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HQ 558747

January 20, 1995

CLA-2 CO:R:C:S 558747 MLR


Patricia M. Hanson, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693

RE: Country of origin marking of steel surgical instruments; needle-holder; machine; cut; forge; polish; assemble; substantial transformation; 19 CFR 134.32(m)

Dear Ms. Hanson:

This is in response to your letter of September 8, 1994 and November 30, 1994, requesting a ruling on behalf of Baxter Healthcare Corporation ("Baxter"), regarding the country of origin marking of certain steel surgical instruments from either Russia or Hungary. Samples representative of each manufacturing stage described below are submitted with your request.


You have described the operations involved in producing the surgical instruments as follows. Rough forgings or "blanks" are made in Germany from German stainless steel. The blanks, as imported into the U.S., consist of two roughly forged shapes for each instrument. In the U.S., the layer of impurities from the rough forgings is removed, a series of metal cuttings is performed to further refine the shape and define the edges and surfaces. In your letter dated November 30, you further state that the rough forgings "undergo additional forging" in the U.S. Specifically, the "locator cut is forged in each component."

After the locator cut is forged into the components in the U.S., the ratchets are cut into the handles. It is stated that the ratchets define the increments at which the needle-holder's grasp can be adjusted. In addition, the tips of each of the components which will constitute the "jaw" of the finished instrument are cut-to-size and refined for the tungsten insert. A hole is reamed into the back of the boxlock for insertion of the connecting pin. Based on the forged locator cut, the edges are then further cut and refined, and all the surfaces of the components are deburred and "scaled down." Thereafter, the pieces are cleaned and polished, the male and female pieces of the boxlock are fit together, and the connecting pin is inserted to complete assembly of the needle-holder. Lastly, the jaws are aligned and set so that they are capable of gripping, closing, and locking in place.

These articles are then sent to either Russia or Hungary for the final polishing process which includes a heat treatment and a final cleaning. The heat treatment oven brazes the tungsten carbide inserts into the tips of the articles. After polishing and heat treating, the ring handles are gold-plated. After these operations, the articles are then cleaned and returned to the U.S.


Whether the surgical instruments are substantially transformed in the U.S., and thereby excepted from country of origin marking when they are returned to the U.S.


The marking statute, 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 U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article 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. 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 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.

For country of origin marking purposes, a substantial transformation of an imported article occurs when it is used in the U.S. in manufacture, which results in an article having a name, character, or use differing from that of the imported article. In such circumstances, 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 is excepted from marking and only the outermost container is required to be marked. See 19 CFR 134.35.

As provided in 19 CFR 134.32(m), products of the U.S. exported and returned are specifically excepted from country of origin marking requirements. Therefore, if a U.S. product is sent abroad for processing, the article remains a product of the U.S. excepted from the country of origin marking requirements unless prior to its return it is substantially transformed in that country and, therefore, becomes an article of foreign origin.

Baxter contends that the instruments are substantially transformed in the U.S., particularly because when the locator cut is forged in each component, "this is the point from which the proportions of the finished instruments are determined" in the U.S. In C.S.D. 90-101 (June 6, 1990), a case involving surgical scissors and other surgical instruments, Customs ruled that the milling and the intricate cutting of forged blanks that create the ratchet, teeth, inside rings, and boxlock on surgical instruments were extensive operations that "give the surgical instruments their actual dimensions and essential characteristics such as the capacities to grip and close" and that these operations coupled with heat treating and polishing gave the surgical instruments their basic character and resulted in a substantial transformation.

In contrast, in Headquarters Ruling Letter (HRL) 733565 dated September 11, 1990, Customs ruled that unfinished household scissors exported to Pakistan for further processing including grinding, polishing, nickel plating, heat treating, and assembly did not constitute a substantial transformation. It was determined that these processes were nothing more than finishing operations which did not alter the basic character of the shears.

In HRL 732844 dated February 12, 1990, Customs ruled that U.S.-made forgings not machined to their actual dimensions and which lacked the capacities to grip, close, lock in place, and to be adjusted, were substantially transformed into surgical instruments by extensive machining, bending, cutting, riveting, assembly, and polishing operations performed in Pakistan. It was noted that these operations gave the surgical instruments their basic characteristics. In HRL 734904 dated April 30, 1993, Customs considered strip stainless steel forged in Germany and exported to Pakistan, where the forgings were milled, machined, or forged. The parts were then assembled into surgical instruments, riveted, adjusted, heat treated, annealed, polished, passivated, stamped or marked, ultrasonically cleansed, and packaged. It was determined that these operations performed in Pakistan constituted a substantial transformation, so that the country of origin was Pakistan.

In HRL 553197 dated February 11, 1985, however, steel forgings were machined, which mainly consisted of deburring, swagging, and broaching. These articles were then exported to Pakistan, where they were rough polished, hand shaped and curved, subjected to a heat treatment, and final polished. In that case, it was held that because the key machining operations occurred in the U.S., and the processes in Pakistan were finishing operations, the instruments would be exempt from individual marking pursuant to 19 CFR 134.32(m).

Finally, in HRL 734835 dated February 3, 1993, shear blade castings from Taiwan were imported into the U.S., where a hole was further drilled; the rough surface from the casting was ground off; a cutting edge was made; various polishing operations were performed which resulted in a rough finish; the blades were racked and nickel plated by moving the blades through six consecutive liquid solutions; the blade edges and points on the blades were ground and sharpened; the rivet was inserted; the finger and thumb pieces were assembled; the scissors were buffed; a process called "Japanning" was performed which consisted of dipping, racking, and baking; and lastly, the scissors were tested and oiled. It was held that the imported castings were substantially transformed in the U.S. as a result of the further processing in the U.S., and therefore became a product of the U.S.

In the Customs Bulletin dated January 11, 1995, Customs published, pursuant to section 625(c)(1) of Title VI ("Customs Modernization") of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice advising interested parties that Customs intends to modify past rulings pertaining to the substantial transformation of hand tools "and similar items," to the extent required to conform them with the court's decision in National Hand Tool Corp. v. United States, Slip Op. 92-61 (CIT April 27, 1992), aff'd, 92-1407 (CAFC February 3, 1993). Specifically, Customs states that the criteria set forth in National Hand Tool, to be applied "based on the totality of the evidence," include:

[1] whether the tool forging has the same name as the finished tool,

[2] whether the tool forging has a predetermined use, and

[3] whether the tool forging has the essential character of the finished tool.

In the November 30 letter, it is claimed that the facts in this case are distinguishable from the facts presented in National Hand Tool. Consequently, it is claimed that National Hand Tool does not preclude the finding of a substantial transformation in this case in the U.S. In National Hand Tool, sockets and flex handles were either cold formed or hot forged into their final shape, speeder handles were reshaped by a power press after importation, and the grip of the flex handles were knurled in the U.S. The imported parts were then heat treated which strengthened the surface of the steel, and cleaned by sandblasting, tumbling, and/or chemical vibration before being electroplated. In certain instances, various components were assembled together which the court stated required some skill and dexterity. The court determined that the imported components were not substantially transformed by the strengthening, cleaning, and assembly performed in the U.S.; therefore, they remained products of Taiwan. In making its determination, the court focused on the fact that the components had been cold-formed or hot-forged "into their final shape before importation", and that "the form of the components remained the same" after the assembly and heat-treatment processes performed in the U.S. Although the court stated that a predetermined use would not preclude the finding of a substantial transformation, but rather, must be based on the totality of the evidence, no substantial change in name, character or use was found. Slip. Op. 92-61, at 7, 8.

In this case, it is claimed that unlike the imported components in National Hand Tool, which were in their final shape and ready for assembly when they were imported, the imported forgings are not capable of being assembled until after they undergo the additional forging, machining, and cutting processes performed in the U.S. We disagree. In this case, although the proportions of the finished instruments are determined by the forging of the locator cut, and the cutting of the ratchets defines the increments at which the needle-holder's grasp can be adjusted, the speeder handles in National Hand Tool were reshaped as well. Since this reshaping did not constitute a substantial transformation, we find that the cutting and scaling-down operations are not extensive enough to change the overall shape, characteristics, and use of the imported forgings. Furthermore, the assembly only involves a few pieces, as it did in National Hand Tool.

In addition, although C.S.D. 90-101 is similar to the case at issue and held that the forgings did not possess the essential characteristics of needle-holders until the locator cut was forged, the ratchets were cut, and the components were scaled down to their final dimensions before being assembled together, the facts are not identical. In C.S.D. 90-101, the total processing of the imported forgings occurred in a single country. Thus, while we believe that C.S.D. 90-101 is not in conformance with the standards of National Hand Tool, the facts of C.S.D. 90-101 are not the same as those at issue here. Therefore, we find that Baxter is not the ultimate purchaser of the imported German forgings.

Lastly, it is claimed that cleaning, polishing, inserting tungsten carbide in the tips of the instruments, and gold-plating the handles in Russia or Hungary constitute cosmetic finishing touches and do not impart the essential characteristics to the instruments or change their dimensions in any way. We agree. Therefore, the German country of origin must be marked on the finished surgical instruments returned from Russia or Hungary.


Based upon the information provided, we find for purposes of 19 U.S.C. 1304, the processing in the U.S. of the surgical instrument forgings imported from Germany in the manner set forth above does not constitute a substantial transformation; therefore, the finished surgical instruments are not excepted from country of origin marking . In addition, the further described operations to be performed in Russia or Hungary, also will not substantially transform the instruments into new and different articles. Therefore, under the facts of this case, the finished surgical instruments must be marked with the country of origin of the forgings (Germany).

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.


John Durant, Director

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