CLA-2 CO:R:C:S 556461 RA
Mr. Don C. Rudy
Vice President
Easy Products, Inc.
P.O. Box 27157
Salt Lake City, Utah 84127-0157
RE: Applicability of partial duty exemption to textile lunch,
shopping and tote bags assembled in Central America
Dear Mr. Rudy:
This is in response to your letters of October 9, and November
12, 1991, to our New York office, and a letter to this office dated
December 20, 1991, requesting a ruling on the applicability of
subheading 9802.00.80, Harmonized Tariff Schedule of the United
States (HTSUS), to textile lunch, shopping and tote bags to be
assembled in Central America, probably El Salvador, from fabric of
U.S. and foreign origin. Also considered in connection with this
case was additional information which you provided to members of my
staff by telephone.
FACTS:
You state that your company purchases nylon, canvas and cotton
netting fabrics in rolls from U.S. suppliers. The nylon and canvas
fabrics are imported by the U.S. suppliers from Taiwan, while the
cotton netting fabric is made in the U.S. Also purchased are
polypropylene handles and wash tags of U.S. origin and hook and
loop strips, cotton edge binding, and thread of U.S. or foreign
origin. In the U.S., the rolls of fabric are cut to length and
width to create large rectangular pieces which comprise the main
body of each bag. Eight small notches are also cut into the canvas
and nylon pieces for use as guides in the final assembly operation,
and four holes are drilled in the canvas piece to identify the
location of the pocket and four holes are drilled into the nylon
piece to identify the location of the hook and loop strip. Your
company's logo, "Reesaq", is also silk-screened onto the
rectangular fabric pieces. You state that the cutting and printing
operations add 54% to the value of the fabric. The hook and loop
strips, which are purchased in 25-yard lengths, are cut to length
in the U.S. into pieces 2 inches long.
The cut fabric components and the other components are then
exported to a Central American country where they are joined
together by sewing to create the three types of bags.
ISSUE:
Whether the assembled bags are entitled to the partial duty
exemption under subheading 9802.00.80, HTSUS, when returned to the
U.S.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
Articles assembled abroad in whole or in part of fabricated
components, the product of the United States, which (a) were
exported in condition ready for assembly without further
fabrication, (b) have not lost their physical identity in
such articles by change in form, shape, or otherwise, and
(c) have not been advanced in value or improved in condition
abroad except by being assembled and except by operations
incidental to the assembly process such as cleaning,
lubricating, and painting.
All three requirements of subheading 9802.00.80, HTSUS, must
be satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty upon
the full appraised value of the assembled article less the cost or
value of the U.S. components assembled therein, upon compliance
with the documentary requirements of section 10.24, Customs
Regulations (19 CFR 10.24).
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering riveting, force fitting, gluing, laminating,
sewing, or the use of fasteners.
For a component to receive a duty allowance under subheading
9802.00.80, HTSUS, it must be a "product of the U.S." According to
section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a "product
of the U.S." is an article manufactured within the customs
territory of the U.S. and may consist wholly of U.S. components or
materials, of U.S. and foreign components or materials, or wholly
of foreign components or materials. If the article consists wholly
or partially of foreign components or materials, the manufacturing
process must be such that the foreign components or materials have
been substantially transformed into a new and different article, or
have been merged into a new and different article.
Section 12.130, Customs Regulations (19 CFR 12.130), sets
forth the principles for determining the country of origin of
textiles and textile products subject to section 204 of the
Agricultural Act of 1956, as amended (7 U.S.C. 1854). These
principles are applicable to such merchandise for all purposes
including duty, quota and marking.
Pursuant to 19 CFR 12.130, the standard of substantial
transformation governs the determination of the country of origin
where textiles and textile products are processed in more than one
country. The country of origin of textile products is deemed to be
that foreign territory, country or insular possession where the
article last underwent a substantial transformation. A substantial
transformation is said to occur when the article has been
transformed into a new and different article of commerce by means
of substantial manufacturing or processing operations.
The primary issue presented in this case concerns whether the
cutting, drilling and silk-screening operations performed in the
U.S. on the foreign-origin nylon and canvas fabrics substantially
transform the fabrics into "products of the United States."
According to 19 CFR 12.130(e)(iv), a textile article usually will
be a product of a particular country if the cutting of the fabric
into parts and the assembly of those parts into the completed
article has occurred in that country. However, 19 CFR
12.130(e)(2)(ii) states that a material usually will not be
considered to be a product of a particular country by virtue of
merely having undergone cutting to length or width and hemming or
overlocking fabrics which are readily identifiable as being
intended for a particular commercial use.
Customs has held under certain circumstances that cutting of
fabric to defined shapes or patterns which dedicate the article to
a particular use will result in a substantial transformation. See
Headquarters Ruling Letter (HRL) 731028 dated July 18, 1988
(cutting of fabric into garment parts for wearing apparel
constitutes a substantial transformation); HRL 555489 dated May 14,
1990 (cutting of fabric into glove pattern pieces results in a
substantial transformation); and HRL 555693 dated April 15, 1991
(cutting of fabric to create pattern pieces for infant carriers
results in a substantial transformation).
However, we have held that cotton surgical cloth woven in one
country and cut to both length and width and hemmed on all four
sides in a second country was not substantially transformed
in the second country. See HRL 733601 dated July 26, 1990, and HRL
555719 dated November 5, 1991. Similarly, we held in HRL 083544
dated February 28, 1990, that material cut to both length and width
and hemmed to be made into towels and dishcloths was not
substantially transformed. See, also, HRL 733600 dated November
16, 1990 (cloth cut and hemmed on all four sides to make napkins
and table cloths was not substantially transformed). These
holdings were based upon our determination that the processing
operations were not substantial and that the cloth, before the
cutting and hemming operations, had limited potential uses and,
therefore, was readily identifiable as being intended for
particular commercial uses.
In the instant case, the cutting and drilling operations
performed on the imported nylon and canvas fabric are more
analogous to the cited rulings involving the cutting of fabric to
specific shapes or patterns for garments, gloves, etc. Unlike the
fabric for surgical towels, napkins and table cloths, the imported
fabric in this case has numerous uses and possesses nothing in its
character which indicates the main body of a bag or sack. However,
after the nylon and canvas fabric is cut to length and width, eight
small notches are cut into the fabric, and four holes are drilled
to identify the location of components to be attached later (and
the company's logo is printed onto the fabric), the cut fabric
piece clearly is dedicated to its use as the main body of a lunch
or grocery sack. Moreover, as the cutting, drilling and silk-screening operations add more than 50% to the value of the fabric,
we conclude that, together, these processes constitute a
substantial manufacturing or processing operation. Therefore, the
cutting, drilling and silk-screening will substantially transform
the foreign nylon and canvas fabrics into "products of the United
States."
However, the other materials which may be of foreign origin,
including the hook and loop strips and cotton edge binding, which
are merely cut to smaller lengths in the U.S. will not be
substantially transformed into "products of the United States."
Therefore, as the operations performed abroad to create the
finished textile bags involve merely assembling the various
components together by sewing, allowances in duty may be made under
subheading 9802.00.80, HTSUS, for the cost or value of the nylon,
canvas and cotton netting components, as well as other components
which are of U.S. origin, upon return of the assembled bags. No
allowances may be made for the cost or value of hook and loop
strips, cotton edge binding and thread of foreign origin.
The cotton netting tote bag and the canvas shopping bag are
classifiable in subheading 4202.92.1500, HTSUS, dutiable at the
rate of 7.2% ad valorem, while the nylon lunch bag is classifiable
in subheading 4202.92.3030, HTSUS, dutiable at the rate of 20% ad
valorem.
HOLDING:
Based on the information submitted, the cutting, drilling and
silk-screening operations performed in the U.S. on the imported
nylon and canvas fabrics will substantially transform the fabrics
into "products of the U.S." Therefore, when the bags are assembled
abroad by sewing and returned to the U.S., allowances in duty may
be made under subheading 9802.00.80, HTSUS, for the cost or value
of the cotton netting, nylon, and canvas fabric components and
other components of U.S. origin, assuming compliance with the
documentation requirements of 19 CFR 10.24. No allowances may be
under this tariff provision for the cost or value of the hook and
loop strips, cotton edge binding and thread of foreign origin.
Sincererly,
John Durant, Director
Commercial Rulings
Division