS, are enumerated in U.S. Note 20(f), Subchapter III, Chapter 99. Therefore, the bolt cutters are subject to an additional 25 percent ad valorem rate of duty.
HOLDING:
The country of origin of the bolt cutters at issue, manufactured as described herein, in China. As such, the bolt cutters must be marked to indicate they are a product of China. Furthermore, the bolt cutters are subject to Section 301 duties pursuant to U.S. Notes 20(e) and (f) and heading 9903.88.03, HTSUS.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Classification Branch