CLA-2 CO:R:C:S 557386 MLR
Denise L. Kelly, Esq.
Sandler, Travis & Rosenberg, P.A.
The Waterford
5200 Blue Lagoon Drive
Miami, Florida 33126-2022
RE: Applicability of partial duty exemption under HTSUS
subheading 9802.00.80 to garments from Mexico; embroidery
Dear Ms. Kelly:
This is in response to your letter of June 2, 1993,
requesting a ruling on behalf of your client, Champion Products,
Inc. ("Champion"), regarding the applicability of subheading
9802.00.80, Harmonized Tariff Schedule of the United States
(HTSUS), to an embroidery operation performed on garment
components assembled in Mexico and/or other Caribbean locations.
A sample sweatshirt component was submitted with your request.
FACTS:
Champion plans to ship U.S.-origin cut components, including
thread and pellon backing to off-shore facilities in Mexico
and/or other Caribbean locations for assembly into various
garments, such as shorts and T-shirts. Certain garment
components will be embroidered before they are assembled to other
components. The embroidery process will consist of the following
operations:
1. U.S.-origin thread is used to machine embroider the
"Champion" logo or a selected design onto two layers of
components. The top layer will consist of a knit
fabric cut component. The bottom layer will be two
3 1/2 inch x 6 1/2 inch of pellon backing.
2. Pellon backing that is not joined to the knit fabric by
the thread is perforated during the embroidery process
in such a way that this non-essential backing material
is pulled off by hand.
ISSUE:
Whether the garments subjected to the embroidery operation
will qualify for the partial duty exemption available 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:
[a]rticles 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 cost or value of the imported 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 10.14(a), Customs Regulations {19 CFR 10.14(a)},
states in part that:
[t]he components must be in condition ready for
assembly without further fabrication at the time of
their exportation from the United States to qualify for
the exemption. Components will not lose their
entitlement to the exemption by being subjected to
operations incidental to the assembly either before,
during, or after their assembly with other components.
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,
lamination, sewing, or the use of fasteners.
Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the
assembly operations. See 19 CFR 10.16(a). However, any
significant process, operation or treatment whose primary purpose
is the fabrication, completion, physical or chemical improvement
of a component precludes the application of the exemption under
subheading 9802.00.80, HTSUS, to that component. See 19 CFR
10.16(c).
This ruling will only address the embroidery operation. For
purposes of this ruling, we will assume that the garments
otherwise qualify for subheading 9802.00.80, HTSUS, treatment.
In Headquarters Ruling Letter (HRL) 555625 dated August 1990,
U.S.-origin thread, knit fabric, and pellon backing were shipped
to Mexico for an embroidery operation. The pellon backing was
considered necessary to the embroidery operation because, without
the backing, the thread would become entangled in the embroidery
machine, making the embroidery operation impossible. The pellon
backing also prevented the embroidery stitch from unraveling.
After the design was complete, the portion of the pellon backing
not caught between the material and embroidered thread was
removed. Based upon C.S.D. 90-28, 24 Cust. Bull. 346 (1990),
(HRL 555399 dated December 26, 1989), which held that an
embroidered design which penetrated two or three layers of fabric
was an acceptable assembly operation, the embroidery operation in
HRL 555625 was also found to be acceptable because the embroidery
stitch was used to join the knit fabric and the pellon backing
together. In C.S.D. 90-28, the embroidered design served as a
binding agent, as it penetrated two or three layers of a slipper
vamp and served to keep the center of the vamp from puckering.
See, L'Eggs Products Inc. v. United States, 704 F. Supp. 1127
(CIT 1989), which held that thread used as a binding agent to
join material to itself qualified as a component and was eligible
for the duty exemption available under subheading 9802.00.80,
HTSUS.
In HRL 555565 dated May 14, 1990, we considered the
embroidery of a logo onto beach towels. This operation was not
considered an acceptable assembly operation because we have
previously held that embroidering a single layer of fabric does
not qualify as an acceptable assembly operation for purposes of
subheading 9802.00.80, HTSUS. See HRL 063098 dated June 7, 1979,
and 071031 dated November 12, 1982.
In the present case, if a pellon backing is used, the
embroidery operation will be used to join the garment components
and the pellon backing together, which is an acceptable assembly
operation as in HRL 555625. Therefore, the embroidery operation
will not prevent the knit fabric components and the thread from
receiving duty allowances under subheading 9802.00.80, HTSUS.
However, as you indicated in your ruling request, HRL 555625
determined that the pellon backing was not eligible for the duty
allowance upon import into the U.S., because nearly all of the
pellon backing was removed after the assembly operation.
(Section 10.16(b)(4), Customs Regulations {19 CFR 10.16(b)(4)},
considers trimming, filing, or cutting off of small amounts of
excess material to be incidental operations.) Because the
removal of the backing in HRL 555625 was too significant an
operation to be considered incidental and was not an assembly
operation, the cost or value of the pellon backing was not exempt
from duty under subheading 9802.00.80, HTSUS. Therefore, if the
pellon backing is removed as in HRL 555625, it will not be
eligible for the duty allowance under this tariff provision.
HOLDING:
On the basis of the information and sample submitted, the
embroidery operation used to join the garment components and the
pellon together is considered an acceptable assembly operation.
However, the removal of the pellon backing is not incidental to
the embroidery operation. Therefore, the garments subjected to
the embroidery operation may be entered under subheading
9802.00.80, HTSUS, with allowances in duty for the cost or value
of the U.S. components (except the pellon backing), provided the
documentary requirements of 19 CFR 10.24 are satisfied and the
garments otherwise qualify for subheading 9802.00.80, HTSUS,
treatment.
In your letter you also requested that the sample garment
component be returned. Customs normally retains samples unless
arrangements are made for their return. See 19 CFR 177.2(b)(3).
Please contact Monika Rice at (202) 482-6980, if you wish to make
these arrangements.
Sincerely,
John Durant, Director
Commercial Rulings Division