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HQ 733564

August 10, 1990

MAR-2-05 CO:R:C:V 733564 KG

CATEGORY: MARKING

Allen E. Smith, Esq.
Allen E. Smith and Associates
470 McAllen National Bank
McAllen, Texas 78503

RE: Country of origin marking of imported hoses with attached brass fittings; 19 CFR 10.22.

Dear Mr. Smith:

This is in response to your letter of April 13, 1990, to the Port Director of Customs in Brownsville, Texas, requesting a country of origin ruling on behalf of Marshall Gas Controls, Inc., regarding imported hoses with attached brass fittings. Your letter was referred to this office for a response.

FACTS:

Your client imports hoses with attached brass fittings which are used to make gas grills into the U.S. The hoses are manufactured in Canada and are marked "Made in Canada". They are then exported to the U.S., duty paid and sent to Mexico. Brass fittings made in the U.S. are also sent to Mexico. The importer has contracted with a Mexican operator to perform certain processing under the supervision of an employee of the U.S. corporation. In Mexico the hoses are cut to length from the coils; a male fitting consisting of a hollow threaded barb and ferrule assembly is fitted on one end of the hose; a female fitting consisting of a threaded swivel nut, hollow barb and ferrule assembly is fitted on the other end of the hose; and the fittings are secured by mechanical pressure that crimps the ferrules over the hose and against the barbs.

Currently, the importer is removing the marking on the hose with a solvent at the request of Customs. The total cost of one hose with fittings is $0.79. The total time required to cut the hose and attach the fittings is 30 seconds. The cost of the labor is $0.04 per unit. After the hose fitting has been completed, all hoses are bulk packed in a cardboard box and shipped to the U.S.

In the U.S., the hose is water-tested to find possible leaks and dried. A Underwriting Laboratory label is attached to the hose. The male fitting on the hose is given a coat of sealer. The hose is attached to an liquid propane gas regulator manufactured by the importer and becomes part of a regulator assembly. The regulator assembly is air pressure tested to insure that it complies with Underwriting Laboratory standards. The total computed value of the finished regulator assembly is $2.86.
All regulator assemblies are then sold bulk-packed to Sunbeam Leisure Products Company, which is an original equipment manufacturer of outdoor gas grills. YOu submitted a letter from Sunbeam which states that they are aware that the hoses are made in Canada and assembled with fittings in Mexico. The regulator assembly is combined by Sunbeam with other components which are sold un-assembled. The un-assembled outdoor gas grills are sold at retail.

ISSUE:

What is the proper country of origin marking for imported hoses assembled in Mexico with U.S.-made fittings.

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 10.22, Customs Regulations (19 CFR 10.22), states that assembled articles entitled to the duty exemption under subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States ("HTSUS"), are considered products of the country of assembly for the purposes of country of origin marking. If an imported assembled article is made entirely of American-made materials, the United States origin of the material may be disclosed by using a legend such as "Assembled in ____ from material of U.S. origin," or a similar phrase.

The first issue presented is whether the hose with the brass fittings attached imported from Mexico is entitled to the partial duty exemption under subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States ("HTSUS") and therefore, governed by 19 CFR 10.22 with respect to the country of origin marking issue.

HTSUS subheading 9802.00.80 provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubrication, and painting.

All three requirements of HTSUS subheading 9802.00.80 must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full value of the imported assembled article, less the cost or value of such U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.

Customs held in HQ 555205 (August 25, 1989), that spark plug wire assemblies processed in Mexico were entitled to the partial duty exemption. The processing done in Mexico included: (1) cutting wire to length, (2) stripping both ends of the wire; (3) crimping terminals onto either end of the wire; (4) force-fitting one terminal into a distributor nipple and the other terminal into a spark plug nipple; and (5) applying a lubricant to the nipples. In that ruling, Customs stated that the crimping operation constitutes an acceptable joining of two solids within the meaning of 19 CFR 10.16(a). Based on the above, it appears that the hose with the brass fittings attached are entitled to a partial duty exemption under HTSUS subheading 9802.00.80.

Since the hose with the brass fittings attached which is imported from Mexico is entitled to the partial duty exemption HTSUS subheading 9802.00.80, 19 CFR 10.22 provides that Mexico, the country of assembly, would be considered the country of origin for marking purposes.

The second issue presented is who is the ultimate purchaser of the imported hose with the brass fittings attached. Section 134.1(d), Customs Regulations (19 CFR 134.1(d)), defines the ultimate purchaser as generally the last person in the U.S. who will receive the article in the form in which it was imported. The definition then gives examples of who might be the ultimate purchaser if the imported article is used in manufacture. The standard for determining the ultimate purchaser of an article used in manufacture in the U.S. is set forth in section 134.35, Customs Regulations (19 CFR 134.35), which provides that the manufacturer or processor who converts or combines the imported article into an article having a name, character or use differing from that of the imported article is considered the ultimate purchaser. Under such circumstances, the imported article is substantially transformed and the article itself need not be individually marked. Only the outermost container in which the article is imported must 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 this case, the U.S. manufacturer attaches the hose to an LP gas regulator to make a regulator assembly. This regulator assembly has a new name from the imported product and a very specific use for which the imported product alone would not be functional. The finished value of the regulator assembly is $2.86 with the cost of the hose with fittings making up only $0.79 of the total value of the finished regulator assembly. The essence of the regulator assembly is the regulator, not the hose, which is a mere material in the manufacture of the regulator assembly. Based on these considerations, the imported hose with brass fittings is considered substantially transformed in the U.S. Pursuant to 19 CFR 134.35, the U.S. manufacturer would be considered the ultimate purchaser of the imported hose with brass fittings attached.

The third issue raised is whether the imported hose with brass fittings attached would be excepted from country of origin marking pursuant to 19 U.S.C. (a)(3)(H) and 19 CFR 134.32(h). 19 U.S.C. 1304(a)(3)(H) authorizes an exemption from marking where an ultimate purchaser, by reason of the character of the article or by reason of the circumstances of its importation, must necessarily know the country of origin of the article even though it is not marked to indicate its origin. This exemption is set forth in the regulations at 19 CFR 134.32(h). In ruling 730243 (March 5, 1987), Customs required that the importer must be the ultimate purchaser of the imported article and have direct contact with the foreign supplier to qualify for the 19 U.S.C. 1304 (a)(3)(H) and 19 CFR 134.32(h) exemption.

In this case the U.S. manufacturer who is considered the ultimate purchaser of this imported product is also the importer. Because the ultimate purchaser is the importer and they oversee the Mexican operation, they have the requisite direct contact with the supplier that is required to qualify for the exception set forth at 19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h). If an article is excepted from country of origin marking under 19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h), then the containers of articles do not have to be marked under 19 U.S.C. 1304(b) and 19 CFR 134.22(d)(1). Therefore, neither the article nor the containers are required to be marked with the country of origin of the article.

The last question presented is whether the legend "Made in Canada" must be removed from the hose. The hose itself is made in Canada. When the hose is sent to Mexico, Canada is considered the country of origin of the hose. However, as stated above, when the brass fittings are attached to the hose in Mexico, Mexico becomes the country of origin of the hose with the brass fittings attached. The problem presented is that the hose is not marked "Hose made in Canada" but merely "Made in Canada." Customs ruled in C.S.D. 79-412 (May 18, 1979), that imported valve bodies made in Canada and marked "Cleveland, Ohio, U.S.A." for a U.S. company which contracted with the Canadian company and therefore, knew the origin of the valve bodies, invoked 19 CFR 134.36(b). In that case, Customs was concerned that even though the ultimate purchaser knew the country of origin due to the circumstances of importation and would not be mislead by the marking, the marking was potentially misleading to the final consumer, who might believe that the automatic pressure relief valve was made entirely in Cleveland.

Section 134.36(b), Customs Regulations (19 CFR 134.36(b)), states that articles or containers bearing misleading markings which imply that an article was made or produced in a country other than the actual country of origin are not entitled to a marking exception. This case is very similar to C.S.D. 79-412; the ultimate purchaser knows the country of origin due to the circumstances of importation but the marking, which is visible when the outdoor grill is assembled, may mislead the final consumer into believing that more than just the hose was made in Canada. Therefore, if the marking "Made in Canada" remains on the hose when it is imported into the U.S. from Mexico, pursuant to 19 CFR 134.36(b), the hose with brass fittings attached would not be entitled to any marking exemptions and would be required to be marked in accordance with 19 CFR 10.22 to identify Mexico as the country of origin in a manner which is permanent, legible and could be easily found and read. If the hose was marked "Hose made in Canada," the final consumer could not be mislead as to the meaning of the marking and this would be an accurate statement reflecting the actual country of origin of the hose. In such circumstances, 19 CFR 134.36(b) would not be invoked. If the marking "Made in Canada" is removed from the hose, 19 CFR 134.36(b) would not apply and the imported article would be entitled to an exemption from marking as set forth above.

HOLDING:

The imported hose with the brass fittings attached are entitled to the partial duty exemption under HTSUS subheading 9802.00.80. Since the hose with the brass fittings attached which is imported from Mexico is entitled to the partial duty exemption under HTSUS subheading 9802.00.80, 19 CFR 10.22 provides that Mexico, the country of assembly, would be considered the country of origin for marking purposes.

The imported hose with brass fittings is considered substantially transformed in the U.S. Pursuant to 19 CFR 134.35, the U.S. manufacturer would be considered the ultimate purchaser of the imported hose with brass fittings attached.

If the marking "Made in Canada" remains on the hose when it is imported into the U.S. from Mexico, pursuant to 19 CFR 134.36(b), the hose with brass fittings attached would not be entitled to any marking exemptions and would be required to be marked in accordance with 19 CFR 10.22 to identify Mexico as the country of origin in a manner which is permanent, legible and could be easily found and read. If the hose was marked "Hose made in Canada," the final consumer could not be mislead as to the meaning of the marking and this would be an accurate statement reflecting the actual country of origin of the hose. In such circumstances, 19 CFR 134.36(b) would not be invoked. If the marking "Made in Canada" is removed from the hose, 19 CFR 134.36(b) would not apply and the imported article would be entitled to an exemption from country of origin marking pursuant to 19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h).

Sincerely,

Marvin M. Amernick
Chief, Value, Special Programs

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