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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 classification 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 approximately 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 sub-

(I) to a change in tariff classification in Cana- da 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

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 transforma- tion 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 require- ments.

Sincerely,


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