HQ 0732673 - Country of origin marking of imported beach towels - United States International Trade Commision Rulings

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HQ 732673
Novemer 6, 1989

MAR-2-05 CO:R:C:V 732673 KG

CATEGORY: MARKING

Syed Sikander Abbas
Terrymanila, Inc.
SFB NO. 7
Bataan Export Processing Zone
Bataan, Philippines

RE: Country of origin marking of imported beach towels

Dear Mr. Abbas:

This is in response to your letter of August 18, 1989, requesting a country of origin ruling regarding imported beach towels.

FACTS:

A textile manufacturing company situated in the Philippines imports greige terry towelling in bales. In the Philippines the fabric will be desized, bleached, dyed, hydro extracted, dried, printed by hand, cut to size, stitched, mended, graded and packed in polybags which are placed in cartons for export.

The process time involved in the Philippines from the importation of greige fabric to the exportation of finished printed towels would be around 40 to 45 days. The value added to the product would be approximately 86%.

ISSUE:

What is the country of origin for the purposes of 19 CFR 12.130 for imported beach towels 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. The U.S. Court of International Trade stated in Koru North America v. United States, 701 F.Supp. 229, 12 CIT ___(CIT 1988), that: "In ascertaining what constitutes the country of origin under the marking statute, a court must look at the sense in which the term is used in the statute, giving reference to the purpose of the particular legislation involved. The purpose of the marking statute is outlined in United States v. Friedlaender & Co., 27 CCPA 297, 302, C.A.D. 104 (1940), where the court stated that: 'Congress intended that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will."

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. 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 reject the theory 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 gloves were considered to be from Haiti, the country of exportation. This meant that 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. It was feared that this theory or principle would create a mechanism to circumvent the textile import program and multilateral and bilateral textile agreements.

Customs stated in T.D. 82-169 its intention not to follow the country of exportation concept set forth in Cardinal Glove, but rather to apply the substantial transformation test.

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).

Specifically, 19 CFR 12.130(e)(i) states that dyeing of fabric and printing when accompanied by two or more of the following finishing operations: bleaching, shrinking, fulling, napping, decating, permanent stiffening, weighting, permanent embossing or moireing in a foreign country may transform the article into a product of that foreign country. Fairchild's Dictionary of Textiles (1970) defines finishing as "all processes through which fabric passes after being taken from loom. This covers bleaching, dyeing, sizing, and processes which give the desired surface effect, e.g., napping, calendering, embossing, etc. Special finishes are used for crease resistance and water repellency. Covers both chemical and mechanical finishing processes, e.g. acetylation, (cotton) and saponification, (rayon) (sic) alter composition of basic fiber."

Although the manufacturing processes in the Philippines involve dyeing and printing of the fabric, it does not include at least two major finishing operations such as the ones listed in 19 CFR 12.130(e)(i). Desizing, which is the process of converting the size in grey goods into a soluble form which is then washed out, either to permit dyeing or bleaching or in testing the unsized weight of the fabric, is considered a minor finishing operation. Hydro extraction, drying, cutting to size, stitching, and mending are also all considered minor finishing operations. Therefore, although the grey fabric is dyed, printed, and bleached in the Philippines, the processing does not include at least two major finishing operations plus dyeing and printing in conformity with the examples set forth in 19 CFR 12.130(e)(i). For this reason, the country of origin for the purposes of 19 CFR 12.130 would be that country where the greige terry towelling is made and not the Philippines.

HOLDING:

The country of origin for the purposes of 19 CFR 12.130 of greige terry towelling processed as described above would be that country where the greige terry towelling is made and not the Philippines.

Sincerely,

John Durant
Director,

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