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HQ 563329




December 6, 2005

MAR-2-05 RR:CTF:VS 563329 EAC

CATEGORY: MARKING

Ms. Yvonne Gapinski
General Manager
ESU, LLC
PO Box 77
Upsala, MN 56384

RE: Country of origin marking requirements applicable to model railroad train accessories; substantial transformation; 19 U.S.C. §1304

Dear Ms. Gapinski:

This is in response to your letter, dated August 19, 2005, in which you request a ruling pertaining to the country of origin marking requirements applicable to imported model railroad train “decoders”, “sound decoders”, and “programmers”. Product literature was provided with the request. We have additionally considered information provided during a telephone conversation with a member of my staff on September 9, 2005, and in an electronic message of October 17, 2005.

FACTS:

You state that “decoders” are products designed for installation into model train locomotives. After installation, a decoder can interpret signals from model railroad train command stations or power packs and control the locomotive accordingly. For example, an installed decoder may control a locomotive’s acceleration, lights, and speed. Decoder models under consideration in the instant case are the “LokPilot”, “LokPilot mfx”, “LokPilot DCC”, and the “LokPilot micro.”

In reviewing the product pamphlets provided with your request, each decoder consists of a group of multi-colored wires attached at one end to a NMRA compatible connector and at the other end to a small circuit board (which appears to be approximately the size of a dime in one picture). We are informed that the decoders are assembled in the Czech Republic from parts that originate from various countries abroad. The software for the decoders as well as the decoders themselves are developed and designed entirely in Germany. After entry into the United States, the decoders are configured to reflect the needs of the customer. The decoders are claimed not to be functional until configured in the United States.

In addition to controlling the operations mentioned above, “sound decoders” allow model train locomotives to replay prototype sounds such as those associated with pumps, power switches, steam whistles, and squealing brakes. The sound decoders are similar in appearance to the decoders but are additionally supplied with a 0.91 inch speaker and matching sound chamber. Sound decoder models under consideration in the instant case are the “LokSound”, “LokSound XL”, and the “LokSound mfx.” The sound decoders are similarly assembled in the Czech Republic, subsequently configured in the United States, and claimed not to be functional until configured. We are further advised that over two hundred sound configurations are available to purchasers in the United States.

The final product under consideration in this case is referred to as a “programmer” and is described as a piece of interface equipment that allows the user to customize the settings of the above-referenced decoders. The programmer becomes functional when connected to a computer serial or USB port. This device is manufactured and programmed in the Czech Republic from international parts and is not processed in the United States. While ESU may configure the original sounds and functions, the model train user can download software from the company’s website and use the programmer to modify the sound effects stored on the decoder.

ISSUE:

For marking purposes, what is the country of origin of the model railroad train decoders, sound decoders, and programmers?

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930 (19 U.S.C. §1304), provides that, unless excepted, every article of foreign 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. 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. Friedlander & Co., 27 C.C.P.A. 297 at 302 (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 United States. 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. The case of United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98)(1940), provides that an article used in manufacture which results in an article having a name, character, or use differing from that of the constituent article will be considered substantially transformed and, as a result, the manufacturer or processor will be considered the ultimate purchaser of the constituent materials. In such circumstances, the imported article is excepted from marking and only the outermost container is required to be marked. See, 19 CFR 134.35(a).

While you have not provided details on assembly in the Czech Republic, C.S.D. 85-25, 19 Cust. Bull. 844 (1985) (HRL 071827 dated September 25, 1984), states that an assembly process will not constitute a substantial transformation unless the operation is “complex and meaningful.” Here, assuming the decoders, including the circuit board components, are assembled in the Czech Republic, the country of origin of the decoder upon entry into the United States will be the Czech Republic. Similarly, the manufacture and programming of the programmers in the Czech Republic would make it a product of the Czech Republic. The next issue that must be considered is whether the operations performed in the United States substantially transform the decoders and sound decoders.

In Headquarters Ruling Letter (“HRL”) 735027 dated September 7, 1993, a device that software companies used to protect their software from piracy was under consideration for country of origin marking purposes. The device, referred to as the “MemoPlug”, was assembled in Israel from components sourced from Israel and abroad. The MemoPlug contained an EEPROM inside a plastic case. These parts were made in Taiwan as were the connectors. In Israel, the internal board was assembled and the MemoPlug was actually put together. After assembly, the devices were shipped to a processing facility in the United States where the EEPROM was programmed with special software. Such processing within the United States accounted for approximately 50% of the selling price of the MemoPlugs. In finding that the foreign-origin components were substantially transformed within the United States, we noted that the U.S. processing transformed a blank media, the EEPROM, into a device that performed functions necessary to the prevention of software piracy.

In order to determine whether programming constitutes a substantial transformation, CBP considers the totality of the circumstances and makes such determinations on a case-by-case basis. While the operations performed in the United States result in fully functional products (i.e., gives the sound decoders the capability to replay sounds), they do not change the essential character of the imported products, which at this stage of production possess the characteristics of accessories dedicated for use in model train locomotives. In this regard, we direct your attention to NY L87724 dated October 6, 2005, in which the National Commodity Specialist Division classified the products in the instant case under subheading 9503.10.00, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for: “Electric trains, including tracks, signals and other accessories thereof; parts thereof.” As applied, it is our opinion that the model train decoders and sound decoders are not substantially transformed in the United States and the country of origin of the decoders, sound decoders, and programmers for marking purposes is the Czech Republic.

HOLDING:

Based upon the facts of this case, we find that the country of origin of the decoders, sound decoders, and programmers for marking purposes is the Czech Republic.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs and Border Protection officer handling the transaction.

Sincerely,

Monika R. Brenner, Chief
Valuation and Special Programs Branch

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