MAR 2-05 CO:R:C:V 735453 AT

Robert T. Keyser, Esq.
International Law Offices
1931 N Street, Suite 300
Sacramento, California 95814-4220

RE: Country of origin marking requirements for imported ball bearings further processed in the U.S.; substantial transformation; ultimate purchaser; 19 CFR 134.35

Dear Mr. Keyser:

This is in response to your letter dated October 27, 1993, on behalf of Perfect Fit Industries, Inc. ("PFI"), concerning the country of origin marking requirements for radial ball bearings imported from China that are to be further processed in the U.S. into double shielded ball bearings. Samples of the imported ball bearings and finished double shielded bearings were submitted with your letter. We regret the delay in responding.

FACTS:

You state that PFI intends to import radial bearings which are made in China, into the United States. Once imported, PFI further processes the bearings into double shielded ball bearings. The U.S. processing consists of quality checking the open ball bearing, cleaning the bearing with a solvent, adding ball bearing grease and a rust inhibitor to the bearing and encasing the radial ball bearing with two shields (one pair) forming the finished double shielded ball bearing. You also state that the approximate cost of the imported bearings compared to the total cost of a completed double shielded ball bearing ranges between 55 to 65 percent depending on the size of the bearing.

An examination of the samples indicates that the imported radial ball bearings are substantially deep grooved radial bearings. They consist of an assembly of one outer ring (race), an inner ring, several polished steel balls (which you state are of U.S. origin), and a steel cage or retainer. In China, all of

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the parts have been fully machined, heat treated, ground, polished, honed, the balls and rings have been matched for size and tolerance levels, and the entire article is lightly lubricated with oil. A slot is cut into each side of the bearings in China for insertion of the metal shields. The finished double shielded ball bearing has the same characteristics as the imported bearing except that a metal shield is pressed into each side of the bearing. The function of the shields is to keep dirt out of the bearing.

You contend that the imported bearings are substantially transformed as a result of the U.S. processing in that the bearings are unusable in their imported condition. Only after the shields have been inserted into the bearing can the bearing function as a double shielded bearing. Without the shields, the imported bearing cannot be commercially used. Thus, you assert that the imported bearings are excepted from being marked with their country of origin "China". You have also inquired as to whether the imported bearings which are used in the manufacture of double shielded bearings in the U.S. are required to be marked if they are later to be exported to foreign countries.

ISSUE:

What are the country of origin marking requirements for imported bearings which are to be used in the manufacture of finished double shielded bearings in the U.S. 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).

The country of origin marking requirements for the imported bearings that are to be further processed by PFI in the U.S. depends upon whether PFI is the ultimate purchaser of the imported article. 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 he or she 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 occurs when an article loses its identity and becomes a new article 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. 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. 19 CFR 134.35. 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 Linen 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, 89-110, 89-129, 90-51.

The issue involved in this case is whether the imported bearing which is further processed and combined with domestic metal shields in the U.S. to form a completed double shielded bearing is substantially transformed into a new article having a new name, character or use.

You contend that the imported bearings are substantially transformed by PFI as a result of the U.S. processing, making PFI the ultimate purchaser. Therefore, the imported bearings should be excepted from marking provided the outermost container which reaches the ultimate purchaser is marked with the country of origin "China. We disagree. In National Hand Tool Corp., v. United States, Slip Op. 92- 61 (April 27, 1992), aff'd, 989 F.2d 1201 (1993), the Court of International Trade held that imported hand tool components which were used to produce flex sockets, speeder handles and flex handles were not substantially transformed when further processed and assembled in the U.S. One of the factors considered by the court in reaching its conclusion was whether the use of the imported components changed as a result of the processing and assembling operations performed in the U.S. In finding that the use of the imported components did not change, the court stated that the use of the imported articles was predetermined at the time of importation; each component was intended to be incorporated in a particular finished mechanic's hand tool. Although the court recognized that only one predetermined use of imported articles does not preclude the finding of substantial transformation (See, Torrington Co., v. United States, 764 F.2d. 1563 (1985)), it went on to say that the determination of substantial transformation must be based on the totality of the evidence. Similarly, based on the totality of the evidence in this case, we find that the U.S. operations do not substantially transform the imported bearings.

Arguably, there may be a change in the name of the imported bearing after the U.S. processing is performed, in that it is a radial bearing before, and double shielded bearing after the processing. However, a change in the name of the product is the weakest evidence of a substantial transformation. See, Uniroyal, Inc. v. United States, 3 CIT 220, 542 F.Supp. 1026 (1982), aff'd, 702 F.2d. 1022 (Fed. Cir. 1983). Also, the fact remains that both the imported and completed bearings are still referred to as bearings, although the completed bearing is specifically referred to as a double shielded bearing.

What is critical in ascertaining whether a substantial transformation has occurred is whether, based on the totality of the evidence, there has been a change in the character or use of the imported article after the U.S. processing.

A review of the samples of the imported bearings and the completed double shielded bearings indicates that the imported bearing is an essentially finished article. No further processing needs to be performed to the individual bearing except finishing operations such as quality checking, cleaning, and adding bearing grease and rust inhibitor. The process of inserting the two metal shields into the imported bearings is a very simple one which involves merely pressing the shields in. In fact, the requisite grooves in which the shields are inserted have already been pre-machined into the imported bearings. Like the hand tool components in National Hand Tool, the use of the imported bearings is predetermined at the time of importation. Each bearing is intended to be inserted with metal shields to make a completed double shielded bearing. This is supported by the fact that the requisite grooves for inserting the metal shields have been pre-machined into the imported bearing to ease the insertion process. Also, the use of the imported bearing does not change as a result of the insertion of the metal shields. The primary use of the bearing is to reduce friction, which both the imported bearing as well as the double shielded bearing can perform. The only feature the metal shields adds to the bearing is the ability to keep dirt out. Also, we have been advised by the National Import Specialist, Glass & Metals Branch, New York Seaport, that the imported bearings are representatives of the most popular bearing "family" imported into the U.S. - the 6000 series deep groove radial bearing. This bearing group is as commonly sold without shields as it is with shields. The imported bearings do not change in character as a result of the U.S. processing. After being assembled with the metal shields, the bearings retain their original shape and form. There is no change in the microstructure or chemical composition after assembly. See, Ferrostaal Metals Corp., v. United States, 11 CIT 470, 664 F.Supp. 535 (1987). In addition, the imported bearing is not an insignificant component, but is the essential component, representing approximately 55 to 65 percent of the total cost to manufacture the completed product.

Accordingly, the imported radial bearings are not substantially transformed when they are used to produce completed double shielded bearings. Therefore, PFI is not the ultimate purchaser of the imported bearings. Rather, the ultimate purchaser is the person(s) who purchases the completed double shielded bearings in the U.S., and the imported bearings must be conspicuously, legibly and permanently marked to indicate the country of origin "China" to such person(s).

In the alternative, the importer may seek approval of local Customs officials for a repacking operation conducted under Customs supervision as provided under 19 CFR 134.34. Section 134.34, Customs Regulations (19 CFR 134.34), provides that an exception may be authorized in the discretion of the district director under 19 CFR 134.32(d) for imported articles which are to be repacked after release from Customs custody under the following conditions: (1) The containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S.; and (2) The importer arranges for supervision of the marking of the containers by Customs officers at the importer's expense or secures such verification, as may be necessary by certification and the submission of a sample or otherwise, of the marking prior to the liquidation of the entry. If approval is granted by the district director under 19 CFR 134.34, it would be acceptable to mark the finished article (or its container) with a single, centrally-located, country of origin marking that denotes the foreign bearing as well as the U.S. components.

We note that the marking requirements set forth in 19 U.S.C. 1304 and 19 CFR Part 134 do not apply to articles which are to be exported from the U.S. to another foreign country, but only apply to foreign articles imported into the U.S. Therefore, the marking requirements of 19 U.S.C. 1304 and 19 CFR Part 134 are not applicable to the imported bearings which are to be processed in the U.S. and later exported.

HOLDING:

Imported radial bearings which are used by PFI to manufacture double shielded radial bearings in the U.S. in the manner described above, are not substantially transformed as a result of the U.S. operations. Thus, PFI is not the ultimate purchaser of the imported bearings and the bearings must be individually marked with their country of origin "China", unless the district director at the port of entry approves marking after importation pursuant to 19 CFR 134.34.

Sincerely,

John Durant, Director
Commercial Rulings Division