MAR-2-05 CO:R:C:V 733180 KG

Ms. Loraine K. Feith
New Zealand Trade Development Board
New Zealand Embassy
37 Observatory Circle
Washington, D.C. 20008

RE: Country of origin marking of imported cotton linens; substantial transformation; 19 CFR 12.130; bed sheets; pillow cases; dust ruffles; quilt covers; pillow shams;

Dear Ms. Feith:

This is in response to your letter of February 27, 1990, and your submission of May 31, 1990, requesting a country of origin ruling regarding imported cotton linens.

FACTS:

This ruling request involves the country of origin marking of bed linens; specifically flat and fitted sheets, pillow cases, quilt covers, pillow shams and dust ruffles. Your client has commissioned a Turkish textile manufacturer to print design patterns onto cotton sateen. The design patterns, which are done in Australia, are reproductions of original ancient Aboriginal art depicting the art, song and dance of a particular Australian culture spanning over the past 40,000 years. The processes involved in the designing make up approximately 6% of the FOB price. The manufacturer has spent approximately $160,000 and 500 man hours on design interpretation.

The Turkish manufacturer weaves the cotton sateen material using a standard weaving loom. The approximate length of cloth necessary to create a standard flat bed sheet, 1.8 meters, was utilized for the purpose of comparing manufacture time. Approximately 1.8 meters of fabric are woven every 4-5 minutes. Printing is done by applying the dye to a revolving drum and passing the fabric through the drum. Printing 1.8 meters of material takes approximately 10 seconds. Following the printing and drying of the design, the fabric is rolled onto cardboard tubes. These tubes may contain variable amounts of material up to 500 meters as per the order being filled. The rolls of material are then packed for export and shipped to Australia. These rolls of material are not pre-marked with lines of demarcation or cutting marks.

The cutting, sewing and finishing of the bed linens are done in Australia. You state that because of the design, the fabric cannot be straight cut, which is the normal procedure to minimize waste and maximize production efficiency when making bed linens. The cutting and hemming must be done on four sides of a sheet rather than cutting and hemming of only two sides of a sheet. The entire manufacturing process of an item takes approximately 10 to 20 minutes depending upon the complexity of the product. Details of the construction procedure for each product differs. For the flat sheets, the design must be positioned for various bed sizes, the material is cut to size on four sides and the material is hemmed in fine stitching. The fitted sheets are also hemmed for fitting elastic along the edges and the elastic is inserted and joined. The hem is then closed. For the pillow cases, the design must be positioned as directed, the material must be cut to size on four sides, overlocked on the cut edges, folded and sewn together on both sides, and sewn in an envelope fold on the open end.

For the quilt covers, the design must be positioned as directed, the material must be cut to size on four sides, two sides of the cover must be matched to establish the design, the folded ends must be sewn together on three sides, the sides must be overlocked, the open ends hemmed, and the button closures and pocket on the open end must be sewn to allow for the insertion of the quilt.

For the dust ruffles, the material is cut to size on four sides, all cut edges are overlocked, the flat piece is cut to the bed size and then joined with fabric pieces that are gathered and pleated. The bottom edge of the ruffle is hemmed 1/2 inch.

For the pillow shams, the design is centered, cut to size on four sides, the cut edges are overlocked,the pieces are folded and sewn together on both sides, allowing for center back closure and frill is sewn to the edge, allowing for pleating.

The finished products are all then ironed, folded and packaged. You also submitted information which estimates the percentage value added for each article at each stage of production. The Turkish manufacture is estimated to be between 13 and 21 percent of the total value of the various items produced. The making of the bed linens in Australia accounts for between 23% to 31% of the price of the finished product, varying as to the particular item involved.

ISSUE:

What is the country of origin for the imported bed linens described above?

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.

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").

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 T.D. 85-38, published in the Federal Register on March 5, 1985, (50 FR 8716), which is the final rule document which established 19 CFR 121.30, there is a discussion of how the examples and the factors enumerated in the regulation are intended to operate. "Examples set forth in 19 CFR 12.130(e) are intended to give guidance to Customs officers and other interested parties. Obviously, the examples represent clear factual situations where the country of origin of the imported merchandise is easily ascertainable. The examples are illustrative of how Customs, given factual situations which fall within those examples, would rule after applying the criteria listed in 12.130(d). Any factual situation not squarely within those examples will be decided by Customs in accordance with the provisions of 12.130(b) and (d)." The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d).

Section 12.130(e)(iv) states that a textile article will usually be a product of a particular country if the cutting of the fabric into parts and the assembly of those parts into the completed article has occurred in that country. However, 19 CFR 12.130(e)(2)(ii) states that a material will usually not be considered to be a product of a particular foreign country by virtue of merely having undergone cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use. T.D. 85-38 explains that "where fabric which is readily identifiable as being intended for a particular commercial use (e.g., toweling or bed linen material) is merely cut to length or width, with the edges then being either hemmed or overlocked...the foreign territory or country which produced the fabric is the country of origin and not the country where the fabric was cut. 50 FR 8714. The phrase "readily identifiable as being intended for a particular commercial use" was interpreted by Customs in HQ 086779 (April 25, 1990), a ruling letter concerning diapers, to refer to evidence i.e., lines of demarcation or cutting marks that would indicate that the fabric was to be made into diapers.

There have been prior cases involving country of origin determinations for bed linen and toweling which are relevant. In Belcrest Linens v. U.S., 741 F. 2d 1368 (Fed. Cir. 1984), the court held that the process of making a bolt of woven fabric which was pre-marked with lines of demarcation into a pillowcase with a scalloped edge was a substantial transformation. We note that Belcrest was decided by the court prior to the implementation of 19 CFR 12.130.

Customs recently held in HQ 086523 (April 25, 1990), that bed sheets made out of material woven, dyed and printed in Pakistan were considered to be from Pakistan even though the material was cut to length and hemmed in Dubai. The processes performed in Dubai, i.e., cutting to length and hemming, do not constitute a substantial transformation. This ruling is consistent with the example set forth in 19 CFR 12.130(e)(2)(ii). Based on Belcrest, Customs ruled in HQ 086523 that the pillow cases, which were cut and sewn together in Dubai, were considered to be from Dubai. Further, Customs ruled in HQ 083544 (February 28, 1990), that material cut to both width and length and hemmed to be made into towels and dishcloths was not substantially transformed because after examining the factors set forth in 19 CFR 12.130(d), we concluded that the processing operations performed in the second country were not substantial. Customs ruled in HQ 084874 (April 4, 1990), that fabric made into a bedspread was substantially transformed. Unmarked, uncut fabric of polyester, fiberfill and backing were imported into Haiti on separate bolts. There the three types of fabric were layered and sewn together by a quilting machine and then cut to length and width to form the body of the bedspread. The sides of the bedspread were sewn together by overlocking and the top edge was hemmed. Identical woven fabric to be used for the dust ruffle was cut to length and width and hemmed with a shirttail hem. The ruffle was then attached to three sides of the bedspread by shirred stitching, creating a dust ruffle.

In this case, the bed sheets are first designed in Australia, the fabric is made in Turkey and then cut to both width and length and sewn together by overlocking in Australia. This fact pattern does not fit into any of the examples set forth in 19 CFR 12.130(e). Therefore, the question presented is whether the merchandise has been subjected to substantial manufacturing or processing operations resulting in a new and different article of commerce to constitute a substantial transformation. Although there is a considerable amount of resources invested in the designing of the sheets, country of origin determinations are based on where the last substantial transformation took place. Since the design process precedes the production of the cloth in Turkey, it would not be a relevant factor.

When fabric is used to make a completed flat sheet, it is clear that a new and different article of commerce has been created. However, the second prong of the substantial transformation test under 19 CFR 12.130 requires a finding that the textile or textile product has been transformed by means of substantial manufacturing or processing operations. The manufacturing operations that are relevant for the flat sheets are the cutting on all four sides of unmarked fabric and hemming of the four sides which is done in Australia. As discussed above, the cutting to length only and hemming of a bed sheet has already been held in HQ 086523 not to constitute a substantial manufacturing process. Customs recently ruled in HQ 733746 (November 14, 1990), that cotton surgical cloth cut to both length and width and hemmed on all four sides in a second country was not substantially transformed in that second country. In HQ 733250 (August 10, 1990), Customs ruled that cloth cut and hemmed on all four sides to make a napkin did not constitute a substantial transformation. Cloth cut and hemmed on all four sides to make napkins and table cloths was held by Customs not to constitute a substantial transformation in HQ 733600 (November 16, 1990). Further, Customs ruled in HQ 083544 (February 28, 1990), that cutting to both length and width and hemming on four sides to make towels was not a substantial manufacturing process.

Although we do note that the difference in type of fabric involved in the toweling case, the processing operations involved in making fabric into flat sheets is indistinguishable from the surgical cloth, and cloth napkins and tablecloths in terms of complexity of the cutting and hemming operations. The additional step required to properly position patterned material because there is a design on it is not enough to constitute a significant manufacturing operation. Therefore, we find that the manufacturing operation involved in making fabric into flat sheets is not a substantial manufacturing or processing operation. Because the second prong of the substantial transformation test of 19 CFR 12.130 has not been satisfied, the fabric is not considered substantially transformed in Australia. The flat bed sheets would be considered a product of Turkey for marking, duty and quota purposes.

The fitted sheet, however, must be cut at the corners and elastic is sewn into the cloth so that the corners will fit over the mattress. This requires additional cutting and stitching and is more complex than merely sewing a straight hem. Therefore, because more processing, which takes more time, skill and creates a greater physical change is required to make a fitted sheet, than flat sheets, surgical cloth, cloth napkins and tablecloths, we conclude that the fabric which is made into a fitted sheet undergoes a substantial manufacturing or processing operation. The fabric is made into a fitted sheet, which is a new and different article of commerce. Therefore, the fabric made into fitted sheets is substantially transformed in Australia. The fitted sheets would be considered a product of Australia for marking, duty and quota purposes.

With regard to the pillow cases, Belcrest, and HQ 086523 both held that fabric made into pillow cases is a substantial transformation. The manufacturing process involved here in making pillow cases involves substantially similar cutting and sewing operations that were involved in Belcrest and HQ 086523. The material is cut, folded, sewn and hemmed on 3 sides, including the open side which requires hemming both ends. The estimated value of the processing involved in making the pillow cases is 31% as compared to making the fabric which is only 13% of the estimated value. Because some precision is required to sew a pillow case properly and more is required than simply hemming the straight edges of a rectangular size piece of material which is reflected in the value added to the fabric in Australia, we conclude that the fabric which is made into pillow cases does undergo substantial manufacturing into a new and different article of commerce and therefore is substantially transformed in Australia.

The sewing involved in making a pillow sham is, if anything, more complex, time consuming and requires greater skill than the work required to make a pillow case. This is reflected in the value added to the fabric in Australia, which is 31% of the total as compared to the 15% added in Turkey. There is a significant physical change in making a pillow sham from fabric. Based on these considerations, we conclude that the fabric is transformed by means of a substantial manufacturing or processing operation. The fabric does become a new and different article of commerce. Therefore, the fabric made into pillow shams is substantially transformed. Pursuant to 19 CFR 12.130, Australia would be considered the country of origin of the pillow cases and shams for marking, duty and quota purposes.

The quilt covers are cut to length and width, the folded ends are sewn together on three sides, the sides are overlocked, the open ends hemmed and button closures and pocket on the open end must be sewn to allow for the insertion of the quilt. The sewing involved in making the quilt cover is clearly more complex than a mere hemming on four sides, takes some time and a certain level of skill. The fabric undergoes a significant physical change when it is made into a quilt cover. Based on these considerations, we conclude that the fabric made into quilt covers is transformed by means of a substantial manufacturing operation. Further, the fabric which is made into quilt covers is a new and different article of commerce. Since both prongs of the substantial transformation test set forth in 19 CFR 12.130 have been satisfied, the quilt covers are substantially transformed in Australia and are considered to be a product of Australia for country of origin marking, duty and quota purposes.

The dust ruffles are cut to shape on four sides and each side is overlocked. In addition, the bottom piece is sewn together to make pleats and the bottom edge of the pleated portion is hemmed. This manufacturing process involved with this product is more like the pillow shams and quilt covers discussed above. The sewing operation requires some skill in order for the pleats to fall properly. Further, like the pillow cases, shams and quilt covers, the fabric is made into a new and different article of commerce. Because the production of the dust ruffles both results in a new and different article of commerce and a substantial manufacturing process is involved, the dust ruffles are considered substantially transformed in Australia and would be considered a product of Australia for country of origin marking, quota, and duty purposes.

HOLDING:

The imported flat bed sheets are considered to be a product of Turkey for country of origin marking, quota and duty purposes.

The imported fitted bed sheets, pillow cases, pillow shams, quilt covers and dust ruffles are considered to be a product of Australia for country of origin marking, quota and duty purposes.

The holding set forth above applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 177.9(b)(1), Customs Regulations (19 CFR 177.9(b)(1)). This section states that a 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. Should it subsequently be determined that the information furnished is not complete and does not comply with 19 CFR 177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished this may affect the determination of country of origin. Accordingly, it is recommended that a new ruling request be submitted in accordance with section 177.2, Customs Regulations (19 CFR 177.2).

Sincerely,

John Durant
Director,
Commercial Rulings Division