CLA-2 RR:CR:SM 560637 KSG
Port Director
Nogales, Arizona
RE: Application for Further Review of Protest No. 2604-97-100011;
19 CFR 10.25
Dear Sir:
This is in reference to your memorandum dated August
28, 1997, forwarding an Application for Further Review of
Protest No. 2604-97-100011 timely filed by Atlas
International Contract Sewing, Inc., concerning the
eligibility for a partial duty exemption under subheading
9802.00.80, Harmonized Tariff Schedule of the United States
("HTSUS"), of sunglass bags. Two samples of the sunglass
bags were submitted for our review.
FACTS:
The merchandise in question are two types of nylon bags
used to contain and protect a pair of sunglasses. The
origin of the nylon fabric is Japan. The first bag is a
rounded bag assembled in Mexico from components cut in the
U.S. into a shape that is straight on one edge and rounded
on the other three sides. The second bag is assembled in
Mexico from components cut in the U.S. into a rectangular
form.
ISSUE:
Whether the nylon fabric components assembled in Mexico
into sunglass bags are eligible for the duty allowance under
subheading 9802.00.80, HTSUS.
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 U.S., 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 articles, less the cost or value of the
U.S. component assembled therein, upon compliance with the
documentary requirements of 19 CFR 10.24.
Section 10.14(a), Customs Regulations (19 CFR
10.14(a)), states in part that the components must be in
condition ready for assembly without further fabrication at
the time of their exportation from the U.S. to qualify for
the exemption. Components will not lose their entitlement
to the exemption by being subject 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, laminating, 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. 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
HTSUS subheading 9802.00.80 to that component. See 19 CFR
10.16(c).
On December 8, 1994, the President signed into law the
Uruguay Round Agreements Act. Section 334 of that Act
(codified at 19 U.S.C. 3592) provides new rules of origin
for textiles and apparel entered, or withdrawn from
warehouse, for consumption, on or after July 1, 1996. On
September 5, 1995, Customs published Section 102.21, Customs
Regulations (19 CFR 102.21), in the Federal Register,
implementing section 334 (60 FR 46188). Thus, effective
July 1, 1996, the country of origin of textile or apparel
products are determined by sequential application of the
general rules set forth in paragraphs (c)(1) through (5) of
Section 102.21.
Section 334(b)(4)(A) of the Uruguay Round Agreements
Act,
19 U.S.C. 3592(b)(4)(A), provides that:
the value of a component that is cut to shape (but not
to
length, width, or both) in the U.S. from foreign fabric
and
exported to another country, territory, or insular
possession
for assembly into an article that is then returned to
the U.S.-
(i) shall not be included in the dutiable value of
such article ...
The effect of 19 U.S.C. 3592(b)(4) is to preserve the
tariff treatment afforded by subheading 9802.00.80, HTSUS,
that otherwise would no longer be available under the
section 334 origin rules since cutting the fabric in the
U.S. will no longer result in the cut fabric being
considered a "product of" the U.S.
Section 10.25, Customs Regulations (19 CFR 10.25),
implements
19 U.S.C. 3592(b)(4), and incorporates by reference the same
operational, valuation, and documentation requirements
applicable to goods entered under subheading 9802.00.80,
HTSUS. Therefore, imported goods entitled to a duty
allowance under 19 CFR 10.25 are to be entered under
subheading 9802.00.80, HTSUS, and , solely for purposes of
calculating the duty allowance under this subheading,
Customs will treat the textile components cut to shape in
the U.S. from foreign fabric as if they were "U.S.
fabricated components."
The issue in this case is whether the processing of the
foreign-origin nylon fabric in the U.S. for the two bags
satisfies the requirements of 19 CFR 10.25 so that a
reduction in the dutiable value of the bag will include an
allowance for the cost or value of the nylon fabric
components.
With regard to the rounded bag, the fabric is cut in
the U.S. into a figure eight on one side and a straight
line on the other side. With regard to the rectangular bag,
the fabric is cut in the U.S. into a rectangular form.
The processing in the U.S. of the foreign fabric to
create the rounded bag components meets the requirements
under 19 CFR 10.25 as it involves cutting the fabric to
shape. Therefore, we find that the cost or value of the
Japanese-origin fabric components may be excluded from the
appraised value of the rounded sunglasses bag.
The processing of the foreign fabric in the U.S. to
create the rectangular bag components, which includes
cutting the fabric to length and width, does not meet the
requirements under 19 CFR 10.25 because this provision
specifically excludes from entitlement textile components
which are cut to length, width, or both in the U.S. This
case is similar to HRL 560380, dated June 17, 1997, in which
Customs held that fabric slit to width to make sweat bands
did not meet the requirements under 19 CFR 10.25.
Accordingly, the cost or value of the Japanese-origin
rectangular fabric components may not be excluded from the
appraised value of the sunglass bag.
HOLDING:
An allowance in duty is permitted pursuant to
subheading 9802.00.80, HTSUS, for the Japanese origin fabric
components used for the rounded sunglass bag because the
textile component satisfies the requirements of 19 CFR
10.25.
An allowance in duty pursuant to subheading 9802.00.80,
HTSUS, is not permitted for the Japanese origin fabric
components used for the rectangular sunglass bag, because
the textile component does not satisfy the cut to shape
requirements under 19 CFR 10.25. This protest should be
granted in part and denied in part in accordance with this
decision.
In accordance with Section 3A(11)(b) of Customs
Directive 099 3550-065, dated August 4, 1993, Subject:
Revised Protest Directive, this decision together with the
Customs Form 19, should be mailed by your office 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 of the
decision. Sixty days from the date of the decision the
Office of Regulations and Rulings will take steps to make
the decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Services, Lexis, Freedom of Information Act and
other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division