CLA-2 CO:R:C:T 089230 PR

Mr. Michael J. DeFrancesco
Franco Manufacturing Co., Inc.
555 Prospect Street
Metuchen, New Jersey 08840-2293

RE: Country of Origin of Bed Sheets

Dear Mr. DeFrancesco:

This is in reply to your letter of April 16, 1991, concerning the country of origin of certain bed sheets.

FACTS:

The bed sheets in question are either 55 percent cotton and 45 percent polyester, or 100 percent cotton flannel. They are manufactured as follows:

CHINA--the greige fabric is produced and sent to Hong Kong.

HONG KONG--the fabric is scoured, bleached, printed, napped (cotton fabric only), and preshrunk. It is then sent to the Philippines.

PHILIPPINES--the fabric is cut, hemmed, and packaged for export to the United States.

The following cost percentages for the direct processing done in each country were submitted:

55/45 Cotton/Poly Cotton Flannel

China 43.85 44.00

Hong Kong 26.30 26.70

Philippines 5.85 5.85

These percentages do not include sales commissions, finance charges, packaging expenses, or freight charges.

We understand that a shipment of this merchandise was imported in September, 1990. It was not allowed entry because a visa issued by the Government of the Philippines was presented and Customs officials at the port of entry (not indicated in the incoming correspondence) apparently determined that the Philippines was not the country of origin for tariff purposes. As a result, the merchandise has been in bond since the date of importation pending production of a proper visa.

ISSUE:

At issue here is the determination of the country of origin of the subject merchandise.

LAW AND ANALYSIS:

Section 12.130, Customs Regulations (19 CFR 12.130) provides, in pertinent part, as follows:

(b) Country of origin. For the purpose of this section * * * a textile or textile product, subject to section 204, Agricultural Act of 1956, as amended, imported into the customs territory of the United States shall be a product of a particular foreign territory or country, or insular possession of the U.S., if it is wholly the growth, product, or manufacture of that foreign territory or country, or insular possession. However, * * * a textile or textile product, subject to section 204, which consists of materials produced or derived from, or processed in, more than one foreign territory or country, or insular possession of the U.S., shall be a product of that foreign territory or country, or insular possession where it last underwent a substantial transformation. A textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce.

* * *

(d) Criteria for determining country of origin. The criteria in paragraphs (d)(1) and (2) of this section shall be considered in determining the country of origin of imported merchandise. These criteria are not exhaustive. One or any combination of criteria may be determinative, and additional factors may be considered.

(1) A new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in: (i) Commercial designation or identity, (ii) Fundamental character or (iii) Commercial use. (2) In determining whether merchandise has been subjected to substantial manufacturing or processing operations, the following will be considered: (i) The physical change in the material or article as a result of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (ii) The time involved in the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (iii) The complexity of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (iv) The level or degree of skill and/or technology required in the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (v) The value added to the article or material in each foreign territory or country, or insular possession of the U.S., compared to its value when imported into the U.S. (e) Manufacturing or processing operations. (1) An article or material usually will be a product of a particular foreign territory or country, * * * when it has undergone prior to importation into the U.S. in that foreign territory or country * * * any of the following: (i) Dyeing of fabric and printing when accompanied by two or more of the following finishing operations: bleaching, shrinking, fulling, napping, decating, permanent stiffening, weighting, permanent embossing, or moireing. * * *

In accordance with the requirements of 12.130, it does not appear that any of the processing which the fabric was subjected to after it was formed in China amounted to a substantial transformation. The Customs Service has consistently held that in order to comply with 12.130(2)(e)(i), a fabric must be both dyed and printed, as well as being subjected to the other required processing.

This interpretation of 12.130 was upheld by the United States Court of International Trade in Mast Industries Inc. v. United States, 652 F. Supp. 1531 (1987); aff'd 822.F. 2d 1069 (CAFC, 1989). That case involved greige cotton fabric produced in China and sent to Hong Kong for singeing, desizing, scouring, bleaching, mercerizing, dyeing, softening, and tentering. The court stated that in determining the meaning of a agency's regulation, it would defer to that agency's interpretation unless the interpretation is plainly erroneous or inconsistent with the regulation. The court found that Customs's interpretation was reasonable and approved of Customs denying entry to the finished fabric without a visa from the Government of China.

The cutting and sewing performed in the Philippines is not considered to be substantial processing within the purview of 12.130(d)(2). It does not require much time; the processing operations are not complex and do not require a high degree of skill or technology (particularly when compared to the forming of the fabric in China); and the value added to the fabric is relatively small. This is in accord with prior rulings of the Customs Service on the country of origin of bed sheets. ( e.g. HRL 086523, dated April 25, 1990).

HOLDING:

On the basis of the above, the processing performed after the fabric was formed in China failed to constitute a substantial transformation of that fabric. As a result, in accordance with 12.130(b), China is the country of origin of the bed sheets.

Section 177.9(b)(1), Customs Regulations (19 CFR 177.9 (b)(1), states that a ruling is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. Accordingly, the holding set forth above applies only to the specific factual situation and the merchandise identified in the ruling request. Should it subsequently be determined that the information furnished is not complete and does not comply with 19 CFR 177.9(b)(1), the ruling will be subject to modification or revocation. If there is a change in the facts furnished, the holding in this ruling may be affected. In such an event, it is recommended that a new ruling request be submitted in accordance with Section 177.2, Customs Regulations (19 CFR 177.2).

Sincerely,

John Durant, Director
Commercial Rulings Division