MAR-2-05 CO:R:C:V 732870 KG
Jack Ryan
3M Center
P.O. Box 33250
St. Paul, Minnesota 55133-3250
RE: Country of origin marking of imported computer diskette
Dear Mr. Ryan:
This is in response to your letter of November 1, 1989,
requesting a country of origin ruling regarding imported computer
diskettes.
FACTS:
As part of a marketing strategy designed to introduce your
customers to pre-formatted computer diskettes, you intend to
attach a free pre-formatted diskette to your regular ten diskette
package. The ten non-formatted diskettes are manufactured in the
U.S. However, the pre-formatted diskettes will be manufactured
in Taiwan and formatted in the U.S.
Formatting of a diskette must be completed before it can
be used in a computer. Formatting consists of writing, by
computer read-write head, sector address identification
information on the diskette surface and allotting space for the
data field. It takes about 1 1/2 minutes to format a non-
formatted diskette. Formatting a disk is a simple operation.
ISSUE:
Whether formatting of a imported computer diskette is a
substantial transformation for country of origin marking
purposes.
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 at 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. Section 134.35, Customs Regulations (19 CFR
134.35), states that the manufacturer or processor in the U.S.
who converts or combines the imported article into a different
article having a new name, character or use will be considered
the ultimate purchaser of the imported article within the
contemplation of section 304(a) of the Tariff Act of 1930, as
amended, and the article shall be excepted from marking. The
outermost containers of the imported articles shall 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 48, 628 F.Supp. 978 (CIT 1986), Koru North America v. United
States, 12 CIT ___, 701 F.Supp. 229 (CIT 1988).
In HQ 554230 (September 24, 1986), Customs ruled that a
blank computer diskette exported to Barbados or St. Lucia where
computer data was encoded on it was considered sufficient to
transform the diskette into a product of the Caribbean country
involved. Customs reached this conclusion because of the greatly
increased value of the article after the processing ($5.50 to
excess of $286.00) and the substantial change effected by the
complex and highly technical manufacturing operation.
Customs recently issued two country of origin rulings
involving the programming of computer diskettes. In HQ 732087
(February 7, 1990), imported blank computer diskettes were sold
to persons who wrote or duplicated software programs onto them in
the U.S. Customs held in that case that writing or duplicating a
software program onto a computer diskette is a substantial
transformation. In HQ 732018 (February 7, 1990), a ruling
dealing primarily with issues other than substantial
transformation, Customs stated that a U.S. computer software
company that transposes computer programs onto a computer
diskette is the ultimate purchaser of the diskette because
programming a diskette is a substantial transformation. Writing
a software program such as Wordperfect 5.0 or Lotus 1-2-3 onto a
computer disk significantly increases the value of the disk and
changes the product that a consumer would be buying from a pack
of computer diskettes to a software program. The two products
are not interchangeable. The distinction between a computer
diskette and a computer diskette which is programmed with a
software program is analogous to the distinction between a blank
video tape and a video tape on which the movie "Gone With The
Wind" has been recorded.
In contrast to the cases cited above, there is no evidence
in this case that the processing would greatly increase the value
of the imported article or that a complex and highly technical
manufacturing operation is involved. Further, formatting a
diskette does not create a new article. While a formatted
diskette is more convenient for a computer operator, it is not a
new or different product. Although, a non-formatted disc must be
formatted by the computer operator prior to use, a formatted
diskette and a non-formatted diskette are essentially
interchangeable products with the same use. Furthermore,
formatting a diskette does not change the fundamental character
of a diskette. The only distinction is whether the diskette is
purchased pre-formatted or whether the computer operator takes
several minutes and formats the diskette himself. If one has a
formatted diskette, this operation is not necessary and the
operator can go immediately to the next operation. Simply adding
a feature that adds to the convenience of the computer user
without greatly increasing the value of the imported computer
diskette or creating a new article with a new name, character or
use does not constitute a substantial transformation. Since the
imported computer diskette is not substantially transformed in
the U.S., the country of origin remains Taiwan, the country of
manufacture, pursuant to 19 CFR 134.1(b). Therefore, the pre-
formatted diskette must be marked to indicate the country of
origin. We cannot suggest how the ten pack plus one should be
marked other than to advise that it must be marked in accordance
with 19 U.S.C. 1304 and 19 CFR Part 134.
HOLDING:
Formatting a computer diskette does not constitute a
substantial transformation. Therefore, the country of origin of
the imported diskette is Taiwan for country of origin marking
purposes.
Sincerely,
Marvin M. Amernick
Chief, Value, Special Programs
and Admissibility Branch