Internal advice request concerning country of origin marking of tools

HQ H059999 December 23, 2010 CLA-2 OT:RR:CTF:TCM H059999DSR CATEGORY: Marking TARIFF NO.: N/A Area Director of Customs Laredo Service Port P.O. Box 3130Laredo, TX 78044-3130 RE: Internal advice request concerning country of origin marking of tools Dear Sir: The following is our decision regarding your request for internal advice dated March 24, 2009, initiated by letter from URREA Professional Tool, Inc., (“URREA”) dated February 20, 2009, regarding the country of origin marking requirements for several entries of chrome-finished, hardened steel sockets. FACTS: In April and July of 2008, CBP seized shipments of steel impact sockets from Mexico under 19 U.S.C. §1595a(c)(2)(E) for violation of the marking statute, 19 U.S.C. §1304(a). The sockets were entered and classified under subheading 8204.20.00 of the Harmonized Tariff Schedule of the United States (HTSUS). The importer, URREA Professional Tool, Inc., (“URREA”) is located in the United States and is a subsidiary of URREA Herramientas Professionales, S.A. de C.V. URREA Herramientas Professionales’ (“UHP”) manufacturing facilities are located in Mexico. According to URREA, the articles are formed from micro-alloy steel bars of U.S. origin. The uncut bars are imported into Taiwan, where they are subjected to cutting and molding processes, resulting in shaped, self-finished sockets. The sockets are then imported into Mexico, where the following processes occur: A polisher machine with sandpaper band is used to polish the ends of the sockets. Circular lines are engraved into the outer surfaces of the sockets and the sockets are subjected to additional polishing. Small indentations are drilled into the sockets to insure proper alignment of the sockets on tool holders. Grooves are etched onto to outer surface of the sockets and they are marked (die-sunk) with the commercial brand (“URREA”) and the word “Mexico” (just below “URREA”)), part numbers and measurements. The word “URREA” is approximately ¼” tall and one inch wide. The word “Mexico” is approximately ¼” tall and ½” wide, and appears just below the word “URREA,” and slightly to its right. The sockets are heat-treated to achieve necessary hardness (high- or low- impact) The ends of the sockets are polished again. Vibrating machinery, using ceramic stones and special chemicals, shine the sockets. Scheming process provides sockets with its finish. The process consists of (a) an immersion process, which eliminates fat residues from the sockets; (b) an electrolytic process, which further cleans residues from the sockets; (c) an “activation” process, which creates a grade of porosity in the sockets to aid in giving the sockets a chromate finish; and (d) nickel-plating. The sockets are internally painted. There is no dispute that the sockets are classified under subheading 8204.20.00, of the Harmonized Tariff Schedule of the United States (HTSUS), which provides for socket wrenches, with or without handles, drives and extensions, and parts thereof, upon importation into and exportation out of Mexico. See HQ 967400, dated March 29, 2006; HQ 964841, dated December 14, 2001; HQ 964329, dated March 13, 2001; NY N042971, dated November 7, 2008. In your transmittal memorandum, you state that the imported sockets bear paper adhesive labels with the words “Made in Taiwan” that cover the die-sunk “Mexico” reference. URREA’s counsel has amended URREA’s initial internal advice request to cover only that situation and has submitted a sample of such a socket with the label attached. The words “Made in Taiwan” are legible and are composed of lettering that is approximately of the same dimensions as the lettering composing the die-sunk word “Mexico.” The label is affixed directly over the word “Mexico” in a way that totally obscures “Mexico” from view. ISSUES: What is the country of origin of the finished sockets? Whether marking the country of origin of the sockets by means of a paper adhesive label bearing the words “Made in Taiwan” and that completely covers the die-sunk word “Mexico” satisfies the country of origin marking requirements of 19 U.S.C. § 1304? 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 the ultimate purchaser in the United States the English name of the country of origin of the article. 19 U.S.C. § 1304(a). 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 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." See United States v. Friedlander & Co., 27 C.C.P.A. 297, 302 (C.C.P.A. 1940). Part 134 of the Customs and Border Protection (CBP) Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b) of the regulations defines "country of origin" as: [T]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 this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. (Emphasis added). Here, the subject U.S. origin micro-alloy steel bars are cut and molded in Taiwan, resulting in shaped sockets, before being shipped to Mexico for further work. Therefore, we first examine whether the unfinished sockets forged in Taiwan are products of Taiwan, then examine whether the unfinished sockets become goods of Mexico using the "NAFTA Marking Rules" contained in Parts 134 and 102 of the Customs Regulations. CBP has consistently applied the reasoning of National Hand Tool Corp. v. United States, 16 C.I.T. 308, 311 (1992) when presented with instances involving the machining of forgings to make tools and instruments. In National Hand Tool Corp., the court considered sockets and flex handles which were either cold formed or hot forged into their final shape prior to importation, speeder handles which were reshaped by a power press after importation, and the grip of flex handles which were knurled in the U.S. The imported articles were then heat treated which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together which the court stated required some skill and dexterity. The court determined that the imported articles were not substantially transformed and that they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold formed or hot forged "into their final shape before importation," and that "the form of the components remained the same" after the assembly and heat treatment processes performed in the U.S. The court then concluded that no substantial change in name, character or use occurred as a result of the processing performed in the U.S. For example, in Headquarters Ruling Letter (HQ) 559847 (dated January 2, 1997), U.S. origin stainless steel sheets cut into strips of suitable width, which were further cut into surgical instrument blanks. The blanks were then heated and hammer forged into their final shape and size. The forgings were annealed and trimmed, and cold stamped to straighten the trimmed forgings. The forgings were then shipped to Pakistan where they underwent milling operations to cut the box, ratchet, and jaw serrations into the forceps; assembled; ground; filed; heat treated, including tempering and testing for hardness; acid pickled; polished; chemical cleaned; and buffed. It was held that inasmuch as the forgings resembled the shape and size of the completed instruments upon importation into Pakistan, the operations performed in Pakistan did not substantially transform the forgings into a new and different article of Pakistani origin). See also HQ 560441 (November 18, 1997); HQ 561189 (November 5, 1998); HQ 562842 (dated November 20, 2003). Here, the sockets assume their self-finished states in Taiwan, having the shapes and sizes of the final products. If no further processing occurred in Mexico, our analysis would simply end here and the sockets would be deemed products of Taiwan. However, we must also analyze whether the additional processes that do occur in Mexico result in the sockets transforming into goods of Mexico, a signatory to the North American Free Trade Agreement (“NAFTA”). Section 134.1(j) of the regulations (19 CFR § 134.1(j)) 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.” Part 102 of the regulations, sets forth the NAFTA Marking Rules, and section 102.11 (19 CFR § 102.11) sets forth the required hierarchy for determining country of origin for marking purposes. Paragraph (a) of § 102.11 states that the 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 (19 CFR § 102.20) and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied. Neither section 102.11(a)(1) nor 102.11(a)(2) are applicable to the facts at issue in this case. Section 102.11(a)(3) is also inapplicable because there are no foreign materials incorporated into the sockets that are imported into Mexico for finishing. Because 19 C.F.R. § 102.11(a)(1)-(3) is not determinative of origin, the analysis continues to 19 C.F.R. § 102.11(b), which provides in pertinent part: Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:  (1)      The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or … When determining the essential character of a good under 19 C.F.R.  §102.11, 19 C.F.R. § 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. In this case, the micro-alloy steel is the only material that the Taiwanese sockets are composed of and the sockets, classified in subheading 8204.20, HTSUS, upon importation into and exportation out of Mexico, do not undergo a tariff shift once they are processed in Mexico. Therefore, the country of origin of the sockets remains Taiwan, where the micro-alloy steel material that imparts the essential character to the sockets originates. * * * Section 134.41(a), CBP Regulations (19 CFR 134.41(a)), states that “[a]s general rule, marking requirements are best met by marking worked into the article at the time of manufacture. For example, it is suggested that the country of origin on metal articles be die sunk, molded in or etched …” However, CBP normally permits any reasonable method of marking that will remain on the article during handling until it reaches the ultimate purchaser. This includes the use of paper stickers or pressure sensitive labels and string tags. See HQ 703500, dated March 10, 1990. If paper stickers or pressure sensitive labels are used, section 134.44, CBP Regulations (19 CFR 134.44), provides that they must be affixed in a conspicuous place and so securely that unless deliberately removed they will remain on the article while it is in storage or on display and until delivered to the ultimate purchaser. See HQ H005163, dated December 12, 2008; HQ 734758, dated March 1, 1993. As provided in 19 CFR 134.41(b), the country of origin marking is considered to be of sufficient visibility if the ultimate purchaser in the U.S. is able to find the marking easily and read it without strain. The submitted sample bears an adhesive label with the words “Made in Taiwan” that are easily read by the naked eye. The label completely obscures the die-sunk word “Mexico” and in order to be removed, its edges must carefully be lifted and the label must then be slowly peeled back, or its adhesive backing and much of its paper surface will remain adhered to the surface of the socket. Thus, we are of the opinion that the placement of the label is conspicuously placed, is legible and is of sufficient permanence such that it will remain on the socket while it is in storage or on display and until delivered to the ultimate purchaser, unless deliberately removed. Additionally, in your transmittal memorandum you express concern that URREA’s placing of the adhesive labels over the word “Mexico” constitutes “deceptive marking” in violation of 19 U.S.C. § 1304, and the sockets are thus subject to permissive seizure under 19 U.S.C. § 1595a(c)(2)(e). In support, you state that 19 CFR 134.46 is not applicable in the situation where the “Made in Taiwan” adhesive label obscures the die-sunk “Mexico” reference because the “main intent of [19 CFR 134.46] is to prevent misleading impressions which would cause confusion and misrepresentation regarding the country of origin of an imported product” and URREA has engaged in “deceptive marking” by placing the “Made in Taiwan” labels over the die-sunk “Mexico.” 19 CFR 134.46 states as follows: 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 location 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 appear on an imported article or its container, and those words, letters or names may mislead or deceive the ultimate purchaser as to the actual country of origin of the article, 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. (Emphasis added). We agree that the purpose of 19 CFR 134.46 is to prevent such confusion. However, here the labels completely cover the reference to “Mexico,” and clearly state “Made in Taiwan,” which is an accurate representation of the product’s country of origin. In the eyes of the consumer, it is as if the word “Mexico” does not exist. There are no other marks on the sockets which would lead a consumer to believe that the sockets originate from somewhere other than Taiwan. Thus, we conclude that the covered reference to “Mexico” does not trigger the special marking requirements of 19 CFR 134.46, and the sockets are properly marked as being products of Taiwan. Finally, as for the concern that the importers could willfully obliterate the paper adhesive label after importation, 19 U.S.C. §1304 allows for the imposition of criminal penalties as follows: (l) Penalties. Any person who, with intent to conceal the information given thereby or contained therein, defaces, destroys, removes, alters, covers, obscures, or obliterates any mark required under the provisions of this Act shall— (1) upon conviction for the first violation of this subsection, be fined not more than $ 100,000, or imprisoned for not more than 1 year, or both; and (2) upon conviction for the second or any subsequent violation of this subsection, be fined not more than $ 250,000, or imprisoned for not more than 1 year, or both. See also HQ H005163, dated December 12, 2008. HOLDING: Based upon the information and the sample submitted, we find that the sockets are products of Taiwan. Accordingly, the sockets marked with paper adhesive labels that completely obscure the word “Mexico” and bear the words “Made in Taiwan” satisfy the marking requirements of 19 USC § 1304. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division