HQ 0731743 - Country of origin marking of spun polyester sewing thread - United States International Trade Commision Rulings

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HQ 731743
October 3, 1989

MAR-2-05 CO:R:C:V 731743 KG

CATEGORY: MARKING

Brenda S. Powers
Frederick Richards, Inc.
P.O. Box 1267
Charleston, South Carolina 29402

RE: Country of origin marking of spun polyester sewing thread

Dear Ms Powers:

This is in response to your letter of August 12, 1988, to the Regional Commissioner of Customs in New York, regarding the country of origin marking of spun polyester sewing thread. Your letter was referred to this office for reply. We regret the delay in responding to your inquiry.

FACTS:

Synthetic staple fiber is produced in Malaysia. The staple fiber is then sent to China where it goes through a series of processes including opening, carding, drawing, roving and spinning into single yarn with an "S" twist. The spun yarn is exported to Malaysia for assembly winding into 2 or 3 ply and wound onto a wooden spool, twisting with "Z" twist, heat setting, spring winding, bleaching and dyeing.

The process of converting yarn into thread involves twisting two or more yarns together to give a balanced structure of the required strength and twist level. Twist can be inserted in two directions: clockwise, which is known as a "Z" twist, or counter-clockwise, which is known as a "S" twist. The lockstitch sewing machine requires a "Z" twist and most sewing threads are now produced with this direction of final twist.

ISSUE:

What is the country of origin of spun polyester sewing thread manufactured as described above.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article.

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for making country of origin determinations for textile and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854)("section 204"). According to T.D. 85-38, the final rule document published in the Federal Register on March 5, 1985 (50 FR 8714),which established 19 CFR 12.130, the principles of country of origin for textiles and textile products contained in 19 CFR 12.130 are applicable to such merchandise for all purposes, including duty and marking. This regulation, which became effective in 1985, came about as a result of Executive Order No. 12,475, 49 FR 19955 (1984), which directed the Secretary of Treasury, in accordance with policy guidance provided by the Committee for the Implementation of Textile Agreements, to issue regulations governing the entry or withdrawal from warehouse for consumption of textile and textile products subject to section 204. The regulations were to include clarifications in or revisions to the country of origin rules for textiles and textile products subject to section 204 in order to avoid circumvention of multilateral and bilateral textile agreements.

The U.S. Court of International Trade upheld the interim regulations which included 19 CFR 12.130, published as T.D. 84- 171 in the Federal Register on August 3, 1984 (49 FR 31248), in Mast Industries, Inc. v. Regan, 596 F. Supp. 1567 at 1582 (CIT 1984). The court stated that the purpose of the interim textile regulations is "prevention of the entry of textile products into the United States on quotas not applied to the country which manufactured all or a substantial part of the textile products. Accordingly interim regulation section 12.130 defines country of origin and established criteria for substantial transformation in order to prevent nearly completed textile products of one country from being imported into the United States on the quota of another country."

When T.D. 85-38 was published, the background information cited an intention to change the result of Cardinal Glove Co. v. United States, 4 C.I.T. 41 (1982), as one of the motivations of the drafting of the new textile regulations. Cardinal Glove involved cotton work gloves. The cotton fabric was produced in Hong Kong, and cut into front and back panels in Hong Kong. These front and back panels were assembled by sewing in Haiti. The gloves were then turned inside out, pressed, inspected, paired, folded and bundled in Haiti. The court held that the assembly and processing of the gloves in Haiti transformed the gloves into an export of Haiti and that therefore, the bilateral textile agreement between the U.S. and Hong Kong was inapplicable and a Hong Kong export license or visa was unnecessary for entry into the U.S. The court noted that "the exportation of merchandise from a country producing a product to an intermediate country for the purpose of processing, manipulating or assembling that product, is a common practice in our present day industrial and technological economy." Cardinal Glove at 43-44. This very practice was feared as a method of attempting to circumvent the textile import program and multilateral and bilateral textile agreements rather than as a mechanism for effecting a substantial manufacturing process that Customs desired to halt through implementation of 19 CFR 12.130.

Pursuant to 19 CFR 12.130, the standard of substantial transformation governs the determination of the country of origin where textiles and textile products are processed in more than one country. The country of origin of textile products is deemed to be that foreign territory, country, or insular possession where the article last underwent a substantial transformation. Substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing operations. The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d) and (e).

Headquarters rulings HQ 075211(March 20, 1985), and HQ 075942 (May 20, 1985), support the position that spinning of yarns into sewing thread is a substantial transformation. In HQ 075211, Customs determined that processing and dyeing of thread in Canada did not result in a substantial transformation and therefore, the country of origin of the acrylic yarn was the country in which the yarn was spun. Headquarters ruling HQ 075942 is similar; Customs ruled that polyester sewing thread was not substantially transformed in Hong Kong, where it was dyed and wound. Therefore, the thread remained a product of the country in which it was spun.

Pursuant to Headquarters rulings HQ 075211 and HQ 075942, the spinning of yarn is a substantial transformation. However, 19 CFR 12.130 defined the country of origin for textiles and textile products pursuant to section 204 as the country where the product last underwent a substantial transformation. Therefore, the pivotal question is whether the processes performed in Malaysia upon reimportation from China constitute a substantial transformation. Since the processes performed in Malaysia are more than dyeing, rulings HQ 075211 and 075942 are not controling.

In Headquarters ruling HQ 081226 (December 14, 1987), Customs held that window fashion components produced in Canada from Japanese fabric were from Canada for country of origin purposes. The spunbonded fabric produced in Japan has a wide variety of uses in agriculture, industry and in consumer goods. Once the fabric was slit, printed and cured in Canada, it was dedicated to use as custom made shades. In contrast, this case involves single yarn with an "S" twist exported from China which has many uses. The 2 or 3 ply thread with a "Z" twist produced in Malaysia is specifically useable for lockstich sewing machines. However, there is no evidence that the imported thread could not also be used for other sewing machines, hand sewing or many other uses to which sewing thread is put.

Therefore, it is necessary to closely examine the processes performed in Malaysia to determine if they constitute a substantial manufacturing or processing operation. After assembling the yarn into 2 or 3 ply, the yarn is twisted into a "Z" twist. The direction of the twist is an important characteristic of thread; for instance, a lockstitch sewing machine can only use thread with a "Z" twist. The yarn is cured in an oven, passed through an electronic cleaner and wound onto a standard steel lace-spring. The thread is then bleached, dyed, hypo extracted and dryed. Further, after drying, the thread is sent for lubrication. This process, which takes place in Malaysia, is considered critical and determines the sewability performance. Because the processes performed on the yarn after reimportation, particularly the twisting and the lubrication, which is done in Malaysia substantially transform the single yarn into a high quality twisted thread useable on lockstitch sewing machines, the country of origin of the thread is Malaysia, the country where the article last underwent a substantial transformation.

HOLDING:

Thread twisted into a "Z" twist, assembled into 2 or 3 ply, bleached and dyed, and lubricated in Malaysia is substantially transformed in Malaysia. Pursuant to 19 CFR 12.130, the country of origin of the thread is Malaysia.

Sincerely,

John Durant
Director,

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