HQ 0556636 - Applicability of partial duty exemption to book straps and duty-free treatment to packaging materials; GSP - United States International Trade Commision Rulings

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HQ 556636

May 28, 1992

CLA-2 CO:R:C:S 556636 WAW

CATEGORY: CLASSIFICATION

TARIFF NO: 9802.00.80; 9801.00.10; 6307.90.94

Mr. Victor Escamilla
Vicman Enterprises
3522 Avenue S
Galveston, TX 77550

RE: Applicability of partial duty exemption to book straps and duty-free treatment to packaging materials; GSP

Dear Mr. Escamilla:

This is in response to your letter of March 3, 1992, addressed to the Area Director, New York Seaport, which was forwarded to this office for a response, requesting a ruling on the tariff status of bookstraps which are assembled in Mexico from U.S. components. We note that you have submitted a sample of the merchandise for review.

FACTS:

According to your submission, the sample is described as a bookstrap measuring 6 by 36 inches with attaching shoulder strap. You state that the bookstrap will be assembled in Mexico from 100 percent U.S. components. The strap is composed of 16 mil vinyl which is internally reinforced with textile scrim fabric. Sewn onto the vinyl strap is a multicolor poly/cotton textile strap measuring 6 by 20 inches. Sewn onto the multicolored strap is a double pocket made of the same multicolor material. A two inch wide velcro-type strip is sewn across both edges of the 36 inch strap. A 3/8 inch bias tape is sewn along the perimeter of the 36 inch strap and pockets. Two stretch textile straps measuring 2 by 9 inches are attached vertically to the 36 inch strap. Two velcro-type fastener material strips measuring 1.5 by 2 inches are attached at both ends of the stretch straps. A handle made of textile woven fabric measuring 1 by 5.75 inches with vinyl material sewn around it is attached to the bookstrap. A shoulder strap of woven textile material measuring 1.5 inches wide is attached to the bookstrap by means of metal snaps and D rings. Also included with the book strap components are U.S.-origin poly bags measuring 7 by 23 inches, card board boxes for shipping, nylon thread and header cards.

You state that all but one component will be precut in the U.S. before being exported to Mexico for assembly. The only exception is the 3/8 inch bias tape which will be sent to Mexico in rolls and cut to length before it is sewn onto the bookstrap as described above.

ISSUE:

(1) Whether the foreign assembly operations constitute acceptable assembly operations or operations incidental to the assembly process, so as to qualify the U.S.-origin components for a duty allowance under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), when returned to the U.S. incorporated into bookstraps.

(2) Whether the packaging materials of U.S.-origin are entitled to duty-free treatment under HTSUS subheading 9801.00.10.

(3) Whether the product is eligible for duty-free treatment under the GSP.

LAW AND ANALYSIS:

1. Eligibility of bookstraps for partial duty allowance under HTSUS subheading 9802.00.80

Subheading 9802.00.80, HTSUS, provides a partial duty 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, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article less the cost or value of the U.S. components, 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.

Section 10.16(a), Customs Regulations (19 CFR 10.16(a)) provides, in part, that:

The assembly operations performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners, and may be preceded, accompanied, or followed by operations incidental to the assembly as illustrated in paragraph (b) of this section.

Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operation. See 19 CFR 10.16(a). 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 HTSUS subheading 9802.00.80 to that component. See 19 CFR 10.16(c).

We are satisfied from the information and sample submitted that the U.S. components meet the requirements of HTSUS 9802.00.80, and, therefore, are entitled to the partial duty exemption available under this tariff provision. The operations that entail sewing fabric onto itself using any type of stitch, attaching two or more components together by sewing and tacking metal snaps and rings to fabric by sewing are considered acceptable assembly operations. See 19 CFR 10.16(a); L'Eggs Products v. United States, Slip Op. 89-5, 13 CIT ___, 704 F. Supp. 1127 (CIT 1989), which held that sewing together the end of a pantyhose tube is considered an acceptable assembly operation as the thread serves as a joining agent by joining the tube to itself; and HRL 555525 dated June 5, 1990.

We also are of the opinion that cutting the bias tape to specific lengths is considered an operation incidental to the assembly process pursuant to 19 CFR 10.16(b)(6).

For your information, we have enclosed a pamphlet relating to subheading 9802.00.80, HTSUS.
2. Eligibility of Packing Material for duty-free treatment under HTSUS subheading 9801.00.10

Subheading 9801.00.10, HTSUS, provides for the free entry of U.S. products that are exported and returned without having been advanced in value or improved in condition by any means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 CFR 10.1) (copy enclosed), are met. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. See Border Brokerage Company Inc. v. United States, 65 Cust. Ct. 50, C.D. 4052, 314 F. Supp. 788 (1970), appeal dismissed, 58 CCPA 165 (1970).

With respect to the packaging materials in the instant case, (i.e., poly bags, cardboard boxes, and header cards), we are of the opinion that they will be separately entitled to duty-free treatment under subheading 9801.00.10, HTSUS. We held in HRL 731806 of November 18, 1988, that containers of U.S. origin are entitled to duty-free treatment under subheading 9801.00.10, HTSUS, when returned with their contents. Therefore, since the packaging materials are of U.S.-origin and have not been advanced in value or improved in condition while abroad, they are entitled to duty-free entry under HTSUS subheading 9801.00.10 when returned to the U.S.

3. Eligibility of bookstraps for duty-free treatment under the GSP

Under the GSP, eligible articles the growth, product, or manufacture of a designated beneficiary developing country (BDC), which are imported directly into the customs territory of the U.S. from a BDC may receive duty-free treatment if the sum of (1) the cost or value of 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).

According to General Note 3(c)(ii)(A), HTSUS, Mexico is a BDC. In addition, based on the information provided, we believe that the merchandise is classified in subheading 6307.90.94, HTSUS, which provides for "Other made up articles, including dress patterns: Other: Other," and are dutiable at 7 percent ad valorem. Articles classified under this provision are eligible for duty-free treatment under the GSP provided they meet the "product of", 35% value-content minimum and "imported directly" requirements.

To comply with the requirements of the GSP statute, we must first determine whether the U.S. components imported into Mexico become a product or manufacture of that country by being substantially transformed there. The courts have held that 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 (Fed. Cir. 1985).

Because the article in question consists, in large part, of textile material, section 12.130, Customs Regulations (19 CFR 12.130), is applicable. See T.D. 90-17, 24 Cust. Bull. 11 (1990). Section 12.130, Customs Regulations (19 CFR 12.130), sets forth criteria for determining whether a textile or textile product has been substantially transformed. Pursuant to the regulations, 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. Any one or a combination of these factors may be determinative and other factors may also be considered. 19 CFR 12.130(d).

Examples of processes which generally will result in a substantial transformation and those which usually will not are set forth in 19 CFR 12.130(e). 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).

Based upon 19 CFR 12.130(e)(1)(v) and the information you have provided regarding the assembly of the U.S. components into bookstraps, we believe that the sewing operations performed in Mexico do not substantially transform these components into "products of" Mexico. The sewing operation involves the simple assembly of several pre-cut components into a finished bookstrap. The sewing operation is not as substantial or complex as the assembly involved in sewing components together to create suit- type jackets, suits, and shirts. See e.g., HRL 083359 dated May 18, 1990; 083461 dated May 15, 1990; 082747 dated February 23, 1989 (where pants parts, cut in one country, are assembled into non-tailored pants in a second country by nothing more than a simple joining by machine stitching, a substantial transformation has not occurred, and the country of origin, for quota purposes, remains the first country where the parts were cut). Rather, the sewing operation simply involves the joining together of several pre-cut components by machine feeding them into a sewing machine. Therefore, as the "product of" requirement is not satisfied, the bookstrap will not qualify for duty-free treatment under the GSP.

HOLDING:

On the basis of the information submitted, we find that the bookstraps to be assembled in Mexico will be entitled to the partial duty exemption under HTSUS subheading 9802.00.80. Therefore, allowances in duty may be made under this tariff provision for the cost or value of the U.S. components, upon compliance with the documentary requirements of 19 CFR 10.24.

Moreover, as the poly bags, cardboard boxes, and header cards of U.S.-origin will not be advanced in value or improved in condition abroad as a result of the packaging operation in Mexico, they are entitled to duty-free treatment under subheading 9801.00.10, HTSUS, upon compliance with the documentary requirements of 19 CFR 10.1.

Finally, as the sewing operation performed in Mexico does not result in a substantial transformation of the U.S. components into "products of" Mexico, the bookstraps are not entitled to duty-free treatment under the GSP when imported into the U.S.

Sincerely,

John Durant, Director

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