MAR 2-05 CO:R:C:S 735198 AT

James L. Bikoff, Esq.
Timothy Trainer, Esq
Arter & Hadden
1801 k Street, NW., Suite 400K
Washington, D.C. 20006-1301

RE: Country of origin marking requirements for imported lock parts used in making industrial padlocks; substantial transformation; ultimate purchaser; 19 CFR 134.35

Dear Sirs:

This is in response to your letter dated June 3, 1993, as supplemented on April 27, 1994, on behalf of Master Lock Company ("Master Lock") concerning the country of origin marking requirements for imported Taiwanese locks parts that are to be used in making finished industrial padlocks in the U.S. Samples of each style of lock, their unassembled components and diagrams of the assembly operation were submitted for review. This ruling will apply only to padlock model numbers []. We regret the delay in responding.

Contained in your submissions is material which you claim as privileged business information and request that Customs make no public disclosure of this information. Your confidentiality request has been addressed in Customs response dated November 10, 1994. The confidential information is bracketed and will not be disclosed in copies of this final determination made available to the public. FACTS:

Master Lock intends to import into the U.S. lock parts which are made in Taiwan. These imported lock parts are assembled by Master Lock with other U.S. parts to manufacture various models of industrial padlocks []. All of these industrial padlocks are basically similar with some differences as described in the following paragraphs. Model No. [] contains 11 components, including the key set. Of these 11 components, nine (the cylinder assembly, key set, ball bearing, plated shackle stop pin, plated anti-saw pin, screw, cylinder external assembly, plated shackle and hardened shackle spring) are manufactured in the U.S. The remaining two components, the lock case and cylinder retainer block, are of Taiwanese origin. You state that the cost of the Taiwanese lock parts represents between approximately 25 to 35 percent of the total cost of the finished padlock, depending on the configuration and keying system required.

Model No. [] also contains 11 components, including the key set. Nine of these components (the cylinder assembly, key set, ball bearing, plated shackle stop pin, plated anti-saw pin, screw, cylinder external assembly, plated shackle and hardened shackle spring) are manufactured in the U.S. The remaining two, the lock case and cylinder retainer block, are of Taiwanese origin. The cost of the Taiwanese lock parts represents between approximately 35 to 43 percent of the total cost of the finished padlock, depending on the configuration and keying system required.

Model No. [] contains nine components, including the key set. Eight of these components (the plated nut, non-key-retainer cylinder external assembly, plated cylinder door, ball bearing, screw, plated shackle, cylinder assembly and key set) are manufactured in the U.S. The remaining component, the lock body, is Taiwanese origin. The cost of the Taiwanese component represents between approximately 49 to 53 percent of the total cost of the finished industrial padlock, depending on the configuration and keying system required.

As stated in your submission, each finished industrial padlock consists of a lock body into which is inserted a cylindrical locking mechanism and a retaining door. Each lock is fitted with a shackle that is retained by steel ball bearings and locks when snapped into place. The locks are unlocked with keys sold with the locks, which themselves are manufactured in the U.S.

Assembly of each of the industrial padlocks consists of the following two operations:

1. The lock body is placed in a fixture, and all the components are manually assembled into the body; and

2. The completed lock is then tested to assure the locking mechanism is functional before packaging the product for sale. You claim that the process of assembling these locks is complex, requiring skilled workers to perform. Master Lock employees who assemble the industrial locks receive 20 hours of training. Also, the assembly operation requires specially designed and built machines to hold the lock components in place while they are manipulated with various hand tools by the workers. In addition, the configuration of these machines must be changed by the employees to accommodate the various assembly processes for the different lock models. Based on these considerations, you assert that the imported lock components are substantially transformed in the U.S. when used in the manufacture of industrial locks in that the name, character and use of the imported parts change as a result of the U.S. operations. Thus, Master Lock is the ultimate purchaser of the imported parts and the parts themselves are excepted from country of origin marking and only the outermost containers in which the lock parts are imported must be marked with the country of origin--Taiwan.

ISSUE:

What are the country of origin marking requirements of the imported lock parts which are to be used in the manufacture of industrial padlocks in the manner described above.

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 its 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. 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 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." United States v. Friedlaender & Co. 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. 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 the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed and the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35.

Customs has previously considered the issue of whether imported components used in making a locking apparatus were substantially transformed when they were combined with U.S. components in the U.S. In HQ 734440 (March 30, 1992), Customs ruled that an imported lock apparatus was substantially transformed in the U.S. by combining it with U.S. manufactured lock pieces into a finished jaw lock. We stated that the imported lock apparatus was functionally necessary to the operation of the finished lock, and was not an accessory retaining its independent function after being assembled into the finished article. In HQ 734923 (May 14, 1993), Customs ruled that imported components of a door lockset, the rosettes and parts of the latch, were substantially transformed when they were assembled together with significant U.S. components in the U.S. to make the finished door lockset. We stated that, although assembly of the imported rosettes with the other U.S. components of the lockset was not especially complex, these parts did not have any independent function and did not have a separate commercial use other than to be combined with the knobs and the locking cylinder to make the door lockset. We further stated that the finished article, the door lockset, is a distinct article with a name, character, and use which is different from its individual components. Rather than being a collection of individual components, when it is fully assembled, the door lockset functions as one unit, a door opening and closing security device. The character of the rosettes is changed as they become part of this unit, and they do not remain separate articles after being assembled into the finished article.

Similarly, in this case, we find that the imported components that are assembled in the U.S. into the finished industrial padlocks [] are substantially transformed as a result of the assembly operation. Like the imported components in HQ 734923, the lock case and cylinder retainer block do not have any independent function or a separate commercial use other than to be combined with U.S. components into a finished industrial lock. The character of the lock case and cylinder retainer block is changed as they become part of the finished article; they do not remain separate articles after assembly. The finished article, industrial padlock, is a distinct article with a name, character, and use which is different from its individual components. Also, as you state, a change in the name, character, and use of the imported lock case and cylinder retainer block is evidenced by the fact that there is a change in classification of the imported components after assembly. That is, the lock case and cylinder retainer block are classified as lock parts under subheading 8301.60.00, HTSUS, before assembly, but are classified under subheading 8301.10, HTSUS, as a finished padlock, after the assembly operation is completed. Thus, the imported lock components for models [] are substantially transformed in the U.S. as a result of being assembled with U.S. components into industrial padlocks. Accordingly, the ultimate purchaser of the imported lock parts is Master Lock and the lock cases and cylinder retainer blocks are excepted from individual country of origin marking. Only the outermost containers in which the lock parts are imported must be marked to indicate Taiwan as the country of origin of the parts.

Finally you indicate in your submission of June 3, 1993, that Master Lock wants to mark the finished industrial padlocks with the phrase "Made in U.S.A.". The Customs Service does not have the authority to approve such a marking. If a phrase such as "Made in the U.S.A." is proposed to be marked on the finished padlocks, we advise you to contact the Federal Trade Commission (FTC), Division of Enforcement, 6th & Pennsylvania Avenue, NW, Washington D.C. 20508, before Master Lock undertakes to mark its finished product in that fashion, since use of the phrase "Made in U.S.A." is under the FTC's jurisdiction.

HOLDING:

The imported lock components for models [] are substantially transformed in the U.S. as a result of being assembled with U.S. components into industrial padlocks. Accordingly, the ultimate purchaser of the imported lock parts is Master Lock and the lock case and cylinder retainer block are excepted from individual country of origin marking. Only the outermost containers in which the lock parts are imported must be marked to indicate Taiwan as the country of origin of the parts. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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