CLA-2 RR:CR:TE 961241 RH
Mr. Christopher L. Thayer
Attorney in Fact
Hallmark Cards, Inc.
Kansas City, Missouri 64141
RE: Country of Origin of a Decorative Paper Bag with Macrame
Handles; Gift Bags;
19 CFR 12.130; Substantial Transformation
Dear Mr. Thayer:
This is in reply to your letter of December 10, 1997, requesting
a ruling on the country of origin of decorative paper bags with
macrame handles.
You submitted a sample of a finished bag to aid us in our
determination.
FACTS:
The sample you submitted is a decorative paper bag with macrame
handles. We agree with you that the bag is classifiable under
subheading 4819.30 of the Harmonized Tariff Schedule of the
United States Annotated (HTSUSA), or 4819.40, HTSUSA, depending
on the bag's width. Hallmark markets the bag as an alternative
to gift wrap or with other gift wrap accessories.
You submitted two scenarios referenced as "Attachment A" and
"Attachment B", describing the manufacturing processes performed
to create the bag. You also identified the country in which each
step of processing occurs and the country of origin of the
materials used to manufacture the bag. Both the scenarios are
the same except steps seven through twelve are performed in China
in "Attachment A" and in the Philippines in "Attachment B."
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Description of Processing
Country
of
Processing
Materials Used
1. design and artwork
U.S.
2. process the design and artwork
by either computer or high-tech
camera to lay out the process-color
components and output to the disk
U.S.
Computer disk
- U.S.
3. produce color-separation films
by using output from disk
Hong Kong
China
Film - U.S.
Chemical -
U.S.
4. make litho printing plates
China
Plates -
Japan, Spain
Chemical -
Japan
5. print the paper with designs
China
Paper - Japan,
U.S.
Ink - U.S.
6. affix laminating film by gluing
to the printed paper
China
Film - Japan
Glue - Japan
7. cut laminated paper to precise
dimensions; cut paperboard to
length and width into strips in the
size required to reinforce the
front, back and bottom of bag
China
Philippines
Paperboard -
Korea,
Austria,
Netherlands,
Germany
8. fold and glue paper by
automatic bag forming machinery; if
the bag sizes do not fit the
machine size, they will be hand
folded to form the bags
China
Philippines
Glue - Hong
Kong, China
9. fold the top of the bag on all
sides, enclose cut paperboard
strips, glue to reinforce the
front, back and bottom portions of
the bag
China
Philippines
Glue - China
10. drill four holes into the top
of each bag to hold the macrame
handles; where applicable, insert
metal grommets into each hole
China
Philippines
Grommets -
China
11. thread yarn through holes and
knot; adhere plastic tag "Do-it" to
bag
China
Philippines
Yarn - Korea
(knit in
China)
"Do-it" - U.S.
12. pack the completed decorative
gift bag for shipment
China
Philippines
- 3 -
ISSUE:
What is the country of origin of the gift bags in the two
scenarios 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 CCPA 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.
A substantial transformation occurs when an article loses its
identity through processing and emerges as a new article having a
new name, character, or use. Koru North America v. United
States, 12 CIT 1120, 701 F. S.p. 229, 234 (1988); see also,
Anheuser-Busch Brewing Ass'n. v. United States, 207 U.S. 556,
5621 (1908); United States v. Gibson-Thomsen Co., 27 CCPA 267,
273 C.A.D. 98 (1940). In your opinion, the country of origin in
this case is determined when the laminated, printed paper is cut
to precise dimensions needed to assemble the bag.
In general, Customs has held that cutting or shaping materials to
defined shapes or patterns suitable for use in making finished
articles, as opposed to mere cutting to length or width which
does not render the article suitable for a particular use,
constitutes a substantial transformation. Headquarters Ruling
Letter (HQ) 557462, dated September 13, 1994 (decorative paper
that was shaped, creased, folded, cut to length and glued was
held to be substantially transformed); HQ 555702, dated January
7, 1991 (steel plates dedicated to use in the final article by
cutting, folding, binding, scraping, etc., considered
substantially transformed components); HQ 553574, dated August
15, 1985 (aluminum strip cut to length, punched and/or drilled
with holes and notched which gave the strip specific shape or
pattern was substantially transformed).
- 4 -
More specifically, in HQ 559964, dated November 14, 1996 (copy
enclosed), Customs addressed the country of origin of decorated
paper gift bags manufactured similarly to the bag in question.
In that ruling, a Korean paper mill produced lithograph printing
plates from U.S. design and artwork and cut paper to precise
dimensions for assembly into gift bags and gift handle tags. The
paper was then printed. All of the components used to produce
the decorative paper gift bags were of Korean-origin (paper,
paperboard, laminating film, yarn for macrame handles, metal
grommets, plastic hang tags). The Korean mill shipped the
components to China for assembly.
In China, the laminating film was glued to the printed paper and
then the bag was folded and glued by an automatic bag forming
machine, or alternatively, by hand. The paperboard components
were cut to length and width, inserted into the bag and glued in
place. Holes were punched into the bag and the grommets, handles
and hang tags were attached.
Customs held in HQ 559964 that the operations performed in China
on the Korean components (which consisted mainly of gluing and
folding) were simple assembly operations on ready-made components
and did not amount to a substantial transformation. With regard
to the paperboard, however, Customs held that it was
substantially transformed in China, when it was cut to length and
width and sometimes to shape to form specific bag components.
Customs further held that the paperboard "was transformed from
material with generic purposes to components suitable for use
only as supports for the gift bags."
Although you ask us to identify at what point in the
manufacturing process in the two scenarios presented the
materials are substantially transformed into a bag, Customs
determines the country of origin of a product based on the
totality of the operations performed in each country. In
"Attachment A" all of the operations beginning with making the
lithograph printing plates occur in China. Accordingly, the
country of origin of the bag in "Attachment A" is clearly China.
In "Attachment B" the lithograph printing plates are made in
China, and the paper is laminated in that country. The remaining
operations which occur in the Philippines are similar to those
performed in China in HQ 559964, except the paper is also cut in
the Philippines in this case, whereas it was cut in Korea in HQ
559964. The totality of cutting, folding, glueing, attaching
handles, and packaging constitutes a substantial transformation.
Accordingly, the Philippines is the country of origin under
"Attachment B."
HOLDING:
The country of origin of the gift bag under the processes
described in "Attachment A" is China, and in "Attachment B" the
country of origin is the Philippines.
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A copy of this letter should be attached to the entry documents
filed at the time the goods are entered. If the documents have
been filed with a copy, this ruling should be brought to the
attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure