HQ 0088395 - Country of origin of diapers. China; Guatemala; cut; sew; substantial; transformation - United States International Trade Commision Rulings

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HQ 088395

April 1, 1991

CLA-2 CO:R:C:T 088395 HP

CATEGORY: CLASSIFICATION

Mr. John M. Peterson
Neville, Peterson & Williams
Counsellors at Law
39 Broadway
New York, NY 10006

RE: Country of origin of diapers. China; Guatemala; cut; sew; substantial; transformation

Dear Mr. Peterson:

This is in reply to your letter of December 17, 1990, concerning the country of origin determination of diapers, produced in either The Peoples' Republic of China or Guatemala, for textile quota/visa purposes, duty assessment under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA), and marking. Please reference your client Pro Diaper, Inc., case No. 1606-01.

FACTS:

The merchandise at issue is described by you as follows:

The merchandise in question will be imported at the port of Portland, Oregon, and, from time to time, at such other ports of entry as may be appropriate.

Pro Diaper will purchase 100% cotton woven fabric piece goods made in the People's
Republic of China (PRC) and ship them to
Guatemala, where they will be manufactured into reusable cotton diapers for infants. The cotton fabric will be plain, and will feature no lines of demarcation or other distinguishing features dedicating the fabric to a particular use. Diapers will be made in three basic styles:

Style 1, a 4 ply X 10 ply diaper;
Style 2, a 4 ply X 6 ply diaper; and
Style 3, a 4 ply X 8 ply diaper.

Style 1 and 2 diapers will measure approximately 20.5 inches in length and
14.5 inches in width, while Style 3 diapers will measure approximately 16 inches in length by 12 inches in width.

In Guatemala, the fabric is cut to width and to length. The top of the fabric is folded and refolded one-third of the distance to the bottom, and the bottom is folded and refolded one-third of the distance to the top. This creates a 4 ply fabric in the end panels. Additional layers of woven cotton fabric, cut to size and shape, are assembled by sewing into the center panels, to provide the desired levels of thickness and absorbency. The fabric is then sewn lengthwise with double rows of stitching, one-third and two-thirds of the distance from the top, an operation which fixes the end panels in place and joins the additional center panel fabric to the diaper. The diaper is then hemmed on its edges, (reinforced with double end stitching), inspected, and folded. The diapers are then packaged into bales of 25 dozen diapers and shipped to the United States, where they are sold to diaper service companies, which in turn provide them (with necessary laundry services) to customers with infants and young children.

The cost of the PRC-origin cotton fabric used in manufacturing the diapers is approximately 63.5 cents per square yard (delivered to Guatemala). The cost of Guatemalan cutting, sewing and finishing operations amounts to approximately 15 cents per square yard. * * * [T]he finished diapers sell for a price equal to approximately $1.32 per square yard, that is, about 209% as great as the cost of the fabric and 168% as great as the total cost of production.

The fiber staple length, yarn characteristics, and fabric weave are controlled within narrow tolerances.
Thread used in sewing the diapers must be either a 3 ply spun yarn containing a minimum of 50% polyester, or textured
false twist or airjet continuous yarn, in either event of a specified denier.
Colored threads may only be used if they do not bleed into the diapers or lose color after 100 launderings, and threads must not exhibit inconsistent shrinkage.

Center panel stitching is specified as two rows of either a 401 chain stitch or 301 lock stitch which does not pucker, lose stitches or skip stitches. Stitch density is controlled at between 10 and 12 stitches per inch, and stitching tolerances are specified for the sides of the diaper, where the weaving selvages are exposed. End panel stitching must be by overlock type stitching which trims and wraps around the raw edges. Colored thread is used in end-panel stitching, with a different color designated for each [4 x 6 = white, 4 x 8 = green, 4 x 10 = blue].
Overlock thread tails are bar tacked.

After all of the above operations are performed, the finished diaper is ready for packaging.

ISSUE:

Whether the cutting and sewing of Chinese fabric in Guatemala, plus the insertion of additional center panels, constitute a substantial manufacturing operation such that the merchandise is deemed to have been substantially transformed pursuant to 19 C.F.R. 12.130?

LAW AND ANALYSIS:

In HRL 087949 of January 8, 1991, we stated:

Pursuant to section 12.130, Customs
Regulations (19 CFR 12.130), a textile or textile product which consists of materials produced or derived from, or processed in, more than one foreign territory or country shall be a product of that foreign territory or country where it last underwent a substantial transformation. A textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce.

Section 12.130(d) establishes criteria for determining whether an article has been substantially transformed. However, the criteria set forth in 19 CFR 12.130(d) are not
exhaustive; one or any combination of these criteria may be determinative and additional factors may be considered.

According to 19 CFR 12.130(d)(2), the following factors are to be considered in determining whether merchandise has been subjected to substantial manufacturing or processing operations: the physical change in the material or article, the time involved in the manufacturing or processing operations, the complexity of the operations, the level or degree of skill and/or technology required, and the value added to the article.

Nevertheless, section 12.130(e)(2) provides that an article will usually not be considered to be a product of a particular country merely by having undergone:

(ii) Cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use....

In this case, when the cotton fabric is exported from China it is not identifiable as being intended for use as diapers. As we stated in Headquarters Ruling Letter
(HRL) 086779 dated April 25, 1990:

Upon exportation...the merchandise is mere cotton fabric, suitable for multiple uses. There is no evidence, i.e., lines of demarcation, that...the fabric is meant to be diapers.

Moreover, in Thailand, the fabric is prefolded and stitch sewn into the 14 width configuration, cut to length, and then sent to a second sewing operation where the raw cut edges are closed. Based on the foregoing, Customs is of the view that the above constitute substantial manufacturing or processing operations under 19 CFR 12.130(e)(1). Consequently,
Customs considers the fabric has been substantially transformed pursuant to 19
CFR 12.130.

In this case, the processing operations taking place in Guatemala are virtually identical to those described in HRL 087949. In addition, the insertion of supplementary panels in the instant diapers comprises an even more substantial processing operation. It is our opinion, therefore, that for quota/visa, tariff, and marking purposes, the fabric has been substantially transformed in Guatemala.

HOLDING:

As a result of the foregoing, the instant merchandise is considered country of origin Guatemala.

The holding in this ruling applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 177.9(b)(1), CUSTOMS REGULATIONS (19 C.F.R. 177.9(b)(1)). This section states that a ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. Should it subsequently be determined that the information furnished is not complete and does not comply with 19 C.F.R. 177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished this may affect the determination of country of origin. In such a case, it is recommended that a new ruling request be submitted in accordance with section 177.2, CUSTOMS REGULATIONS (19 C.F.R. 177.2).

Sincerely,

John Durant, Director

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