CLA-2 OT:RR:CTF:TCM H019439 GC
Port of Laredo
Post Office Box 3130
Laredo, Texas 78044-3130
RE: Internal Advice Request No. 07/029: NAFTA tariff preference and country of origin marking requirements for bed-in-bag set
Dear Port Director:
This is in reference to the request for internal advice, dated October 17, 2007, initiated by Revman International, Inc. (Revman). The internal advice request pertains to the marking requirements and tariff treatment under the North American Free Trade Agreement (NAFTA) of an imported bed-in-a-bag set, along with the components that comprise the set. Additional consideration was given to the substance of our meeting with Revman and counsel on July 22, 2008. We have also reviewed the supplemental submission prepared by counsel, dated July 25, 2008.
FACTS:
The subject merchandise is a “bed-in-a-bag” set that contains a comforter, flat sheet, fitted sheet, pillowcases and pillow shams. The fabric used to create the set’s components comes from Pakistan, and all of the components of the set except for the comforter are completed in Pakistan. The sheets, pillowcases, shams and comforter shell are then shipped to Mexico, where the comforter shell is filled with batting fabric and sewn closed. The set is then packaged for sale and shipped to the United States.
The marking on the outer packaging of the sample “bed-in-a-bag” reads, “Assembled in Mexico of foreign components”. The sheets, pillowcases and shams are marked, “Made in Pakistan”.
ISSUE:
May the subject set receive preferential tariff treatment under NAFTA where some of the components that make up the set are marked as products of a non-originating country?
LAW AND ANALYSIS:
The principal issue in this case is whether or not the subject set, with its non-originating country of origin markings, qualify for NAFTA tariff preference under General Note 12, Harmonized Tariff Schedule of the United States (HTSUS). General Note 12(a) provides, in pertinent part:
* * *
(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act. (Emphasis added).
General Note 12(b) provides in pertinent part:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if --
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the United States so that –
except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or…
Accordingly, the bed-in-a-bag set at issue will be eligible for the "Special" "MX" rate of duty provided it is a NAFTA "originating" good under General Note 12(b), HTSUS, and it qualifies to be marked as a good of Mexico.
Counsel for Revman argues that General Note 12 does not require all of the items in the set to be marked as products of Mexico. Only the overall set must be marked as a product of a NAFTA country to receive the NAFTA tariff preference. Counsel correctly notes that General Note 12 does not explicitly require merchandise to be marked as a product of a NAFTA country to receive the NAFTA tariff preference. Counsel further argues that the parenthetical in General Note 12(a), which states, “without regard to whether the goods are marked”, should be interpreted to mean that General Note 12 incorporates the marking rules only for the purpose of determining eligibility for tariff preference, and does not incorporate the requirement that the goods be so marked in order to benefit from the tariff preference.
The words “without regard to whether the goods are marked” in General Note 12(a) refer to marking exemptions delineated by the marking rules. Consequently, if the applicable marking rules in this case provide for an exception to NAFTA marking rules with respect to components comprising the set, then the subject merchandise would not be required to be marked as a product of a NAFTA country to satisfy the terms of General Note 12. If no such exemption exists, then General Note 12 requires that the imported merchandise qualify to be marked as a good of Mexico in order to receive the benefit of the NAFTA tariff preference. By incorporating the marking rules for the tariff preference analysis, General Note 12 also requires that the result of the marking rules be followed.
On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act (codified at 19 U.S.C. 3592) 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, CBP published 19
C.F.R. §102.21 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 shall be determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of 19 C.F.R. § 102.21. With specific regards to sets, 102.21(d) provides the following:
Where a good classifiable in the HTSUS as a set includes one or more components that are textile or apparel products and a single country of origin for all of the components of the set cannot be determined under paragraph (c) of this section, the country of origin of each component of the set that is a textile or apparel product shall be determined separately under paragraph (c) of this section.
Per the terms of section 102.21(d) the country of origin of each item in the set must be determined separately if there is not a single country of origin for all the components in the set as determined under section 102.21(c). Per 19 C.F.R. §102.21(c)(1), the subject sheets, pillowcases and pillow shams initially appear to be products of Pakistan. With respect to the comforter, the relevant provision in this case is 19 C.F.R. §102.21(c)(4), which states:
Where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), (2) or (3) of this section, the country of origin of the good is the single country, territory or insular possession in which the most important assembly or manufacturing process occurred.
The fabric-making process of the subject comforter’s outer shell in Pakistan constitutes the most important manufacturing process. See HQ 562498, dated November 13, 2002. Therefore, the country of origin of the subject comforter initially appears to be Pakistan. However, 19 C.F.R. §102.19(a) provides for a NAFTA override, which states as follows:
Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning of §181.1(q) of this chapter is not determined under §102.11(a) or (b) or §102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see §181.11 of this chapter) has been completed and signed for the good. (Emphasis added).
Although packing is considered a non-qualifying operation under 19 C.F.R. §102.17, the assembly of the comforter in Mexico meets the requirement that the subject merchandise undergo production other than minor processing. CBP has previously stated that as long as one item in the set undergoes productions other than minor processing, the remaining items in the set will receive the benefit of the NAFTA override of 19 C.F.R. §102.19. See HQ 559421, dated September 16, 1996; HQ 560456, dated September 26, 1997; HQ 560577, dated August 4, 1997. Accordingly, pursuant to 19 C.F.R. 102.19(a), the country of origin of the bed-in-a-bag set is Mexico.
Counsel for Revman asserts that the analysis regarding NAFTA preferential treatment should be considered separate from the marking requirements. As pointed to by counsel, this distinction was noted in HQ 966974, dated March 22, 2004, which pertained to the tariff classification and eligibility for NAFTA tariff preference of microscope sets. Among the components of the sets from Canada and the U.S., the microscope sets subject to HQ 966974 also contained components from China, Japan and Russia (i.e. eyepieces, tripods and a digital camera). We explicitly stated that HQ 966974 concerned tariff classification and eligibility for preferential treatment under NAFTA. Because all of the components of the set met the terms of the applicable tariff shift rules, we held in HQ 966974 that the subject set was indeed eligible for NAFTA preference. We did not specify whether or not the merchandise subject to HQ 966974 was required to be marked as a product of a NAFTA country. Because of this, counsel for Revman concludes that there is no such requirement. We find this logic faulty, and decline to infer from the above-referenced rulings whether or not a requirement exists to mark products that receive the benefit of the NAFTA tariff preference.
Likewise, counsel argues the NAFTA preference override applies not to determine country of origin marking requirements, but only for the purpose of determining whether or not imported merchandise is eligible to receive the benefit of lower tariff rates under NAFTA. Thus, according to counsel, it is entirely acceptable for the subject sheets, pillowcases and pillow shams to be marked as products of Pakistan, and receive preferential tariff treatment under NAFTA per 19 C.F.R. §102.19. Accordingly, counsel advances the position that requiring the subject sheets, pillowcases and pillow shams to be marked as products of Mexico amounts to requiring products of Pakistan to be marked incorrectly in order to receive preferential tariff treatment under NAFTA.
Counsel for Revman points our attention to NY E80179, dated May 5, 1999, in which CBP (then the U.S. Customs Service) issued a ruling on the tariff classification, eligibility for NAFTA tariff preference and country of origin marking requirements of a battery pack and charger set for use with radio controlled toy vehicles. The battery pack was considered a product of Mexico, while the charger unit was a product non-NAFTA country such as China or Thailand. Because the non-originating charger unit underwent the applicable tariff shift rule, we held that the overall set was considered to be “originating goods” pursuant to General Note 12(b)(ii)(A), HTSUS. We then held that, pursuant to 19 C.F.R. §102.11(c), the battery pack could be marked as a product of Mexico, and the charger unit could be marked as a product of the non-origin country (i.e. China, Taiwan, Malaysia, etc.). Counsel for Revman cites this conclusion as support for its position that the components of the subject bed-in-a-bag set should be marked as products of Pakistan while the overall set still benefits from the NAFTA tariff preference.
This conclusion, however, overlooks the fact that applicable marking rule in NY E80179 was 19 C.F.R. §102.11(c), which provides for the country of origin marking requirements for sets. Pursuant to that rule, the battery pack and charger that comprised the subject set were properly marked respectively as products of Mexico and China. In the instant case, the country of origin of the subject bed-in-a-bag set is not determined under 19 C.F.R. §102.21 to be a good of a single NAFTA country. Consequently, the country of origin marking requirements of the subject merchandise are governed by 19 C.F.R. §102.19, which compels a different result than in NY E80179. We further note that NY E80179 is not applicable in this case because in that ruling, we considered only whether the subject battery pack satisfied the terms of General Note 12(b). We did not provide analysis on the operation of General Note 12(a).
Nowhere in 19 C.F.R. §102.19 does it state that the NAFTA preference override is applicable only with respect to the eligibility of merchandise to receive preferential tariff treatment. In fact, section 102.19 serves as the rule of origin where NAFTA preferential tariff treatment is at issue. Thus, by virtue of being incorporated into a set, and thus undergoing a tariff shift, the subject sheets, pillowcases and pillow shams become products of Mexico by application of 19 C.F.R. §102.19, and must be marked accordingly. Indeed, marking these components as products of Pakistan while marking the entire set as a product of Mexico would serve to confuse the ultimate purchaser.
We agree with counsel for Revman that if the sheets, pillowcases and pillow shames were imported separately, they would be considered products of Pakistan. However, by virtue of being incorporated into the subject bed-in-a-bag set, the components become products of Mexico by application of 19 C.F.R. §102.19, the terms of which clearly indicate that it applies to the country of origin of certain items, not just to eligibility for favorable tariff treatment under NAFTA. Consequently, the subject sheets, pillowcases and pillow shams are considered to be products of Mexico for both marking and NAFTA preference purposes. See also HQ 562498, dated November 13, 2002; HQ 964960, dated September 4, 2002; and HQ 963904, dated May 30, 2002 (holding that “[b]y virtue of the NAFTA override, each item in the [comforter] set must be marked country of origin Canada in order to receive preferential treatment under NAFTA as claimed”).
HOLDING:
Inasmuch as General Note 12, HTSUS, incorporates the marking rules for tariff preference eligibility, General Note 12 also requires the result of the marking rules to be followed. By application of 19 C.F.R. §102.19, each bedding item, if entered in a set under subheading 9404.90, HTSUS, must be marked country of origin Mexico in order to receive preferential treatment under the NAFTA as claimed.
You are to mail this decision to the internal advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division