HQ 0555608 - Duty-free treatment for dress shirts from an insular possession.Substantial transformation;textile article. - United States International Trade Commision Rulings

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HQ 555608

June 27, 1990

CLA-2 CO:R:C:V: 555608 DSN

CATEGORY: CLASSIFICATION

Diane L. Weinberg, Esquire
Sandler, Travis & Rosenberg, P.A.
505 Park Avenue
New York, New York 10022-1106

RE: Duty-free treatment for dress shirts from an insular possession.Substantial transformation;textile article.

Dear Ms. Weinberg:

This is is response to your inquiry of March 12, 1990, requesting an information letter concerning whether foreign fabric which is cut into shirt parts and assembled into men's dress shirts in a U.S. insular possession would be considered "foreign materials" for purposes of the foreign value limitation under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States Annotated (HTSUSA). Due to the nature of your request and the detailed factual description given, we cannot issue an information letter under section 177.1(d)(2), Customs Regulations (19 C.F.R. 177.1(d)(2)). Rather, this will serve as a ruling letter under 19 CFR 177.1(d)(1) as to the specific facts set forth below. Samples were submitted for examination.

FACTS:

Either cotton or man-made fiber fabric of foreign origin, along with foreign buttons, polybags, collar stays, thread and cardboard, will be sent to a U.S. insular possession where they will be manufactured into men's dress shirts.

In the insular possession, the fabric will be cut into shirt parts, consisting of two front panels, one back panel, band, two sleeves, yoke, upper and lower collars, cuffs, and interlining for the cuffs and collars. These parts then will be assembled in the possession by sewing and tailoring, after which the finished shirts will be shipped to the U.S.

You state that more than 50% of the total value of the dress shirts are attributable to the foreign piece goods, findings and trim with approximately 10% representing the value of the foreign findings and trim. You assert that the foreign piece goods will undergo a double substantial transformation in the insular possession and, therefore, their cost or value should not be counted toward the General Note 3(a)(iv), HTSUSA, 50% limitation on foreign materials, citing T.D. 88-17 published in the Federal Register on April 13, 1988 (53 Fed. Reg. 12143).

ISSUE:

Whether the value of foreign fabric which is imported into an insular possession, cut into shirt parts, and then assembled into men's dress shirts is considered part of the cost of "foreign materials" or the cost of materials produced in the insular possession for purposes of the foreign value limitation under General Note 3(a)(iv), HTSUSA.

LAW AND ANALYSIS:

Under General Note 3(a)(iv), HTSUSA, goods imported from a U.S. insular possession may enter the customs territory of the U.S. free of duty if they:

(1) are the growth or product of the possession;

(2) do not contain foreign materials which represent more than 70% of the goods' total value (or more than 50% with respect to textile and apparel articles subject to textile agreements, and other goods described in section 213(b) of the Caribbean Basin Economic Recovery Act)(CBERA); and

(3) come directly to the customs territory of the U.S. from the possession.

Since textile dress shirts are subject to textile agreements, they are not considered eligible articles entitled to duty-free treatment under the CBERA. Therefore, the foreign materials making up the merchandise at issue may not represent more than 50% of the shirts' appraised value.

T.D. 88-17 applied the double substantial transformation concept to products of U.S. insular possessions for purposes of determining whether the products meet the value requirement under General Note 3(a)(iv), HTSUS. T.D. 88-17 concluded that:

If foreign material (material not originating in an insular possession) is transformed into a new and different product
in an insular possession and then that product is transformed again in that insular possession to yet another new and different product which is imported into the U.S., its cost will be considered part of the value of materials produced in the insular possession.

A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See The Torrington Co. v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).

You contend that the foreign piece goods in this case undergo a double substantial transformation in the insular possession so that only the foreign findings and trim would be considered "foreign materials" for purposes of calculating the 50% foreign value limitation under this program. You state that the Customs Service has consistently ruled that cutting fabric into garment parts is a complex operation that results in a substantial transformation of the merchandise. Moreover, you assert that the assembly of the shirt pieces into the finished dress shirts constitutes a second substantial transformation. According to your letter, the assembly operation is very complex, and includes, among other things, fusing the interlining to the collar and cuffs, trimming before stitching can be performed, blocking sleeve plackets, sewing the band to the collar, joining the yoke to the back panel, placing the buttonholes, sewing the components together, and double-needle stitching the side seams. All totalled, there are 30 different steps in the assembly operation.

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth criteria for determining whether a textile or textile product has been substantially transformed. 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. See 19 CFR 12.130(b). According to section 12.130(d)(2), the following will be considered in determining whether merchandise has been subjected to substantial manufacturing or processing operations: (1) the physical change in the material or article; (2) the time involved; (3) the complexity of the operations; (4) the level or degree of skill and/or technology required; and (5) the value added to the article in each country or territory.

Examples of processes which usually will result in a substantial transformation and those which usually will not are set forth in 19 CFR 12.130(e). The cutting of fabric into parts and the assembly of those parts into the completed article is an
example of a substantial transformation. See 19 CFR 12.130(e)(1)(iv). However, as you note, we have consistently held that the cutting of fabric into specific or defined shapes which serve as components in an assembly operation is, in itself, sufficient to substantially transform the fabric into new and different articles of commerce. See, for example, Headquarters Ruling Letters (HRL's) 067823 dated June 2, 1982, 081155 dated February 3, 1988, 554025 dated December 16, 1986, and 555189 dated June 12, 1989. Therefore, we agree that the cutting of the foreign piece goods into shirt parts in an insular possession results in a substantial transformation of the fabric.

According to 19 CFR 12.130(e)(1)(v), a substantial transformation usually will result from the following:

Substantial assembly by sewing and/or tailoring of all cut pieces of apparel articles which have been cut from fabric in another foreign territory or country, or insular possession, into a completed garment (e.g. the complete assembly and tailoring of all cut pieces of suit-type jackets, suits, and shirts).

Since shirts are specifically mentioned in the above example, and the complete assembly of the dress shirts in the instant case involves numerous steps, some of which are complex and require a high level of skill, we conclude that the assembly of the shirt parts results in a second substantial transformation. We also find that the dress shirts are "tailored" as that term is defined in the Textile Category Guidelines for Fabric and Garments Reported under Various Textile Categories, CIE 13/88, (November 23, 1988). "Tailoring" is defined therein as "the shaping of a rigid fabric into a garment so as to neatly fit the contours of the body by means of cutting, seaming and finishing." Dress shirts are traditionally tailored, as evidenced by the rigidity of the fabric used, and the detail work necessary to achieve a close fitting look. This is achieved in the instant case by substantial cutting, seaming and finishing.

HOLDING:

Based on the samples and descriptive information provided, the foreign piece goods imported into an insular possession will undergo the requisite double substantial transformation when manufactured into finished men's dress shirts. Therefore, pursuant to T.D. 88-17, the foreign fabric will not be considered "foreign material" but will be considered material produced in the insular possession for purposes of calculating the 50% foreign value limitation under General Note 3(a)(iv), HTSUSA. However, the cost or value of the foreign trim and findings will be included in the "foreign material" content for purposes of the value requirement under this program.

Sincerely,

John Durant, Director
Commercial Rulings Division

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