OT:RR:CTF:FTM H315294 TJS
TARIFF NOs.: 6302.21.90; 6302.31.90; 6304.92.00
Ms. Shirly Strezhevsky
Goldfarb Seligman & Co.
98 Yigal Alon Street
Tel Aviv, 6789141
Israel
RE: Modification of NY N313390; Bed Linen; U.S.-Israel Free Trade Agreement
Dear Ms. Strezhevsky:
This is in reference to your correspondence, dated October 20, 2020, requesting reconsideration of New York Ruling Letter (“NY”) N313390, dated August 21, 2020, concerning U.S. Customs and Border Protection’s (“CBP”) tariff classification under the Harmonized Tariff Schedule of the United States (“HTSUS”) and the country of origin marking of certain bed linen products imported from Israel. Upon review, we have determined that NY N313390 classified the incorrect bed linen set composition and failed to address whether the goods qualify for preferential tariff treatment under the United States-Israel Free Trade Agreement (“U.S.-Israel FTA”), as requested in your initial ruling request. We have determined NY N313390 to be correct with respect to the classification and the country of origin of the individual items. Thus, the pillowcase, fitted sheet, flat sheet, and duvet cover, when entered separately, remains classified in either subheading 6302.21.90 or 6302.31.90, HTSUS, and the pillow sham remains classified in subheading 6304.92.00, HTSUS. Furthermore, the country of origin of the flat sheet remains India and the country of origin of the pillowcase, fitted sheet, duvet cover, and pillow sham is Israel. Our decision takes into consideration supplemental submissions, dated November 16, 2020, and December 16, 2021. For the reasons set forth below, we hereby modify NY N313390.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), notice of the proposed action was published in the Customs Bulletin, Vol. 56, No. 5, on February 9, 2022. Two comments were received in response to the notice.
FACTS:
The subject merchandise is bed linen consisting of pillowcases, fitted sheets, flat sheets, duvet covers, and pillow shams of 100% cotton woven (percale or satin weave) fabric. The fabric is not napped, and the finished items do not contain any embroidery, lace, braid, edging, trimming, piping or applique work. The items will be imported in sets or in individual packages. A set will include a fitted sheet, flat sheet, and either pillowcases or pillow shams, packaged together for retail sale. NY N313390 stated that the set would include the duvet cover, however, you clarify that the duvet cover will be packed separately.
NY N313390 described the manufacturing process as follows:
India:
fabric is woven.
fabric is bleached, dyed and/or printed.
rolls of fabric are shipped to Israel.
Israel:
fabrics are cut to size and shape of the various components. Specifically,
duvet covers are cut to the needed size. (For purposes of this ruling we assume they will always be cut on all four sides.)
pillowcases are made from one piece of fabric cut on all four sides.
pillow shams are made from three pieces of fabric cut on all four sides.
fitted sheets are cut to needed size on all four sides.
flat sheets are cut to needed size on all four sides.
components are sewn/hemmed/elasticized, creating duvet covers, pillowcases, pillow shams, and sheets. Specifically,
duvet covers are [folded over and] sewn [together] on three sides [leaving a partial opening on one side that is hemmed 5 centimeters]. Inner ties are added on all four corners to secure the comforter and eight buttons and buttonholes are added [at the opening].
pillowcases are sewn to form a standard pillowcase with inner flap.
pillow shams are sewn to form a standard sham with an overlapping opening on the back.
fitted sheets are sewn around the edges incorporating an elastic string.
flat sheets are sewn on all four sides with a 10 centimeter top hem and a 1.5 centimeter hem on the other edges.
sheets and pillowcase are packaged together or separately, depending on the customer’s order, and shipped directly to the United States.
NY N313390 classified the pillowcases, fitted sheets, flat sheets, and duvet covers under heading 6302, HTSUS, when entered separately. Specifically, when printed, these items are classified in subheading 6302.21.90, HTSUS, which provides for “Bed linen, table linen, toilet linen and kitchen linen: Other bed linen, printed: Of cotton: Other: Not napped.” When not printed, these items are classified in subheading 6302.31.90, HTSUS, which provides for “Bed linen, table linen, toilet linen and kitchen linen: Other bed linen: Of cotton: Other: Not napped.” NY N313390 classified the pillow shams in subheading 6304.92.00, HTSUS, which provides for “Other furnishing articles, excluding those of heading 9404: Other: Not knitted or crocheted, of cotton.” Furthermore, CBP applied the rules of origin set forth in section 102.22, CBP Regulations (19 C.F.R. § 102.22), and determined that the pillowcase, fitted sheet, duvet cover, and pillow sham were substantially transformed in Israel, thereby becoming products of Israel. However, the Israeli processing did not substantially transform the flat sheet and consequently the country of origin of the flat sheet was India, where the fabric was woven.
In your November 16, 2020, submission you provided a costs breakdown of the manufacturing processes in Israel as follows:
Processing cost in Israel
FOB price of the product
Israeli added content without the fabric cost
(in percentage)
Duvet
$7.845
$26.68
29%
Pillowcase
$2.054
$5.47
38%
Pillow sham
$2.054
$5.47
38%
Fitted sheet
$4.087
$13.20
31%
Flat sheet
$4.008
$12.33
33%
ISSUES:
What is the tariff classification under the HTSUS of the bed linen when imported as a set containing a fitted sheet, a flat sheet, and either pillowcases or pillow shams?
Whether the bed linen imported into the United States from Israel is eligible for preferential tariff treatment under the U.S.-Israel FTA.
LAW AND ANALYSIS:
Tariff Classification
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI 2 through 6 may then be applied in order. Pursuant to GRI 6, classification at the subheading level uses the same rules, mutatis mutandis, as classification at the heading level.
The relevant 2022 HTSUS provisions are as follows:
6302: Bed linen, table linen, toilet linen and kitchen linen:
Other bed linen, printed:
6302.21: Of cotton:
Other:
6302.21.90: Not napped…
Other bed linen:
6302.31: Of cotton:
Other:
6302.31.90: Not napped…
6304: Other furnishing articles, excluding those of heading 9404
Other:
6304.92.00: Not knitted or crocheted, of cotton…
GRI 3(a) and (b) provide as follows:
When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
* * * * *
In understanding the language of the HTSUS, the Explanatory Notes (“EN”) of the Harmonized Commodity Description and Coding System may be utilized. The EN, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the Harmonized System at the international level. See T.D. 89-80, 54 Fed. Reg. 35127 (Aug. 23, 1989).
The EN to GRI 3(b) state in pertinent part:
This second method relates only to:
Mixtures.
Composite goods consisting of different materials.
Composite goods consisting of different components.
Goods put up in sets for retail sales.
It applies only if Rule 3(a) fails.
In all these cases the goods are to be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
The factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.
[. . .]
For the purposes of this Rule, the term “goods put up in sets for retail sale” shall be taken to mean goods which:
consist of at least two different articles which are, prima facie, classifiable in different headings. Therefore, for example, six fondue forks cannot be regarded as a set within the meaning of this Rule;
consist of products or articles put up together to meet a particular need or carry out a specific activity; and
are put up in a manner suitable for sale directly to end users without repacking (e.g., in boxes or cases or on boards).
* * * * *
In the instant case, the linen set consists of a fitted sheet, a flat sheet, and either pillowcases or pillow shams. The set containing sheets and pillow shams meets the requirements of goods put up for retail sale. The set consists of at least two different articles classifiable in different headings because the set contains sheets of heading 6302 and pillow shams of heading 6304, HTSUS. The sheets and pillow shams are packaged together to carry out the specific activity of furnishing a bed and they are packaged for sale directly to users without repackaging. Thus, the set of sheets and pillow shams is a set per GRI 3(b). We find that the sheets impart the essential character to the set. This is consistent with previous CBP rulings wherein CBP classified a set of sheets and shams under the heading for sheets. See, e.g., Headquarters Rulings Letter (“HQ”) 955473 (June 23, 1994); NY F86161 (Apr. 25, 2000); and NY F84299 (Mar. 28, 2000). Therefore, the entire set is classified under heading 6302, HTSUS, and specifically in subheading 6302.21.90, HTSUS, when printed and 6302.31.90, HTSUS, when not printed.
The set containing sheets and pillowcases does not qualify as a good put up for retail sale because it does not meet the first requirement. Since the sheets and pillowcases are all classified in heading 6302, HTSUS, the set does not consist of at least two different articles classifiable in different headings. Nor do we have sets at the subheading level because the sheets and pillowcases are altogether classified in either subheading 6302.21.90 or 6302.31.90, HTSUS. Therefore, the pillowcases and sheets are not considered a “set” for classification purposes and will be classified separately in subheading 6302.21.90, HTSUS, when printed and 6302.31.90, HTSUS, when not printed.
U.S.-Israel FTA
The U.S.-Israel FTA is implemented in the HTSUS in General Note (“GN”) 8. Per GN 8(b), HTSUS, goods imported into the United States are eligible for duty-free treatment under the U.S.-Israel FTA if:
each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel;
each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and
the sum of—
the cost or value of materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus
the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered.
GN 8(c), HTSUS, provides in pertinent part as follows:
No goods may be considered to meet the requirements of subdivision (b)(i) of this note by virtue of having merely undergone--
(i) simple combining or packaging operations;
* * * * *
Under the U.S.-Israel FTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly into the United States from Israel qualify for duty-free treatment provided the sum of 1) the cost or value of materials produced in Israel, plus 2) the direct costs of processing operations performed in Israel is not less than 35% of the appraised value of each article at the time it is entered. We initially note that, per your ruling request, the articles are imported directly from Israel to the United States without passing through the territory of any intermediate country and therefore meet GN 8(b)(ii), HTSUS.
“Product of” Requirement
Section 102.22, CBP Regulations (19 C.F.R. § 102.22), applies for the purposes of determining whether a textile or apparel product is considered a product of Israel. In NY N313390, CBP applied section 102.22 and determined that the duvet cover, fitted sheet, pillowcase, and pillow sham were products of Israel. However, CBP determined that the flat sheet was a product of India. Because the flat sheet is not a product of Israel, it does not meet GN 8(b)(i), HTSUS, and is therefore ineligible for preferential tariff treatment under the U.S.-Israel FTA.
GN 8(c)(i) provides that a good will not be considered to be a product of Israel by virtue of merely having undergone simple combining or packaging operations. See also 19 C.F.R. § 102.22(c)(2). As discussed above, the set consisting of sheets and a pillow sham is classified as a set under a single subheading pursuant to GRI 3(b). Since this set includes a flat sheet, which is not a product of Israel and is simply packaged together with the fitted sheet and pillow sham, the set as a whole is not considered a product of Israel. Therefore, the set is ineligible to receive preferential tariff treatment under the U.S.-Israel FTA. See Treasury Decision 91-7, 25 Cust. B. & Dec. No. 2 (1991). See also HQ 963453 (Feb. 26, 2001) (determining that a set consisting of a towel, brush, and retriever was ineligible for preferential tariff treatment under the U.S.-Israel FTA as one item in the set was not a product of Israel).
35% Value-Content Requirement
We must next determine whether the duvet cover, fitted sheet, pillowcase, and pillow sham meet the 35% value-content requirement. GN 8(b)(iii), HTSUS, requires that the cost or value of materials produced in Israel plus the direct costs of processing equal not less than 35% of the appraised value of the good at the time it is entered. Based on the costs breakdown you provided, only the pillowcase and pillow sham meet the 35% value-content requirement without taking into consideration the imported fabric. Therefore, the pillowcase and pillow sham are eligible for preferential tariff treatment under the U.S.-Israel FTA.
The remaining question is whether the duvet cover and fitted sheet meet the 35% value-content requirement. If an article is produced from materials which are imported into Israel, as in this case, the cost or value of those imported materials may be counted toward the 35% value-content requirement only if they undergo a double substantial transformation in Israel. Here, the fabric from India may be considered as part of the value of material produced in Israel for purposes of the 35% value-content requirement, provided the foreign fabric is substantially transformed in Israel and this different product is then transformed into yet another new and different product which is exported directly to the United States. You believe that the processing in Israel constitutes a double substantial transformation and that the imported fabric and the direct costs of processing operations performed in Israel meet the 35% value-content requirement for duty-free treatment under the U.S.-Israel FTA. As support, you cite HQ 559810, dated August 16, 1996, NY C87902, dated June 16, 1998, NY N009941, dated May 8, 2007, and NY 805935, dated February 13, 1995.
In HQ 559810, CBP considered sweatshirts assembled in Israel from a variety of components. The sweatshirts were produced from fabric, a precut embroidered front panel, and rib trim from China. In Israel, the fabric was cut to shape and the rib trim was cut to length and/or width. With regard to the fabric used for the sleeves and back panel of the sweatshirts, CBP determined that the cutting to shape of the imported Chinese fabric substantially transformed the foreign fabric into a new and different intermediate article, ready to be put into the stream of commerce, where they could be bought and sold. While the assembly operation of sewing the sleeves and back panel of the sweatshirt into a finished sweatshirt was not complex enough to constitute a substantial transformation by itself, CBP ascertained that the overall processing operations (i.e., cutting and sewing) performed in Israel were substantial. For this reason, and in view of the production in Israel of distinct articles of commerce in the form of a sweatshirt, CBP held that the double substantial transformation requirement was satisfied with respect to the sleeves and the back panel. However, CBP held that the precut front panel and the rib trim underwent only one substantial transformation.
NY C87902 involved a welder’s top and pants assembled in Israel from fabric exported from third country. In Israel, the fabric was cut to shape into panels, pockets, collars, belt loops, and waistbands and then the components were assembled by sewing and hemming. CBP held that the cutting to shape of the imported fabric substantially transformed the foreign fabric into new and different articles of commerce, and that the cut-to-shape components were intermediate articles of commerce ready to enter the stream of commerce where they could be bought and sold. Although the assembly operation was not complex enough to constitute a substantial transformation by itself, CBP ascertained that the overall processing operations (i.e., cutting and sewing) performed in Israel were substantial and therefore the fabric used for these items could be considered towards satisfying the 35% value-content requirement. Furthermore, CBP determined that the processing in Israel was not the type of minimal “pass-through” operation that should be disqualified from receiving duty-free treatment under the U.S.-Israel FTA.
NY N009941 involved a woman’s dress produced of fabric from Hong Kong and Korea and cut and assembled in Sri Lanka. In that ruling, similar to NY C87902, CBP determined that the assembly operation of sewing the component parts into a finished dress was not complex enough to constitute a substantial transformation by itself. Nevertheless, the overall processing operations (i.e., cutting and sewing) performed in Sri Lanka satisfied the double substantial transformation requirement for purposes of duty-free treatment under the Generalized System of Preferences.
NY 805935 involved a comforter cover and a pillow. In that ruling, the fabric was woven, printed or dyed, and finished in Indonesia and then shipped to Israel where it was cut and sewn to form the products. CBP held that both the comforter cover and the pillow sham underwent a substantial transformation in Israel under 19 C.F.R. § 12.130 (the predecessor to section 102.22). We note that this ruling addresses country of origin and not double substantial transformation for the 35% value-content requirement under the U.S.-Israel FTA.
In the instant case, we find that the Israeli cutting and sewing operations—which involve cutting fabric to length and width in straight lines, attaching elastic, ties, and buttons, and hemming - is significantly simpler than the cutting and sewing operations in HQ 559810, NY C87902, and NY N009941, which involved cutting specific shapes and sewing the components into garments. As indicated by these cases, CBP has consistently held that cutting specific pattern pieces for garments amounts to a substantial manufacturing operation. Conversely, CBP has held that cutting simple geometric shapes, which merely involves cutting straight lines, does not amount to a substantial manufacturing operation. For example, HQ 557672, dated April 29, 1994, involved fabric that was produced in Pakistan, cut to length and width in Puerto Rico, and then shipped to the Dominican Republic where the components were sewn and hemmed into sheets and pillowcases. CBP determined that cutting the fabric involved straight line cuts and did not rise to the complexity of cutting shaped pattern pieces for wearing apparel. Moreover, CBP held that even before the cutting operation, the fabric was readily identifiable as being intended for sheets and pillowcases. Thus, the Puerto Rican cutting operation did not substantially transform the imported fabric into a product of the United States. Similarly, HQ 957314, dated March 27, 1995, addressed a scenario wherein fabric for a fitted sheet was woven and precut in Indonesia and then transported to Malaysia or Singapore where it was elasticized and sewn into a finished fitted sheet. CBP determined that attaching the elastic and the subsequent finishing operations were simple and did not substantially transform the precut fabric. Therefore, the country of origin of the fitted sheet was Indonesia.
We find that the cutting and sewing operations in Israel do not result in a double substantial transformation because neither the cutting nor the sewing, by itself, constitutes a single substantial transformation. We find that the Israeli processing does not transform the imported fabric into distinct intermediate articles ready to enter commerce, but altogether transforms the fabric into duvet covers and fitted sheets. Accordingly, the full cost or value of the imported fabric is not included towards the 35% value-content requirement for purposes of qualifying for preferential duty treatment under the U.S.-Israel FTA. Based on the costs breakdown you provided, the duvet cover and fitted sheet do not meet the 35% value-content requirement. Therefore, the duvet cover and fitted sheet are not eligible for preferential tariff treatment under the U.S.-Israel FTA.
As noted above, we received two comments in response to the notice of the proposed modification. The first commenter asserts that none of the bed linen items are of Israeli origin for preferential tariff treatment purposes. The commenter agrees that the processing in Israel is minimal, and the fabrics imported from India merely undergo one substantial transformation, yet challenges whether the importer can meet the 35% value-content requirement. Based on its knowledge of producing similar products, the commenter assumes that the fabrics from India constitute at least 30-45% of each article while the direct costs of processing are roughly 10-15%. Since the commenter admits they do not know the complete actual costs breakdown of the subject bed linen, we are not persuaded by their proposed calculation. We note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
The second commenter disagrees with the proposed modification and believes that the cutting and sewing operations performed in Israel are not simple operations nor do they differ from those in HQ 559810, NY C87902, and NY N009941. Therefore, the commenter states that all of the bed linen items are eligible for the preferential tariff treatment under the U.S.-Israel FTA. The commenter asserts that the cutting and sewing each constitute a single substantial transformation because the foreign fabric imported in rolls is first transformed into cut fabric for bed linen and then further transformed into a duvet cover, fitted sheets, flat sheets, pillowcases, or pillow shams. Thus, the commenter asserts that all the bed linen items undergo a double substantial transformation in Israel. To support its claim that the operations, which may be manual or mechanical, are complex and result in a distinct article of commerce, the commenter provided a video demonstrating the cutting process and a sample price offer for pre-cut fabric. We find that neither the video nor the price offer evidence double substantial transformation. The video shows a worker using scissors to manually cut straight lines in a large piece of fabric to form a rectangle. The cutting is a simple and quick process. The price offer is intended to demonstrate that pre-cut fabric for bed linen is a new and different intermediate article of commerce, but the items remain identifiable as bed linen items. We find that simple cutting and sewing does not substantially transform the foreign fabric in Israel into a new and different product which is then transformed into yet another new and different product. Consistent with HQ 557672, cutting fabric in straight lines is not a substantial manufacturing operation, regardless of whether the fabric is solid or printed. See also, HQ 556015 (May 20, 1991). As discussed above, we find that the cutting and sewing of the bed linen items is a significantly different operation than those described in HQ 559810, NY C87902, and NY N009941, wherein the fabric was cut into unique shapes and sewn into wearing apparel. As such, the foreign fabric does not undergo a double substantial transformation and is not counted towed the 35% value-content requirement under the U.S.-Israel FTA.
HOLDING:
By application of GRI 1 and 3, the set containing flat sheets, fitted sheets, and pillowcases will be classified on an individual basis. When printed, each component is classified in subheading 6302.21.90, HTSUS, which provides for “Bed linen, table linen, toilet linen and kitchen linen: Other bed linen, printed: Of cotton: Other: Not napped.” When not printed, these items are classified in subheading 6302.31.90, HTSUS, which provides for “Bed linen, table linen, toilet linen and kitchen linen: Other bed linen: Of cotton: Other: Not napped.” The set containing flat sheets, fitted sheets, and pillow shams will be classified as a set in subheading 6302.21.90, HTSUS, when printed, and in subheading 6302.31.90, HTSUS, when not printed. The column one, general rate of duty is 6.7% ad valorem.
Based on the information provided, the flat sheet, fitted sheet, duvet cover, and the set containing sheets and pillow shams are not eligible for preferential tariff treatment under the U.S.-Israel FTA. The pillowcase and pillow sham, when entered individually, are eligible for preferential tariff treatment under the U.S.-Israel FTA.
EFFECT ON OTHER RULINGS:
NY N313390, dated August 21, 2020, is hereby MODIFIED.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days from the date of publication in the Customs Bulletin.
Sincerely,
For Craig T. Clark, Director
Commercial and Trade Facilitation Division