HQ 0732502 - Country of origin marking of sweatshirts - United States International Trade Commision Rulings

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HQ 732502
November 28, 1989

MAR-2-05 CO:R:C:V 732502 KG

CATEGORY: MARKING

Duncan A. Nixon
Sharretts, Paley, Carter & Blauvelt, P.C. 67 Broad Street
New York, N.Y. 10004

RE: Country of origin marking of sweatshirts

Dear Mr. Nixon:

This is in response to your letter of June 21, 1989, and your submission of October 13, 1989 requesting a country of origin marking ruling on imported sweatshirts to be assembled in Jamaica. You submitted samples of the cut pieces and also a completed sweatshirt.

FACTS:

Your client plans to purchase knit fabric of Asian origin. This fabric will be cut to shape in its country of production. The cut components will then be exported to Jamaica for assembly into finished sweatshirts. The sweatshirt will be assembled using two different types of knit fabric. The body panel and the sleeve panels will be cut from knit fleece fabric, while the four side panels on the cuffs, collar and bottom will all be cut from ribbed knit fabric. The cutting operation will cost between $0.05 and $0.10 per garment. The time involved in cutting is minimal. The total cost of the cut components landed in Jamaica is estimated to be $4.20 to $4.80 per garment with the fabric cost estimated at approximately $3.50 per garment.

The sewing operation in Jamaica will cost approximately $0.85 per garment and will take approximately 1/2 hour per garment. The sewing will be performed primarily with flat lock sewing machines which cost approximately $5,000.00 each. The assembly will include the following operations: (1) The double side panels will be carefully aligned and sewn to the main body piece; (2) The sleeve pieces must be sewn closed; (3) The sleeves will be sewn to the body; (4) Each cuff piece, the bottom piece and the collar piece must be carefully folded and sewn closed; (5) The cuffs, bottom and collar must be sewn to the body of the garment and (6) The logo must be embroidered on one of the sleeves. A total of 16 sewing operations and one embroidery operation will be performed in Jamaica. Exhibit 1 of the submission lists 28 different operations to be performed in Jamaica. Exhibit 2 is a chart setting forth the cost of the proposed training program for the operators of the flat lock operations and the double needle cover stitch operations, which is estimated at about $20,000.

ISSUE:

What is the country of origin of an imported sweatshirt assembled as described above for quota and country of origin marking purposes.

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, published in the Federal Register on March 5, 1985, (50 FR 8714), which is the final rule document 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 Court of International Trade upheld the interim regulations, 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). Assembly by sewing is considered in 19 CFR 12.130(e)(v) as usually resulting in a article being deemed a product of the country in which the sewing was done where the assembly is substantial such as the complete assembly and tailoring of all cut pieces of suit-type jackets, suits, and shirts. After considering all the comments received on the interim regulation regarding assembly by sewing, Customs concluded that "factors such as time, nature of the sewing operation, and the skill required to sew together a tailored garment should be considered in determining whether the merchandise was substantially transformed.... Where either less than a complete assembly of all the cut pieces of a garment is performed in one country, or the assembly is a relatively simple one, then Customs will rule on the particular factual situations as they arise, utilizing the criteria in section 12.130(d)." 50 FR 8715 (March 5, 1985), T.D. 85-38. Customs overtly rejected the adoption of an arbitrary rule of origin based solely on the minutes of production in each country.

In HQ 731036 (July 17, 1989), Customs held that the assembly by sewing of polo-style shirts in Country B was not a substantial transformation because the manufacturing process was not complex, took very little time and did not require highly skilled workers. The assembly of polo-style shirts did not require tailoring or detail work. This case is similar. The assembly by sewing takes approximately 1/2 hour and costs $0.85 per garment. There is no evidence that the Jamaica processing requires highly skilled workers or that putting together a sweatshirt is any more difficult than putting together a polo-style shirt. Therefore, the sweatshirt is not substantially transformed in Jamaica. Wherever the fabric is purchased and cut would be the country of origin pursuant to 19 CFR 12.130 for quota and country of origin marking purposes. This conclusion is further supported by the fact that the cost of the fabric is approximately $4.20 to $4.80 per garment plus $0.05 to $0.10 to cut the fabric while the sewing only costs about $0.85 per garment.

In your submission of October 13, 1989, you made several arguments to support your position that Jamaica is the country of origin of the assembled sweatshirts. First, you stated that the importer intends to significantly increase its business operations in Jamaica. This point is not relevant to a determination of what country a textile good is from for the purposes of 19 CFR 12.130. The purpose of 19 CFR 12.130, as stated above, is to insure that a textile good is credited to the proper country and is not intended to favor or penalize any particular country or geographic area.

Your second argument contrasts the cost and time involved in cutting the garment in Korea with the cost and time involved in assembling the garment in Jamaica. These factors are relevant but not conclusive. The major cost involved in the manufacture of the sweatshirts is the cost of the material itself. This material will not be purchased in Jamaica. Further, although cutting does not involve a high labor cost (particularly in Korea), the machines which are used for cutting are expensive.

Thirdly, you argue that because heavy knit fleece fabric and knit ribbed fabric are being used, the sewing operation is more sophisticated and expensive. The polo-style shirts discussed in HQ 731036 involved cotton knit and knit ribbed fabric. Although the fabric used in this case is clearly heavier, we are not convinced that the sewing operation differs that greatly.

Your fourth point is that the importer will have to train workers to use the flat lock machines because the importer currently does not employ any experienced operators. Training is a factor taken into account. However, 19 CFR 12.130 places greater weight on work done by highly trained workers such as tailors and craftsmen. A short training program to teach someone to operate a flat lock machine does not carry great weight.

We regard your fifth point, that Customs adopted 19 CFR 12.130 to address the problem of assembly of knit to shape sweater panels, as an oversimplification of the rationale which led to the adoption of T.D. 85-38. There were a myriad of policy reasons for the adoption of 19 CFR 12.130.

Your sixth point is that the importer's proposed operation is based entirely on legitimate commercial considerations unrelated to quota. T.D. 85-38 states that "the origin rules in 12.130 are effective only for textile restraint purposes." 50 FR 8714. While Customs does not question the legitimacy of the proposed commercial operation and even if the sweatshirts would be subject to quota restraints with both Korea and Jamaica, we are not persuaded that the proposed assembly operations in Jamaica are substantial.

We note that the sample submitted is marked "Made in U.S.A." and has a U.S. address both on the neck label and on the hangtag attached to the sleeve. This marking may be improper depending on the origin of the fabric making up the sample and where the fabric was cut and sewn. Without further information, we can not issue a country of origin marking ruling for the sample. However, if the sweatshirt is imported, the U.S. address on the neck label and the hangtag could trigger the special marking requirements of section 134.46, Customs Regulations (19 CFR 134.46).

HOLDING:

The sweatshirt is not substantially transformed in Jamaica. Wherever the fabric is purchased and cut would be the country of origin for the purposes of 19 CFR 12.130.

Sincerely,

John Durant
Director,

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