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HQ 556070


July 1, 1991

CLA-2 CO:R:C:S 556070 KCC

CATEGORY: CLASSIFICATION

Andrew P. Vance, Esq.
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016

RE: Women's t-shirts and men's pullovers created by marking, cutting, sewing, and ironing in the Northern Mariana Islands.General Note 3(a)(iv), HTSUS; insular possession; C.S.D. 83-51; substantial transformation; 19 CFR 12.130(e)(iv); 731028; 732485; 731036; marking; 19 CFR 134.31(l); 725787; 729704; 731028; 731041

Dear Mr. Vance:

This is in response to your letter dated April 25, 1991, to the Regional Commissioner of Customs, New York, on behalf of Luen Thai, concerning duty-free treatment under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS), for women's t-shirts and men's cotton knit pullovers from the Northern Mariana Islands. In NY 862864, Customs responded to your request for tariff classification of the t-shirts and pullovers. Your letter and samples of the t-shirts and pullovers were forwarded to this office for a reply. As requested, your samples will be returned under separate cover.

FACTS:

Luen Thai intends to manufacture men's pullovers and women's t-shirts in the Northern Mariana Islands. Luen Thai will ship foreign-manufactured cotton knit fabric in bolts to the Northern Mariana Islands where it will be subjected to the following operations:

1) unrolling the fabric bolt;
2) marking the fabric;
3) cutting the pattern pieces;
4) sewing together the pattern pieces;
5) ironing; and
6) packing the t-shirts and pullovers.

Upon completion of the foreign operations, the t-shirts and pullovers will be imported into the U.S.

The women's t-shirts are labeled "American Eagle Outfitters for Her," and contain a label stating "Made in USA of Imported Fabric" for the country of origin marking. The men's pullovers are labeled "Eagle Pass," and contain a label stating "Made in USA of Imported Fabric" for the country of origin marking.

ISSUE:

I. Whether the t-shirts and pullovers will be entitled to duty- free treatment under General Note 3(a)(iv), HTSUS, when imported into the U.S.

II. Whether the proposed labels satisfy the country of origin marking requirements.

LAW AND ANALYSIS:

I. General Note 3(A)(iv), HTSUS

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

(1) are manufactured or produced in the possession; (2) do not contain foreign materials which represent more than 70 percent of the goods' total value (or more than 50 percent 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); and
(3) come directly to the customs territory of the U.S. from the possession.

Materials imported into an insular possession become a "product of" the possession if they are substantially transformed there. In other words:

"the question...is whether operations performed on products in the country of exportation are of such a substantial nature to justify the conclusion that the resulting product is a manufacture of that country. 'Manufacture implies a change, but every change is not a manufacture...there must be a transformation; a new and different article must emerge having a distinctive name, character or use.'" Ferrostaal Metals Corporation v. United States, 664 F. Supp. 535, 537 (CIT 1987) (quoting Anheuser-Busch Association v. United States, 207 U.S. 556, 562 (1908)).

Commencing on July 18, 1947, the U.S. became the administrating authority of the Trust Territory of the Pacific Islands (TTPI), an area including the Northern Mariana Islands (Trusteeship Agreement, 61 Stat. 3301, T.I.A.S. No. 1665, 8 U.N.T.S. 89). In accordance with provisions of the trust agreement to promote self-government for the peoples of the trust territory, on March 24, 1976, the U.S. signed a Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the U.S., Pub. L. 94-241, 90 Stat. 263. That covenant became fully effective as of November 4, 1986, and replaced the trusteeship agreement (See, Presidential Proclamation 5564 of November 3, 1986 and E.O. 1272 of November 3, 1986).

Article 6 of the Covenant, section 603(c), provides that "imports from the Norther Marianan Islands into the customs territory of the United States will be subject to the same treatment as imports from Guam into the customs territory of the United States." See also, C.S.D. 83-51, 17 Cust. Bull. 825 (1983). Therefore, products from the Northern Mariana Islands are eligible for duty-free treatment under General Note 3(a)(iv), HTSUS.

Because the articles in question are textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854), section 12.130, Customs Regulations (19 CFR 12.130) is applicable. 19 CFR 12.130 provides that the country of origin of a textile product is that foreign territory, country or insular possession where the article last underwent a substantial transformation. Section 12.130(e)(iv), Customs Regulations (19 CFR 12.130(e)(iv)), states that the cutting of fabric into parts and the assembly of those parts into the completed article will usually result in the processing country being the country of origin. Furthermore, we have held that the cutting of fabric (which contains no indication where that fabric is to be cut) into garment parts, constitutes a substantial transformation of the fabric and the parts become a product of the country where the fabric is cut. See, Headquarters Ruling Letter (HRL) 731028 dated July 18, 1988; HRL 732485 dated January 18, 1990; and HRL 731036 dated July 18, 1991.

In this case, the foreign cotton knit fabric in bolts is marked for cutting into pattern pieces, cut into the pattern pieces, and the pieces are assembled into finished t-shirts and pullovers in the Northern Mariana Islands. We are of the opinion that these operations result in a substantial transformation of the foreign cotton knit fabric into a product of the Northern Mariana Islands, and, therefore, will be eligible for duty-free treatment available in General Note 3(a)(iv), HTSUS, assuming that they satisfy the 50% foreign value limitation and are imported directly from the Northern Mariana Islands to the U.S.

You state that your client has informed you that the value added in the Northern Mariana Islands exceeds 50% of the value of the imported foreign cotton knit fabric in bolts. However, as previously stated, General Note 3(a)(iv), HTSUS, requires that the cost of the foreign cotton knit fabric imported into the Northern Mariana Islands not exceed 50% of the full appraised value of the women's t-shirts and men's pullovers imported into the U.S. As no specific cost or appraised value information has been provided, we are unable to definitely state that the imported t-shirts and pullovers will meet the value requirement under this special tariff program.

II. Country of Origin Marking Requirements

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. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

Section 134.1(c) defines "foreign origin" as "a country of origin other than the U.S., as defined in paragraph (e) of this section, or its possessions and territories." Section 134.32(l), Customs Regulations (19 CFR 134.32(l)), states that "products of possessions of the U.S." are excepted from marking requirements.

Customs has previously ruled that products of Guam are excepted from country of origin marking requirements under 19 CFR 134.32(l), as products of possessions of the U.S. See, HRL 725787 dated July 25, 1984. In regard to the Northern Mariana Islands, "Customs treats the Northern Mariana Islands as a territory or possession of the U.S. and products therefrom would be excluded from the country of origin marking requirements." See, HRL 729704 dated September 12, 1986.

The Federal Trade Commission, pursuant to rules and regulations issued under the authority of the Textile Fiber Products Identification Act, stated in a staff opinion letter that garments made in the Northern Mariana Islands of imported fabric should be labeled "Made in USA of Imported Fabric." See, HRL 731028 dated July 18, 1988, and HRL 731041 dated July 18, 1988. Therefore, the labels in the women's t-shirts and the men's pullovers stating "Made in USA of Imported Fabric" are acceptable.

HOLDING:

The foreign cotton knit fabric imported into the Northern Mariana Islands is substantially transformed into articles which are the manufacture or product of the insular possession for purposes of General Note 3(a)(iv), HTSUS. Accordingly, the women's t-shirts and men's pullovers will be entitled to duty- free entry under this special tariff program assuming they satisfy the 50% foreign value limitation and are imported directly into the U.S. from the Northern Mariana Islands.

The women's and men's garments have been substantially transformed into a product of the Northern Mariana Islands, and, therefore, are exempt from the country of origin marking requirements of 19 U.S.C. 1304, but must be marked in accord with the FTC requirements noted above.

Sincerely,

John Durant, Director
Commercial Rulings Division

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