MAR-O5: RR:CR:SM 561939 BLS
Mr. Ron Spuhler
Cardone Industries, Inc.
5501 Whitaker Avenue
Philadelphia, PA 19124-1799
RE: Country of origin marking of reconditioned automotive parts; Ashdown; 19 FR
134.32(g); 19 CFR 134.32(h)
Dear Mr. Spuhler:
This is in reference to your letter dated September 6, 2000, requesting an
exception to the marking requirements for used automotive parts imported into the U.S. from abroad.
FACTS:
Cardone Industries, Inc. (“Cardone”), is in the business of reconditioning
automotive parts (e.g., master cylinders, water pumps, cv joints, etc.) in the U.S. that are in a worn-out/unusable condition. These parts (“cores”) are sent to Cardone from salvage yards and auto part distributors/stores located in the U.S., Mexico, Canada and other foreign countries. Some of the cores are marked on their casting with the country of origin, but most of the parts are not so marked. Once the auto parts are reconditioned, Cardone sells them to customers in the U.S., Canada, Mexico and other countries. Cardone imports the merchandise as follows:
A customer in Canada, Mexico or other foreign country brings a used or broken auto part into an auto parts store for exchange and purchase of a rebuilt replacement part. At the time of retail level sale, the auto parts store removes the reconditioned part from its box and delivers it to the customer. The customer’s exchange core is then placed into this same box. The exchange core is shipped to Cardone on a pallet along with other cores. The pallet is tagged in a conspicuous place with a country of origin marking based on the country in which the cores were used, e.g., “Country of Origin Mexico.” The box being reused is marked with the country of origin of the original “new” reconditioned replacement auto part (e.g., “Made in USA”), and the core may also contain a country of origin marking. The box is reused because the bar code allows for enhanced inventory control and
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receiving measures when Carbone receives a core. Also, the box provides for easy stacking on the pallet and protection against damage during transit.
2) Cardone buys cores from a core supplier or salvage yard in Mexico, Canada or other foreign countries. Generally, these suppliers place the cores in large bulk containers that are stacked on pallets. The pallet is bound and tagged in a conspicuous place with a country of origin marking based on the country in which the cores were used.
You believe that the imported parts are excepted from the marking requirements pursuant to section 134.32(g), Customs Regulations (19 CFR 134.32(g)) or section 134.32(h) (19 CFR 134.32(h)).
ISSUE:
What are the country of origin marking requirements for the imported
automotive cores?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires 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 manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR Part 134). 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 this part; however,
for a good of a NAFTA country, the NAFTA Marking Rules will determine the
country of origin.
Cores Imported from Canada and Mexico
Section 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.
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Section 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.
A good of a NAFTA country which is to be processed in a manner that would result in the good becoming a good of the United States under the NAFTA Marking Rules is excepted from marking. In this circumstance, unless the good is processed by the importer or on its behalf, the outermost container of the good must be marked. See 19 CFR §134.35(b).
In the case of cores imported from Canada or Mexico, the initial question to
be resolved is whether, as a result of the processing performed in the U.S., the reconditioned parts are considered goods of the U.S. under the NAFTA Marking Rules.
Part 102 of the regulations sets forth the “NAFTA Marking Rules” for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that “[t]he 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 requirements of these rules are satisfied.
The reconditioned parts are neither “wholly obtained or produced” nor “produced
exclusively from domestic (U.S.) materials.” Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, 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 section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good. As the reconditioning process in the U.S. does not result in a change in classification of the foreign origin cores, section 102.11(a)(3) is not applicable. Accordingly, 19 CFR 102.11(b) of the hierarchal rules must next be applied, which provides in part as follows:
Except for a good that is specifically described in the Harmonized Tariff
Schedule as a set, or is classified as a set pursuant to General Rule of
Interpretation 2, where the country of origin cannot be determined under 4
paragraph (a), the country of origin of the good:
(1) Is the country or countries of origin of the single material that imparts the essential character of the good, or
* * * *
Pursuant to section 102.18(b)(1):
For purposes of identifying the material that imparts the essential character to a good under 19 CFR 102.11, materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements available to the good.
Applying 19 CFR 102.18(b), we find that the material that imparts the essential
character to the imported parts in each case is the used core, i.e., the used water pump, master cylinder, cv joint, etc. Therefore, the country of origin of the cores imported into the U.S. and reconditioned for resale is the country of origin of these used parts.
Cores Imported from non-NAFTA Countries
As noted above, the processing of cores imported from non-NAFTA countries
must effect a substantial transformation in order to render the U.S. the country of origin. See 19 CFR 134.1(b). A substantial transformation occurs when an article loses its identity and becomes a new or different article of commerce having a new name, character or use. United States v. Gibson-Thomsen Co., 27 CCPA 267 (1940); National Juice Products Association v. United States, 10 CIT 48 (1986). Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into a different article will be considered the “ultimate purchaser” of the imported article, and the article shall be excepted from marking. However, the outermost container of the imported article must be marked (See, 19 CFR §134.35). Whether a substantial transformation occurs is determined on a case-by-case basis. The specific issue to be addressed herein is whether the imported core, which is reconditioned in the U.S., is substantially transformed into an article having a new name, character or use.
In Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), a case involving shoe uppers, the court considered whether the addition of an outsole in the U.S. to imported uppers effected a substantial transformation of the uppers. The court
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in that case determined that no substantial transformation resulted from the U.S. assembly process as the completed upper was the “very essence” of the finished shoe.
Similarly, in National Juice Products v. United States, 628 F. Supp. 978, 10 CIT
48 (CIT 1986), the court determined that imported frozen concentrated orange juice was not substantially transformed in the U.S. when it was domestically processed into retail orange juice products. The court agreed with Customs that the orange juice concentrate “imparts the essential character to the juice and makes it orange juice... thus, as in Uniroyal, the imported product is the very essence of the retail product.”
See also National Hand Tool Corp., v. United States, 16 CIT 308, 312 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993), where the court held that imported hand tool components cold-formed or hot-forged into their final shape before importation and used to produce hand tools were not substantially transformed when further processed and assembled in the U.S. In making its determination, the court focused on the fact that the form of the components remained the same after the assembly and heat-treatment processes performed in the U.S., and that the use of the imported components were predetermined at the time of importation, although this fact was not dispositive in
determining whether a substantial transformation occurred.
In the instant case, the imported cores impart the essential character to the
reconditioned automotive parts and, as in Uniroyal, constitute the very essence of
this product. Further, as in National Hand Tool, we note that the use of the imported parts is predetermined at the time of importation. Accordingly, we find that the imported cores are not substantially transformed when they are used to produce reconditioned automotive parts in the U.S. Therefore, the country of origin of the cores imported into the U.S. and reconditioned for resale is the country of origin of these used parts.
The next question to be resolved is a determination of the country of origin where the cores are not so marked upon importation.
In Ashdown, U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661 (1988), the Court of International Trade held that a printing press, which was continually used in West Germany for nine years and which was not intended at the time of original sale to be exported to the U.S., became a bona fide part of the commerce of West Germany and was, therefore, not an import from a Communist country. In HRL 951072, dated
May 22, 1992, Customs determined that a Russian built MIG 21U that was disassembled and exported to Egypt where it was reassembled and used in the Egyptian Air Force for sixteen years and then stored for several years was regarded as
a product of Egypt for tariff purposes. Ashdown supports the proposition that the connection to the country where an article was produced may be broken due to the extended period of time that the article was in use in another country. In Headquarters
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Ruling Letter (HRL) 559968 dated May 7, 1997, Customs applied the principles of
Ashdown and held that front wheel axle assemblies exported to Mexico for repair were deemed to be of U.S. origin where the parts had been incorporated in a vehicle in use in the U.S. and thus had lost their connection to the country in which they were originally manufactured.
In HRL 732258 dated March 28, 1990, also involving used automotive parts
installed in vehicles used in the U.S., we stated the following:
There is no indication of any intent to transship alternators through the U.S. and it is not possible to determine where each and every alternator was originally made. Therefore, the used alternators which are not already marked with a foreign country of origin and for which it is impossible to trace the original country of manufacture are considered to be of U.S. origin. Those alternators which are already marked with a foreign country of origin are properly marked pursuant to 19 CFR 134.1(b) and require no further marking Customs has applied the principles of Ashdown primarily in instances where the country of origin of used articles cannot be determined. Accordingly, we believe that the approach taken in HRL 732258 to articles already marked with their country of origin is appropriate. Thus, the country of origin of such articles is the country as marked on the article upon importation. See also HRL 560936 dated April 21, 1999.
Applying these principles to the facts in this particular case, we find that the used
parts incorporated in vehicles in use in Mexico, Canada and other foreign countries and not marked with a country of origin (and the origin cannot otherwise be determined) are considered to be a product of the country in which the parts were used. The origin of used parts which are marked with their country of origin is the country as marked on the part upon importation.
Exceptions to the Marking Requirements
Section 134.32(g), Customs Regulations (19 CFR 134.32(g)), provides an
exception to the marking requirements for “articles 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 articles and in such a manner that any mark would necessarily be obliterated, destroyed or permanently concealed.” In this regard, you state that the processing in the U.S. may completely and permanently obliterate any existing country of origin markings contained on the cores. While the extent of such obliteration is unclear from the evidence, we will assume for purposes of this ruling that the country of origin
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markings will be destroyed or obliterated by such processing. Therefore, the imported articles (and their containers) may be excepted from marking at the time of importation under 19 CFR 134.32(g).
However, Customs has also ruled that another condition of entitlement to
this exception is that the port director must be satisfied that the processed article will be marked in a manner to indicate the country of origin to the ultimate purchaser in the U.S. This would require the U.S. processor to mark the processed article unless the U.S. processor is the ultimate purchaser. Pursuant to 19 CFR §134.35, a U.S. processor is considered to be the ultimate purchaser of a good from a non-NAFTA country if the processing constitutes a substantial transformation, i.e., results in an article with a new name, character or use. If the good is imported from a NAFTA country, the processing must result in the good becoming a good of the U.S. under the NAFTA Marking Rules. As noted above, the cores imported from non-NAFTA countries are not substantially transformed as a result of the U.S. processing, nor do such cores become a good of the U.S. under the NAFTA Marking Rules when imported from NAFTA countries. Therefore, Cardone is not considered the ultimate purchaser of these used parts and the processed parts must be marked with their country of origin, as discussed above.
19 CFR §134.32(h) provides that an article is excepted from marking where the ultimate purchaser, by reason of the circumstances of the importation, must necessarily know the country of origin of such article even though it is not marked to indicate its country of origin or in case of a NAFTA country, must reasonably know, the country of origin by reason of the circumstances of its importation.
For the reasons discussed above, Cardone is not the ultimate purchaser
of the imported articles whether the cores are imported from a NAFTA or non-NAFTA country. Therefore, this exception does not apply to Cardone.
HOLDING:
Based on the information submitted:
1) The reconditioning in the U.S. of used automotive cores imported from NAFTA and non-NAFTA countries does not result in the cores becoming goods of the U.S.
2) The origin of imported cores which are marked with their country of origin is the
country as marked on the parts upon importation.
3) Where the imported cores are not marked with their country of origin and
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the origin of the articles cannot otherwise be determined, the country of origin
of the cores is considered to be the country in which the parts were used. See
Ashdown, above.
4) As Cardone is not the ultimate purchaser, the exception under 19 CFR 134.32(h)
does not apply. However, as it appears that any country of origin markings may be obliterated or destroyed by the U.S. processing, the imported articles (and their containers) may be excepted from marking at the time of importation under 19 CFR 134.32(g). For this exception to apply, the port director must be satisfied that the processed article will be marked in a manner to indicate the country of origin to the ultimate purchaser in the U.S.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division