CLA 2 RR:CR:SM 560883 MFC
Port Director
San Diego, California
RE: Application for Further Review of Protest No. 2501-97-100065; 19 CFR §10.25; pouches for sunglasses
Dear Sir:
This is in reference to the above-referenced Protest and Application for Further Review, which you forwarded to us. The Application for Further Review was timely filed by Brandon International (“Brandon”), and concerns the eligibility of pouches for sunglasses for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”). A pattern which is used by a computer driven cutting machine was submitted for our review. Subsequently, samples of the pattern and material in various stages of production, as well as the final sunglasses pouch, were provided.
On December 17, 1998, Customs attorneys met with counsel for Brandon to discuss the Application for Further Review.
FACTS:
The merchandise in question consists of two different sizes of drawstring pouches used individually to contain and protect a pair of sunglasses. Brandon purchases bolts of fabric in Japan which are imported into the U.S. where the bolts are cut into squares following a computer generated pattern. The larger pouches are created from fabric components cut into 15 x 15 inch squares and the smaller pouches are created from fabric components cut into 12 x 12 inch squares. The cut components include two quarter inch slits, roughly one and a half inches apart on one side of the cut fabric squares. Brandon calls these slits “notches” and deems them an integral feature necessary to fabricate the drawstring pouches. The slits in no way change the shape of the fabric and no fabric is removed by cutting the slits. The fabric components and other components used in the final assembly process are exported to Mexico where they are joined by folding and sewing the fabric, sewing the label, and inserting the drawstring. Protestant states that the slits are made to indicate the location of the label.
ISSUE:
Whether the fabric components assembled in Mexico into pouches for sunglasses 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 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 imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation 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 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).
Section 334 of the Uruguay Round Agreements Act, codified at 19 U.S.C. §3592, provided new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption on or after July 1, 1996. Customs regulations which implement the statute and determine the country of origin of textile or apparel products are published at 19 CFR §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 United States from foreign fabric and exported to another country, territory, or insular possession for assembly into an article that is then returned to the United States --
(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. Otherwise, the section 334 origin rules and Customs regulations (19 CFR §102.21) do not consider that cutting foreign fabric to shape in the U.S. results in a “product of” the U.S.
Section 10.25, Customs Regulations (19 CFR §10.25), implements this provision 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.” See 19 CFR §10.11.
The issue in this case is whether the processing of the foreign fabric in the U.S. for the two different sizes of pouches satisfies the requirements of 19 CFR §10.25 so that the cost or value of the fabric components will be allowed as a reduction in the dutiable value of the pouch.
In this case, the fabric components of both pouches are cut in the U.S. into square forms, which differ only with regard to the size of the square. The processing of the foreign fabric in the U.S., which involves cutting the fabric to length and width, does not meet the requirements of 19 CFR §10.25 because this provision only permits a duty allowance for components cut to shape in the U.S. from foreign fabric. This provision specifically excludes from entitlement to a duty allowance textile components which are cut to length, width, or both in the U.S.
Brandon argues that the imported foreign fabric was cut to shape in the U.S. into “the final configurations of the subject drawstring bags...” and that components were “solely dedicated to completion as drawstring pouches....” Brandon refers to the slits in the fabric as “notches” and deems them an integral feature necessary to fabricate the drawstring pouches. However, these slits in no way change the shape of the fabric pieces, which remain square. No fabric is removed by cutting the slits and when the cut component is laid flat, the slits are not noticeable. Brandon additionally argues that if the cut components arrived in U.S. in the same condition in which they are exported (i.e. cut into squares), they would be classified in heading 6307, HTSUS, and not as fabric. However, the classification of the cut square components is irrelevant to a determination of whether the cutting process in this case satisfies the requirements of 19 CFR §10.25.
In Headquarters Ruling Letter (“HRL”) 560637 (December 22, 1997), Customs examined a similar situation in which the importer claimed an exemption for fabric components used to make bags for sunglasses. In that case, there were two different shapes of bags at issue. One was made from foreign fabric that was cut in the U.S. to create three rounded edges and one straight edge while the other bag was made from foreign fabric cut in the U.S. into a rectangular form. Customs permitted a duty allowance for the bag assembled from the rounded material, finding that the fabric had been cut to shape in the U.S. and therefore met the requirements of section 10.25. However, no duty exemption was permitted for the bag assembled from the rectangular fabric component because the fabric had only been cut to length and width, and not to shape, and therefore was not entitled to the exemption.
HOLDING:
No allowance in duty pursuant to subheading 9802.00.80, HTSUS, is permitted for the Japanese origin fabric components used for the rectangular pouch for sunglasses because the textile components do not satisfy the cut to shape requirements of 19 CFR §10.25. Accordingly, this protest should be denied in full.
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, Freedom of Information Act and other public access channels.
Sixty days from the date of this decision, the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels.
Sincerely,
John Durant, Director
Commercial Rulings Division