CLA-2 CO:R:C:G 084534 HP
Mr. Lewis Lau
Cathco
100 Dolomite Drive
Downsview, Ontario
Canada M3J 2N3
RE: Country of Origin Determination and Classification of Hats
Dear Mr. Lau:
This is in reply to your letter of May 1, 1989, concerning
the tariff classification and country of origin determination of
baseball caps, under the Harmonized Tariff Schedule of the United
States Annotated (HTSUSA).
FACTS:
The merchandise at issue consists of two samples of baseball
caps, one of which is embroidered (Sample "B"), composed of 60
percent cotton and 40 percent polyester fabric, with an essential
character of cotton. The cap is imported into Canada from Korea
without embroidery. You state the cost at this point is
approximately US$0.75 per piece FOB Korea. Once the cap has
entered Canada, the front has embroidered upon it a "Moosehead
Light" logo, with various other embroidery on the brim. You
further state that the embroidery cost is approximately US$2.50
per piece, with the intended selling price to U.S. customers of
approximately US$3.50 per piece.
ISSUE:
Whether the embroidery performed in Canada effected a
substantial transformation of the cap exported from Korea under
the US-Canada FTA?
LAW AND ANALYSIS:
General Note 3(c)(vii) to the HTSUSA embodies the United
States-Canada Free Trade Agreement of 1988. Subdivision (vii)(A)
provides that "[g]oods originating in ... Canada" and imported
into the United States may be subject to a distinct rate of duty
set forth in the "Special" subcolumn of the Tariff Schedule. For
the purposes of this subdivision, General Note 3(c)(vii)(B)
allows consideration of goods as "goods originating in the
territory of Canada" if:
* * *
(2) they have been transformed in the territory of
Canada and/or the United States, so as to be sub-
ject--
(I) to a change in tariff classification in Cana-
da as described in the rules of subdivision
(c)(vii)(R) of this note, or
(II) to such other requirements subdivision
(c)(vii)(R) of this note may provide when no
change in tariff classification occurs, and
they meet the other conditions set out in
subdivisions (c)(vii) ... (G), (H), (J) and
(R) of this note.
Change in Tariff Classification
General Note 3(c)(vii)(R)(12) governs the change in tariff
classification for articles in Section XII. Subdivision
(12)(aa), the only applicable subdivision, states that, in order
to constitute a change in tariff classification, the merchandise
must undergo a "change from one chapter to another."
Subheading 6505.90, HTSUSA, provides for, inter alia, hats
made up of textile fabric in the piece. Sample "A", the cap
exported from Korea, is composed of cotton/polyester fabric, sewn
together, riveted, with a brim and woven cord attached to the
front. Sample "B", the cap imported into the United States, is
substantially similar, but for embroidery on the front and brim.
Both samples would be classified not only in Chapter 65, HTSUSA,
but in subheading 6505.90, as well.
Ergo, the instant merchandise would not be considered a
product of Canada, as described in General Note
3(c)(vii)(B)(2)(I).
Change in Value
Subdivisions (c)(vii)(G) and (H) provide that unassembled
goods, where the assembly in Canada fails to result in a change
of tariff classification because the goods were imported into
Canada in an unassembled or a disassembled form and were
classified as such pursuant to General Rule of Interpretation
2(a), may be considered to have been transformed in Canada, and
be treated as goods originating in Canada if the change in value
of the finished good plus the costs of assembling the goods is
not less than 50 percent of the value of the goods when exported
to the United States.
The General Rules of Interpretation (GRI's) to the HTSUSA
govern the classification of goods in the tariff schedule. GRI 1
states, in pertinent part:
... classification shall be determined according to the
terms of the headings and any relative section or
chapter notes ....
Goods which cannot be classified in accordance with GRI 1 are to
be classified in accordance with subsequent GRI's, taken in
order.
GRI 2(a) provides that references to completed articles
shall include references to that article "entered unassembled or
disassembled." The Explanatory Notes to the HTSUSA constitute
the official interpretation of the tariff at the international
level. The Explanatory Note to GRI 2(a) defines "articles
presented unassembled or disassembled" as
articles the components of which are to be assembled
either by means of simple fixing devices (screws, nuts,
bolts, etc.) or by riveting or welding, for example,
provided only simple assembly operations are involved.
It is our opinion that the instant merchandise, when it is
modified in Canada for export into the U.S., does not undergo an
assembly operation as required in GRI 2(a). The only transforma-
tion taking place in Canada is an unassuming embroidery process.
The entire assembly of the cap, which converted it from hat
segments to a made up article, took place in Korea.
Ergo, the instant merchandise is not considered a product of
Canada, as described in General Note 3(c)(vii)(H).
HOLDING:
As a result of the foregoing, the instant merchandise, as
represented by both Samples "A" and "B", is classified under
subheading 6505.90.2060, textile category 359, as hats and other
headgear, knitted or crocheted, or made up from lace, felt or
other textile fabric, in the piece (but not in strips), whether
or not lined or trimmed; hairnets of any material, whether or not
lined or trimmed, other, of cotton, flax or both, not knitted,
certified hand-loomed and folklore products; and headwear of
cotton, other. The country of origin is Korea. The applicable
rate of duty is 8 percent ad valorem.
Due to the changeable nature of the statistical annotation
(the ninth and tenth digits of the classification) and the
restraint (quota/visa) categories, you should contact your local
Customs office prior to importing the merchandise to determine
the current applicability of any import restraints or require-
ments.
Sincerely,
John Durant, Director
Commercial Rulings Division