MAR-2-05 RR:CR:SM 560898 RSD
Michael R. Lemov, Esq.
Peter N. Hiebert, Esq.
Winston & Strawn
1400 L Street, N.W.
Washington, D.C. 20005-3502
RE: Country of origin marking requirements for toys and novelties sold through coin operated vending machines; ultimate purchaser; container marking; disjunctive marking; 19 CFR 134.1(d); 19 CFR 134.11; 19 CFR 134.32(c); 19 CFR 134.32(d); HRL 734101
Dear Messrs Lemov and Hiebert:
This is in response to your letter dated March 17, 1998, on behalf of L.M. Becker & Co. Inc. d/b/a Toy’n Joy (hereinafter “Becker”) requesting a ruling on the country of origin marking requirements for novelties and toys sold through coin operated vending machines. Your firm hand delivered samples of the types of toys that Becker sells in the coin operated vending machines for our consideration. A meeting was held on January 28, 1999, at our offices to discuss this matter. After this meeting, we received a supplemental submission dated February 16, 1999, which contained a sample of a display card which Becker proposes to put in vending machines which sell its products.
FACTS:
Becker is a Wisconsin based importer and national distributor of toy jewelry, games, stickers, and similar novelty items. The toys that Becker imports are manufactured in China, Hong Kong, India, and Taiwan. They are shipped to the United States in corrugated bulk containers. These bulk containers are marked with the toys’ country of origin. The toys are then shipped to Mexico, where they are individually packaged into small plastic containers, referred to as eggs. They enter the United States primarily through the port of El Paso, Texas. After importation, the toys are distributed to bulk independent vending machine operators throughout the United States. The vending machine operators place an assortment of various types of small toys, with multiple countries of origin, into vending machines. The public purchases the toys and novelties items from coin operated mechanical vending machines for $0.05, $0.25 or $0.50 each. Although Becker owns some of the vending machines, the majority of the vending machines are owned by other independent operators. Once placed in the egg containers, the novelty items are sold only in coin-operated machines.
Presently, each individual small toy is marked with its country of origin. Because the toys are placed inside the eggs, and the eggs are inside a vending machine, the country of origin markings on the toys are not visible to the consumer until after a coin is placed in the vending machine and the egg is removed and opened. On the outside of the vending machines owned by Becker is a statement identifying the country of origin of the toys as follows: “The toys contained in this machine are marked with the country of origin and may be made in one or more of the following countries: HONG KONG, TAIWAN, and CHINA.” There are no marks on the individual eggs because such marks also would not be visible to a person using the vending machine.
You claim that part of the attraction in purchasing toys through a coin operated vending machine is the element of surprise in that prior to purchase, the consumer has no way of knowing exactly which toy that he/she will receive. After the coin(s) are inserted, the vending machine randomly dispenses the item that the consumer will get.
The cost to Becker for these novelty items ranges from one-half cent to 20 cents per item, with the average item costing 4 cents. You claim that it is expensive to mark an individual item with its country of origin. It is stated that for 80-85 percent of Becker’s novelty items, the cost of marking increases the cost of the item by approximately 25 percent. In addition, the novelty items are usually quite small. As a result, it is necessary for most of the items to be marked by placing them in a small plastic bag to which is attached a sticker with the country of origin. The bag, in turn, is placed inside the plastic egg. You state that this process of placing the items in plastic bags causes a delivery delay in some cases of more than two weeks.
It is further alleged that the delivery delay has serious and economic consequences for Becker. Over the course of a year, Becker imports as many as 700 different novelty items. The large variety of toys is attributable to the fact that consumer demand for a particular item changes often and quickly. Because of the ever changing demand, the average shelf-life of a particular toy is only 8-10 weeks. You indicate that a two week delay in shipment can reduce the shelf life, and thus the economic value, of a given toy by about 20 percent. The delay also inhibits Becker’s ability to introduce new toys in response to continuous changes in consumer demand.
Customs issued a previous ruling to Becker, Headquarters Ruling Letter (HRL) 734101 dated July 10, 1991, regarding the country of origin marking requirements for novelty items sold through coin operated vending machines. In that ruling, Customs held that the plastic egg containers which contained individual toys did not have to be marked to indicate the country of origin of their contents, provided the toys were individually marked and the vending machine was marked with a sign that read “THE TOYS CONTAINED IN THIS MACHINE ARE MARKED WITH THEIR COUNTRY OF ORIGIN, AND MAY BE MADE IN ONE OR MORE OF THE FOLLOWING COUNTRIES.” Below these words, the country names Hong Kong, Taiwan, China were printed.
In the most recent submission, Becker has modified the country of origin marking statement to be used on the display card which will be placed on the front of the vending machines. Becker proposes to use a phrase such as “Products of India and China” on the card. Becker would list the actual countries of origin of all of the items in any given machine. The card would also contain other important consumer information including the Consumer Product Safety Commission safety warning which is required by Federal law to be placed on the front of each vending machine.
ISSUES:
Whether the vending machine operators or the consumers are the ultimate purchasers of the novelty items that Becker imports.
Whether the individual toys may be excepted from country of origin marking requirements of 19 U.S.C. 1304 if the vending machine as a container is properly marked to indicate the countries of origin of the toys inside.
LAW AND ANALYSIS:
Section 304, Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the United States 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 United States the English name of the country of origin of the article. Congressional intent in enacting §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. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940).
Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of §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 United States. Pursuant to 19 U.S.C. §1304(a)(3)(D) and section 134.32(d), Customs Regulations (19 CFR §134.32(d)), an exception from individual marking is applicable where the marking of the container of an imported article will reasonably indicate the origin of the article. This exception is normally applied in cases where the imported article(s) is imported in a properly marked container and the ultimate purchaser in the U.S. will receive it in its original marked container.
Ultimate Purchaser
Section 134.1(d), Customs Regulations (19 CFR §134.1(d)) provides that “the ‘ultimate purchaser’ is generally the last person in the United States who will receive the article in
the form in which it was imported.”
Your first contention is that the vending machine operators should be considered the ultimate purchaser rather than the retail buyers. You point out that unlike the typical retail purchase, Becker’s products are packaged in plastic eggs and sold exclusively in coin-operated vending machines. Consequently, the toys cannot be inspected before the purchase. Moreover, at the time of purchase, the consumer is not sure what particular item he or she is buying because the vending machine randomly dispenses the toys. In addition, once the toy is purchased, the consumer has no way of returning the item. Thus, according to your position, the country of origin marks on the articles do not and cannot influence the buying decisions of the retail consumer who is, in part, purchasing a “chance” rather than a specific product. Accordingly, you
contend that it is the vending machine operator who knows and determines what items will be acquired at the time of purchase and only the operator can know the country of origin at time of purchase.
We do not agree that because retail consumers will not have an opportunity to inspect the individual items prior to purchase, they should not be considered the ultimate purchasers under the marking law. Applying the definition of ultimate purchaser found at 19 CFR §134.1(d), the retail consumer is the last person in the United States to receive the novelty items in the form in which they were imported. The vending machine operators do not change the novelty items in any way after they are imported.
There are other instances in which a purchaser does not have an opportunity to inspect an item to observe the country of origin marking prior to its purchase. In purchases made by mail order or through a catalog, Customs has ruled that the consumer is deemed to be the ultimate purchaser under the country of origin marking law and the imported item or its container must be marked with the country of origin. Another analogous situation occurs when technicians install replacement parts to make repairs for automobiles or appliances. In such instances, the installer or the repairer will typically choose the replacement parts to install and the owner of the automobile or the appliance will not have an opportunity to inspect the replacement parts prior to their installation. Nevertheless, in such circumstances, Customs has determined that the installer of the replacement or repair parts is not the ultimate purchaser. See HRL 734820, dated April 21, 1994. For example, HRL 733352, dated May 3, 1991, involved pressure gauges used in dishwashers, drilling equipment, and refrigerators which were not imported for use by original equipment manufacturers, but resold to or used by independent "jobbers" as replacement parts. Customs ruled that the ultimate purchaser generally will be the owner of the commercial dishwasher, drilling equipment or refrigeration equipment. We explained that the owner of the
commercial dishwasher, drilling equipment or refrigeration equipment generally will be the last
person in the U.S. who will receive the pressure gauge in the form in which it is imported. See 19 CFR 134.1(d).
We believe a similar analysis should apply to this situation. Even though the retail consumer will not have the opportunity to inspect the novelties prior to their purchase, the retail purchaser should still be considered the ultimate purchaser. Section 134.1(d)(3) indicates that if an article is being sold at retail in its imported form, the purchaser at retail is the “ultimate purchaser”. In this instance, the novelty items are being sold at retail in their imported form, and thus for purposes of the country of origin marking law, the purchaser at retail will be considered the ultimate purchaser.
Marking the Vending Machines
Alternatively, you contend that if the retail consumer is determined to be the ultimate purchaser, then the vending machine should be considered a container and marking it with the country of origin of the novelties inside should satisfy the requirements of the country of origin marking law. It is your position that if the vending machine is marked with the actual countries of origin of the novelties inside, the novelties should be excepted from individual marking requirements.
Pursuant to 19 U.S.C. §1304(a)(3)(D) and section 134.32(d), Customs Regulations (19 CFR §134.32(d)), an exception from individual marking is applicable where the marking of the container of an imported article will reasonably indicate the origin of the article. This exception is normally applied in cases where the imported article(s) is imported in a properly marked container and the ultimate purchaser in the U.S. will receive it in its original marked container.
In HRL 732122 (January 26, 1990), Customs issued a ruling that small rubber balls presented for sale to ultimate purchasers in a vending machine may be excepted from individual marking pursuant to 19 CFR 134.32(d), provided a display card visible through a window of the vending machine is imprinted in a conspicuous location with the origin of the balls being dispensed.
In our prior ruling to Becker, HRL 734101, we concluded that putting signs on the front of the vending machines which indicated the alternative potential countries of origin of the toys was an acceptable method of marking provided that the importer had direct control over the vending machines and the individual toys were also marked. You request that we hold that the toys do not have to be individually marked if the vending machines are marked with the actual countries of origin of the toys contained inside them.
We find that since the vending machine is considered a container, putting a display card on the front of the vending machine which indicates the actual countries of origin of all the items contained in the vending machine would satisfy the statutory requirements of 19 U.S.C. 1304. We recognize that the country of origin marking on the toys cannot be read when they are inside the vending machine and thus the ultimate purchaser will not have an opportunity to inspect a country of origin marking on the individual toys prior to purchase. In addition, even if the country of origin marking on the toys were visible to the ultimate purchaser, the ultimate purchaser cannot select which particular toy he will receive because the vending machine randomly dispenses the individual toys. Accordingly, in this unique situation, putting a country of origin marking on the individual toys does not provide the ultimate purchaser with any information which could influence the purchasing decision.
Consequently, we believe that the intent of the marking law is best served under these circumstances if the actual countries of origin of the toys are listed on the front of the vending machine where the ultimate purchaser will have an opportunity to observe this information before deciding whether to purchase a toy from the machine. We note that the card will also contain certain information which the Consumer Product Safety Commission requires be on the front of the vending machines in order to attract the consumer’s attention.
This ruling is limited to facts of this particular case. For the individual toys to be excepted from individual marking under 19 CFR 134.32(d), the display card shown on the front of the vending machine must accurately identify the actual countries of origin of all the toys contained in the vending machine. Merely listing the possible or potential alternative countries of origin of the toys would not be acceptable without also marking the individual toys.
Finally, if the imported toys and novelty items are not individually marked with their country of origin and they will be repacked into the vending machines after their importation, the
certification requirements provided for in section 134.26 of the Customs Regulations (19 CFR §134.26) will be applicable and must be followed. This section provides the following:
(a) Certification requirements. If an article subject to these
requirements is intended to be repacked in retail containers
(e.g., blister packs) after its release from Customs custody,
or if the district director having custody of the article, has
reason to believe such article will be repacked after its release,
the importer shall certify to the district director that: (1) if the
importer does the repacking, he shall not obscure or conceal
the country of origin marked to indicate the country of origin
of the article, or else the new container shall be marked to
indicate the country of origin of the article in accordance with
the requirements of this part; or (2) if the article is intended to
be sold or transferred to a subsequent purchaser or repacker, the
importer shall notify such purchaser or transferee, in writing, at
the time of sale or transfer, that any repacking of the article must
conform to these requirements.
HOLDING:
The recipient of the toys and novelties from the coin operated vending machines is the ultimate purchaser. The individual toys may be excepted from marking under 19 CFR 134.32(d) if the vending machines are properly marked to indicate the actual countries of origin of all of the toys contained in each machine. This determination is limited to the unique circumstances of this case.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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