[Federal Register Volume 63, Number 58 (Thursday, March 26, 1998)]
[Notices]
[Pages 14751-14752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7968]
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DEPARTMENT OF THE TREASURY
Customs Service
Application of Producers' Good Versus Consumers' Good Test in
Determining Country of Origin Marking
AGENCY: Customs Service, Department of the Treasury.
ACTION: Notice of proposed interpretation; solicitation of comments.
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SUMMARY: This notice advises the public that Customs does not intend to
rely on the distinction between producers' goods and consumers' goods
in making country of origin marking determinations. It is Customs'
opinion that the consumer-good-versus-producer-good distinction is not
determinative that a substantial transformation, as it is traditionally
defined, has occurred as demonstrated in a number of recent court
decisions. As this proposal may affect certain importer practices,
Customs is soliciting comments.
DATES: Comments must be received on or before May 26, 1998.
ADDRESSES: Written comments (preferably in triplicate) may be addressed
to the Regulations Branch, Office of Regulations and Rulings, U.S.
Customs Service, 1300 Pennsylvania Avenue, NW., Washington, D.C. 20229.
Comments submitted may be inspected at the Regulations Branch, Office
of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania
Avenue, NW., Washington, D.C.
FOR FURTHER INFORMATION CONTACT: Monika Brenner, Attorney, Special
Classification and Marking Branch, Office of Regulations and Rulings
(202-927-1675).
SUPPLEMENTARY INFORMATION:
Background
In Midwood Industries, Inc. v. United States, 313 F. Supp. 951
(Cust. Ct. 1970), the U.S. Customs Court considered whether an importer
of steel forgings was the ultimate purchaser for purposes of the
marking statute, 19 U.S.C. 1304. The court cited the principles set
forth in United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (1940),
in determining that the importer's manufacturing operations made it the
ultimate purchaser, namely that the importer may be considered the
ultimate purchaser for marking purposes if it subjects the article to
further processing that results in the manufacture of a new article
with a new name, character and use. However, the Midwood court also
found it relevant to that finding that the imported forgings at issue
were transformed from producers' goods to consumers' goods, stating:
While it may be true * * * that the imported forgings are made
as close to the dimensions of ultimate finished form as is possible,
they, nevertheless, remain forgings unless and until converted by
some manufacturer into consumers' good, i.e., flanges and fittings.
And as producers' goods the forgings are a material of further
manufacture, having, as such, a special value and appeal only for
manufacturers of flanges and fittings. But, as consumers' goods and
flanges and fittings produced from these forgings are end use
products, having, as such, a special value and appeal for industrial
users and for distributors of industrial products. Midwood at 957.
It is Customs' opinion that based on subsequent court decisions
applying substantial transformation analysis, Midwood would be decided
differently today. In National Juice Products Ass'n. v. United States.,
628 F. Supp. 978 (CIT 1986), for example, the court stated that the
significance of the producers' goods to consumers' goods transformation
in marking cases is diminished in light of its decision in Uniroyal,
Inc. v. United States, 542 F. Supp. 1026 (CIT 1983). In Uniroyal, the
court held that despite a change in name from an ``upper'' to a
``shoe,'' there was no substantial transformation because the
attachment of an outsole to an upper was a minor manufacturing or
combining process that left the identity of the upper intact and was
the very ``essence'' of the finished shoe. Utilizing the analysis it
had articulated in Uniroyal, the court in National Juice Products found
that the addition of water, orange essences, and oils to concentrate
does not change the fundamental character of the product, which is
still essentially the product of the juice of oranges. The court
stated: ``Under recent precedents, the transition from producers' to
consumers' goods is not determinative.'' 628 F. Supp. at 989-990. In
both Uniroyal and National Juice Products, however, it was clear that
imported materials could have been characterized as ``producers'
goods,'' had the court wished to adopt the reasoning used in Midwood.
In Superior Wire v. United States, 669 F. Supp. 472 (CIT 1987),
aff'd, 867 F.2d 1409 (Fed. Cir. 1989), the lower court found no
substantial transformation because while there was a name change from
wire rod to wire, there was no character or use change when wire rod
was drawn into wire. While the lower court referred to Torrington v.
United States, 764 F.2d 1563 (Fed. Cir. 1985), and Midwood and their
use of the producers' versus consumers' goods distinction, it also
relied on Uniroyal, where that distinction was not found to be
determinative as to substantial transformation. Accordingly, the court
in Superior Wire looked to many factors, such as a value added, change
in tariff classification, amount of labor required, or capital
investment, in determining whether a substantial transformation had
occurred and did not endorse the use of the producers' good-consumers'
goods analysis of Midwood.
Additionally, while the court in Ferrostaal Metals Corp. v. United
States, 664 F. Supp. 535, 541 (CIT 1987), referred to Midwood's
producers' goods versus consumers' goods distinction as evidence that a
change in utility of a product is indicative of a substantial
transformation, it did not find that distinction to be particularly
determinative. Rather, as it had in Superior Wire, the court looked at
the ``totality of the evidence'' to hold that hot-dipped galvanized
steel sheet was substantially transformed into a ``new and different
article of commerce,'' full hard cold-rolled steel sheet. Id. At 541.
Finally, in one of the most recent cases, National Hand Tool Corp.
v. United States, 16 CIT 308 (1992), the court did not mention the
producers' goods-consumers' goods analysis in its application of the
substantial
[[Page 14752]]
transformation test. As in the National Juice Products and Uniroyal
decisions, it was clear that the imported articles at issue, hand tool
forgings, could have been characterized as ``producers' goods,'' had
the court wished to engage in the Midwood analysis.
Accordingly, in interpreting the numerous relevant decisions of the
Federal Circuit and Court of International Trade, it is Customs'
opinion that it is not bound to follow the producer's good versus
consumer's good reasoning set forth in Midwood. Therefore, Customs does
not intend to use producer's good-consumer's good analysis in making
country of origin marking determinations under the substantial
transformation test. If additional cross-checks are needed in order to
make a country of origin marking determination, Customs intends to rely
on the ``essence'' test of Uniroyal which has been given more weight as
exemplified by numerous recent decisions of the Court of International
Trade and Federal Circuit.
If this proposal is adopted, parties may seek clarification
regarding the continued viability of any ruling that they believe was
based on the producers' goods-consumers' goods analysis articulated in
Midwood.
Comments
Before making a final decision on this proposed position,
consideration will be given to any written comments timely submitted to
Customs. Mindful of Judge Restani's remarks in National Juice Products
regarding the propriety of seeking comments from interested parties
concerning the effective date of policy changes which have a
significant impact on an entire industry, Customs also seeks comments
from interested parties as to the impact this proposed interpretation
may have on importers and how much time is reasonably needed to comply.
Comments submitted will be available for public inspection in
accordance with the Freedom of Information Act (5 U.S.C. 552), section
1.4, Treasury Department Regulations (31 CFR 1.4), and section
103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular business
days between the hours of 9:00 a.m. and 4:30 p.m. at the Regulations
Branch, 1300 Pennsylvania Avenue, NW., 3rd Floor, Washington, D.C.
Samuel H. Banks,
Acting Commissioner of Customs.
Approved: October 1, 1997.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-7968 Filed 3-25-98; 8:45 am]
BILLING CODE 4820-02-P
