Mar-2-05 CO:R:C:V 734295 RSD
District Director of Customs
International & Terrace Streets
Nogales, Arizona 85621
RE: Internal advice request on the country of origin marking
requirements for greige carpet imported from Mexico and finished
in the U.S.; textile, substantial transformation, fibers, woven
yarn, 19 CFR 12.130, 19 CFR 134.32(g)
Dear Sir:
This is in response to your memorandum requesting internal
advice on the country of origin marking requirements for
greige carpet imported and processed in the U.S. by Tuftex
Industries (I/A 37/91). We have received a memorandum on this
matter from the National Import Specialist. We also have
received sample swatches of the greige carpet as imported and of
the carpet after it has been processed in the U.S.
FACTS:
According to Tuftex's submission, U.S.-origin nylon yarn and
backing material are sent to Mexico to be assembled into carpets.
In Mexico, the cones of yarn are fed into a tufting machine which
inserts the yarn into the backing and cuts it to the proper
length of the tuft. The finished article is rolled into
specified lengths before export to the U.S., where it will be
dyed and finished. The industry refers to carpet which has not
been dyed and finished as "greige carpet."
In the U.S., the greige carpet will be dyed and finished.
After the dye is applied to give the carpet color, additional
backing is applied with latex. The cost of these U.S. operations
is $2.00 per yard (including $0.855 for dying and $1.145 for the
finishing processes).
Tuftex claims that any marking applied before the goods are
imported into the U.S. would not survive the dyeing and
finishing.
ISSUES:
What is the country of origin of the greige carpet?
Is the greige carpet substantially transformed by the dyeing
and finishing done in the U.S.?
Is the carpet excepted from marking under 19 CFR 134.32(g)
because any marking would be destroyed by the processing done in
the U.S.?
Would the greige carpets qualify for the partial duty
exemption available under subheading 9802.00.80, HTSUS, when
returned to the U.S.?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or container) will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article. Part 134, Customs
Regulations (19 CFR Part 134), implements the country of origin
marking requirements and exceptions of 19 U.S.C. 1304.
Section 12.130, Customs Regulations (19 CFR 12.130), sets
forth the principles for making country of origin determinations
for textile and textile products subject to section 204 of the
Agricultural Act of 1956, as amended (7 U.S.C. 1854)("section
204"). According to T.D. 90-17, published in the Federal
Register on March 1, 1990, (55 FR 7303), the principles of
country of origin for textiles and textile products contained in
19 CFR 12.130 are applicable to such merchandise for all
purposes, including duty and marking. Customs has determined
that 19 CFR 12.130 will be applied to determine the country of
origin of all imported articles which are classified in Section
XI, Harmonized Tariff Schedule of the United States, or to any
imported article classified outside of Section XI, HTS, under a
subheading which has a textile category number associated with
it. Because the subject merchandise is classified under a
subheading which has a textile category number associated with
it, 19 CFR 12.130 will be used in making the country of origin
determination.
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.
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. In
other words, for textiles governed by 19 CFR 12.130 there is a
two part test for substantial transformation: 1) a new different
article of commerce and 2) a substantial manufacturing or
processing operation.
Section 12.130(d)(1) states that 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.
The factors to be applied in determining whether or not a
manufacturing operation is substantial are set forth in 19 CFR
12.130(d) and (e). Section 12.130(d)(2) lists some of the
factors considered in determining whether a substantial
manufacturing or processing operation has occurred. These
factors include: the physical change in the material or article;
the time involved in the processing; the complexity of the
operation; the level or degree or skill and technology required
in the operation; and the value added to the article or material
in the non-U.S. based operation versus the value added to the
article or material in the U.S.
The first question that must be addressed is what is the
country of origin of the imported greige carpet. Under 19 CFR
12.130(c), U.S. textile articles that are advanced in value or
improved in condition, or assembled in a foreign country are
considered to be products of that foreign country. In this case,
the U.S. yarn is cut and inserted into U.S. backing material in
Mexico to make the greige carpet. The processing done in Mexico
clearly advances in value and improves in condition the U.S. yarn
and backing material. Therefore, the country of origin of the
griege carpet is Mexico.
The marking requirements hinge on whether the griege carpet
is substantially transformed by the processing done in the U.S.
to make it into a finished carpet. Pursuant to 19 CFR 134.35, a
manufacturer in the U.S. who substantially transforms an imported
article is considered the ultimate purchaser and the imported
article is excepted from individual marking. Absent a
substantial transformation, the article must be marked to advise
the ultimate purchaser of the country of origin. In this case,
we find that the domestic processing does not substantially
transform the imported carpet. First, the processing in the U.S.
does not change the commercial designation or identity of the
product. Both products are referred to as carpet, albeit with a
different modification. The fundamental character of the
imported product is that of a floor covering. The greige carpet
forms the entire exposed surface of the final carpet and it is
the component that gives the finished carpet its bulk. Although
the greige carpet is not salable in its imported condition, it is
recognizable as carpet and it is very unlikely that it could be
used for any other purpose than to make the finished carpet. The
dyeing and applying the latex to the backing of the carpet are
largely finishing operations which do not change the fundamental
character of the carpet. Although the U.S. processing accounts
for more than 50 percent of the cost of the finished carpet, this
fact is not determinative. See HQ 734246. Moreover, there is no
evidence to indicate the U.S. processing of the carpet is
particularly complex. Furthermore, 19 CFR 12.130(e)(2)(v)
indicates that an article or material will not be considered to
be a product of a particular foreign territory or country by
virtue of merely having undergone dyeing and/or printing of
fabrics or yarns. In this case, the only processing done to the
product is dying and coating the back with a latex finish to make
it stiffer. Accordingly, we find that the greige carpet is not
substantially transformed by the processing done in the U.S. and
the finished carpet remains a product of Mexico.
Ordinarily, the carpet would have to be marked to indicate
it country of origin, Mexico, at the time of its importation into
the U.S. However, Tuftex claims that any marking on the carpet
would be destroyed by the processing done in the U.S. Among the
exceptions from country of origin marking is 19 CFR 134.32(g),
which excepts "articles to be processed in the U.S. by the
importer or for his account otherwise than for the purpose of
concealing the origin of such articles and in such a manner that
any mark would be necessarily be obliterated, destroyed or
permanently concealed." In other words, if you are satisfied
that the U.S. processing will destroy any country of origin
marking that might appear on the carpet at the time of
importation, the carpet would be excepted from marking at the
time of importation under 19 CFR 134.32(g). However, the country
of origin of the carpet must be disclosed to the ultimate
purchaser of the carpet. Because the carpet is not substantially
transformed by the U.S. processing; Tuftex is not the ultimate
purchaser. Therefore, the carpet must be marked with the country
of origin, Mexico, after importation, even though it may be
excepted from marking at the time of importation under 19 CFR
134.32(g). See HQ 733835, February 8, 1991.
We suggest that the procedures st forth in 19 CFR 134.34 be
utilize to ensure that the finished carpet is properly marked. The last issue that must be determined is whether the griege
carpet would be eligible for the partial duty exemption available
under subheading 9802.00.80, of the Harmonize Tariff Schedule of
the United States (HTSUS) when it is returned to the U.S.
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 value of the imported assembled article, less the
cost or value of such U.S. components, upon compliance with the
documentary requirements of section 10.24, Customs Regulation (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,
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 subheading
9802.00.80, HTSUS, to the component. See, 19 CFR 10.16(c).
In the present case, the production of carpet by a tufting
machine is similar to a weaving operation and constitutes a
process of manufacture rather than an assembly. See, 19 CFR
10.16(a), Example 3, and Headquarters Ruling Letter (HRL) 555344
of May 19, 1989, where we held that pushing U.S.-origin yarn
through a backing cloth by a tufting machine to create a loop
pile tufted floor covering constitutes a manufacturing process
which renders the yarn and cloth ineligible for subheading
9802.00.80, HTSUS, treatment. Passing yarn through braiding
machines to produce braided rope or cordage has been found to be
analogous to weaving fabrics from spun yarn. See, HRL 555594 of
May 16, 1990. Moreover, we have held that the weaving of fabrics
from spun yarn constitutes a manufacturing process. See, HRL
555818 of March 15, 1991, where we held that yarn woven into
table linen and yard goods was a process of manufacture rather
than an assembly. Therefore, based on our prior rulings, we find
that the U.S.-origin yarn and backing materials manufactured into
greige carpets by a tufting machine in Mexico are not eligible
for the partial duty exemption available under subheading
9802.00.80, HTSUS. Accordingly, the greige carpets returned to
the U.S. will be dutiable on their full value under the
appropriate tariff provision.
HOLDING:
The U.S. made yarn is advance in value and improved in
condition when it is cut and placed on the backing material in
Mexico to make a greige carpet. Under 19 CFR 12.130(c) the
country of origin of the greige carpet is Mexico. The griege
carpet is not substantially transformed by the U.S. processing of
dyeing and putting a latex finish on the back. Therefore, Tuftex
is not considered to be the ultimate purchaser.
If you are satisfied that the U.S. processing will
necessarily destroy any country of origin marking that could be
placed on the carpets, under 19 CFR 134.32(g) they are not
required to be marked with their country of origin at the time of
importation. However, the carpet must be marked after processing
so as to inform the ultimate purchaser of the country of origin.
The griege carpet does not qualify for the partial duty
exemption available under subheading 9802.00.80 when returned to
the U.S.
Sincerely,
John Durant, Director
Commercial Rulings Division