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HQ 952208


October 8, 1992

CO:R:C:T 952208 SK

CATEGORY: CLASSIFICATION

TARIFF NO.'s: 5403.31.0020; 5403.41.0000; 5401.20.0000

W.B. Sears, Jr.
Vice President, Sales
Filtex, Inc.
550 Beaumont, ste. 401
Montreal, Quebec H3N 1V3
Canada

RE: Yarns twisted, plied and dyed in Canada; Applicability of CFTA; Country of Origin; 19 CFR 12.130(b)(d)(e); Headings 5403, 5401, HTSUSA; General Note 3 (c)(vii)(F),(G),(H),(R).

Dear Mr. Sears:

This is in response to your letter of June 4, 1992, requesting a binding ruling on the country of origin status of certain yarns and whether these goods qualify for preferential treatment under the U.S.-Canada Free-Trade Agreement Implementation Act of 1988 (CFTA). Samples were submitted for our examination.

FACTS:

The subject merchandise is comprised of untwisted viscose filament yarns sourced from Mexico, Japan, Brazil and Western Europe and imported into Canada. Although described as "untwisted", these yarns probably have a minimal producer's twist due to the fact that they are wound on non-cylindrical cones. Assuming they are not high-tenacity, these raw materials are classifiable under subheading 5403.31.0020 of the Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for, in pertinent part, artificial filament yarn (other than sewing thread), not put up for retail sale, including artificial monofilament of less than 67 decitex of viscose rayon.

The finished products are two-ply multifilament yarns with a final "Z" twist, and the samples provided weigh less than one kilogram with their supports. Three of the submitted samples are dyed, one is natural. The yarns are dressed. If the yarns
are imported on supports with a total weight exceeding one kilogram, they are classifiable under subheading 5403.41.0000, HTSUSA, which provides for, in pertinent part, artificial filament yarn (other than sewing thread), not put up for retail sale, including artificial monofilament of less than 67 decitex, other yarn, multiple (folded) or cabled, of viscose rayon. Classified as such, the yarns fall within textile category 606 and are subject to duty at 9.1 percent ad valorem. If imported on supports weighing one kilogram or less, they are classifiable as sewing thread of artificial filaments under subheading 5401.20.0000, HTSUSA. Yarns classified in that subheading fall within textile category 200 and are dutiable at 13 percent ad valorem.

The yarns undergo the following processes in Canada:

1) The imported multifilament is rewound onto spools which fit the spindles of Filtex's twisting machines;

2) The multifilament is twisted 10 turns per inch in the "S" direction to form a twisted singles yarn;

3) The singles yarns are plied and twisted 7.5 turns per inch in the "Z" direction to form two-ply yarn;

4) The yarns that are not to be dyed are then rewound onto bobbins, dressed and rewound onto paper spools for use on Schiffli embroidery machines;

5) The yarns that are to be dyed are removed from bobbins and put up on skeins, dyed, dried and the above process is repeated.

Filtex has supplied cost data for these processes. Values added as a result of the manufacturing processes in Canada range from 146 percent to 511 percent.

ISSUES:

What is the country of origin for the yarns at issue?

Is the subject merchandise eligible to receive preferential treatment under CFTA?

LAW AND ANALYSIS:

-COUNTRY OF ORIGIN-

Section 12.130(b) of the Customs Regulations (19 CFR 12.130(b)) provides that a textile product that is processed in more than one country or territory shall be a product of that country or territory where it last underwent a substantial transformation. 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.

Your attention is directed to Section 12.130(d)(1) of the Customs Regulations which sets forth a non-exhaustive list of criteria which aid in determining country of origin.

(1) 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.

In the form that it enters Canada, the subject merchandise is commercially referred to as untwisted continuous singles viscose filament yarn. After processing, the material is commercially known as two-ply viscose filament yarn. Both materials fit under the general commercial designation of "yarn" and therefore there has been no change in fundamental character.

In determining whether merchandise has been subjected to substantial manufacturing or processing operations, 19 CFR 12.130(d)(2) sets forth the following criteria:

(i) The physical change in the material or article as a result of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S.;

(ii) The time involved in the manufacturing or processing operations ...;

(iii) The complexity of the manufacturing or processing operations ...:

(iv) The level or degree of skill and/or technology required ...;

(v) The value added ...;

Two points must be addressed here--the value added and the complexity of the processing. The value added to these products in Canada is substantial (between 146 percent and 511 percent), however this is but one factor to be considered. Of equal, if not slightly greater consideration, is the complexity of the processing in Canada. We believe the processing is relatively minor as the yarn is only twisted, plied and in some instances dyed. These processing operations are not complex enough to warrant a finding that they are "substantial" for purposes of changing the subject merchandise's country of origin status.

Section 12.130(e) of the Customs Regulations sets forth guidelines as to what manufacturing or processing operations normally result in a change in a product's country of origin status. They are:

(i) Dying of fabric and printing when accompanied by two or more of the following finishing operations: bleaching, shrinking, fulling, napping, decating, permanent stiffening, weighting, permanent embossing, or moireing;

(ii) Spinning fibers into yarn;

(iii) Weaving, knitting or otherwise forming fabric;

(iv) Cutting of fabric into parts and the assembly of those parts into the completed article; or

(v) Substantial assembly by sewing and/or tailoring of all cut pieces of apparel articles ... . [emphasis added]

The fibers in the yarns at issue are not "spun" because they are made of continuous filament and not staple fiber. Therefore, section (ii) is not applicable because it requires that a fiber undergo processing so that a product with a new commercial designation of yarn has been produced. In the instant case, yarns were brought into Canada and after processing the material was still commercially designated as yarn.

As mandated by the above regulation, the twisting, plying and dying operations which take place in Canada do not support a finding that the articles at issue are products of Canada for
quota and visa purposes. The subject merchandise is subject to the quota and visa restrictions applicable to yarns from the aforementioned source countries.

-U.S.-CANADA FREE TRADE AGREEMENT APPLICABILITY-

General Note 3(c)(vii) to the HTSUSA sets forth the terms and conditions in which the United States-Canada Free-Trade Agreement Implementation Act of 1988 applies. General Note 3(c)(vii)(F) provides:

Whenever the processing or assembly of goods in the territory of Canada and/or the United States results in one of the changes in tariff classification in Canada described by the rules set forth in subdivision (c)(vii)(R) of this note, such goods shall be considered to have been transformed in the territory of Canada and shall be treated as goods originating in the territory of Canada ... .

General Note 3(c)(vii)(R) reads:

Change in Tariff Classification Rules
(11) Section XI: Chapters 50 through 63.

(ff) A change to any heading of Chapter 54 from any other chapter.

Any change in classification resulting from the processing operations in Canada were within Chapter 54 and therefore the CFTA is not applicable to the subject merchandise by operation of this provision.

General Note 3(c)(vii)(G) of the CFTA refers to "goods imported into the territory of Canada in an assembled or disassembled form and ... classified as unassembled or disassembled goods," and to goods whose tariff provision provides for the goods themselves and for their parts. General Note 3(c)(vii)(H) states, in part, notwithstanding subdivision (c)(vii)(G), goods described in that paragraph will be considered transformed in Canada and will treated as goods originating in Canada if the value of the materials originating in Canada that are used or consumed in the production of the goods plus the direct cost of assembling the goods constitute at least 50 percent of the value of the goods when exported into the U.S.. This is not applicable to the yarns at issue and they will not be accorded preferential treatment under the CFTA. See Headquarters Ruling Letter 084553, dated August 31, 1989, which held that certain yarns similarly processed were not eligible for CFTA treatment.

HOLDING:

The countries of origin of the subject merchandise are those countries where the yarn is sourced.

The subject merchandise is not eligible for preferential treatment under the CFTA.

Sincerely,

John Durant, Director
Commercial Rulings Division


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