ENF-4-02-OT:RR:BSTC:IPR W478998 RSD/AML
Mr. Frederick P. Waite
Ms. Kimberly R. Young
Vorys, Sater, Seymour and Pease, LLP
1828 L Street, NW
Washington, D.C. 20036-5109
Dear Mr. Waite and Ms. Young:
This is in reply to your request, dated November 3, 2005, on behalf of your client International Bingo Supply (“IBS”), for a ruling concerning the admissibility, origination and marking of lottery tickets “which are printed in Canada on paper purchased in Canada; shipped to China for cutting, folding, banding and stapling; re-exported to Canada for inspection, packaging and labeling; and subsequently imported into the United States by IBS.”
FACTS:
You provided the following information regarding the production of the lottery tickets, which we alternately quote and paraphrase as follows:
IBS designs and sells lottery materials known in the gaming industry as “jar tickets.” Jar tickets are used by opening the ticket (“breaking the band”) and unfolding it to reveal a serial number or symbol. The serial numbers or symbols are compared to the game advertising sheet (know as a “flare”) to determine whether the ticket is a winning ticket.
The tickets are printed on paper stock, cut to size, folded, and secured with a paper band or a single staple (less than half of the jar tickets are stapled). IBS sells these lottery games and tickets exclusively for use in the United States. IBS is licensed in multiple states in the United States to sell or distribute them in small stakes games of chance.
IBS designs the layout and custom graphics for the games in the United States. A wholly owned subsidiary in Calgary, Alberta, Canada, prints the game tickets and the flares on flat stock sheets that are themselves purchased from a Canadian paper company. All of the required printing is completed in Canada and all of the tickets and flares are marked “Printed in Canada.”
The Canadian subsidiary ships the printed materials to China where the flat stock sheets are cut into individual jar tickets. The tickets are folded individually and are either banded or stapled with bands or staples of Chinese origin. The completed tickets are bagged, boxed and returned to the Canadian subsidiary. The Canadian subsidiary conducts quality control review of the products, labels them for inventory control, palletizes and shrink wraps in the goods in bulk and ships them to the U.S.
You inquire whether the importation of the lottery tickets and flares into the United States is permissible under 19 U.S.C. 1305; what the country of origin of the lottery tickets and flares printed in Canada and assembled in China is determined to be; and what is the proper country of origin marking of the subject merchandise.
ISSUES:
1. Pursuant to the NAFTA marking rules, what are the requirements under the country of origin marking law, applicable to lottery tickets that are printed in Canada and further processed in China?
2. Whether the lottery tickets printed in Canada, assembled in China and returned to Canada for quality control, inventory and packaging for sale and entry are admissible into the United States pursuant to 19 U.S.C. §1305 and 19 CFR § 145.51?
LAW and ANALYSIS:
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 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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules determine the country of origin.
Section 134.1(j), CBP Regulations (19 C.F.R. 134.1(j)), provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g), CBP Regulations (19 C.F.R. 134.1(g)), defines a “good of a NAFTA country” as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules, set forth at 19 C.F.R. Part 102.
Section 102.11(a), CBP Regulations (19 C.F.R. 102.11(a)), sets forth the required hierarchy under the NAFTA Marking Rules for determining country of origin for marking purposes for goods other than textile and apparel products. This section states that the country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
Section 102.1(g), CBP Regulations (19 C.F.R. 102.1(g)), defines a good wholly obtained or produced as including “A good produced in that country exclusively from goods referred to in paragraphs (g)(1) through (g)(10) of this section or from their derivatives, at any stage of production.” In this instance, because the lottery tickets are printed in Canada and cut and folded in China, the lottery tickets would not qualify as “a good wholly obtained or produced” in a country. Therefore, the country of origin of the lottery tickets may not be determined under section 102.11(a)(1).
The next step under the hierarchy is to consider whether the country of origin may be determined according to section 102.11(a)(2). Under this section, the origin of the good may be based on the origin of the materials used to produce the good, provided the good is produced exclusively from domestic materials. Section 102.1(d), CBP Regulations (19 C.F.R. 102.1(d)), defines domestic material as “a material whose country of origin as determined under these rules is the same country as the country in which the good is produced.” The finished lottery tickets contain paper printed in Canada and a Chinese banded slip of paper. In addition, the lottery tickets are processed both in Canada and China. Therefore, they are not produced exclusively from domestic materials (i.e., Canadian), and as such their country of origin cannot be determined under section 102.11(a)(2). Consequently, under the NAFTA Marking Rules, to determine the country of origin of the lottery tickets (jar tickets) the analysis must continue to 19 C.F.R. 102.11(a)(3).
At the time the printed sheets of uncut lottery game tickets are exported from Canada to China, they are classifiable in subheading 4911.99.60, HTSUS, which provides for other printed matter, including printed pictures and photographs: other: other. (See NY G88287, dated March 16, 2001). In China, a banded slip of paper that secures the lottery tickets is added. CBP has determined that this banded slip of paper is also classified in subheading 4911.99.60, HTSUS. After the cutting, folding, the adding of a banded slip of paper, and/or stapling multiple tickets are done in China, the finished lottery tickets will remain classifiable in subheading 4911.99.60, HTSUS. (See HQ 953232, dated April 20, 1993).
Pursuant to 19 C.F.R. 102.11(a)(3), the country of origin of a good is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section.” Section 102.1(e), CBP Regulations (19 C.F.R. 102.1(e)) defines “Foreign material” as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” The applicable rule under 19 C.F.R. 102.20(j), CBP Regulations (19 C.F.R. 102.20(j)), states:
4901 – 4911 A change to heading 4901 through 4911 from any other heading, including another heading within that group.
Since all the materials used in producing the lottery tickets remain classified in heading 4911, HTSUS, no country of origin determination can be made by applying section 102.11(a). Hence, our analysis continues with section 102.11(b), which instructs us to examine the article's essential character to determine its country of origin. Section 102.11(b) provides that where the country of origin cannot be determined under section 102.11(a), and the good is not specifically described as a set pursuant to the Harmonized System nor classified as a set under General Rule of Interpretation (GRI) 3, HTSUS, the country of origin of the article is "the country or countries of origin of the single material that imparts the essential character of the good . . .." The lottery tickets involved here are neither described as a set in the HTSUS nor classified as a set under GRI 3, HTSUS.
“Material” is defined in section 102.1(1) of the CBP Regulations as “a good that is incorporated into another good as result of production with respect to that other good, and includes parts ingredients, subassemblies and components.”
In determining the "essential character" of the lottery tickets, section 102.18(b)(2) of the regulations provides as follows:
For purposes of applying 102.11, only domestic and foreign materials (including self produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in 102.20 shall be taken into consideration in determining the essential character of the good.
Taking into consideration only those domestic and foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the goods under section 102.20, we note that neither the Canadian-uncut printed sheets of lottery tickets (a domestic material) nor the banded slips of paper (a foreign material) undergo a change in tariff classification as a result of the processing performed in China. Therefore, we must consider which one of these two materials provides the essential character to the finished good. Section 102.18(b)(2) provides:
(2) For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under §102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to the following:
(i) The nature of each material such as its bulk, quantity, weight or value; and
(ii) The role of each material in relation to the use of the good.
In this instance, when comparing the two materials under consideration, it is readily recognizable that the uncut printed sheets of lottery game tickets clearly have a much greater bulk, weight and value than the banded slips of paper have. In addition, because the uncut printed sheets of lottery game tickets have all the information regarding the lottery games printed on them, they have the basic qualities of the finished lottery tickets. In contrast the banded slips of paper merely function to keep the lottery tickets together. Therefore, we find that the printed sheets of uncut lottery tickets are the material that imparts the essential character to finished goods. Accordingly, because the material that imparts the essential character to the finished lottery ticket is of Canadian origin, pursuant to section 102.11(b)(1), the country of origin of the entire imported good is also Canada.
You propose to mark the lottery tickets with the language “Printed in Canada”. We have previously stated that with regard to printed material, such as a book or a student agenda, the phrase “Printed in” is an indicator of origin. (See HQ 559626, dated October 17, 1996.) Therefore, if the finished lottery tickets are permanently, legibly and conspicuously marked with the phrase “Printed in Canada”, the country of origin marking requirements of 19 U.S.C. 1304 would be satisfied.
Admissibility under 19 U.S.C. 1305 and 19 CFR § 145.51
As you are aware, importation of immoral articles, including, among other things, the lottery tickets at issue, is proscribed by 19 U.S.C. § 1305 (viz. “any lottery ticket, or any printed paper that may be used as a lottery ticket, or any advertisement of any lottery”) and 19 CFR § 145.51 (“(5) Lottery matter, except any lottery ticket, printed paper that may be used as a lottery ticket, or advertisement of any lottery, that is printed in Canada for use in connection with a lottery conducted in the United States.”). Thus, the critical issues in this matter center upon where the actual printing of the tickets occurs and to what extent the manufacturing process occurs in China.
A literal reading of the relevant statutes indicates that the primary consideration concerning the legality of importation of lottery materials from Canada is whether the materials are “printed” in Canada. Further, while CBP has issued decisions concerning the importation of substantially similar articles from Canada, CBP has not distinguished between “printing” and “manufacturing” in analyzing the origin of such articles for customs and tariff purposes. Finding no evidence of Congressional intent to distinguish between “printing” and “manufacturing,” CBP has construed such functions as being synonymous, in the particular facts of this case.
CBP has previously considered the permissibility of importation into the United States of lottery tickets partially or fully printed in Canada. In Headquarters Ruling Letters (“HQ”) 953232, dated April 20, 1993, we determined the tariff classification of the articles and concluded that such tickets qualified for duty-free treatment upon importation into the United States. In HQ 227077, dated October 22, 1996, we analyzed the relevant statutes and regulations vis-à-vis a similar fact situation as follows:
Section 305 of the Tariff Act of 1930, as amended (19 U.S.C. § 1305), generally provides that the importation into the United States of certain articles deemed to be immoral, including lottery material from any country, is prohibited. The Customs regulation promulgated pursuant to 19 U.S.C. § 1305 is found at title 19, Code of Federal Regulations, 145.51 (19 CFR § 145.51).
On January 2, 1988, the United States and Canada entered into a bilateral reciprocal free trade area agreement called the United States-Canada Free-Trade Agreement ("CFTA"). The CFTA became law on September 28, 1988, pursuant to the United States-Canada Free-Trade Agreement Implementation Act of 1988 (the "Act"), Pub. L. 100-449, 102 Stat. 1851. Section 206 of the Act provided that, effective January 1, 1993, § 305(a) of the Tariff Act of 1930 (19 U.S.C. § 1305(a)) was amended to provide that this section shall not apply to any lottery ticket, printed paper that may be used as a lottery ticket, or advertisement of any lottery, that is printed in Canada for use in connection with a lottery conducted in the United States. Pursuant to Treasury Decision (T.D.) 92-80, published in the Federal Register on August 20, 1992 (57 FR 37702), 19 CFR § 145.51 was amended to conform to 19 U.S.C. § 1305, so that, effective January 1, 1993, this regulatory provision will not prohibit the importation of certain lottery matter printed in Canada for use in connection with a lottery conducted in the United States.
Accordingly, in view of the fact that the above-cited statutory and regulatory authority does not prohibit the importation of certain lottery material imported from Canada for use in connection with a lottery conducted in the United States, it is our position that such authority does not bar the importation of the printed lottery material under consideration which will be exported subsequent to final processing into lottery tickets in the United States. In this regard we note that Customs has previously allowed the importation of partially printed lottery tickets from Canada pursuant to the CFTA without regard to the prohibitions set forth in 19 U.S.C. § 1305. (Headquarters Ruling letter 953232, dated April 20, 1993.) HQ 227077 at page 2.
We note that the above referenced rulings antedate the amendment of 19 USC § 1305. In 1988, subsection (a) was amended by Public Law 100-449, which inserted a proviso at end of
first paragraph of section 1305 directing that, “effective January 1, 1993, this section shall not apply to any lottery ticket, printed paper that may be used as a lottery ticket, or advertisement of any lottery, that is printed in Canada for use in connection with a lottery conducted in the United States”. See also 19 CFR Part 145.51, which contains identical language, set forth above.
HOLDING:
Pursuant to 19 C.F.R. 102.11(b)(1), under the NAFTA marking rules, the country of origin of the finished lottery tickets which are printed in Canada and further processed in China is Canada. Therefore, a permanent, legible, and conspicuous country of origin marking “Printed in Canada” on the lottery tickets would satisfy the requirements of 19 U.S.C. § 1304.
Further, we conclude that the lottery materials printed in Canada, processed in China, further processed in Canada and imported for sale and use in the United States are legal importations under 19 U.S.C. § 1305 and 19 CFR Part 145.51.
We note that 19 CFR Part 177.9(b) provides, in pertinent part, that:
Each 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 Customs Service 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.
This ruling is issued in reliance upon and limited specifically to the facts as presented in the request. Any deviation from the facts above, especially in regards to where the articles are printed, may affect the binding nature of this ruling.
Sincerely,
George Frederick McCray, Esq.
Chief, Intellectual Property Rights Branch