CLA-2 RR:TC:SM 559661 KBR
Daniel Cavazos
Cacheaux, Cavazos, Newton, Martin & Cukjati, L.L.P.
The Atrium
1300 N. 10th Street, Suite 320
McAllen, TX 78501
RE: Socks; 9802.00.90, HTSUS; 9802.00.50, HTSUS
Dear Mr. Cavazos:
This is in response to your letter dated January 24, 1996,
on behalf of Lyons Hosiery, Inc., concerning the eligibility of
socks from Mexico for duty-free treatment under subheading
9802.00.50, Harmonized Tariff Schedule of the United States
("HTSUS") and 9802.00.90, HTSUS. You submitted a sample with
this request. We apologize for the delay in responding.
FACTS:
You present two scenarios under which you may import socks
into the U.S. after assembly in Mexico. In both cases the
materials used to knit and seam the socks are 80% cotton and 20%
nylon yarn, elastic, and nylon thread. The yarn and thread are
of U.S. origin. In some cases you state that the elastic may be
of foreign origin. You state that the elastic is less than 1% of
the cost of the sock and less than 1% of the weight of the sock.
The plastic anchors and paper used for banding and labeling will
be of U.S. origin.
Under the first scenario, the socks will be knit to shape in
the U.S. In a greige state, the article will be exported to
Mexico. In Mexico the unfinished sock will be turned and the toe
portion trimmed, closed and seamed using U.S. thread, and turned
again. The sock will be bleached then boarded onto a foot shape
for drying and wrinkle removal. The socks are then paired,
banded with adhesive labels and bagged for export to the U.S.
Under the second scenario, the socks are knit to shape and
finished in the U.S., then exported to Mexico. In Mexico the
socks will be boarded for wrinkle removal. The socks are then
paired, a plastic anchor is attached and the socks are banded
with adhesive labels and bagged for export to the U.S. You state
that for some smaller sizes, the boarding is not required and the
socks will only be paired and banded with an adhesive label
which in both instances has on it the name of the company, fiber
content, care instructions and country of origin information.
You state that you believe that the socks under this scenario
will be excepted from country of origin marking requirements
because they remain products of the U.S.
ISSUES:
1. Do the socks under the first scenario qualify for
duty-free treatment pursuant to 9802.00.90,
HTSUS?
2. Do the socks under the second scenario qualify for
duty-free treatment pursuant to 9802.00.50,
HTSUS?
3. What are the country of origin marking requirements
applicable to the socks under both
scenarios?
LAW AND ANALYSIS:
9802.00.90, HTSUS
Subheading 9802.00.90, HTSUS, was created to provide for the
duty-free entry of:
Textile and apparel goods, assembled in Mexico in which
all fabric components were wholly formed and cut in the
United States, provided that such fabric components in
whole or in part, (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; provided the goods classifiable
in chapters 61, 62, or 63 may have been subject to
bleaching, garment dyeing, stone-washing, acid-washing
or perma-pressing after assembly as provided for herein.
Since subheading 9802.00.90, HTSUS, was intended as a
successor provision to subheading 9802.00.80, HTSUS, with respect
to certain textile and apparel goods assembled in Mexico, the
regulations under subheading 9802.00.80, HTSUS, may be
instructive in determining whether a good is eligible for the
beneficial duty treatment accorded by subheading 9802.00.90,
HTSUS.
Under section 10.14(a), Customs Regulations (19 CFR
10.14(a)), components will not lose their entitlement to the
benefits of subheading 9802.00.80, HTSUS, by being subjected to
operations incidental to the assembly before, during, or after
the assembly with other components. Pursuant to section
10.16(a) of the Regulations (19 CFR 10.16(a)), the assembly
operations 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, and may be preceded, accompanied, or
followed by operations incidental to the assembly process.
The foreign operations that entail sewing fabric onto itself
using any type of stitch, including a "close-out"/finishing or
over-edge stitch are considered acceptable assembly operations.
See 19 CFR 10.16(a); L'Eggs Products v. United States, Slip Op.
89-5, 13 CIT 40, 704 F. Supp. 1127 (CIT 1989), which held that
sewing together the end of a pantyhose tube is considered an
acceptable assembly operation as the thread serves as a joining
agent by joining the tube to itself. See HQ 557327 (July 26,
1993).
In the instant case, based on the information and samples
provided, we find that the sock is wholly formed prior to its
export into Mexico. The sewing operation used to join the toe of
the sock is an acceptable assembly operation. The bleaching is
an acceptable operation specifically allowed under 9802.00.90,
HTSUS. Banding, labeling and bagging of the sock are operations
incidental to assembly pursuant to 19 CFR 10.16(f). Boarding of
the sock is similar to pressing which is an acceptable operation
under 19 CFR 10.16(b)(7). Accordingly, the socks that are
assembled in Mexico may be entered free of duty under subheading
9802.00.90, HTSUS, provided all other conditions of the
subheading are met.
9802.00.50, HTSUS
Annex 307 of the North American Free Trade Agreement
(NAFTA) and Annex 307.1 of the Agreement provide that articles
exported from the U.S. to Mexico for "repairs or alterations"
may, upon their return, enter into the U.S. free of duty.
Subheading 9802.00.50, HTSUS, provides a partial or complete
duty exemption for articles exported from and returned to the
U.S. after having been advanced in value or improved in condition
by repairs or alterations, provided the documentary requirements
of section 181.64, Customs Regulations (19 CFR 181.64), are
satisfied. Section 181.64, which implements Article 307 of
NAFTA, provides that goods returned after having been repaired or
altered in Mexico are eligible for duty-free treatment, provided
that the requirements of this section are met. However,
entitlement to this tariff treatment is precluded in
circumstances where the operations performed abroad destroy the
identity of the exported articles or create new or commercially
different articles through a process of manufacture. See A.F.
Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g
C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries
Corporation v. United States, 3 CIT 9 (1982). Subheading
9802.00.50, HTSUS, treatment is also precluded where the exported
articles are incomplete for their intended use and the foreign
processing operation is a necessary step in the preparation or
manufacture of finished articles. Dolliff & Company, Inc. v.
United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618
(1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).
"Repairs or alterations" for purposes of 19 CFR 181.64 are
defined as:
... restoration, addition, renovation, redying,
cleaning, resterilization, or other treatment
which does not destroy the essential
characteristics of, or create a new or
commercially different good from, the good
exported from the United States.
In this instance, placing the adhesive label on the
paired socks constitutes an "alteration". You are placing an
adhesive label on the paired socks which will be printed with the
name of the company, the fiber content, the care instructions and
the country of origin of the socks. We have held that marking or
affixing a label to a product constitutes an alteration. See T.D.
56320(1) dated September 17, 1964 (electrical diodes exported to
Mexico for inspection, evaluation, and stamping of their
electrical diode characteristics were entitled to treatment under
806.00, TSUS (now 9802.00.50, HTSUS); HRL 071159 dated March 2,
1983 (diodes exported to Mexico for marking and packaging
operations were entitled to treatment under 806.20, TSUS, as the
printing operation had no more significance than a label for
identification purposes); HRL 554996 dated June 30, 1988
(sunglasses exported for inspection, temple adjustment and
retagging were entitled to the partial duty exemption in item
806.20, TSUS). See HQ 556956 (July 22, 1993).
Concerning the boarding operation, Customs found in HQ
557600 (September 24, 1994) that "washing, pressing, stapling,
tack it', and tack stitching operations performed on the jeans
in Mexico constitute alterations'". See also HQ 555318
(September 20, 1989); HQ 557327 (July 26, 1993). Since the
boarding operation is similar to a pressing operation, we find
this to be an acceptable "alteration" under 9802.00.50, HTSUS.
Consistent with the above rulings, we are of the opinion that the
operations performed by Lyons Hosiery, Inc. (boarding the socks
to remove wrinkles and then pairing the socks together with a
band for labeling) are operations that constitute acceptable
"alterations" within the meaning of subheading 9802.00.50, HTSUS.
Country of Origin
On December 8, 1994, the President signed into law the
Uruguay Round Agreements Act. Section 334 of that Act provides
new rules of origin for textiles and apparel entered, or
withdrawn from warehouse, for consumption, on and after July 1,
1996. On September 5, 1995, Customs published Treasury Decision
(T.D.) 95-69, establishing Section 102.21, Customs Regulations,
in the Federal Register, implementing Section 334 (60 FR 46188).
Thus, effective July 1, 1996, the country of origin of a
textile or apparel product is determined by sequential
application of the general rules set forth in paragraphs (c)(1)
through (5) of Section 102.21.
Paragraph (c)(1) states that "The country of origin of a
textile or apparel product is the single country, territory, or
insular possession in which the good was wholly obtained or
produced." As the socks are not wholly obtained or produced in a
single country, territory or insular possession, paragraph (c)(1)
of Section 102.21 is inapplicable.
Paragraph (c)(2) states that "Where the country of origin of
a textile or apparel product cannot be determined under paragraph
(c)(1) of this section, the country of origin of the good is the
single country, territory, or insular possession in which each of
the foreign material incorporated in that good underwent an
applicable change in tariff classification, and/or met any other
requirement, specified for the good in paragraph (e) of this
section:".
We have determined that the proper classification of the
socks is within subheading 6115, (Panty hose, tights, stockings,
socks and other hosiery, including stockings for varicose veins,
and footwear without applied soles, knitted or crocheted)
Harmonized Tariff Schedule of the United States (HTSUS). The
applicable rule for the change in tariff classification is found
at 19 CFR 102.21(e), 6101-6117, which requires "(3) If the good
is knit to shape, a change to heading 6101 through 6117 from any
heading outside that group, provided that the knit-to-shape
components are knit in a single country, territory, or insular
possession." Since the socks remain under the same tariff
classification after undergoing the operations performed in
Mexico, the criteria under 102.21(c)(2), is not met.
Section 102.21(c)(3) states that where the country of origin
cannot be determined under (c)(1) or (c)(2), "(i) if the good was
knit to shape, the country of origin of the good is the single
country, territory, or insular possession in which the good was
knit". In this case the socks were knit to shape in the U.S.
Therefore, the country of origin of the socks is the U.S.
However, T.D. 95-69, which established 102.21(c)(3), did
not amend section 12.130(c)(1) which states the following:
Applicability to U.S. articles sent abroad.
Chapter 98, Subchapter II, Note 2, Harmonized
Tariff Schedule of the United States, provides
that any product of the U.S. which is returned
after having been advanced in value or improved
in condition abroad, or assembled abroad, shall
be a foreign article for the purposes of the
Tariff Act of 1930, as amended. In order to
have a single definition of the term "product
of" and, therefore, a single country of origin
for a textile or textile product,
notwithstanding paragraph (b), merchandise
which falls within the purview of Chapter 98,
Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon
its return to the U.S., be considered a product
of the U.S.
Pursuant to T.D. 90-17, published in the Federal Register on
March 1, 1990 (55 FR 7303), Customs extended the principles of
country of origin for textiles and textile products contained in
19 CFR 12.130 to such merchandise for all Customs purposes,
including duty and marking. The operations performed on the
socks in Mexico under the first scenario and for the larger sizes
of the second scenario, clearly constitute an advancement in
value or improvement in condition. Under the second scenario,
for the smaller sizes where the socks are not boarded, the
banding of the socks with an adhesive label is considered an
alteration which constitutes an advancement in value or
improvement in condition. Therefore, the country of origin of
the subject socks is Mexico, for quota, marking, and duty
purposes pursuant to T.D. 90-17 and Section 12.130(c).
HOLDING:
The socks under the first scenario qualify for duty-free
treatment pursuant to subheading 9802.00.90, HTSUS. The socks
under the second scenario qualify for duty-free treatment
pursuant to subheading 9802.00.50, HTSUS. The country of origin
of the socks under the first and the second scenario, is Mexico
pursuant to T.D. 90-17 and 19 CFR 12.130(c).
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division