MAR-2-05 CO:R:C:V 734097 GRV

Mr. Allan D. Jones
Director of Marketing
Sherwood Digital Electronics Corp.
2252 South 3600 West
Salt Lake City, UT 84119

RE: Country of origin marking of terminal video shells imported to be assembled with U.S. terminal logic boards into completed computer terminals. Ultimate purchaser; 19 CFR 134.1(d); 19 CFR 134.35; domestic assembly; T.D. 67-173; C.S.D. 80-111; 712529; 732170 (730515 distinguished); 733931; 19 CFR 134.32(h); C.S.D. 80-144; 732609; 730243; 709801; 733096

Dear Mr. Jones:

This is in response to your letters of March 22 and August 5, 1991, requesting a ruling regarding the country of origin marking requirements applicable to terminal video shells imported from Korea to be assembled with U.S.-manufactured terminal logic boards to make dumb terminals for certain computer systems. Photographs showing the assembly operation and sales brochure information describing the terminals were submitted.


Your company, Sherwood Digital Electronics Corp. (SDE), purchases terminal video shells (computer terminal housings that contain video electronics, but no logic boards), manufactured in Korea by Inkel Corp., from Sherwood, a division of Inkel Technology, Inc., pursuant to a contract that specifies the country of origin of the imported video shell. Your company does not appear to have any direct contact with Inkel Corp., of Korea.

In the U.S., four components--custom-made terminal logic boards manufactured in the U.S., keyswitches, T-connector cables, and custom keyboards--are installed in the empty video shells, and the video unit is aligned to receive the new communication protocol transmissions. The completed computer terminals are then sold to your sister company--I-O Corporation for further distribution. It is your contention that the domestic processing operation substantially transforms the imported video shells, thereby rendering your company the ultimate purchaser for purposes of applying the country of origin marking laws. Further concerning this ultimate purchaser designation, you state that the domestic value added to the imported video unit is well over 200%. You also contend that because the transaction presented is pursuant to a formal contract, this circumstance of the importation causes your company to necessarily know the country of origin of the imported video shells: Korea. Accordingly, neither the article imported nor its disposable container should have to be marked to indicate its country of origin.


I. Whether the domestic assembly operation substantially trans- forms the imported video terminal components so that the U.S. manufacturer will be considered the "ultimate purchaser" of the imported merchandise, within the meaning of 19 CFR 134.35.

II. Whether the circumstances of the importation offer suffi- cient assurances that the ultimate purchaser necessarily knows the country of origin of the imported terminal video shells for purposes of 19 U.S.C. 1304 and 19 CFR 134.32(h) and 134.22(d)(1).


The marking statute, 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 its container) will permit in such a manner as to indicate to the ultimate pur- chaser the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

The primary purpose of the country of origin marking statute is to "mark the goods so that at the time of purchase the ulti- mate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influ- ence his will." United States v. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940). The "Ultimate Purchaser" Consideration

The "ultimate purchaser" is defined generally as the last person in the U.S. who will receive the article in the form in which it was imported. 19 CFR 134.1(d). If an imported article will be used in domestic manufacture, the manufacturer may be the "ultimate purchaser" if [s]he subjects the imported article to a process which results in a substantial transformation of the article. However, if the manufacturing process is a minor one which leaves the identity of the imported article intact, the consumer or user of the article, who obtains the article after the processing, will be regarded as the "ultimate purchaser." 19 CFR 134.1(d)(1) and (2).

Substantial Transformation and Domestic Assembly Operations

For country of origin marking purposes, a substantial transformation of imported article occurs when it is used in the U.S. in manufacture, which results in an article having a name, character, or use differing from that of the imported article. Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article, and the article shall be excepted from marking. However, the outermost containers of the imported articles must be marked. 19 CFR 134.35. The issue of whether a substantial transformation occurs is determined on a case-by-case basis.

In determining whether the combining of parts or materials constitutes a substantial transformation, the issue is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Belcrest Linens v. United States, 6 CIT 204, 573 F.Supp. 1149 (1983), aff'd, 2 Fed.Cir. 105, 741 F.2d 1368 (1984). Assembly operations which are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation. See, C.S.D.s 80-111, 85-25, 89-110, 89-118, 89-129, 90-51 and 90-97.

In T.D. 67-173, 1 Cust.Bull. 366 (1967), we considered the application of the country of origin marking requirements to the domestic assembly of imported fishing rod parts into completed fishing rods and reels. Finding in some instances that fishing reels were imported in an unassembled or partially assembled condition and that only minor parts made in the U.S. were used in assembling the completed product, we stated the assembly of such finished products, where all or substantially all of the compo- nents were imported, could not be considered to result in the manufacture of a new and different article in the U.S. However, in those instances where major U.S. components were added, the domestic manufacturer was considered the "ultimate purchaser" of the imported rod parts, as contemplated by 134.35. See, Headquarters Ruling Letter (HRL) 730069 dated December 23, 1986 (addition of more than one significant component in the U.S. changed the fundamental character of the article imported for assembly operations).

In C.S.D. 80-111, 14 Cust.Bull. 898 (1980), we considered whether imported ceiling fan components, domestically assembled into finished fans, constituted a substantial transformation of the components sufficient to warrant excepting the articles from country of origin marking requirements. The only U.S. components employed were industrial fasteners. Stating that the mere assem- bly of parts will not constitute a substantial transformation, and finding that the domestic operations basically constituted assembly operations, we determined that the imported component parts were not substantially transformed. This determination was premised on the following factors: (1) the parts were not physi- cally altered; (2) the assembly processes did not require large amounts of skilled labor or specialized equipment; (3) the cost of the processes was low; and, (4) the components did not lose their identity by becoming an integral part of a new article. Consequently, the exception to individual marking, set forth at 134.35, was not applicable.

However, in HRL 712529 dated March 27, 1980, imported plastic housings and faceplates were found to be substantially transformed when domestically assembled with other components to make depth sounders, thus, rendering the manufacturer the ulti- mate purchaser of the imported components within the meaning of 19 U.S.C. 1304(a). See also, HRLs 732170 dated January 5, 1990 (distinguishing HRL 730515 dated June 29, 1987, and finding that the domestic assembly of imported backless television cabinets-- containing a tuner, speaker and circuit board--with major U.S. components--such as the color television picture tube, deflection yoke, etc.--was more than a mere combining operation and caused all components to lose their respective identities and become integral parts of a new and different article of commerce, namely a color TV receiver; the assembly process also required technical skill), and 733931 dated March 26, 1991 (domestic assembly of numerous domestic and foreign audio cassette components causes the foreign components to lose their separate identities as foreign articles; the foreign components are substantially transformed when fully assembled into completed cassette tapes).

In this case, the installation of the U.S.-manufactured terminal logic boards--and other components--into the imported terminal video shells creates a different article; a functional computer terminal for use with certain computer systems. Thus, the identity of the imported video shells is lost. But passing this hurdle, no cost or skill data was provided regarding the significance of the assembly operation, although you did state that the domestic value added to the imported video unit is well over 200%. As we found in HRL 732170, supra, that the assembly process to produce completed television sets required technical skill, so we analogize, based on our experience with computers, to the production of completed computer terminals that technical skills are required here. Accordingly, your company will be considered the "ultimate purchaser" of the imported video shell for purposes of 134.35 and the articles imported are excepted from marking, provided the disposable packages are marked with their country of origin, absent some other marking exception applicable to the containers.

Package Marking

19 CFR 134.32((h) provides that if the circumstances of the importation or character of the articles is such that the ulti- mate purchaser must necessarily know the country of origin of the unmarked articles imported, then the articles imported do not have to be marked. Pursuant to this article marking exception, 134.22(d)(1) further provides that containers or holders of articles within the exception set forth at 134.32(h) are not required to be marked.

In C.S.D. 80-144 we stated that it has been Customs policy generally to only grant such exceptions when there is a two party one-step transaction between an importer and his foreign supplier with the importer also being the ultimate purchaser. See also HRLs 732609 dated August 30, 1990, 730243 dated March 5, 1987 (the exception is limited to instances where the importer is the ultimate purchaser of the items and has direct contact with the foreign supplier). In the present case, no evidence of such direct contact between your company and the foreign manufacturer has been submitted. Although the domestic intermediate company importing the video articles--Sherwood, a Division of Inkel Technology Inc.--shares a common name with your company, it is represented as the U.S. sales company for the foreign manufac- turer--Inkel Corp., of Korea. Accordingly, 134.32(h) is not applicable in this context and the containers of the imported articles must be marked to indicate their country of origin-- Korea, as required by 134.35. Cf., C.S.D. 80-114 (importer owned an interest in the company from which it imported the articles, and ordered the articles directly from that company, therefore 134.32(h) applicable), and HRLs 709801 dated May 2, 1979 (Customs broker merely performed act of importation; there was direct communication between foreign supplier and U.S. purchaser), and 733096 dated February 8, 1990 (importer/ultimate purchaser was the parent company of the foreign manufacturer, and importer directly orders only from its subsidiary, therefore, 134.32(h) applicable).


The imported terminal video shells lose their foreign iden- tities when domestically assembled with significant U.S. compo- nent parts and are substantially transformed by the significant domestic processing operations, so that the domestic processor becomes the "ultimate purchaser" for purposes of 19 CFR 134.35. As the further article/package marking exceptions at 19 CFR 134.32(h) and 19 CFR 134.22(d)(1) are not applicable because insufficient assurances are present to warrant that the ultimate purchaser necessarily knows the country of origin of the imported merchandise, i.e., the ultimate purchaser does not have any direct contact with the foreign manufacturer, the disposable containers containing the imported merchandise must be marked to indicate the country of origin, as required by 19 U.S.C. 1304 and 19 CFR 134.35. Accordingly, the imported terminal video shells may be excepted from individual marking provided they are imported in a container which is marked with the country of origin of the shell (Korea) and Customs officials at the port of entry are satisfied that (1) the shells will be used only in the manner described above, and (2) the shells will reach SDE only in their original unopened containers.


John Durant, Director
Commercial Rulings Division