HQ 0734275 - Country of origin marking of imported women's embroidered vest; substantial transformation; 19 CFR 12.130; cutting and assembly of fabric in Hong Kong and embroidering of fabric in China - United States International Trade Commision Rulings

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HQ 734275

October 8, 1991

MAR-2-05 CO:R:C:V 734275 AT

CATEGORY: MARKING

Ms. Ludene Murphree
The Gap, Inc.
900 Cherry Ave.
San Bruno, California 94066

RE: Country of origin marking of imported women's embroidered vest; substantial transformation; 19 CFR 12.130; cutting and assembly of fabric in Hong Kong and embroidering of fabric in China

Dear Ms. Murphree:

This is in response to your letter of July 23, 1991, requesting a binding ruling on the country of origin of imported women's embroidered vests. A sample was submitted for examination. The country of origin of the fabric is not known.

FACTS:

The submitted sample, style "BWW #24363," is a women's embroidered vest which is constructed from 100 percent wool. The sample has gold embroidery around the front portion of the neckline and button area. On the front two panels of the vest are various embroidered designs and phrases.

According to your submission, the following operations will be performed to create the embroidered vest. The fabric is cut in Hong Kong, panels are embroidered in China, and garment is assembled in Hong Kong. You state that the value breakdown to manufacture the embroidered vest are as follows:

Hong Kong Materials $ 9.36
Hong Kong Labor 9.15
Total Hong Kong $18.51

China Materials $ 6.50
China Labor $18.99
Total China $25.49

Total $44.00

ISSUE:

What is the country of origin of the imported women's embroidered vest?

LAW AND ANALYSIS:

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.

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for marking country of origin determinations for textile and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1584) ("section

Pursuant to 19 CFR 12.130, the standard of substantial transformation governs the determination of the country of origin where textiles and textile products are processed in more than one country. The country of origin of textile products is deemed to be that foreign territory, country, or insular possession where the article last underwent a substantial transformation. Substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing operations. In others words, for textiles governed by 19 CFR 12.130 there is a two part test for substantial transformation: 1) a new and different article of commerce and 2) a substantial manufacturing or processing operation.

In T.D. 85-38, published in the Federal Register on March 5, 1985 (50 CFR 8714), which is the final rule document which established 19 CFR 12.130, there is a discussion of how the examples and the factors enumerated in the regulation are intended to operate. "Examples set forth in 19 CFR 12.130(e) are intended to give guidance to Customs officers and other interested parties. Obviously, the examples represent clear factual situations where the country of origin of the imported merchandise is easily ascertainable. The examples are illustrative of how Customs, given factual situations which fall within those examples, would rule after applying the criteria listed in 19 CFR 12.130(d). Any factual situation not squarely within those examples will be decided by Customs in accordance with the provisions of 19 CFR 12.130(b) and (d). The factors to
be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d) and

Section 12.130(d)(1) states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in: (i) commercial designation or identity, (ii) fundamental character or (iii) commercial use.

Section 12.130(d)(2) lists some of the factors considered in determining whether a manufacturing operation has occurred. These factors include: (1) the physical change in the material or article as a result of the manufacturing or processing operations in each foreign country; (2) the time involved in the manufacturing or processing operations in each foreign country; (3) the complexity of the manufacturing or processing operations in each foreign country; (4) the level or degree or skill and/or technology required in the manufacturing or processing operations in each foreign country; and (5) the value added to the article or material in each foreign country compared to its value when imported into the U.S.

You state that the fabric for these embroidered vests are first cut in Hong Kong. One of the examples enumerated is 19 CFR 12.130(e)(iv), which states that cutting of fabric into parts and the assembly of those parts into the completed article is an example of a manufacturing or processing operation which would qualify under 19 CFR 12.130 as a substantial transformation (emphasis added). Further, Customs stated in T.D. 85-38 that "Cutting garment parts from fabric will result in a substantial transformation of the fabric." Similarly, in this case, the cutting of the fabric into vest panels would qualify as a substantial transformation under 19 CFR 12.130.

The second question presented is whether the embroidery work performed in China to the cut vest panels constitutes a substantial transformation.

As shown by the chart above, the cost of the Chinese materials and labor is approximately one and a half times to those of Hong Kong. Nonetheless, the embroidery work performed to the vest panels does not change the identity or fundamental character of the panels. After the embroidering is completed the embroidered panels still remain as parts of a vest, although they are now embroidered vest panels. Customs has previously ruled that embroidery work performed on garments which does not change the identity or fundamental character of the article is not a
substantial transformation. See HQ 089068, July 1, 1991 (embroidering a polar bear design to the front panel of an unfinished sweater was not a substantial transformation); HQ 088565, May 23, 1991 (re-embroidery of lace fabric by sewing around portions of the design of the lace a narrow braid or cord of fabric was not a substantial transformation); HQ 733952, February 15, 1991 (decorating front panels of an unfinished tracksuit top with plastic ornaments, appliques and embroidery in China did not constitute a substantial transformation of the article).

Based on the above considerations, we conclude that the Chinese processing similarly does not constitute a substantial transformation. Since the cutting of the panels and the assembly of the panels is performed in Hong Kong, clearly the country of origin of the vests is Hong Kong.

HOLDING:

Pursuant to 19 CFR 12.130, the country of origin of these women's embroidered vests for country of origin marking purposes is Hong Kong.

The holding set forth above 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 CFR 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 CFR 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. Accordingly, it is recommended that a new ruling request be submitted in accordance with section 177.2, Customs Regulations (19 CFR 177.2).

Sincerely,

John Durant, Director
Commercial Rulings Division

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