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HQ 734259

April 13, 1992

MAR-2-05 CO:R:C:V 734259 GRV


Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
One Whitehall Street
New York, NY 10004

RE: Country of origin marking of industrial high density hydraulic baler housings imported to be assembled with U.S. electrical and/or hydraulic systems. Ultimate purchaser; 19 CFR 134.1(d); substantial transformation; 19 CFR 134.35; domestic assembly; T.D. 67-173; C.S.D. 80-111; C.S.D. 85-25; machining operations; C.S.D. 89- 121; C.S.D. 90-53; C.S.D. 90-51; 734097; article excepted; 19 CFR 134.32(h); C.S.D. 89-103; C.S.D. 80- 144; 19 CFR 134.22(d)(1); container excepted

Dear Mr. Bodek:

This is in response to your letters of June 21, and November 18, 1991, and March 6, 1992, on behalf of Piqua Engineering, Inc., requesting, inter alia, a country of origin marking ruling regarding industrial high density hydraulic baler housings from Mexico imported in one of two conditions to be assembled with U.S. electrical and/or hydraulic systems. Photographs showing the domestic operations performed were submitted, as were cost and skill data associated with these operations.

The other issues raised by your letter(s) were responded to in Headquarters Ruling Letters (HRLs) 556103 dated October 7, 1991, and 950464 dated October 30, 1991.


Baler housings produced in Mexico are purchased directly by your client--pursuant to a series of on-going written work orders, who will then import the housings in one of two stages of production for further domestic processing operations to make them high density hydraulic balers. The two production stages presented are described as (1) a baler housing with a motor installed, or (2) a baler housing with a motor and an electrical system installed. As determined in Headquarters Ruling Letter (HRL) 950464, the imported housings, in either stage of production, are classifiable as a "part" of packing or wrapping machinery under subheading 8422.90.90, Harmonized Tariff Schedule of the United States (HTSUS); a complete/finished industrial high density hydraulic baler would be classified under HTSUS subheading 8422.40.90.

In the U.S., a housing will have either (1) an electrical panel box and a hydraulic system added to it--the first scenario presented--or (2) just the hydraulic system added to it--the second scenario presented. In both scenarios the primary means of assembly/processing will be accomplished by welding operations. Other operations performed include soldering, torching and bolting certain U.S. origin components to the imported balers.

Regarding the assembly of the electrical panel box, it takes approximately 7 hours to (1) assemble the various U.S. origin electrical components (e.g., starter, transformer, control relays, terminal blocks, switches, and wiring) onto an electrical panel board assembled from sheet metal purchased on the world market, (2) install the panel board inside a panel box, (3) mount the panel box onto the outside of the baler housing, (4) install a platen electrical switch and a bolt wheel lock assembly on the baler. To accomplish these wiring operations, a team of 9 vari- ously experienced electricians, but each possessing a minimum of 5 months of specialized training--in accordance with Underwriter Laboratories (U.L.) specifications and procedures, work on each of the 75 types of balers. The value of U.S. materials added approximately doubles the value of the imported article.

Regarding the installation of the hydraulic system, it takes approximately 7 hours to install the U.S. origin hydraulic cylin- der, fittings, and hoses into the frame of the baler and install the hydraulic cylinder to a platen assembly. To accomplish these various machining and assembly operations, a team of machinists, millwriters, welders and hydraulic technicians, each possessing the knowledge and skills--normally requiring 2 months of special- ized training--necessary to install and troubleshoot the mechani- cal variances associated with the 75 types of balers that are made to order. The value of the U.S. materials added are approx- imately 80% of the value of the imported article. Regarding this aspect of the domestic processing operations, you stress that the very nature of a hydraulic baler is defined by the complex hydraulic system.
Following these assembly/processing operations, it takes approximately 7 hours for the completed balers to be painted by a 5-person team composed of metal preparation technicians and painters and operationally tested by an inspector. The value added by these finishing operations is not specified.

You contend that the domestic operations under either scenario substantially transform the imported baler housings, such that the articles do not have to be marked for country of origin marking purposes, as the domestic processor is the ultimate purchaser. In support of this contention you reference certain judicial decisions and Headquarters Ruling Letters (HRLs). Further, you state that because the domestic processor is the ultimate purchaser and necessarily knows the country of origin of the imported housings by reason of the direct contrac- tual circumstances of their importation, the container for the imported articles should not have to be marked to indicate the country of origin of the imported balers. Regarding this latter contention, you submitted an affidavit from your client attesting that its president (1) issues written work orders to the production facility in Mexico that specify the merchandise to be produced and the production schedule to be followed, and (2) is personally acquainted with the personnel and manufacturing processes performed at the Mexican facility.


I. Whether the hydraulic baler housings, imported in either stage of production, are substantially transformed by the domestic assembly operations, pursuant to 19 U.S.C. 1304 and 19 CFR 134.35.

II. Assuming the article is excepted from country of origin marking requirements, whether the outermost container of the imported balers must be marked, pursuant to 19 CFR 134.35, or is excepted from marking under 19 CFR 134.22(d)(1).


The marking statute, 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin (or its container) 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 pur- chaser the English name of the country of origin of the article. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.
The primary purpose of the country of origin marking statute is to "mark the goods so that at the time of purchase the ulti- mate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influ- ence his will." United States v. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940).

The "Ultimate Purchaser" Consideration

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 manufacture, the manufacturer may be the "ulti- mate purchaser" if [s]he subjects the imported article to a process which results in a substantial transformation of the article, even though the process may not result in a new or different article. But, 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 trans- formation occurs when an imported article is used in the U.S. in manufacture, which results in an article having a name, charac- ter, or use differing from that of the imported article. Under this principle, the manufacturer or processor in the U.S. who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article, and the article shall be excepted from marking. However, the outermost containers of the imported articles must be marked. 19 CFR 134.35. The issue of whether a substantial transformation occurs is a question of fact 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 Linens 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, T.D. 67-173, and C.S.D.s 80-111, 85-25, 89-110, 89-118, 89-129, 90-51 and 90-97.

In determining whether machining operations effect a substantial transformation, Customs distinguishes between the kind and amount of further processing performed; between machining operations--such as lathing, drilling, and grinding-- performed to achieve a specified form and those performed to achieve more cosmetic or minor processing operations. C.S.D.s 89-121 and 90-53.

In C.S.D. 90-51, 24 Cust.Bull. ___ (1990), we considered whether certain valve components (including a housing component), imported to be assembled with numerous U.S. components to make certain valve lines, were substantially transformed so as to make the importer/manufacturer the ultimate purchaser for purposes of country of origin marking. Finding that the imported components lost their separate identities in the finished valve products, we held that the imported components were substantially transformed by the assembly operation, and excepted the imported components from individual country of origin marking. However, the outermost container of the imported components was required to be marked to indicate the country of origin of the components. See also, HRL 734097 dated November 25, 1991 (domestic assembly of U.S. terminal logic board components into video display terminal housings substantially transformed the imported housings). Cf., C.S.D. 80-111 (foreign fan components not substantially transformed by domestic, 20-step, assembly-line operations, as the identity of the foreign components was not lost or physically altered, no skilled labor or specialized equipment was required, and the assembly costs were relatively low).

However, in HRL 732170 dated January 5, 1990, we considered, for the third time, under what conditions television chassis/ cabinets where substantially transformed when assembled with certain components, and distinguished between non-transforming assembly operations that constituted a mere combining/affixation of television sets to chassis, referencing HRL 730515 dated June 29, 1987, and transforming assembly operations that required technical skills and involved a considerable number of component parts that when assembled resulted in a new and different article of commerce, referencing HRL 711967 dated March 17, 1980.

In this case, we find that under either scenario presented the imported baler housings will be substantially transformed by the domestic assembly/processing operations, as the extent of the operations performed is substantial--complex, not simple--and the imported parts lose their identity--are transformed--and become integral parts of the new baler articles; articles having a name, character, or use that is different from that of the imported baler housings "parts." The clearest evidence of the substantial transformation concerns the change to the character of the hydraulic balers by the installation of (1) the platen element--a significant U.S. component that constitutes the actual contact surface for the production of dense bales, and (2) the hydraulic system--claimed to constitute the very nature of a hydraulic baler. Further, a change in use is evident, in that different types of balers will be processed; individual uses, i.e., capac- ities, are determined by the tolerance levels established during the assembly processes. Also, there is a change in name from a housing unit to an industrial high density hydraulic baler unit. Thus, in this case, there is a change in all the substantial transformation criteria.

The Container Marking Exception

Although 134.35 provides that where the domestic processor is determined to be ultimate purchaser for purposes of country of origin marking the outermost containers of the imported articles shall be marked in accord with this part, 134.22(d)(1) further provides that if the containers of imported articles are not required to be marked if the imported articles are with the exceptions set forth in paragraph (f), (g), or (h) in 134.32.

19 CFR 134.32(h) provides that if the circumstances of the importation or character of the articles is such that the ulti- mate purchaser must necessarily know the country of origin of the unmarked articles imported, then the articles imported do not have to be marked. Pursuant to this article marking exception, 134.22(d)(1) further provides that containers or holders of articles within the exception set forth at 134.32(h) are not required to be marked.

Regarding the circumstances of the importation, in C.S.D. 89-103, we stated that an instance where an ultimate purchaser would necessarily know the country of origin of an article by reason of the circumstances of its importation would be where the ultimate purchaser ordered articles manufactured for his/her account in a named country in circumstances in which the order could not be filled with articles manufactured elsewhere, and that Customs must be satisfied that under the terms of the sale, that the goods will be made in the country named in the invoice. And in C.S.D. 80-144 we stated that it has been Customs policy generally to only grant such exceptions when there is a two party one-step transaction between an importer and his foreign supplier with the importer also being the ultimate purchaser. See also HRLs 732609 dated August 30, 1990, and 730243 dated March 5, 1987 (the exception is limited to instances where the importer is the ultimate purchaser of the items and has direct contact with the foreign supplier).

The affidavit submitted adequately assures us that the ultimate purchaser here must necessarily know the country of origin of the imported baler "parts," because of the direct contractual relations between the foreign supplier and the domestic processor.


The hydraulic baler housings imported, either with or without an electrical system installed, are substantially transformed by the domestic machining and assembly operations performed in installing a hydraulic system. Accordingly, the domestic processor will be the "ultimate purchaser" of the imported articles and the balers will not have to be individually marked to indicate their country of origin, pursuant to 19 U.S.C. 1304 and 19 CFR 134.35.

Further, because the domestic processor is the "ultimate purchaser" and necessarily knows the country of origin of the imported balers by reason of the direct contractual circumstances of their importation, the outermost container for the imported balers does not have to be marked either, pursuant to 19 CFR 134.32(h) and 19 CFR 134.22(d)(1).


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