HQ 961241 - Country of Origin of a Decorative Paper Bag with Macrame Handles; Gift Bags; - United States International Trade Commision Rulings

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HQ 961241

September 16, 1998

CLA-2 RR:CR:TE 961241 RH

CATEGORY: COUNTRY OF ORIGIN

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."

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)

12. pack the completed decorative gift bag for shipment
China
Philippines

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. 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 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).

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.

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

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