Country of origin marking of sandals imported from England

HQ 561499 November 26, 2001 CLA-02 RR:CR:SM 561499 BLS CATEGORY: Marking Port Director U.S. Customs Service P.O. Box 55580 Portland, Oregon 97238 RE: Country of origin marking of sandals imported from England Dear Sir: This is in reference to letters dated August 27, 1999, and July 13, 2001, from counsel, on behalf of R. Griggs Group, Ltd. (“Griggs”), requesting a ruling concerning the country of origin marking requirements of certain sandals imported from England. Samples of the completed sandals and sandal components have been submitted. FACTS: The sandals, identified as “Dr. Martens Airware sandals” (“Doc Martens”), are produced in Thailand and England. The initial process begins in England, where the design for the sandals is developed and tested to ensure that the footwear is properly balanced, the design is fully functional, and will ensure foot comfort. A full set of working patterns for the shoe is then produced, so that sample footwear can be made. The sample footwear is produced in England, tested, and specifications are amended as necessary. Once the footwear is ready for full production, final specifications are communicated to the other production facilities. Thailand The upper production begins with leather from the U.S. and England shipped by the supplier to Thailand, where it is cut into leather pieces and straps. Very thin pieces of suede leather from England are also cut for the lining of the sandal. The leather and/or the lining is skived (a process which evens out the thickness of the leather) where necessary. Components for the sandal upper are then stitched, and various attachments and fasteners are added. The suede lining is attached to the inside of the upper components with adhesive and trimmed, and the components of the upper are assembled and stitched together. As part of this process, a strip of leather is attached as the bottom perimeter of the upper. This strip hangs straight down the outside of the upper, and will extend over and beyond the footbed, once the footbed has been added. 2 The footbed is a piece of polyurethane next to the foot in the shoe. It is designed to provide the first layer of comfort to the foot. Counsel states that it does not function as a sole and is not intended to have any use as a wearing surface, as it would abrade very quickly if it were subjected to any friction or wear. In this regard, counsel notes that under the ball of the foot, for example, the footbed is only about 3/16” thick. The footbed is supplied to the Thai contractor by a subcontractor. It is molded in a mold that has a thin piece of fabric material called the rib placed around the inside perimeter of the mold bottom. Polyurethane materials from England are poured into the mold, with this rib in place. The liquids react and harden in a few minutes. A paper-thin strip of suede lining material is then glued to the top of the footbed. The leather upper is then given its first attachment to the footbed by gluing the inside edges of the leather strip hanging down the sides of the upper to the parallel outside edges of the footbed, using a cement adhesive. A form is inserted into the upper, because this will allow the upper to be clamped into a sidewall press. The leather strip is pressed against the footbed using the sidewall pressing process to allow the adhesive cement to bond under pressure. No part of the upper is attached to the bottom of the footbed, so no part of the upper is bent inward to a horizontal position in the bottom closing process. The uppers are then placed heel to toe on top of each other and packed, compressed, for shipping to Griggs’ facilities in England. The Thai production process is said to involve both skilled labor operations (e.g., cutting leather, skiving, stitching), as well as unskilled operations (e.g., production of the footbed, gluing of the upper to the footbed). England 1. Manufacture of Welt Compound and Welt The welt compound is manufactured by measuring the proprietary mix of ingredients in the formula and blending them together in a high-speed internal mixer at carefully calibrated temperatures. The material is then heated to form a molten “spaghetti.” The “spaghetti” is cut into pellets and cooled for use in the actual welt manufacture. The welt itself is manufactured on a profile extrusion machine designed to produce the exact size, shape and thickness of welt needed. The extruded welt is then used in a Goodyear welting process, with the added step patented by the original 3 German inventor of these shoes. Counsel states that the welt is critical to the proper design and construction of all Doc Martens’ shoes. It connects the upper unit to the sole unit, while simultaneously trapping an air cushion between the two parts of the shoe, and also gives the shoe its distinctive durability, as well as creating a joint that is not weakened by immersion in water. Manufacture of Sole Compound and Outer Sole The process of producing the outer sole begins with production of sole compound, using a sophisticated process analogous to that used for producing welt compound, and employing a secret formula of ingredients. Once produced, the sole compound, which is made up of thermoplastic granules, is moved to a hopper on the plastic molding machines. These machines contain specially designed molds for each particular size and style of Doc Martens bottom being produced at that time. The mold designs, made in England by Griggs, include a specially shaped well on the inside of the sole to accommodate the cushioning component which must be added to produce the proper Doc Martens bottom, as well as U.K. registered designs on the bottom wearing surface of the outer sole. The granules are fed into machines and carefully heated as they move toward the front end of a machine barrel. When they plasticise, they are injected from the machine nozzle under pressure into the mold cavity. The mold is locked and cooled, until the sole reaches the consistency required for the Doc Martens air cushion outer sole. At this point, the outer sole component is demolded and made ready for the next manufacturing step. Manufacture of Felt Bottom Pads and Foam Inserts The shaped felt bottom pads and the shaped foam inserts are cut for the well of the outsole from large sheets of material. Both the felt and the foam sheets are sourced in England. Computer-controlled cutting pressers are used to cut the felt and the foam into their respective patterns, which are shaped precisely to the shoe into which they must fit. Force Lasting and Heat Setting Initiation of force lasting of the uppers, followed by heat setting on most sandal models, are the next key manufacturing steps. (Lasting is the process of shaping or forming the upper to fit the foot; heat setting assists and improves shape retention.) 4 The force lasting is done by hand. It requires the operator to select the specific last used for the sandal model – all of these lasts are made in England – and force the forepart of the last into the upper sandal. The last is shortened, and the back part of the upper is positioned over the seat of the last. Most of the lasts are then locked and lengthened, tightening the upper onto the last, and conforming the leather to the shape of the last. (A few lasts are merely forced, without lengthening.) The force lasting process continues through the subsequent manufacturing steps, until the shoe is fully produced. Counsel states that this process is the only means to ensure that the upper is well formed to the foot, and is not distorted by the subsequent manufacturing steps needed to construct the whole shoe. Heat setting follows the initiation of the force lasting described below. After the last has been forced into the upper, the heat setting machine provides a successive application of moisture and heat which relaxes the leather, and subsequently helps both to conform the uppers very tightly to the shape of the last, and to retain that shape. The upper is allowed to cool following the heat setting, and then proceeds to the next manufacturing step. Staple Lasting, Trimming and Welt Sewing Staple lasting, trimming and welt sewing are key steps in the final closing of the upper and the intricate construction of the actual sandal. The specially designed PVC welt is prepared for sewing using the Goodyear welting process. A skilled operator uses a technique called staple lasting, which carefully staples through the piece of leather on the side of the upper, and into the rib of the footbed. This bends the upper leather toward the horizontal for the first time, and further secures the upper to the footbed. Once the staple lasting is complete, another skilled operator does a preliminary trimming operation on the bottom strip of the upper, using an upper trimmer. This is necessary to allow the welt sewing. A third skilled operator uses a welt sewing machine to sew the welt to both the overhanging piece of the leather on the upper and to the rib on the footbed, using welt thread made in England. The operator then cuts the welt and carefully stitches over the welt joint. This process provides the final securing of the upper to the footbed, and provides the high quality, sturdy connection between the welt and the upper needed for this shoe. 5 Cutting Upper Leather and Welt Once this process is complete, another skilled operator takes the upper and uses an inseam trimmer to cut the upper leather and the welt very carefully, so that they are level with the top of the rib. This step is critical, because if it is not done properly, the sole unit will not fit correctly to the welt, and the shoe will not be securely constructed. 7. Shoe Component Assembly and Welding of Welt At this point, the first component of the cushioning feature in the sandal bottom is introduced. Hot molten adhesive is run down the middle of the bottom side of the footbed, and a specially sized felt pad that has been cut for the shoe is glued on and allowed to cool. Next, a second bottom-cushioning element is introduced. The specially cut foam pad is placed into the “well,” i.e., the specially shaped inside cavity, of the sole unit. The partially cushioned sole unit is now placed into a position where it can be temporarily secured to the welt. In this skilled operation, an operator attaches the welt to the sole in precisely the correct location at four points on the sandal, spot welding the welt and sole unit together. Care is needed in this operation to ensure that the upper and bottom are fully and correctly aligned. An error here will distort the shape of the shoe. The next skilled operation makes a permanent, full connection between the sole unit and the welt. This processing operation, which was patented by the original manufacturers, also has the effect of trapping a cushion of air in the sole that provides further cushioning. A sophisticated and unique piece of machinery called a heat sealing machine that Griggs manufactures itself, holds the welt and sole components together, and the skilled operator uses a heated blade to seal the welting and sole together around the entire shoe in a manner that traps the air cushion between the sole unit and the upper unit. 8. Production of Sole Edge The next operation, which also requires use of a skilled machine operator, creates the distinctive grooved sole edge pattern across the outside of the welting and the sole, and finishes the sole edge. This grooved sole edge, together with the yellow stitching, is at the heart of Doc Martens’ trade dress. 6 8. Testing The last is now opened and the shoe is released. The welt seal is tested to ensure it is proper. If it is not, the shoe is returned to the manufacturing line for correction. If the welt is secure, the shoe moves to the next stage. Toning, Cleaning and Other Operations The leather is toned and cleaned by hand to correct creases and ensure a uniform surface. Then, the sandal is packed with paper or cardboard to assist in shape retention, a label is attached, and the shoe is inspected by quality control personnel. Footwear passing inspection is boxed and packed for shipping. ISSUE: What are the country of origin marking requirements for the sandals imported from England? LAW AND ANALYSIS: The marking statute, section 304, Tariff Act of 1930, as amended (19 U.S.C. §1304), provides that, unless excepted, every article of foreign origin (or its container) 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. Part 134, Customs Regulations (19 CFR Part 134) implements the country of origin marking requirements and 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 this part; however for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. A substantial transformation occurs "when an article emerges from a manufacturing process with a new name, character, or use which differs from that of 7 the original material subjected to the process. The Torrington Company v. United States, 764 F.2d 1563 (Fed. Cir. 1985). Accordingly, in order to ascertain the country of origin marking requirements for the imported sandals, we must determine whether the sandal uppers imported into England from Thailand undergo a substantial transformation as a result of the operations performed in England. In Uniroyal Inc. v. United States, 3 C.I.T. 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed Cir. 1983), the merchandise before the Court of International Trade consisted of lasted "footwear uppers consisting of complete shoes except for an outsole...," manufactured in Indonesia and imported into the U.S. where a pre-shaped rubber outsole was affixed and the complete shoe (moccasins) was sold to retailers. The issue before the court was whether the addition of the outsoles substantially transformed the uppers so that the uppers did not have to be individually marked as a product of Indonesia. After carefully examining both the imported upper and the finished shoe, the court concluded that the imported upper did not lose its distinct identity in the finished moccasin and was the very essence of the completed shoe. This was so even though the imported upper could not be sold to or worn by consumers without the heavy rubber outsole being attached and even though following attachment of the rubber outsole the shoe was called by a different name, a deck shoe, rather than an upper or a moccasin. In reaching its decision, the court compared the time, cost of materials and labor involved in producing the upper abroad versus the process of attaching the outsole in the U.S., including the number of highly skilled operations performed in the U.S. and abroad. The court concluded that “the manufacturing operation performed by [the U.S. processor] is a minor assembly operation which requires only a small fraction of the time and cost involved in producing the uppers.” Consequently, the court found that a substantial transformation of the upper had not occurred since the attachment of the outsole to the upper was a minor manufacturing or combining process which left the identity of the upper intact. Counsel believes that Uniroyal lends support to Griggs’ position that the sandal uppers undergo a substantial transformation in England, in view of the significant cost of material and labor which accrue in that country versus such costs in Thailand, plus the complexity and sophistication of the operations which take place in England in comparison to the operations in Thailand. It appears that in Uniroyal, the court was concerned that processing in the U.S. which resulted in an article with a different name, character and use than the 8 imported article should not be regarded as a substantial transformation if the cost, material or added value associated with the domestic processing is negligible or insignificant compared to the cost, material or value added abroad. However, Uniroyal did not preclude the use of other tests used by the courts to determine the issue of substantial transformation. Thus, in National Hand Tool Corp. v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), the court stated that the determination of a substantial transformation must be based on the totality of the evidence, and applied a 3-pronged test utilizing name, character, and use, in determining whether a substantial transformation had occurred. In that case, the court discounted plaintiff's argument that a substantial transformation should be found based on the value of the processing performed in the U.S., which plaintiff described as significant, but decided the issue based solely on name, character and use. Counsel argues that the sandal uppers as imported into England are “unformed,” as at this point they are not lasted or molded, or, counsel states, otherwise given shape in Thailand to the form of a human foot. Counsel contends that the principles set forth in Customs rulings on footwear as well as the NAFTA country of origin marking rules further support a finding that the “unformed” uppers undergo a substantial transformation as a result of the processing in England. In Headquarters Ruling Letter (HRL) 721106 dated August 23, 1983, Customs held that moccasin uppers that were fully sewn and closed abroad, were not considered to have undergone a substantial transformation in the U.S. as a result of force lasting and “bottoming” (attachment of the sole). In that case, the imported uppers were described as “fully constructed, sewn and closed prior to the force lasting.” We noted that the “force lasting” which occurred in the U.S. after the upper was fully constructed could not be compared to lasting which occurs during construction of the upper as that type of lasting provided a measure of substantiality or completion of the articles upon importation. In HRL 953017 dated January 29, 1993, Customs held that the attachment of an outer sole in the U.S. did not result in a substantial transformation as the boot upper which was “fully closed and sewn” had attained its final shape upon importation although it had not been shaped by “lasting, molding or otherwise.” See also HRL 732692 dated January 16, 1990 (formed uppers used in the production of moccasins were not substantially transformed as a result of the additional processing performed in the U.S. Although not back-lasted, upon importation the uppers had much of their ultimate shape, form and size and thus the basic appearance of shoes); and HRL 732490 dated September 22, 1989 (two sample leather moccasin uppers - one with an open midsole the other with a closed midsole - were not substantially transformed although the U.S. processing included lasting and sole laying.) 9 However, in HRL 555431 dated April 9, 1990, Customs held that the joining of unlasted, unformed slipper uppers to outersoles in an insular possession constituted a substantial transformation. In that case, we stated that the “parts” of footwear imported into the insular possession underwent a complex assembly process (lasting, stitching, inverting