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HQ 560728

June 28, 1998

MAR-2 RR:CR:SM 560728 RSD


Port Director
United States Customs Service
New Montgomery Street
Room 1501
San Francisco, California 94105

RE: Application for Further Review of Protest Number 2809-97-101056; marking duties; mother boards

Dear Director:

This is in reference to Application for Further Review of Protest Number 2809-97-101056 filed by counsel on behalf of EFA Corporation of America (EFA) regarding the assessment of marking duties on a shipment of computer motherboards. The date of liquidation was April 25, 1997, and the protest was filed on July 23, 1997. Counsel made two supplemental submissions dated March 27, 1998 and May 28, 1998


The record indicates that EFA entered a shipment of Taiwanese-made computer motherboards without CPUs or DRAMs through the port of San Francisco on February 8, 1997. The motherboards were not individually marked to indicate their country of origin. The motherboards were packed in individual boxes which also were not marked to indicate the country of origin of the boards. The individual boxes were, in turn, packed in larger shipping boxes of ten motherboards each. Counsel for EFA claims that the larger boxes (the outermost containers) were marked to indicate the country of origin of the motherboards, but no specific evidence has been presented to establish that these larger boxes were actually marked with the country of origin of the motherboards.

On February 14, 1997, Custom issued a Notice To Mark and/or Redeliver, Custom Form 4647, notifying EFA that the motherboards were not legally marked. The notice stated:

Sample of the M/B by our Inspector shows no C/O on the immediate box. For this shipment you can use a rubber stamp or a sticker with good adhesive to indicate Made in Taiwan. When you inform the mfr. to correct future shipments, please provide us with a copy of the letter.

Although EFA claims that it certified on the CF 4647 form that they had properly marked the merchandise, there is no evidence that Customs ever received EFA's certification. In addition, EFA shipped the merchandise to its customers before Customs could verify that it was properly marked.

Counsel indicates that the largest purchasers of EFA's products are known in the computer industry as systems integrators. Systems integrators do not sell boards individually but use them in making computer products and systems products. Typically, orders are shipped to systems integrators in boxes of ten which according to counsel would always be marked as "Made in Taiwan". However, counsel concedes that in rare instances less than 10 units may be repacked and shipped in a separate box, which may not have a country of origin marking on it.

Counsel further points out that EFA also sells products to distributors who, like systems integrators often use the motherboards to build complete computer systems under their own logo. In other cases, they will also supply the boards to other resellers, corporations, and small size integrators. On some occasions, the distributors will ship the boards in the outermost containers which are marked with the country of origin, but in other cases the boards are repacked and relabeled into containers that do not have a proper country of origin disclosure.

The boards are also sold to retailers who resell individual boxes of motherboards to consumers. Counsel does not contest that the individual boxes in which the boards were sold to consumers by retailers were not marked with the country of origin of the boards.

Counsel concedes that as EFA did not record the serial numbers of the boards, it is impossible to determine exactly who purchased the boards contained in the shipment in question. Instead, counsel contends that EFA generally uses an accounting system known as last-in-first-out (LIFO) in distributing its inventory. Based on the LIFO accounting method, counsel contends that EFA could approximate where it sent the shipment of motherboards. Counsel furnished copies of the EFA's shipping records and, by using a LIFO method, indicated how many of the boards were sold to systems integrators, who substantially transform the boards in the U.S. Using a LIFO analysis, counsel calculates that 55% of the boards in the shipment were sent to companies who substantially transformed them, and consequently, these boards were not required to be individually marked with their country of origin. Thus, according to counsel, marking duties should not have been assessed on 55% of the boards in the shipment because the ultimate purchasers of these boards would have received them in the outermost containers properly marked with the boards' country of origin.


Under the circumstances described, whether the assessment of marking duties on the shipment of motherboards was proper. LAW AND ANALYSIS:

Initially, we note that the protest was timely filed (i.e., within 90 days of the date of liquidation) and the matter is protestable under 19 U.S.C. 1514(a)(5).

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 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. By enacting 19 U.S.C. ?1304, Congress intended to ensure that the ultimate purchaser would be able to know, by inspecting the marking on the imported goods, the country of which the goods are 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 C.C.P.A. 297, 302 C.A.D. 104 (1940).

Merchandise which is not legally marked is subject to a 10 percent ad valorem marking duty. 19 U.S.C. ?1304(h) provides, in pertinent part:

If at the time of importation any article...is not marked in accordance with the requirements of this section, and if such article is not exported or destroyed or the article...marked after importation in accordance with the requirements of this section (such exportation, destruction, or marking to be accomplished under customs supervision prior to the liquidation of the entry covering the article, and to be allowed whether or not the article has remained in continuous customs custody), there shall be levied, collected, and paid upon such article a duty of 10 per centrum ad valorem, which shall be deemed to have accrued at the time of importation, shall not be construed to be penal, and shall not be remitted wholly or in part nor shall payment thereof be avoidable for any cause. Such duty shall be levied, collected, and paid in addition to any other duty imposed by law and whether or not the article is exempt from the payment of ordinary customs duties (emphasis added).

The regulations implementing most of the provisions of the marking statute are contained in Part 134, Customs Regulations (19 CFR Part 134). The general marking requirement is set forth in section 134.11, Customs Regulations (19 CFR 134.11). Section 134.35(a), Customs Regulations (19 C.F.R. ?134.35(a)), states that the manufacturer or processor in the U.S. who substantially transforms the imported articles into articles having a new name, character or use will be considered the ultimate purchaser of the imported article within the scope of 19 U.S.C. ?1304. In such cases, the article will be excepted from marking, although the outermost container in which the articles are transported to the U.S. processor must be marked with the origin of the articles. Where articles are not properly marked, the Customs Regulations provide for the assessment of marking duties in section 134.2 (19 CFR 134.2), which states, in pertinent part:

Articles not marked as required by this part shall be subject to additional duties of 10 percent of the final appraised value unless exported or destroyed under Customs supervision prior to liquidation of the entry, as provided in 19 U.S.C. ?1304(f). The 10 percent additional duty is assessable for failure to mark the article (or container) to indicate the English name of the country of origin of the article or to include words or symbols required to prevent deception or mistake.

In HQ 731775, dated November 3, 1988, Customs ruled that two prerequisites must be present in order for it to be proper to assess marking duties under 19 U.S.C. ?1304(f): I) the merchandise was not legally marked at the time of importation; and II) the merchandise was not subsequently exported, destroyed or marked under Customs supervision prior to liquidation.

In the case before us, both prerequisites for assessing marking duties are present. The record indicates that the subject merchandise was not legally marked at the time of importation. The marking notice issued by Customs indicates that neither the articles nor their individual containers were marked. Although Protestant claims that the outermost containers were marked with the country of origin of the boards, no evidence has been provided that these containers were, in fact, so marked. Even if the outermost containers were marked with the country of origin of the boards, EFA has not presented sufficient evidence to establish that the motherboards actually reached the ultimate purchasers in these marked outermost containers.

Counsel claims that 55% of the motherboards were sold to systems integrators/computer manufacturers, who substantially transformed the boards in the U.S. by using them to make finished computers. The systems integrators/computer manufacturers allegedly received the boards in the outermost containers which were marked with the country of origin of the boards. Thus, according to counsel, there was no marking violation for 55% of the boards in the shipment, pursuant to 19 CFR 134.35(a). Although Customs may have previously held that the assembly of various components, including partially completed motherboards, into a finished computers constituted a substantial transformation (See HRL 735608 April 21, 1995), EFA has not been able to identify which, if any, of the boards in the shipment were sold to these systems integrators/computer manufacturers. The estimate of the number of boards that were sold to systems integrators/computer manufacturers is based solely on counsel's analysis using the LIFO accounting method. However, counsel has not provided any evidence that EFA actually used the LIFO accounting system with respect to the merchandise contained in the specific shipment in question. Counsel only claims that EFA generally uses a LIFO system to control its inventory. (emphasis added).

We cannot rely only on counsel's assertion, without any substantiation, that EFA sold the boards in properly marked outermost containers to customers who used them to make computers. There is no description in the record concerning how the boards were used to make finished computers. No proof was submitted, such as statements from EFA's customers, to establish that boards in this shipment were actually used in the manner claimed by counsel. Without specific evidence clearly showing which of the motherboards in the shipment were delivered in properly marked containers to computer manufacturers who substantially transformed the boards, we must conclude that the entire shipment of motherboards was not legally marked.

The second prerequisite for assessing marking duties is also present in this case because it is undisputed that the merchandise was not remarked, exported, or destroyed under Customs supervision prior to liquidation. Therefore, we conclude that marking duties were properly assessed in this case.


Based on the record provided, there is insufficient evidence to establish that the shipment of motherboards was legally marked with their country of origin at time of importation. There is also no evidence to show that the merchandise was remarked, exported, or destroyed under Customs supervision prior to liquidation. Therefore the imposition of ten percent ad valorem marking duties was appropriate. Accordingly, this protest should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.


John Durant, Director
Commercial Rulings Division

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