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HQ 084534


August 24, 1989

CLA-2 CO:R:C:G 084534 HP

CATEGORY: CLASSIFICATION

TARIFF NO.: 6505.90.2060

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 classifica-
tion 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 ap-
proximately 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 subject--

(I) to a change in tariff classification in Canada 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 transformation 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 requirements.

Sincerely,


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