Neville Peterson LLP: Customs and International Trade Law

Neville Peterson LLP GUIDE TO COUNTRY OF ORIGIN MARKING REQUIREMENTS FOR IMPORTED MERCHANDISE

I. INTRODUCTION

This Guide discusses country of origin marking requirements applicable to Merchandise imported into the United States (finished products, parts and ingredients), and packaging materials therefor. It also discusses when products manufactured in the United States may be marked with the affirmative representation that they are "Made in U.S.A.".

II. BASIC ORIGIN MARKING REQUIREMENTS FOR IMPORTED GOODS

1. When must imported goods be marked to show country of origin?

Answer: Section 304 of the Tariff Act of 1930, as amended [19 U.S.C. § 1304] requires that, unless excepted, all articles of foreign origin, (or their containers) must be marked permanently, legibly and in a conspicuous place, so as to inform an ultimate purchaser in the United States of the English name of the article's country of origin.

The three basic requirements of marking foreign-origin articles deserve special mention. A marking must be:

Permanent -- the country of origin must be noted permanently on an article or its container, and must be designed to remain on the article or container until it reaches the "ultimate purchaser" in the U.S.;

Legible -- the marking must be in lettering which is clear, and which can be read without strain; and

Conspicuousness -- the marking must appear on the article or its container in a place which is readily accessible, and where the marking can be found upon casual examination.

2. Why does the law require marking of all foreign-origin goods?

The courts have held that the purpose of the marking law is to mark the goods "so that the ultimate purchaser may, by knowing where the goods were produce, be able to buy or refuse to buy them, if such marking should influence his will." The law also seeks to confer a marketing advantage on United States producers of goods, by letting purchasers discriminate against foreign goods, should they choose to do so.

3. Who is the "ultimate purchaser" of foreign-origin goods?

The "ultimate purchaser" is the person in the United States to whom the country of origin of a foreign article must be communicated. Generally, the "ultimate purchaser" is "the last person in the United States who will receive the good in the form in which it was imported; this person need not have acquired the goods by purchase, but may have received them as a consignment, gift or donation.

Identifying the "ultimate purchaser" will depend upon the facts of each case. However:

a. Where a person will use an imported article in a manufacturing process which "substantially transforms" the article into a new and different article of commerce, that person will be the "ultimate purchaser". Thus, where parts are imported to be used in the manufacture of a computer, the computer assembler will be the "ultimate purchaser" of those parts;

b. Where an imported article is subjected to minor processing in the United States, the consumer or user of the article, who receives the article after its processing, will be the "ultimate purchaser";

c. Where an article will be sold in retail in its imported form, the retail purchaser of the article will be the "ultimate purchaser". Thus, in the case of repair or service parts, the "ultimate purchaser" will generally be the owner or lessee of the machine being repaired or serviced.

III. EXCEPTIONS TO MARKING REQUIREMENTS

1. When are foreign goods exempt from country of origin marking?

Under the Customs regulations, goods may be excepted from marking when:

a. The article is incapable of being marked (e.g., bulk toners, very small goods);

b. The article cannot be marked prior to importation without injury to the good (e.g., glass lenses without frames);

c. Such article cannot be marked prior to importation except at an economically prohibitive cost;

d. The marking of the article's container will reasonably indicate the article's origin;

e. The article is a crude substance;

f. The article is imported for the use of the importer and is not intended for resale in any form;

g. The article will necessarily be processed by the importer in a manner which would cause the obliteration, destruction or permanent concealment of the marking;

h. An ultimate purchaser, by reason of the character of such article or the circumstances of its importation, must necessarily know the origin of the article, even though it is not marked;

i. The article was produced more than 20 years prior to importation;

j. The article appears on the so-called "J-List" [see 19 C.F.R. § 134.33] of goods which the Secretary of the Treasury has decreed should be exempt from marking; or

k. The article cannot be marked after importation except at a cost which is economically prohibitive, and the failure to mark prior to importation was not intentional.

2. Where goods are individually exempt from marking, must their packages be marked to show country of origin?

Yes. Where an article is excepted from individual marking, "the immediate container, if any, of such article, or such other container or containers . . . shall be marked in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article". Thus, where an imported article is excepted from marking, its outermost container must be marked to show the article's origin. As noted below, if the article will be repacked after importation into a new or different container which will reach the "ultimate purchaser" in the United States, that new or different container must also be marked to show the article's country of origin.

3. Where an imported article is not marked, can the importer mark it after importation, but before delivery to an "ultimate purchaser" in the United States?

     Yes, but only at the discretion of the Port Director of Customs for the port at which the merchandise is entered. The Port Director may allow post-importation marking at the importer's premises if he or she is satisfied that the goods will be marked prior to delivery to an "ultimate purchaser".

     However, it should be stressed that no importer has an absolute right to import goods which are unmarked. Customs may deny an importer permission to conduct post-importation marking at its premises, and may require that marking be conducted under Customs supervision.

     Post-importation marking is generally difficult and expensive. Where an imported article is subject to marking, or will be imported in the same container which will reach the "ultimate purchaser", the better practice is to require the vendor to mark the goods or their packages to meet the law's requirements.

4. What procedure should be followed where an importer will repack goods after importation?

Where goods will be repacked after importation, but before delivery to an ultimate purchaser, the Port Director of Customs may, in his or her discretion, allow the importer (or a subsequent purchaser) to repack the goods into properly-marked packages at the company's premises. However, the importer must furnish Customs with a Repacker's Certificate as prescribed in 19 C.F.R. § 134.25 (articles subject to J-List marking exceptions) or 19 C.F.R. § 134.26 (other articles).

Where the goods will be repacked in the United States by someone other than the importer, the Customs regulations require the importer to furnish a Notice to Subsequent Purchaser or Repacker which advises the repacker that the goods are imported, and must be repacked in properly marked packages prior to delivery to an "ultimate purchaser".

5. What marking requirements apply to "kits" and "sets"?

From time to time, an importer may import multiple goods which are packaged in "kits" or "sets" for retail sale or for the use of technical representatives. On other occasions, the importer may repack imported goods with other foreign and domestic goods in the United States to create such "kits".

Under the "rule of reason" set out in Treasury Decision 91-7, kits or their packages must be marked so as to show the origin of every major component of the kit. Minor components (small wires, fasteners, etc.) are not subject to marking.

6. Must packaging materials be marked to show their own country of origin?

No, if the packaging material is of the usual disposable type in which the article is commonly packed. These "usual packing materials" must be marked to show the country of origin of their contents, but not their own origin.

On the other hand, if a packaging material is unusual or reusable, and has an economic identity which is separate from its contents, it may become necessary to mark the material to show its own country of origin.

IV. RULES FOR MARKING PACKAGING MATERIALS

1. What rules apply to the marking of packaging materials for imported goods?

Markings on packages must meet the same requirements of permanence, legibility and conspicuousness which apply to the imported articles themselves.

In terms of permanence and legibility, markings which are likely to blur, streak or be obliterated (e.g., certain ink-stampings), or which are in small, difficult-to-read lettering, are to be avoided. In terms of conspicuousness, markings which are hard to find on packages are unacceptable (e.g., markings on the inside lids of boxes, marking which are under a flap or seam, etc.]

2. What special rules apply to the marking of packages containing imported goods?

Particular attention must be paid to 19 U.S.C. § 134.36, which provides that, when the words "United States", "America", the letters "U.S.A." or "U.S.", or the name of any country or locality other than the name of the country of origin appear on the product or its package, there must appear, in close proximity thereto, and in lettering of a comparable size, the English name of the article's country of origin, preceded by the words "Made in", "Product of", or words of similar import.

In terms of packaging, the term "close proximity" has been interpreted to mean the same side or panel of a box. Thus, if the words "Acme Corporation, Syracuse, N.Y" appear on the left end panel of a box containing a foreign good, a phrase such as "Made in [country]" should appear on the same panel of the box, in close proximity to the U.S. address.

V. DETERMINING THE COUNTRY OF ORIGIN

1. How does Customs determine a product's country of origin for marking purposes?

     For most imported products, the country of origin for marking purposes is the last country where they product underwent a "substantial transformation" prior to being imported into the United States. A "substantial transformation" is defined generally as working or processing which results in the creation of a new and different article of commerce, having a name, character or use different from those of its components.

     The "substantial transformation" test must be applied on a case-by-case basis; often, it is necessary to obtain guidance or rulings from Customs. For example, where copier parts from multiple countries are collected in Japan and joined together to make a copier, it is generally safe to say that a "substantial transformation" has occurred, and the finished copier is a "Product of Japan" for marking purposes. On the other hand, where a processing operation is minor, no "substantial transformation" occurs. For instance, where a French-made document feeder is brought to Japan and assembled to a Japanese-made copier by the attachment of a few bolts and wires, no "substantial transformation" has occurred; the feeder should be marked "Made in France", while the copier should be marked "Made in Japan".

     Where goods are imported into the United States from Canada or Mexico, their country of origin, for marking purposes, is determined according to the NAFTA Marking Rules, set out at 19 C.F.R. Part 102. These rules generally deem an article to be a Product of Canada or Mexico for marking purposes (not for NAFTA tariff preferences, however), if non-Canadian or non-Mexican materials have undergone certain changes in tariff classification by reason of processing in Canada or Mexico. Different rules of origin apply to different goods, based on their tariff classification. In order to apply the NAFTA Marking Rules (which are not based on the "substantial transformation" principle, it is usually necessary to know the classification of the finished product, as well as of its major constituent materials.

     Textile products are subject to special rules of origin established under Section 334 of the Uruguay Round Agreements Act [19 U.S.C. Section 3592; see 19 C.F.R. Section 102.21].

2. When are products made in the U.S. with imported materials or components subject to foreign country of origin marking?

     As noted above, when imported products are "substantially transformed" by post-importation manufacture in the United States, the manufacturer is considered to be the "ultimate purchaser" in the United States. The product made in the United States is not considered to be a "foreign" product, and is not subject to marking.

     On the other hand, where the imported article is only subjected to minor processing in the United States, it is not "substantially transformed". It is considered to remain a foreign product, and must be marked to show its foreign country of origin.

     Goods imported from Canada and Mexico and subjected to post-importation processing in the United States are also excepted from marking if, by reason of the processing, they undergo a change in classification of a kind specified in the NAFTA Marking Rules, 19 C.F.R. Part 102.

3. When may an article which is produced in the United States be marked as "Made in U.S.A."?

As noted above, Section 304 of the Tariff Act of 1930 controls the issue of when a product must be marked to show a foreign country of origin. The issue of when a product may be marked to indicate that it is a product of the United States is within the jurisdiction of the Federal Trade Commission (FTC).

Section 5 of the Federal Trade Commission Act declares it an unfair practice to mark an article with a deceptive or misleading statement of origin. The current position of the FTC is that an article may not lawfully be labeled with the unconditional statement that it is "Made in U.S.A." unless it is composed wholly, or almost wholly, of United States-origin materials, and is made almost completely with United States labor. If a product is made with any significant imported materials, or any significant foreign labor, no unconditional "Made in U.S.A." claim can be made. [However, the FTC may authorize a conditional claim, such as "Made in U.S.A. from Chinese materials", or words of similar import.

VI. PENALTIES FOR FAILURE TO MARK GOODS PROPERLY

1. What are the penalties for failure to mark an imported article to show country of origin?

There are several penalties which can be assessed against an importer for failure to properly mark a good to show a foreign country of origin.

A. Exclusion from U.S. Commerce: Improperly marked goods are considered "restricted merchandise" which may not be imported into the United States. Customs may refuse to release merchandise to the importer until it is properly marked.

B. Redelivery to Customs Custody/Liquidated Damages: Where goods released from Customs custody are subsequently determined to be unmarked or improperly marked, Customs may issue to the importer a Notice to Mark or Redeliver on Customs Form 4647. If the importer fails to redeliver the goods, Customs may assess a claim for liquidated damages in an amount equal to the domestic value of the unmarked merchandise;

C. Special Marking Duties: If an importer fails to correctly mark imported merchandise prior to the liquidation of the import entry, Customs may assess a special marking duty in am amount equal to 10% of the value of the merchandise. This duty is in addition to any other duty which may assessed.

D. Penalties for False Certification: If an importer falsely certifies that it has marked goods released from Customs custody -- for instance, pursuant to a Repacker's Certificate -- Customs may assess a civil penalty pursuant to 19 U.S.C. Section 1592, in an amount of as much as the domestic value of the merchandise.

E. Civil Penalties for Obliterating a Marking: Where a person obliterates a country of origin marking on an imported good, or re-marks a product with a false country of origin, it may be subjected to civil penalties of as much as [$50,000] per occurrence.

F. Criminal Penalties: In certain circumstances, the obliteration of an origin marking, or the false marking of an imported good, can result in criminal penalties. This is especially true where the misrepresentation is intentional (for example, to offer for government procurement otherwise-ineligible foreign goods) or where a false representation of origin results in circumvention of a quota or other non-tariff restriction.

     Note: This memorandum is intended for general informational purposes only, and is not given or intended as advice pertaining to any specific case or circumstances. Readers having questions concerning particular situations should consult counsel.

     Entire contents copyright 1998 by Neville Peterson LLP.

     For additional information concerning the subjects discussed in this Neville Peterson LLP background memorandum, please call Martin Neville, John Peterson, Maggie Polito or Arthur Purcell at (212) 635-2730 or George Thompson, Mike Tomenga or Larry Bogard at (202) 861-2959, or e-mail using the mailbox on this Website.

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