[Federal Register: March 26, 1998 (Volume 63, Number 58)]
[Notices]               
[Page 14751-14752]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr98-141]

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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