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HQ 089832

October 21, 1991

CLA-2 CO:R:C:F 089832 STB

CATEGORY: CLASSIFICATION

TARIFF NO: 9502.99.1000, 9902.95.0100, 9802.00.8000

Ms. Anibal Roges
The Toy Works, Inc.
Fiddler's Elbow Road
Middle Falls, New York 12848

RE: Doll Skin, GSP

Dear Ms. Roges:

This letter is in response to your inquiry of May 17, 1991, requesting a tariff classification, marking advice, and other information concerning a textile doll skin from Mexico. A sample was submitted with your inquiry.

FACTS:

The submitted sample consists of a textile doll skin. The Toy Works will be purchasing rolls of United States materials, cutting the rolls into squares which will then be silk screened with the doll pattern. The printed square pieces of material will then be exported to Mexico where they will be cut, sewn, clipped and turned before their return to the U.S. for stuffing.

The Toy Works wishes to obtain duty free treatment for the work performed in Mexico. In addition, the inquirer seeks Customs advice on acceptable country of origin marking for this product. The inquirer submitted two possible alternatives for marking format on hang tags; one reads, in part, "Screen printed in U.S.A., Sewn in Mexico" and the other reads, in part, Screen printed in U.S.A., Assembled in Mexico."

ISSUES:

1. What is the proper classification of the subject doll skins from Mexico?

2. Whether the doll skins are entitled to duty-free treatment under the Generalized System of Preferences (GSP)?

3. Whether the doll skins will qualify for the partial duty exemption available under subheading 9802.00.8000, HTSUSA, when imported into the United States?

4. What is the proper marking format for the doll skins?

LAW AND ANALYSIS:

Classification

Classification under the Harmonized Tariff Schedule of the United States (HTSUSA) is made in accordance with the General Rules of Interpretation (GRI's). The systematic detail of the harmonized system is such that virtually all goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI's may then be applied.

The subject doll skin can be classified by reference to GRI 1. This item is classified under subheading 9502.99.1000, HTSUSA, the eo nomine provision for skins for stuffed dolls. Although the applicable duty rate is 12% ad valorem, the duty is temporarily suspended and the merchandise is entitled to duty free consideration under subheading 9902.95.01, HTSUSA, if imported on or before December 31, 1992.

Generalized System of Preferences

After December 31, 1992, unless the temporary duty suspension is extended, the proper duty of this item will have to be assessed. One question will be whether these doll skins will be entitled to duty-free treatment, as a product of Mexico, under the Generalized System of Preferences (GSP).

Under the GSP, eligible products, the growth, product or manufacture of a beneficiary developing country (BDC), may enter the U.S. duty-free if such products are imported directly into the U.S., and the sum of 1) the cost or value of the materials produced in the BDC, plus 2) the direct costs involved in processing the eligible article in the BDC is equivalent to at least 35% of the appraised value of the article upon its entry into the U.S. 19 U.S.C. 2463(b).

Mexico is a designated BDC, and the doll skins are classifiable in subheading 9502.99.1000, HTSUSA, which is a GSP- eligible provision. Therefore, the doll skins will receive duty- free treatment under the GSP if they are "products of" Mexico,
the 35% value-content requirement is satisfied, and they are imported directly to the U.S.

The cost or value of materials which are imported into the BDC and used in the production of the GSP-eligible article, as in this case, may be included in the 35% value-content computation only if the materials undergo a double substantial transformation. That is, the cost or value of the silk-screened square pieces of material imported into Mexico may be counted toward the 35% requirement only if the fabric pieces are substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in the production of the final imported article, the doll skins. See section 10.177(a), Customs Regulations (19 CFR 10.177(a)), and Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd, 890 F. 2d 1150 (Fed. Cir. 1989).

A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F. 2d 778 (1982).

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 19 CFR 12.130(e)(1)(iv), a substantial transformation usually will result from the "[c]utting of fabric into parts and the assembly of those parts into the completed article." Therefore, in regard to the facts of this case, the cutting in Mexico of the silk-screened fabric squares into doll parts and the assembly of those parts by sewing, substantially transform the imported fabric into "products of" Mexico.

However, there is no indication from the information you have provided that the cut doll parts are distinct "articles of commerce" in the sense they are actually traded or are ready to be put into a stream of commerce. See The Torrington Company v. United States, 3 CAFC 158, 764 F.2d 1563 (1985), and Azteca Milling, supra. Therefore, it is our opinion that the operations performed in Mexico constitute a continuous process which results in only one new and different article of commerce--the assembled doll skins. Consequently, as the printed fabric squares imported into Mexico are not subjected to a double substantial transformation, the cost or value of the fabric squares may not be counted toward the GSP 35% value-content requirement.

In view of the above, the doll skins will be entitled to duty-free treatment under the GSP only if the direct costs of processing operations performed in Mexico represent at least 35% of the appraised value of articles when imported into the United States. 19 CFR 10.171-10.178. A discussion of those costs which are, and are not, includable as direct processing costs is set forth in 19 CFR 10.178.

Partial Duty Exemption

Another issue to consider is whether this item qualifies for a partial duty exemption under subheading 9802.00.80, HTSUSA, which provides such an exemption for:

[a}rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubrication, and painting.

All three requirements of subheading 9802.00.80, HTSUSA, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:

[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

Operations incidental to the assembly process whether performed before, during, or after assembly do not constitute further fabrication, and shall not preclude the application of the exemption. See 19 CFR 10.16(b). However, any significant
process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUSA, to that component. See 19 CFR 10.16 (c).

It is our opinion that the U.S.-origin fabric is not exported in a condition ready for assembly without further fabrication. The cutting to shape of the fabric in Mexico constitutes a further fabrication of the fabric which is necessary to create the components to be assembled. According to 19 CFR 10.14(a), materials which are cut into specific shapes or patterns abroad are ineligible for a duty allowance under this tariff provision. See also Headquarters Ruling Letter (HRL) 556099 dated July 31, 1991.

Proper Marking Format

The question which you submitted concerning the proper marking of the subject doll skins has been referred to the Value and Marking Branch, Office of Regulations and Rulings; a response will be issued to you by separate correspondence.

HOLDING:

The subject doll skins from Mexico are properly classifiable under subheading 9502.99.1000, HTSUSA, the provision for dolls representing only human beings and parts and accessories thereof, parts and accessories, other, skins for stuffed dolls. Although the applicable duty rate is 12% ad valorem, the duty is temporarily suspended and the merchandise is entitled to duty free consideration under subheading 9902.95.01, HTSUSA, if imported on or before December 31, 1992.

At any time that this duty suspension is no longer in effect, the doll skins will be entitled to duty-free treatment under the GSP only if the direct cost of processing operations performed in Mexico represent at least 35% of the appraised value of the articles when imported into the U.S. As the printed fabric squares imported into Mexico are not subjected to a double substantial transformation, the cost or value of the U.S.-origin fabric may not be included in the 35% value-content calculation.

If, at any time, the subject doll skins are not entitled to duty-free entry, either through the duty suspension or GSP, then a possible partial duty exemption under subheading 9802.00.80, HTSUSA, must be considered. Based on the information and sample presented, it is our opinion that the cutting to shape of the U.S. fabric in Mexico constitutes a further fabrication of the material and precludes the sewn doll skins from receiving the
benefits of subheading 9802.00.80, HTSUSA. Therefore, the articles will be dutiable on their full value when imported into the U.S., if not entitled to duty-free entry because of one of the reasons mentioned above.

Sincerely,

John Durant, Director

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