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HQ 734736

December 17, 1992

MAR-2-05 CO:R:C:V 734736 RSD

CATEGORY: MARKING

Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson
One Astor Plaza
1515 Broadway, 43rd Floor
New York, New York 10036

RE: Country of origin marking requirements for sweaters knit in China assembled in Guam or knit in the U.S. and assembled in Mexico; 19 CFR 12.130; 19 CFR 10.22; HQ 555446; HQ 733323; C.S.D. 90-69; HQ 733592; HQ 731041

Dear Mr. Bodek:

This is in response to your letter of July 17, 1992, requesting a ruling on behalf of your client, Liz Claiborne, Inc., regarding the country of origin marking requirements for sweaters either knit in China and assembled in Guam or knit in the U.S. and assembled in Mexico. You have enclosed a sample of a finished sweater and samples of the panels. You also request return of the samples. They will be returned to you under a separate cover.

FACTS:

Your letter states that Liz Claiborne, Inc. contemplates the importation of certain sweaters which will be produced from 5 panels. The panels are to be Knit-to-shape in a country or a territory and will be assembled in a second country or territory. Liz Claiborne is considering two different scenarios for producing the sweaters. Under the first scenario, the 5 sweater panels will be knit to shape in China and assembled in Guam. The sweater panels will consist of one back panel, one right front panel, one left front panel and two sleeves. Each panel features an attached ribbed ban (e.g., a collar, waistband, placket, or cuff) which is also knit to shape and attached to the applicable panel in China. In addition, each of the two front panels features a patch pocket which is knit and attached to such panels in China. Lastly, the left front panel features buttons which are sewn to its placket in China.

The operations performed in Guam will consist of overlocking and stitching of the edges of the panels, the assembly (by sewing) of the panels, the sewing of labels, as well as the washing, drying, pressing, inspecting, and packaging of the finished sweaters.

In the second scenario, the production of the sweaters is identical to the first scenario except that the country where the sweater panels are knit is the U.S., and the country where the panels are assembled together by sewing is Mexico. In addition, the sweaters may be embroidered in Mexico (with either U.S. or foreign origin embroidery materials) prior to their exportation.

In the first scenario, Liz Claiborne seeks to have the imported sweaters marked "Assembled in Guam, U.S.A., Knit in China"; or "Assembled in U.S.A., Knit in China." For the second scenario, Liz Claiborne proposes to mark the sweaters "Knit in U.S.A., Assembled in Mexico" or "Knit in USA, Assembled and Embroidered in Mexico", if the sweaters are embroidered.

ISSUE:

In the two production scenarios for the sweaters described above, do the proposed country of origin marking legends satisfy the country of origin marking law?

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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.41(b), Customs Regulations (19 CFR 134.41(b)), mandates that the ultimate purchaser in the U.S. must be able to find the marking easily and read it without strain.

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for making 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. 1854)("section 204"). According to T.D. 90-17, published in the Federal Register on March 1, 1990, (55 FR 7303), the rules of origin for textiles and textile products contained in 19 CFR 12.130 are applicable to such merchandise for all purposes, including duty and marking. Customs has determined that 19 CFR 12.130 will be applied to determine the country of origin of all imported articles which are classified in Section XI, Harmonized Tariff Schedule of the United States, or to any imported article classified outside of Section XI, HTSUSA, under a subheading which has a textile category number associated with it. Because the subject merchandise would be classified under Section XI, HTSUSA, 19 CFR 12.130 will be used in making the country of origin determination.

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 other words, for textiles governed by 19 CFR 12.130, there is a two part test for substantial transformation: 1) a new different article of commerce and 2) a substantial manufacturing or processing operation.

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.

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 (e). Section 12.130(d)(2) lists some of the factors considered in determining whether a substantial manufacturing or processing operation has occurred. These factors include: the physical change in the material or article; the time involved in the processing; the complexity of the operation; the level or degree or skill and technology required in the operation; and the value added to the article or material in the non-U.S. based operation versus the value added to the article or material in the U.S.

The first question that must be addressed is whether the knit sweater panels are substantially transformed when they are assembled together in Guam. In HQ 733323, May 2, 1990, published as C.S.D. 90-69, 24 Cust. B. & Dec. No. 23, Customs determined that for all purposes, including country of origin marking purposes, sweaters which are assembled in Hong Kong from panels knit in China are products of China. In this case, Liz Claiborne will be making the sweaters in an almost identical way. The sweater panels are being knit in China and sewn together in Guam. Accordingly, in the first scenario, the country of origin of the sweaters is China, and they must be marked to identify China as their country of origin.

Customs also indicated in HQ 733323, CSD 90-69, that reference may be made to a second country so long as the country of origin is clearly stated and the requirements of section 134.46, Customs Regulations (19 CFR 134.46), are satisfied. This regulation requires that in any case in which the name of any country other than the country in which the article was manufactured or produced appears on an imported article or its container, there shall appear, legibly and permanently in close proximity to such name, and in at least a comparable size, the name of the country of origin preceded by "Made in," "Product of," or other words of similar meaning. In the case of sweaters, Customs has determined that "Knit in" are words of similar meaning to the phrase "Made in". Customs also ruled that the country of origin marking "Knit in China Assembled in Hong Kong" would clearly indicate that China was the country origin and would be acceptable for country of origin marking purposes. (See HQ 733323, C.S.D. 90-69). Likewise, in the present case, the proposed legend, "Assembled in Guam, USA, Knit in China" would be acceptable country of origin marking because it indicates that China is the country of origin.

Liz Claiborne proposes an alternative marking which makes no reference to the fact that the sweaters will be assembled in Guam by marking the sweaters with "Assembled in USA, Knit in China." Although products of Guam are excepted from the country of origin marking requirements of 19 U.S.C. 1304 upon importation into the U.S., (See HQ 731041 July 18, 1988), approval of markings such as "Made in the USA" is within the authority of the Federal Trade Commission. We are unable to rule as to whether the use of the phrase "Assembled in the U.S." is acceptable and we suggest that you contact the FTC on the propriety of the proposed legend.

The second scenario for producing the sweaters that Liz Claiborne is contemplating is to knit the sweater panels in the U.S. and assemble them in Mexico. Liz Claiborne intends to enter the finished sweaters under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), and proposes to mark them with the legend "Knit in USA, Assembled in Mexico."

Under 19 CFR 12.130(c), U.S. articles returned after having been advanced in value or improved in condition abroad or assembled abroad, shall be foreign articles for the purposes of the Tariff Act of 1930, as amended and may not be considered a product of the U.S. Accordingly, the sweaters which are assembled in Mexico from U.S. knit panels are advanced in value and improved in condition, and they would be considered products of Mexico for purposes of the Tariff Act.

19 CFR 10.22 provides further that an article entitled to the duty exemption of Chapter 98 HTSUS is considered a product of the country of assembly for the purposes country of origin marking under section 304 Tariff Act of 1930, and :

[if] an imported assembled article is made entirely of American-made materials, the United States origin of the material may be disclosed by using a legend such as "Assembled in from material of U.S. origin," or a similar phrase.

In HQ 555446, November 6, 1989, Customs indicated that for imported pantyhose assembled in Mexico from U.S. components and eligible for the partial duty emption available under HTSUS subheading 9802.00.80, the marking "Knit in the U.S., Assembled in Mexico" was substantially similar to the phrase identified at 19 CFR 10.22, and was acceptable marking. However, this ruling was issued prior to the ruling on sweaters cited supra, HQ 733233 (May 2, 1990) which held that for sweaters the phrase "Knit in" was equivalent to "Made in". Thus we find that HQ 555446 was superseded by HQ 733323, C.S.D. 90-69 and that the term "knit in" indicates the origin of sweaters. Because under 19 CFR 10.22 the term "Assembled in" before the name of a country also designates the country of origin, we find that the proposed country of origin marking "Knit in the U.S., Assembled in Mexico", could be confusing; it might imply to the ultimate purchaser in the U.S. that the sweaters had two countries of origin, the country where it was knit - the U.S., and the country where it was assembled - Mexico. We believe that this confusion could be clarified and the country of origin marking would be made consistent with 19 CFR 10.22, if a statement was added indicating that the components of the sweaters were knit the U.S. For example, "Assembled in Mexico of components knit in the U.S.A." or "U.S. knit panels assembled and embroidered in Mexico" would be consistent with the approach prescribed in 19 CFR 10.22.

HOLDING:

The proposed legends indicating the country of origin for sweaters knit in China and assembled in Guam are acceptable, subject to the approval of the Federal Trade Commission with respect to the use of the name "USA" in connection with articles assembled in Guam. In that scenario, the country of origin for all tariff purposes is China. The proposed legend for the second scenario of knitting the panels in the U.S. and assembling them in Mexico must indicate that the components or panels are knit in the U.S. and assembled in Mexico by using terms such as those indicated above. The country of origin of these sweaters for all tariff purposes is Mexico.

Sincerely,

John Durant, Director

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