HQ 0543969 - Application for Further Review of Protest No. 1704-5-000021, contesting the denial of duty-free treatment under General Headnote 3(a), TSUS, for certain ladies' and boys' cotton sweaters assembled in Saipan, Northern Mariana Islands - United States International Trade Commision Rulings

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HQ 543969

August 25, 1989

CLA-2 CO:R:C:V 543969 CW

CATEGORY: CLASSIFICATION

District Director of Customs
Sanannah, Georgia 31401

RE: Application for Further Review of Protest No. 1704-5-000021, contesting the denial of duty-free treatment under General Headnote 3(a), TSUS, for certain ladies' and boys' cotton sweaters assembled in Saipan, Northern Mariana Islands

Dear Sir:

The above-referenced protest, filed by Oxford Industries, Inc., contests the disallowance by your office of duty-free treatment under General Headnote 3(a), Tariff Schedules of the United States (TSUS) (now General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS)), for certain sweaters assembled in Saipan, Northern Mariana Islands. The merchandise was entered at the Port of Atlanta, Georgia.

FACTS:

Samples of the merchandise were not submitted nor was sufficient descriptive information submitted by the protestant concerning the processing performed in Saipan. However, the purchase order descriptions of the merchandise reflect that one style is a boy's 100 percent cotton, 6 gauge, V-neck vest with an intarsia design on the front panel, while the other style is a lady's 100 percent cotton crew neck, long raglan sleeve sweater constructed in a 5 gauge allover half-cardigan knit stitch. Certificates of manufacture for the three entries show that parts for each style were imported into Saipan, and your office indicates that the garments were completed by linking, finishing, washing, ironing, inspecting and packing.

From the given description, the boy's vest appears to consist of 4 or 5 separate components (i.e., front and back panels, rib- knit waistband, and possibly rib-knit fabric for the V-shaped neckline and the armhole openings). The lady's sweater appears to consist of 5 or 6 separate components (i.e., front and back panels, two sleeve panels, rib knit waistband fabric, and possibly rib-knit crew neckband fabric).

According to the import specialist in Atlanta, the importer has not proven either that the 50 percent foreign-value limitation of General Headnote 3(a), TSUS, has been satisfied, or that the goods underwent a substantial transformation in Saipan so as to render them "products of" the insular possession. Regarding the former concern, the results of an investigation initiated by the import specialist indicate that the three shipments satisfied the foreign-value limitation requirement. Therefore, this decision will address only the issue of whether a substantial transformation of the goods occurred in Saipan.

ISSUE:

Whether the assembly of the components into finished garments by means of sewing or linking resulted in their substantial transformation, thus rendering them "products of" the insular possession for purposes of General Headnote 3(a), TSUS.

LAW AND ANALYSIS:

Section 12.130(e)(2)(iii), Customs Regulations (19 CFR 12.130(e)(2)(iii)), provides that an article usually will not be considered to be a product of a U.S. insular possession by virtue of merely having undergone operations consisting of:

[t]rimming and/or joining together by sewing, looping, linking, or other means of attaching otherwise com- pleted knit-to-shape component parts produced in a single country, even when accompanied by other processing (e.g. washing, drying, mending, etc.) normally incident to the assembly process.

Thus, the linking of the knitted sweater pieces in this case is specifically identified in the above regulation as an operation which is insufficient to render the assembled article a "product of" the insular possession.

The fact that the linking operation involved substantial processing costs may be a factor to be considered in determining whether a substantial transformation occurred. However, it is not solely determinative of the issue. The court in Superior Wire v. United States, 11 CIT ___, 669 F. Supp. 472 (1987), while recognizing the significance of the additional value rendered by processing, made it clear that, by itself, this factor does not provide the entire answer as to whether a substantial transformation has taken place. Id. at 478-479. The complete test applied in determining whether an article has undergone a substantial transformation is predicated on a finding that the article has changed in name, character, or use. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

However, the Customs Service recognizes that an established and uniform practice has developed to consider certain assembly operations, such as those involved in this case, as resulting in a change in the country of origin of the assembled parts for both duty and marking purposes. Therefore, this established and uniform practice requires the conclusion in this case that the subject merchandise is the product of the Northern Mariana Islands for purposes of General Headnote 3(a), TSUS. This practice will not affect the application of 19 CFR 12.130 for textile restraint purposes.

HOLDING:

As there exists an established and uniform practice to consider the operations involved in this case as resulting in a change in the country of origin of the assembled components for duty and marking purposes, the cotton sweaters under consideration here shall be considered "products of" the Northern Mariana Islands, thereby entitling them to duty-free treatment under General Headnote 3(a), TSUS. Accordingly, you are directed to allow the protest in full. A copy of this decision should be attached to the Form 19 to be sent to the protestant.

Sincerely,

John Durant

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