Uniroyal, Inc. v. United States, Court No. 82-3-00404.

• Decision Date: 10 June 1982
• Docket Number: Court No. 82-3-00404.
• Citation: 3 CIT 220,542 F. Supp. 1026
• Parties: UNIROYAL, INC., Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Court of International Trade

542 F. Supp. 1026

3 CIT 220

UNIROYAL, INC., Plaintiff, v. UNITED STATES, Defendant.

Court No. 82-3-00404.

United States Court of International Trade.

June 10, 1982.

Barnes, Richardson & Colburn, New York City (Andrew P. Vance and Richard Haroian, New York City, at the trial and on the brief), for plaintiff.

J. Paul McGrath, Asst. Atty. Gen., Washington, D. C., Joseph I. Liebman, Attorney in Charge, Commercial Litigation Branch, New York City (Barbara M. Epstein, New York City, at the trial and on the brief), for defendant.

MALETZ, Judge.

Footwear uppers consisting of complete shoes except for an outsole are manufactured by plaintiff in Indonesia and imported by it into the United States. After importation, plaintiff sells the uppers to the Stride-Rite Co., which completes the manufacturing process by attaching pre-shaped outsoles to the uppers and then markets the finished shoes to retail establishments.

This case involves 82 pairs of footwear uppers of the type specified above which plaintiff manufactured in Indonesia from leather and other materials of United States origin. Plaintiff sought to import these uppers and sell them to Stride-Rite so that it could attach the outsoles and market the completed shoes in accordance with its normal practice. However, on January 26, 1982, the uppers were excluded from entry when the Customs Service refused to permit them to be withdrawn from the warehouse for consumption on the ground that they were not marked with the country of origin as required by section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304). Given these considerations, the question is whether Stride-Rite is the ultimate purchaser of the imported uppers so as to exempt them from the country of origin marking requirements. This in turn depends on whether the manufacturing process in which Stride-Rite attaches the outsoles to the imported uppers effects a "substantial transformation" of the uppers.

The Statute and Regulations

Section 304(a)(3)(H) of the Tariff Act of 1930, as amended (19 U.S.C. 1304(a)(3)(H)), provides:

(a) Except as hereinafter provided, every article of foreign origin (or its container, as provided in subsection (b) hereof) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit 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. The Secretary of the Treasury may by regulations —

* * * * * *

(3) Authorize the exception of any article from the requirements of marking if —

* * * * * *

(H) An ultimate purchaser, by reason of the character of such article or by reason of the circumstances of its importation, must necessarily know the country of origin of such article even though it is not marked to indicate its origin;

Section 134.1(d) of the Customs Regulations (19 C.F.R. 134.1(d)) provides in pertinent part:

(d) Ultimate Purchaser. The "ultimate purchaser" is generally the last person in the United States who will receive the article in the form in which it was imported. It is not feasible to state who will be the "ultimate purchaser" in every circumstance. The following examples may be helpful:

(1) If an imported article will be used in manufacture, the manufacturer may be the "ultimate purchaser" if he subjects the imported article to a process which results in a substantial transformation of the article, even though the process may not result in a new or different article.

(2) If the manufacturing process is merely a minor one which leaves the identity of the imported article intact, the consumer or user of the article, who obtains the article after the processing, will be regarded as the "ultimate purchaser."

Section 134.35 of the Customs Regulations (19 C.F.R. 134.35) provides:

Articles substantially changed by manufacture.

An article used in the United States in manufacture which results in an article having a name, character, or use differing from that of the imported article, will be within the principle of the decision in the case of United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (C.A.D. 98). Under this principle, the manufacturer or processor in the United States who converts or combines the imported article into the different article will be considered the "ultimate purchaser" of the imported article within the contemplation of section 304(a), Tariff Act of 1930, as amended (19 U.S.C. 1304(a)), and the article shall be excepted from marking. The outermost containers of the imported articles shall be marked in accord with this part.

The Facts

As indicated previously, except for the absence of an outsole, the upper in its condition as imported is a complete shoe. Thus in its condition as imported, the upper has been substantially transformed in Indonesia from sheets of leather into a substantially complete shoe. And having been "lasted" in Indonesia the upper has already attained its ultimate shape, form and size.¹ In appearance, the upper resembles a moccasin² save that it has a stitched seam, and roughing on the bottom to facilitate the attachment of the outsole. Because of these latter characteristics, the upper is not marketable at retail as a complete shoe.

Prior to exportation to the United States, the uppers are packed in cartons which are marked "Made in Indonesia." However, the uppers themselves are not marked with the country of origin.

Subsequent to importation into the United States, plaintiff sells the uppers to Stride-Rite in the cartons marked "Made in Indonesia." Stride-Rite then attaches pre-shaped and pre-sized outsoles to the uppers, cleans and polishes the uppers, and thereafter sells the completed shoes to retail stores under the trade name "Sperry Topsiders."

In the process of attaching the outsole to the upper, Stride-Rite relasts the leather upper, applies cement to the bottom of the upper to provide a temporary bond for the outsole, temporarily bonds the outsole to the upper by an outsole press, removes the last, and then attaches the outsole to the upper by stitching on a "Littleway" machine.

The purpose of relasting — which consists of reinserting a last into the previously completed and lasted upper — is not to give the upper shape, form or size. Rather, it is to hold the upper steady and so facilitate the alignment and temporary cementing of the outsole to the upper. Relasting, though convenient, is not necessary to the attachment of the outsole to the upper inasmuch as hand pressure alone is sufficient to press the upper and outsole together to provide a temporary bond.

The process of combining the uppers to the outsoles is significantly less time consuming than the process of manufacturing the upper. Thus the record shows that it takes more than eight times the amount of time to manufacture the upper than to attach the outsole to the upper. In this connection, a time study shows that it takes some four hours to manufacture twelve pairs of uppers similar to the imported merchandise whereas only one-half hour is required to attach twelve pairs of uppers to the outsoles.

The process of combining the uppers to the outsoles is also significantly less costly than the process of manufacturing the upper, with the record indicating that the cost of direct labor in the manufacture of the upper is about eight times greater than the cost of the direct labor required to attach the outsole to the upper. Also, the cost to Stride-Rite for the imported upper is significantly greater than the cost of the outsole.

In addition, manufacture of the upper requires at least five highly skilled operations including cutting the leather, skiving,³ stitching the collar, setting up the hand lasting and hand sewing the upper. In contrast, the only highly skilled operation necessary in combining the upper and outsole is the Littleway stitching.⁴

Opinion

Section 304 of the Tariff Act of 1930, as amended, requires that with certain specified exceptions, every article of foreign origin imported into the United States be marked with its country of origin in such a manner that its ultimate purchaser in the United States will be aware of the country of origin. The legislative purpose of this enactment, as explained by Chief Judge Re, was "to enable the `ultimate purchaser' of the goods to decide for himself whether he would `buy or refuse to buy them'." Globemaster, Inc. v. United States, 68 Cust.Ct. 77, 80, C.D. 4340, 340 F.Supp. 974, 976 (1972). Emphasis added. See also The Tariff Law — No Option to Import Without Marking, 12 Colum. Journal of Transnational Law 596 (1973).

Given the statute and its legislative purpose, plaintiff contends that the uppers are not required to be marked — this on the asserted basis that Stride-Rite is the ultimate purchaser of the uppers within the meaning of section 304(a)(3)(H) of the Tariff Act of 1930, as amended (19 U.S.C. 1304(a)(3)(H)). Stride-Rite, plaintiff argues, is the ultimate purchaser because it allegedly effects a substantial transformation of the uppers into new articles having a different name, character and use, i.e., shoes.

Under the Customs Regulation quoted previously (19 C.F.R. 134.1(d)), the "ultimate purchaser" is described generally as "the last person in the United States who will receive the article in the form in which it was imported." That regulation further provides that "it is not feasible to state who will be the `ultimate purchaser' in every circumstance" but that certain specified examples "may be helpful." Two such examples listed in the regulation are applicable here. The first (19 C.F.R. 134.1(d)(1)) states that "if an imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation of the article, even though the process may not result in a new or different ar...