# HQ 968117

**July 24, 2006**

## MAR-2-RR:CTF:TCM 968117 RSD

**CATEGORY:** MARKING

Port Director

U.S. Customs and Border Protection

198 West Service Road\
Champlain, NY 12919

RE: Application for Further Review of Protest No. 0712-05-100146;
Country of

> Origin Marking Duties Assessed on Shipments of Pine Garland Light Sets
> Imported from Canada under the NAFTA Marking Rules; 19 U.S.C. 1304(i)
> and 19 CFR 102.18

Dear Port Director:

This is in response to your memorandum, dated January 25, 2006,
forwarding Protest Number 0712-05-100146. The application for further
review (AFR) of the protest was approved and sent to this office for our
response. The protest is against Customs and Border Protection's (CBP)
assessment of marking duties and interest for protestant's failure to
legally mark shipments of decorative pine garland light sets that are
primarily used as Christmas decorations that are imported from Canada.
 We note that AFR was granted because this case concerns questions of
fact and law that have not been ruled upon by CBP or by the courts. See
Section 174.24(b) of the CBP Regulations (19 CFR 174.24(b)). The record
indicates that the protested entries were liquidated on September 9,
2005, and the protest was timely filed on December 8, 2005.

FACTS:

This protest concerns the assessment of marking duties on shipments of
pine garland light sets that are referred to as "lighted garland". The
record indicates that there were a series of entries of this merchandise
between June and November 2004. The merchandise is comprised of a light
set string originating from China, and pine garland originating from
Canada. The light set string is shipped into Canada. In Canada, the
light string sets are combined with the Canadian pine garland to make
the finished product. Based on copies of advertising materials that are
contained in the record, it appears that the finished products are used
primarily as Christmas decorations.

The garland light sets were imported into the United States in boxes
that were marked to indicate that they were made in Canada. Because you
believe that this country of origin marking was improper, your office
assessed marking duties of an additional ten percent on the entries of
the garland light sets at the time they were liquidated.

We note in this instance, CBP did not issue a marking notice (Customs
Form 4647) to the importer. This was because CBP only became aware of
the problems with the country of origin marking of the imported garland
light sets during a verification of a claim for NAFTA preference. This
meant that when the marking dispute arose, the merchandise had already
been released into the commerce of the United States. Hence, the
merchandise could not be redelivered back to CBP, and thus your office
determined that issuing a marking notice would be futile.

In its protest, counsel for the protestant contends that the merchandise
was properly marked with the country of origin because the pine garland
imparted the essential character to the pine garland light sets.
According to counsel, because the pine garland was made in Canada, the
country of origin of the light sets was also Canada. Thus, counsel
argues that the light sets were properly marked to indicate that Canada
was their country of origin, and that marking duties should not have
been assessed.

ISSUES:

Whether it was proper to assess marking duties on entries of the pine
garland light sets imported from Canada that were made with Chinese
origin light strings and Canadian origin pine garland.

**LAW AND ANALYSIS:\
**

The marking statute, Section 304 of the Tariff Act of 1930, as amended
(19 U.S.C. §1304), provides that, unless excepted, every article of
foreign origin (or its container) imported into the United States shall
be marked in a conspicuous place as legibly, indelibly, and permanently
as the nature of the article 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. Part 134, CBP Regulations (19
CFR Part 134), implements the country of origin marking requirements and
exceptions of 19 U.S.C. 1304.

Section 134.1(b), CBP Regulations, defines "country of origin" as the
country of manufacture, production, or growth. Section 134.35(a), CBP
Regulations (19 CFR 134.35(a)), states that the manufacturer or
processor in the U.S. who substantially transforms the imported articles
into articles having a new name, character or use will be considered the
ultimate purchaser of the imported article within the scope of 19 U.S.C.
1304. In such cases, the article will be excepted from marking, although
the outermost container in which the articles are transported to the
U.S. processor must be marked with the origin of the articles. In order
to change the country of origin, further work or material added to the
article in another country must effect a substantial transformation.
However, for a good of a North America Free Trade Agreement (NAFTA)
country, the NAFTA Marking Rules will determine the country of origin.
See 19 CFR 134.1(b).

Section 134.1(j), CBP Regulations (19 CFR 134.1(j)) provides that the
"NAFTA Marking Rules" are the rules promulgated for the purposes of
determining whether a good is a good of a NAFTA country. A "good of a
NAFTA country" is an article for which the country of origin is Canada,
Mexico or the United States as determined under the NAFTA Marking Rules.
See 19 CFR 134.1(g).

Because the garland light sets were processed in and imported from
Canada, in order to determine whether they were marked properly with
their country origin when they were imported into the United States, we
must apply the NAFTA marking rules. Section 102.11, CBP Regulations (19
CFR 102.11) sets forth the required hierarchy for determining whether a
good is a good of a NAFTA country for the purposes of country of origin
marking and determining the rate of duty and staging category applicable
to an originating good as set out in Annex 302.2. Paragraph (a) of this
section states that the country of origin of a good is the country in
which:

> \(1\) The good is wholly obtained or produced;\
> (2) The good is produced exclusively from domestic materials; or\
> (3) Each foreign material incorporated in that good undergoes an
> applicable change in tariff classification set out in section 102.20
> and satisfies any other applicable requirements of that section, and
> all other applicable requirements of these rules are satisfied.

In this case, because the garland light sets were produced in Canada
from Chinese and Canadian materials, they were not wholly obtained or
produced in a single country, and thus the country of origin cannot be
determined under 19 CFR 102.11(a)(1). In this instance, the foreign
materials were the light set strings made in China, and the domestic
materials were the Canadian made pine garland. Because the garland light
sets contained both Chinese and Canadian made materials, they were not
produced exclusively from domestic materials. Thus, 19 CFR 102.11(a)(2)
is also not applicable in this situation.

Pursuant to 19 CFR 102.11(a)(3), the country of origin of a good is the
country in which each foreign material incorporated in that good
undergoes an applicable change in tariff classification as set forth in
19 CFR 102.20, and satisfies any other applicable requirements of that
section. Here, the foreign made material; the Chinese light sets were
classified in subheading 9405.40 of the Harmonized Tariff Schedule of
the United States (HTSUS). The finished product, the pine garland light
sets were also classified in subheading 9405.40, HTSUS. The applicable
change in tariff classification for subheadings 9405.10-9405.60, which
is set out in section 102.20(s), Section XX: Chapters 94 through 96,
provides: \...

> A change to heading 9405.10 through 9405.60 from any other subheading
> outside that group, except from subheading 9405.91 through 9405.99
> when that change is pursuant to the General Rule of Interpretation
> 2(a).

In this instance, the light string sets were initially classified under
subheading 9405.40, HTSUS. After the light strings were combined with
the pine garland in Canada, the finished garland light sets were also
classified under subheading 9405.40, HTSUS. Since there is no applicable
change in tariff classification, the requirements of section 102.20 have
not been met. Thus, the country of origin of the goods cannot be
determined in accordance with this provision.

Because 19 CFR 102.11(a) (incorporating section 102.20), is not
determinative of the origin of garland light sets, the next step is to
apply Section 102.11(b), CBP Regulations, (19 CFR 102.11(b), which
states in part:

> Except for a good that is specifically described in the Harmonized
> System as a set, or is classified as a set pursuant to General Rule of
> Interpretation 3, where the country origin cannot be determined under
> paragraph (a) of this section:

(1) The country of origin of the good is the country or countries of
    origin of the single material that imparts the essential character
    of the good,....

When determining the essential character of a good under section 102.11,
CBP regulations at 19 CFR 102.18(b)(1), provides that, for purposes of
applying section 102.11, only domestic and foreign materials (including
self-produced materials) that are classified in a tariff provision from
which a change in tariff classification is not allowed in the rule for
the

good set out in section 102.20 shall be taken into consideration in
determining the parts or materials that determine the essential
character of a good. See HQ 560038 dated February 7, 1997.

Moreover, section 102.18(b)(2), CBP Regulations (19 CFR 102.18(b)(2)),
states that for purposes of determining which material imparts the
essential character to a good, various factors may be examined depending
upon

the type of good involved. Those factors may include but not be limited
to, the nature of the material as its bulk, quantity, or value and the
role the material plays relative to the good\'s use.

To reiterate, the imported garland light sets are composed of light
string sets of Chinese origin, and pine garland made in Canada. In
applying the above factors, we note that the purpose of the imported
merchandise was to serve as ornamental light sets, and they were adorned
with pine garland for use primarily as Christmas decorations. The
merchandise was not ornamental pine garland that were decorated with
lights. This is supported by the fact that the merchandise was
classified in heading 9405, HTSUS, as a light set and not in a heading
for decorative garland. Consequently, we find that the single material
that imparted the essential character to the garland light sets was the
Chinese made light sets. Hence, in accordance with 19 CFR 102.11(b)(1),
the country of origin of the pine garland light sets should have been
based upon the Chinese light string sets. Therefore, we find that the
country of origin of the pine garland light sets was the country where
the light sets were made, which in this case was China.

Since the country of origin of the pine garland light sets was China, at
the time they were imported into the United States, they should have
been marked to indicate that their country of origin was China. However,
instead of marking the pine garland sets to indicate that they were made
in China, the record indicates that the boxes containing the pine
garland light sets were improperly marked to indicate that they were
made in Canada. Thus, at the time they were imported into the United
States, the pine garland light sets were not legally marked to indicate
their country of origin.

Merchandise that is not legally marked at the time of its importation is
subject to a 10 percent ad valorem marking duty. 19 U.S.C. 1304(i)
provides, in pertinent part:

If at the time of importation any article\...is not

marked in accordance with the requirements of this

section, and if such article is not exported or

destroyed or the article\...marked after importation in

accordance with the requirements of this section (such

exportation, destruction, or marking to be accomplished

under customs supervision prior to the liquidation of

the entry covering the article, and to be allowed

whether or not the article has remained in continuous

customs custody), there shall be levied, collected, and

paid upon such article a duty of 10 per centrum ad

valorem, which shall be deemed to have accrued at the

time of importation, shall not be construed to be

penal, and shall not be remitted wholly or in part nor

shall payment thereof be avoidable for any cause. Such

duty shall be levied, collected, and paid in addition

to any other duty imposed by law and whether or not the

article is exempt from the payment of ordinary customs

duties (emphasis added).

In implementing 19 U.S.C. 1304(i), the CBP Regulations provide in
section 134.2 (19 CFR 134.2), in pertinent part that where imported
articles are not properly marked, that:

> Articles not marked as required by this part shall be subject to
> additional duties of 10 percent of the final appraised value unless
> exported or destroyed under Customs supervision prior to liquidation
> of the entry, as provided in 19 U.S.C. 1304(i). The 10 percent
> additional duty is assessable for failure to mark
>
> the article (or container) to indicate the English name of the country
> of origin of the article or to include words or symbols required to
> prevent deception or mistake.

In HQ 731775, dated November 3, 1988, CBP ruled that two basic
prerequisites must be present in order to assess marking duties under 19
U.S.C. 1304(i):1) the merchandise was not legally marked at the time of
importation; and 2) the merchandise was not subsequently exported,
destroyed or marked under CBP supervision prior to liquidation.

As previously mentioned, because a potential marking violation was not
discovered until after the merchandise was released from CBP custody
into the commerce of the United States, in this case CBP did not issue a
marking notice (CF 4647). In [A.N. Deringer, Inc. v. United
States]{.underline}, 51 Cust. Ct. 21 (1963), the United States Customs
Court ruled on a situation where CBP had assessed marking duties without
issuing a marking notice to the importer. In that case, the plaintiff
argued that there was no liability for special marking duties unless and
until the collector issued notice on a CF 4647. The court held that the
notice provided by a CF 4647 is not a condition precedent to marking
duty liability. The court stated that if \"imported merchandise of
foreign origin is...not marked, and not exempted, and if in such case
the merchandise is not destroyed or exported under customs supervision,
the marking duties may not be remitted or avoided for any cause. That is
the law as Congress enacted it.\" CBP has also addressed this question
and followed [Deringer]{.underline} in HQ 734103, dated April 13, 1992,
and HRL 559717, dated December 22, 1997. In other words, based on the
decision in [Deringer]{.underline}, we have ruled that there is no
requirement that a CF 4647 must be

issued in order to impose marking duties. See also HQ 562048 dated July
11, 2002. Therefore, we find that CBP's failure to issue a marking
notice in this case does not preclude the assessment of marking duties.

As previously explained, since at the time of their importation, the
boxes of imported garland light sets were marked Canada instead of
China, the pine garland light sets were not legally marked to indicate
their country of origin. In addition, there is no evidence in the record
to show that the garland light sets were subsequently, exported,
destroyed or remarked under CBP supervision prior to liquidation of the
entries. Consequently, the evidence presented in the record establishes
that the two basic prerequisites for imposing marking duties on the
shipments of imported merchandise are present in this case. Therefore,
in this case we find that marking duties were properly assessed.

HOLDING:

In this case, the country of origin of the pine garland light sets under
the NAFTA marking rules is China. Therefore, the pine garland light sets
should have been marked to indicate that their country of origin was
China. In this instance, since the goods were not legally marked with
their country of origin at the time of their importation, and they were
not subsequently exported, destroyed, or remarked under CBP supervision
prior to liquidation of the entries, the assessment of marking duties of
ten percent against the entries was proper.

Therefore, you are directed to DENY the protest in full. In accordance
with the Protest/Petition Processing Handbook, (CIS HB, January 2002, pp
18 and 21), you are to mail this decision, together with the CF19, to
the protestant no later than 60 days from the date of this letter. Any
reliquidation of the entry in accordance with the decision must be
accomplished prior to mailing the decision. Sixty days from the date of
the decision the Office of Regulations and Rulings will make the
decision available to CBP personnel and to the public on the CBP Home
Page on the World Wide Web at www.cbp.gov, by means of the Freedom of
Information Act and other methods of public distribution.

> Sincerely,
>
> Myles B. Harmon, Director
>
> Commercial and Trade Facilitation Division