CLA-2 CO:R:C:T 953022 CAB
Ms. Ourania Vekris
0/30 Thermobag
5355 Parkwood Place
Richmond, British Columbia
Canada V6V 2N1
RE: Country of origin of thermally insulated bag; CFTA
Dear Ms. Vekris:
This letter is in response to your inquiry of October 16,
1992, requesting a country of origin determination and reduced
duty rate for thermal bags. A sample was submitted for
examination.
FACTS:
Rolls of nylon fabric and nylon webbing are manufactured in
Korea. Each nylon fabric roll contains approximately 50 yards of
material. The webbing which is used as straps on the finished
product is imported from Korea in boxes that contain 20 rolls.
Each roll measures approximately 27.34 yards. Both the nylon
fabric and the webbing are exported to Canada to be processed
into thermally insulated bags. The processing in Canada includes
cutting the webbing and fabric to length and width, sewing,
stuffing the bag with fiberfill material, serging and stitching
the opening. A piece of Velcro is also attached to the finished
product.
The costs involved in constructing the finished product are
as follows:
Materials imported from Korea 35% of cost $6.48/bag
(Fabric and Webbing)
Canadian Materials 25% of cost $4.63/bag
(Fiberfill and Velcro)
Canadian Labor 40% of cost $7.39/bag
Total Cost $18.50/bag
ISSUES:
I. What is the country of origin of the merchandise in
question?
II. Whether the merchandise in question is eligible for
preferential treatment under the United States - Canada Free
Trade Agreement (CFTA)?
LAW AND ANALYSIS:
I. Country of Origin
Country of origin determinations for textile products are
subject to Section 12.130, Customs Regulations (19 CFR 12.130).
Section 12.130 provides that a textile product that is processed
in more than one country or territory shall be a product of that
country or territory where it last underwent a substantial
transformation. A textile product will be considered to have
undergone a substantial transformation if it has been transformed
by means of substantial manufacturing or processing operations
into a new and different article of commerce.
Section 12.130(d), Customs Regulations, sets forth criteria
for determining whether a substantial transformation of a textile
product has taken place. This regulation states these criteria
are not exhaustive; one or any combination of criteria may be
determinative, and additional factors may be considered.
Section 12.130(d)(1), Customs Regulations, 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.
Section 12.130(d)(2), Customs Regulations, states that for
determining whether merchandise has been subjected to substantial
manufacturing or processing operations, the following will be
considered.
(i) The physical change in the material or article
(ii) The time involved in the manufacturing or processing
(iii) The complexity of the manufacturing or processing
(iv) The level or degree of skill
(v) The value added to the article or material
Section 12.130(e)(i)(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.
In this instance, webbing and material are sent from Korea
to Canada. In Canada, the goods are cut into parts, sewn,
stuffed, and assembled into the finished product. The costs
linked to the goods of Korea are 35 percent of the total cost for
the finished product. The majority of the manufacturing costs
incurred for the finished product happens in Canada. Even though
the raw materials are exported from Korea, the complexity of the
processing operations in Canada required to transform the fabric
and webbing into a thermal bag is substantial. The fabric and
webbing are converted into a thermally insulated bag which is a
new and different article of commerce. Pursuant to Section
12.130, the merchandise in question underwent its last
substantial transformation in Canada. Therefore, the country of
origin for the instant merchandise is Canada.
II. The United States - Canada Free Trade Agreement
General Note 3(c)(vii), HTSUSA, provides the rules which
determine what products imported into the United States from
Canada are entitled to special duty treatment under the CFTA.
Eligible goods must be "goods originating in Canada", as stated
in General Note 3(c)(vii)(A), HTSUSA.
Pursuant to General Note 3(c)(vii)(B), HTSUSA, goods
imported into the Customs territory of the United States are
eligible for treatment as "goods originating in the territory of
Canada" only if -
(1) they are goods wholly obtained or produced in the
territory of Canada and/or the United States, or
(2) they have been transformed in the territory of Canada
and/or the United States, so as to be subject -
(I) to a change in tariff classification 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)(F),(G),(H),(I),(J) and (R) of this note.
General Note 3(c)(vii)(R)(8)(aa), HTSUSA, which applies to
goods classifiable in Chapters 41 through 43 states that a change
from one chapter to another would allow that merchandise to be
considered "goods originating in Canada".
In this instance, the webbing and woven nylon fabric
imported into Canada are classifiable in Chapter 54. Upon
exportation to the United States, after being subjected to
further processing in Canada, the finished product is
classifiable in Chapter 42, HTSUSA, as a thermally insulated bag.
Therefore, the merchandise in question is transformed in Canada
and can be considered "goods originating in Canada" by having
undergone a change in tariff classification, pursuant to General
Note 3(c)(vii)(R)(8)(aa), HTSUSA.
HOLDING:
The merchandise in question has undergone its last
substantial transformation in Canada, therefore the country of
origin for the merchandise is Canada. Also, after having
undergone a change in tariff classification in accordance with
General Note 3(c)(vii)(R)(8)(aa), the merchandise is considered
"goods originating in Canada" and eligible for a reduced rate of
duty under the CFTA. The applicable reduced duty rate is 10
percent ad valorem.
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