Country of Origin Marking of Rough Steel Forgings manufactured in Italy and China; Substantial Transformation; Ultimate Purchaser; 19 U.S.C. 1304(a)(3)(D), (G) & (H); 19 CFR 134.35.

HQ 734766 May 17, 1993 MAR-2-05 CO:R:C:V 734765 ER CATEGORY: MARKING Melvin E. Lazar, Esq. Soller, Shayne & Horn 46 Trinity Place New York, New York 10006 RE: Country of Origin Marking of Rough Steel Forgings manufactured in Italy and China; Substantial Transformation; Ultimate Purchaser; 19 U.S.C. 1304(a)(3)(D), (G) & (H); 19 CFR 134.35. Dear Mr. Lazar: This is in response to your letters dated August 11 and September 14, 1992, submitted on behalf of your client, Intergroup, Inc. ("Intergroup"), in which you ask for a ruling regarding the country of origin marking requirements for certain rough steel forgings manufactured in Italy and China. FACTS: The imported forgings are manufactured both in Italy and China. They are imported in wooden pallet boxes, with approximately 400 pieces in each box. There are approximately 10 pallet boxes which comprise a full 20 foot container. You state that the country of origin legend, either "Made in Italy" or "Made in China", is printed on the pallet boxes in a conspicuous location. All of the imported forgings are sold by Intergroup to three original equipment manufacturers("OEM"), to be processed into finished parts for truck axles and transmissions, and are shipped to the OEMs in the same wooden pallet boxes in which they were imported. Included with the submission were three letters, one from each OEM, which state that the company is aware of the country of origin of the forgings purchased from Intergroup. Subsequent to importation, the OEM's perform machining operations on the outside and inside diameters and splines of the forgings; the concentricity and perpendicularity of the forgings are centered through a milling operation; and the machined forgings are assembled, along with other components of U.S. origin, to truck axles or transmissions. After assembly, the forgings are machined again. An aggregate weight loss of twenty percent weight results, on the average, from the various machining operations performed on the forgings. In their imported condition the subject forgings have a per unit invoice value ranging from approximately four to six dollars. The manufacturing steps result in an added value in the U.S. of approximately seventy-five to one hundred percent and are said to be processed in such a manner that any marking on the forgings would necessarily be obliterated. The forgings are never sold as replacement or repair parts. The imported forgings, after undergoing these manufacturing steps, become finished parts for the "U-Joint" of a truck axle, as well as finished parts of the truck transmission. They are inserted into and become parts of the truck axles and transmissions by the OEMs. Sample rough forgings of the spider, gear, brake adaptor and brake cam were submitted with the ruling request. 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. Counsel maintains that because its client's customers, the OEMs, are aware of the country of origin of the imported merchandise, the forgings should be excepted from individual marking as provided for by section 134.32(h), Customs Regulations (19 CFR 134.32(h)). Under this section articles for which the ultimate purchaser must necessarily know the country of origin by reason of the circumstances of their importation or by reason of the character of the articles even though they were not marked to indicate their origin are excepted from individual country of origin marking. The "circumstances of importation" for a 19 CFR 134.32(h) exception refers to a situation where the importer is the ultimate purchaser of the imported article and there is a direct contract with the foreign supplier in which the supplier insures that the order will be filled only with articles manufactured in a named country. In HQ 730243 (March 5, 1987), Customs ruled that the importer must be the ultimate purchaser of the imported article and have direct contact with the foreign supplier to qualify for the 19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h) exemption. See also, HQ 700002 (July 18, 1972); HQ 731967 (May 11, 1990); and HQ 733266 (August 15, 1990). In this case, the ultimate purchaser of the forgings is not the importer and has no direct contact with the foreign supplier. Consequently, the 19 CFR 134.32(h) exception is not applicable. Counsel also requests an exception to marking pursuant to 19 U.S.C. 1304(a)(3)(G) and 19 CFR 134.32(g), which provide that an imported article is excepted from marking if it is to be processed in the U.S. by the importer or for his account otherwise 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, destroyed, or permanently concealed. The imported merchandise is not entitled to such an exception because the processing is not performed "by the importer or for his account" as set forth in the statute and regulations. Pursuant to section 134.35, Customs Regulations (19 CFR 134.35), an imported article that is substantially transformed in the U.S. is excepted from individual country of origin marking and only the outermost containers of the imported article must be marked with country of origin. An article is substantially transformed if it is "so processed in the U.S. that it loses its identity in a tariff sense and becomes an integral part of a new article having a new name, character and use." U.S. v. Gibson- Thomsen Company, Inc., 27 CCPA 267 (1940). Imported rough forgings made into flanges and fittings in the U.S. were found to be substantially transformed in the U.S. in Midwood Industries, Inc. v. U.S., 64 Cust.Ct. 499, 313 F.Supp. 951 (1970). In that case, the court pointed out that the rough forgings have no commercial use in their imported condition because the forgings are used to connect pipes of a matching size and in their imported state, the forgings had no connecting ends. See also, HQ 733196 (August 10, 1990) and rulings cited therein. In HQ 733288 (September 5, 1990), Customs ruled that imported rough forgings used in the domestic manufacture of steering linkages were substantially transformed by the machining processes and assembly operations performed in the U.S. Customs noted that while the machining operations were not as extensive as those performed in Midwood, the addition of several U.S. components to produce the steering linkages was significant to the finding of substantial transformation. As a result of the machining operations and the addition of U.S. components, and in accordance with the above decisions, we find that the imported rough forgings are substantially transformed into articles with a new name, character or use, namely truck axles and transmissions. Therefore, in accordance with 19 CFR 134.35, the OEMs purchasing the forgings from the importer are the ultimate purchasers and the imported rough forgings are excepted from individual marking so long as the district director at the port of entry is satisfied that they are imported in properly marked containers and the ultimate purchasers will receive the forgings in these containers. HOLDING: The OEM's purchasing the imported rough forgings from Intergroup and who use the forgings in the manufacturing of truck axles and transmissions are the ultimate purchasers of the imported articles. Pursuant to 19 CFR 134.35, the articles are excepted from country of origin marking provided the district director at the port of entry is satisfied that the outermost containers of the imported articles are properly marked and the ultimate purchasers will receive the forgings in these containers. Sincerely, John Durant, Director