MAR-2-05 CO:R:C:V 732769 KG

District Director of Customs
Baltimore, Maryland

RE: Country of origin marking of imported footwear uppers for baby shoes

Dear Sir:

This is in response to your memorandum of September 15, 1989 (MAR:2:05:DD:CO:TT:IS:I EB), regarding the country of origin marking of imported footwear uppers.

FACTS:

You requested advice concerning the proper country of origin marking of 3 styles of imported footwear uppers for baby shoes. Style 860 is a baby shoe upper composed of canvas, cotton bias binding, aluminum eyelets, thread and lasting cord. All of the components are of U.S. origin. In the U.S. the components are bundled and shipped to the Dominican Republic. In the Dominican Republic, the binding is stitched to the edges of the quarter and tongue and the binding ends are trimmed. The counter is stitched to the quarter and the eyelets are inserted. The tongue is stitched on and the lasting cord is attached to the bottom edge of the upper. The completely open-bottomed uppers are then bundled and sent to the U.S. In the U.S., the importer will heat the uppers on an injection machine, string last the upper and direct attach the sole with an injection moulding machine. The shoe is stripped from the last and the insole is cemented, inspected and laced. A cost breakdown, photo of the components and sample were submitted for examination.

Style 800, a slip-on, is also composed of U.S. origin components. As with Style 860, the upper is assembled in the Dominican Republic to the point of being a completely open- bottomed upper with the lasting cord attached. In the U.S. the same processes, with the exception of lacing, are performed. A sample was submitted for examination.

Style 290 is composed of fabric, thread, eyelets, a vinyl coated insole and a shoelace. In the U.S. the vamp, tongue, quarter and outsole are cut to shape from imported Taiwanese fabric. The components are then shipped to the Dominican Republic where the topband is stitched to the quarter. Eight eyelets are installed. The counter is cemented into place and then sewn to the quarter. The quarter and tongue are then fitted and stitched to the vamp. The upper is then cleaned, inspected and trimmed. Next, the outsole is stitched to the upper. The footwear that is imported into the U.S. has the appearance of a shoe with a closed canvas bottom. The footwear returned to the U.S. are heated and turned over a turning iron. The insole is cemented and then inserted into the shoe. The shoe is then stretched over a plastic last. After removal from the last, the shoe is cleaned, inspected, laced and packed.

ISSUE:

Whether the three styles of baby footwear are substantially transformed in the U.S.

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 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. The Court of International Trade stated in Koru North America v. United States, 701 F.Supp. 229, 12 CIT (CIT 1988), that: "In ascertaining what constitutes the country of origin under the marking statute, a court must look at the sense in which the term is used in the statute, giving reference to the purpose of the particular legislation involved. The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297, 302 C.A.D. 104 (1940), where the court stated that: "Congress intended 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."

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. The ultimate purchaser is defined in section 134.1(d), Customs Regulations (19 CFR 134.1(d)), as generally the last person in the United States who will receive the article in the form in which it was imported. If the imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation of the article. In such case, the article itself is excepted from marking pursuant to section 134.35, Customs Regulations (19 CFR 134.35), and only the outermost container of the imported article must be marked.

A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940), National Juice Products Association v. United States, 10 CIT ___, 628 F.Supp. 978 (CIT 1986), Koru North America v. United States, 12 CIT ___, 701 F.Supp. 229 (CIT 1988).

In the leading country of origin marking case involving imported shoe uppers, Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983), the Court of International Trade considered whether the addition of an outsole in the U.S. to imported uppers substantially transformed the uppers. The court described the imported upper, which resembled a moccasin, and the process of attaching the outsole to the upper. The factors examined included: a comparison of the time involved in attaching the outsole versus the time involved in manufacturing the upper, a comparison of the cost involved in the process of attaching the outsole versus the cost involved in the process of manufacturing the upper, a comparison of the cost of the imported upper versus the cost of outsole and a comparison of the number of highly skilled operations involved in both processes. The court concluded that a substantial transformation of the upper had not occurred since the attachment of the outsole to the upper is a minor manufacturing or combining process which leaves the identity of the upper intact. The upper was described as a substantially complete shoe and the manufacturing process taking place in the U.S. required only a small fraction of the time and cost involved in producing the upper.

In this case, style 800 in its imported condition is not a substantially complete shoe and does not have the physical appearance of a shoe. The imported article is not shaped or formed into a shoe and also has no bottom. A comparison of the cost figures for style 800 indicate that the labor costs incurred in the Dominican Republic are only $0.18, while the U.S. labor costs are $0.37. Style 800 becomes a baby shoe, a new and different product in the U.S. It undergoes a change in name from an upper to a baby shoe and also undergoes a change in character. Style 800 is substantially transformed in the U.S. into a baby shoe, an article with a new name and characteristics than the imported unformed upper. In accordance with 19 CFR 134.35, the imported uppers known as style 800 are excepted from country of origin marking and only the outermost container in which style 800 is imported must be marked.

Style 860 in its imported condition is also not a substantially complete shoe and does not have the physical appearance of a shoe. The imported article is not shaped or formed into a shoe and has no bottom. Further, like style 800, the cost figures for style 860 indicate that the operations performed in the Dominican Republic cost only $0.18, while the cost of operations performed in the U.S. is $0.36. Like style 800, style 860 becomes a new and different product in the U.S. The upper undergoes both a change in name and in character in the U.S. Consequently, style 860 is substantially transformed in the U.S. into a baby shoe, an article with a new name and characteristics than the imported unformed upper. Therefore, in accordance with 19 CFR 134.35, the imported uppers known as style 860 are excepted from country of origin marking and only the outermost container in which style 860 is imported must be marked.

In contrast to styles 800 and 860, style 290 does have the appearance and characteristics of a soft moccasin, including a closed bottom and the form and shape of a shoe, like the imported upper described in Uniroyal. Although the operations performed in the U.S. cost $0.42 while the operations performed in the Dominican Republic cost only $0.25, the product exported from the Dominican Republic resembles a shoe and does not require significant processing to complete the baby shoe. Though style 290 does undergo a change in name from an upper to a baby shoe, a change in name alone is not determinative. Style 290 does not undergo a significant change in character. The imported upper physically resembles a shoe and has a closed bottom. Therefore, style 290 is not substantially transformed in the U.S. and must be marked with the country of origin. Since the uppers are not substantially transformed in the U.S., the retail purchaser and not the U.S. manufacturer is the ultimate purchaser. Therefore, the imported articles must be individually marked to indicate the country of origin to the retail purchaser in the U.S. HOLDING:

Style 290, described above, is not substantially transformed in the U.S. and must be individually marked to indicate the country of origin to the retail purchaser in the U.S. Styles 800 and 860, described above, are substantially transformed in the U.S. and pursuant to 19 CFR 134.35, only the outermost container in which these imported styles are contained must be marked with the country of origin.

Sincerely,

Marvin M. Amernick
Chief, Value, Special Programs
and Admissibility Branch