MAR-2-05 CO:R:C:V 732940 EAB

John E. Wall, President
Eastern Auto Parts Co., Inc.
P.O. Box 2925
Panama City, FL 32402

Re: Country of origin marking of motor vehicle parts and components of motor vehicle parts

Dear Mr. Wall:

This is in further reply to your letter dated November 30, 1989, in which you request a ruling on the country of origin marking requirements of certain automotive parts and components. As we requested, you have provided us with further cost and assembly information by letter dated April 6, 1990.

This ruling is prospective only, and the findings and holdings herein are not applicable to any current or past importation of articles that are the subject of this ruling and to which you are or have been a party.

FACTS:

Your company imports for sale fully assembled water pumps and brake calipers, and components of water pumps and brake calipers, which your company then assembles and sells. In your letter dated November 30, 1989, you state that the water pump components which you assemble are a casting, impeller, gasket, hub and bearing. From the drawing that you submitted at that time, it appears that in the majority of instances, only the water pump casting is imported; however, certain water pumps require foreign castings, hubs and impellers. In your letter dated April 6, 1990, it appears that only domestic impellers and hubs are used; that in all cases, the mounting gasket is foreign, and in all but one case, the casting is foreign. In your November 30, 1989 letter, you state that the brake caliper components which you import and assemble are a casting, piston, boot, bleeder screw and o-rings; however, in your April 6, 1990 letter, in all cases you state that the only imported part is the casting.

In view of the discrepancies between your two submissions, we are basing our ruling on the information in your April 6, 1990 letter, relating to sources and costs of components to specific catalogue items. Water pump #18-208 contains barely 5% foreign components (mounting gasket; one component of six); water pump #18-281 contains nearly 50% foreign components (mounting gasket and casting; two components of seven); water pump #18-307 con- tains almost 33% foreign components (mounting gasket and casting; two components of eight); water pump #18-338, nearly 50% (mount- ing gasket and casting; two components of seven); water pump #18- 360, slightly more than 50% (mounting gasket and casting; two components of six); and water pump #18-365, nearly 50% (mounting gasket and casting; two components of eight). All water pumps are made with a U.S. impeller. Brake calipers ##17-421, 17-351 and 17-2103 contain nearly 50% foreign components (one of fourteen components), and brake caliper #17-588 contains almost 67% foreign components (one of six components). The only foreign component of each brake caliper is the casting.

The assembly of the water pump initially involves random checking of a given lot for casting quality, machining quality and finish. Parts, i.e. bearings, seals, hubs, impellers, back plates, gaskets and tubing, are randomly checked by your quality control personnel. Following this, tooling is designed and built, then tested for accuracy. A housing is heat treated, then sent forward for assembly. The assembly procedure involves the combining of the bearing, housing, seal, hub, impeller, backplate, gasket and tubes. Following assembly, a completed water pump is subjected to a 100% vacuum test. A final quality control check precedes delivery to your shipping department, where each pump is boxed with "any miscellaneous parts required by the related drawings and sent to the customer," your letter dated April 6, 1990.

The assembly of the brake caliper initially involves random checking of a given lot for casting quality, machining quality and finish. A satisfactory casting is cleaned and treated with a rust "preservative" [we assume you mean "preventative"]. The assembly procedure involves the combining of the washer, seal, piston, piston boot, actuator bolt, compression spring, o-rings, bleeder screw, casting, nylon washer, screw boot and nut. Following assembly, a completed brake caliper is subjected to a pressure test. A final quality control check precedes delivery to your shipping department, where each brake caliper is packed and sent to the customer.

You state that you have notified all of your vendors of the marking requirements, and that all of your purchase orders include a marking requirement, which you alternatively list as:

a) die casting the article; b) indelible ink stamping upon the article; c) marking the box containing the article; or, d) placing a sticker on the plastic bag containing the article.

ISSUES:

What are the country of origin marking requirements of imported water pumps and brake calipers; imported parts of water pumps and brake calipers; and, water pumps and brake calipers assembled by the importer, from imported and domestic parts?

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 (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 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 primary purpose of the country of origin marking statute 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 the product, if such marking should influence his will." United States v. Friedlaender & Co., 27 CCPA 297 (1940); National Juice Products Association v. United States, 10 CIT 48 (1986). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

With respect to the brake calipers and water pumps which are imported fully assembled, you propose to mark either the product itself by die casting or by stamping with indelible ink. With respect to those pieces which are packed in a box, you propose to mark the exterior of the box. Pieces packaged in a plastic bag will be marked by means of a sticker affixed to the plastic bag.

Assuming the country of origin marking on the water pumps and brake calipers which are imported fully assembled is legible and conspicuous, marking by means of die stamping or indelible ink is acceptable. In this regard, 19 CFR 134.41(a) states that, as a 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.

The imported articles may be excepted from individual marking if the requirements of 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d) are satisfied. Under these provisions, an article

may be excepted from marking if the marking of the container of such article will reasonably indicate the origin of the article. You have not furnished enough information to determine whether the imported water pump and brake calipers are excepted from individual marking under this provision. Customs has limited this exception generally to two situations: where either the importer is the ultimate purchaser of the imported article, and the shipping container indicates the country of origin; or the ultimate purchaser not the importer will in all foreseeable circumstances receive the imported article in its original unopened marked container. As provided in Customs Service Decision 90-17, if Customs is not convinced that the ultimate purchaser will receive the imported article in its original unopened marked container in all foreseeable circumstances, no exception from individual marking will be granted under 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d). If an article is excepted, marking of the box by printing is acceptable. If paper stickers or pressure sensitive labels are used, 19 CFR 134.44(b) provides that they must be affixed in a conspicuous place and so securely that unless deliberately removed they will remain on the article, or its container, while it is in storage or on display and until it is delivered to the ultimate purchaser.

The country of origin marking requirements of water pumps and brake calipers that are assembled by your company in the U.S. from imported and domestic parts depend upon whether your company is the ultimate purchaser.

As provided in 19 CFR 134.1(d), the ultimate purchaser is generally the last person in the U.S. who will receive the article in the form in which it was imported. As an example, if an 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 circumstances the imported article is excepted from marking provided the outermost container is marked. See 19 CFR 134.35 and 19 CFR 134.32(d).

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 CCPA 267 (1940); National Juice Products Association v. United States, 10 CIT 48; Koru North America v. United States, 12 CIT ____, 701 F.Supp. 229 (CIT 1988).

The issue involved in this case is whether the imported components which are combined with U.S. made components to form a water pump or brake caliper are substantially transformed into a new article having a new name, character or use. Two court cases

have considered the issue of whether imported parts combined in the U.S. with domestic parts were substantially transformed for country of origin marking purposes. In the first case, Gibson- Thomsen, supra, the court held that imported wood brush block and toothbrush handles which had bristles inserted into them in the U.S. lost their identity as such and became new articles having a new name, character and use. One of the factors considered by the court in reaching its conclusion was that the bristles used were "by far the most valuable element." Also, the court looked at whether the imported article loses its identity as such when combined with other articles. In that case, the court concluded that wood handles were mere materials to be used in the manufac- ture of toothbrushes and hairbrushes. The court was also con- cerned that when an imported article was combined with a domes- tic material, that the ultimate purchaser not be confused into thinking that the domestic article was made in a foreign coun- try. Therefore, the court concluded that a mere material to be used in the manufacture of a new article having a new name, character and use and which, became an integral part of the new article would not be required to be marked.

The second case involved imported shoe uppers which were combined with domestic soles in the U.S. The imported uppers were held in Uniroyal, Inc. v. United States, 3 CIT 220 (1982), to be the "essence of the completed shoe" and therefore, not substantially transformed. The court described the imported uppers as "complete shoes except for an outsole." The shoe had already "obtained its ultimate shape, form and size." One process, relasting, performed in the U.S., was characterized as "convenient, not necessary." The processes performed in the U.S. were significantly less costly and less time consuming than the foreign manufacturing process. The cost of the upper was signi- ficantly greater than the cost of the outsole. Further, the manufacture of the upper required at least five highly skilled operations. The court concluded that the attachment of the outsole was a minor manufacturing or combining process which leaves the identity of the upper intact."

There is also a ruling in which Customs set forth some factors to be considered in determining whether imported goods combined in the U.S. with domestic products were substantially transformed for country of origin marking purposes. In HQ 732057 (April 16, 1990), Customs considered whether or not a circular knife blade lost its separate identity when assembled into a rotary cutting instrument. In reaching the conclusion that the knife blade did not lose its separate identity when it was combined with a domestic article, Customs considered six factors:

1) whether the article is completely finished;

2) the extent of the manufacturing process of combining the article with its counterparts as compared with the manufac- turing of the subject article;

3) whether the article is permanently attached to its counterparts;

4) the overall importance of the article to the finished product;

5) whether the article is functionally necessary to the operation of the finished article, or whether it is an accessory which retains its independent function; and,

6) whether the article remains visible after the combining.

These factors are not exclusive and there may be other factors relevant to a particular case and no one factor is determinative. See HQ 728801 (February 26, 1986).

Water Pump

The water pump assemblies which are the subject of this case are comprised of 6-8 components including a casting, bearing, impeller, hub, seal, mounting gasket and in some cases, a spacer, tubes or plugs. The casting and the bearing are the two most costly components; together they comprise approximately 60-80% of the total materials costs. (Generally, the casting is somewhat more costly than the bearing. In one case, the bearing is the most expensive component). Based on the cost figures, the impeller, hub and seal are also significant components. In one case, the hub is more costly than the bearing. One of the water pumps in question is comprised solely of U.S. components except for an inexpensive Canadian gasket. The other models utilize a casting made in Taiwan in addition to the Canadian gasket. All of the remaining components are made in the U.S.

After careful consideration of the cases discussed above we conclude that the U.S. processing substantially transforms the imported castings and gaskets. Clearly, in the case of the imported Canadian gasket which is combined with all U.S. components to form a water pump a substantial transformation occurs. At the time of importation, the imported components can hardly be considered a water pump. Although those models which also include a Taiwanese casting present a closer question, we conclude that they too are substantially transformed. Although the casting is generally the most costly component and is clearly an essential component of a water pump, other costly components are added which are also essential to the functioning of the

water pump. The imported casting cannot be characterized as a water pump without the other essential components added in the U.S. In particular, we note that the purpose of a pump is to transport a fluid from one point to another; this cannot be done without the impeller. The addition of the impeller along with bearing, hub and seal is essential to create a functional article of commerce. Unlike the imported shoe uppers in the Uniroyal case which were the essence of the completed shoes, the imported casting by itself is not the essence of the completed water pump; nor does it impart the ultimate shape, form and size to the completed product as the shoe upper did.

Applying the six factors enumerated in HQ 732057 supports this conclusion. On the one hand, the casting is an important component which remains visible after assembly and the assembly process does not appear to be very complex. However, the casting is only one of several important components, it is permanently attached to the remaining components, and it is functionally necessary to the operation of the finished article and is not merely an accessory which retains its independent function. The fact that several important U.S. components, one of which is approximately the same cost as the casting, and another which imparts the essential function of a water pump, are added in order to produce the water pump persuades us that a substantial transformation occurs.

Brake Caliper

The brake calipers are comprised of numerous components. According to your submission, three of the models are comprised of fourteen components; one is comprised of six. By far, the two most costly components are the casting and the piston. The only foreign component of each brake caliper is the casting. Although the casting comprises between approximately 40-66% of the cost of materials, the other major component, the U.S. piston, is added in the U.S. (In all but one of the models, the piston is slightly more costly than the casting.) While the imported castings are essential components of the finished brake caliper, the piston, which necessarily provides the stopping mechanism, is equally important. Without the piston, the article cannot be characterized as a brake caliper.

The reasoning applied to the water pump casting is applicable here. We find that the cleansing and rust-proofing of the imported casting coupled with the assembly of the casting with the U.S. piston and numerous additional U.S. parts substan- tially transforms the imported casting into an integral component of a brake caliper.

HOLDING:

Imported water pumps and brake calipers may not be excepted from individual country of origin marking pursuant to 19 CFR 134.32(d) unless Customs is convinced that the imported articles will reach the ultimate purchaser in their original unopened marked containers bearing a legible, permanent and indelible country of origin marking.

Your company that uses the imported castings and gaskets in the manufacture of water pumps, and imported castings which are to be used in the manufacture of brake calipers as describe above is the ultimate purchaser. Therefore, these articles are excepted from individual country of origin marking pursuant to 19 CFR 134.35 and 19 CFR 134.32(d), provided: (1) the containers in which they are imported are properly marked to indicate the county of origin of the articles; (2) Customs officers at the port of entry are convinced that the imported articles will reach the ultimate purchaser in their original unopened marked containers; and (3) the articles will be used only in the manufacture of water pumps and brake calipers, respectively, as described above and not otherwise sold. Statements to this effect must be submitted for each entry for which this exception applies.

Sincerely,

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

cc: Port Director of Customs
Panama City, FL

The Honorable Earl Hutto, Member of Congress

Associate Commissioner, Congressional and Public Affairs