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HQ 952802


June 11, 1993

CLA-2 CO:R:C:T 952802 jb

CATEGORY: CLASSIFICATION

TARIFF NO.: 5604.10.0000

Mr. Charles M. Watson
R.L. Swearer Company, Inc.
P.O. Box 471
Sewickley, PA 15143-0471

RE: Classification, country of origin and Canada Free Trade Agreement eligibility of cotton-wrapped, rubber-core yarns made in Canada; subheading 5604.10.0000, HTSUSA

Dear Mr. Watson:

This is in response to your letter, dated September 21, 1992, on behalf of your client, Jetnet Corporation, requesting classification under the Harmonized Tariff Schedule of the United States Annotated, country of origin determination, and Canada Free Trade (CFTA) eligibility, for cotton-wrapped, rubber core yarn made in Canada. Samples were provided to this office for examination.

FACTS:

The yarn at issue consists of a single-filament rubber core, around which is wrapped (gimped) a plied cotton yarn. The rubber will be imported from Malaysia in the form of ribbon which has been scored to facilitate splitting into individual filaments. The actual splitting will occur in Canada. The single-ply cotton yarn will originate in either Egypt or the United States and upon importation into Canada will be twisted into a three or four ply yarn and then wrapped around the rubber single-filament core.

ISSUE:

I. What is the classification of the subject merchandise?

II. What is the country of origin of the subject merchandise?

III. Does this merchandise qualify as an "originating material" for purposes of the Canada Free Trade Agreement?
LAW AND ANALYSIS:

I. Classification

Classification of merchandise under the HTSUSA is governed by the General Rules of Interpretation (GRI). GRI 1 requires that classification be determined according to the terms of the headings and any relative section or chapter notes, taken in order. Where goods cannot be classified solely on the basis of GRI 1, the remaining GRI will be applied, in the order of their appearance.

The sample at issue consists of a rubber cord covered with textile. Heading 5604, HTSUSA, provides for rubber thread and cord, textile covered; textile yarn, and strip and the like of heading 5404 or 5405, impregnated, coated, covered or sheathed with rubber or plastics.

Gimped yarn is defined as:

Yarn consisting of a tightly twisted center or heart yarn wrapped around by oft twisted yarn, and usually colored, novelty yarn. Spirality in gimp is very important to bring out the effect. George E. Linton, The Modern Textile and Apparel Dictionary, at 265, (1973).

Thus, in a gimped yarn, the yarn's core is separate from the outer covering. The core is straight and wrapped with the covering. In a plied yarn on the other hand, the plies are twisted together at the same rate of speed by the twisting machine.

The Explanatory Notes to the Harmonized Commodity Description and Coding System (EN) are the official interpretation of the tariff at the international level. The EN to heading 5604, HTSUSA, state:

(A) RUBBER THREAD AND CORD, TEXTILE COVERED

Provided they are covered with textiles (e.g., by gimping or plaiting), this group includes thread (single strand) of rubber, of any cross-section, and cord (multiple strand) of rubber, made of these threads.

Accordingly, the finished yarn, upon importation into the United States, would be classified in subheading 5604.10.0000, which provides for rubber thread and cord, textile covered.

II. Country of Origin

Section 12.130 of the Customs Regulations (19 CFR 12.130), sets forth the principles of country of origin for textiles and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854).

Pursuant to 19 CFR 12.130(b), the standard of substantial transformation governs the country of origin determination 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 or country 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.

The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d). 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) of the Customs Regulations states that in determining whether merchandise has been subjected to substantial manufacturing or processing operations, the following will be considered:

(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 in each foreign territory or country, or insular possession of the U.S.

(iii) The complexity of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S.

(iv) The level or degrees of skill and/or technology required in the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S.

(v) The value added to the article or material in each foreign territory or country, or insular possession of the U.S., compared to its value when imported into the U.S.
As the yarn at issue consists of components of two countries, assembled in a third country, a determination must be made as to where the last substantial transformation occurred. It is Customs' view that the assembly of two yarns into one yarn, whether by plying or gimping, does not substantially transform those yarns. While it may have a new use, it does not change the fact that the article is still a yarn. Thus the assembly of the yarn in Canada is not a substantial transformation.

In a case such as this, where Section 12.130 does not address the situation where an article is composed of two components, each contributing equally to the finished article, and the article is not substantially transformed in a third country, a different test must be applied to determine country of origin.

Where for the purposes of our international textile agreements, a determination must be made in regard to the country of origin of a composite article comprised of different countries, where the joining of the components is not sufficient to confer origin, the origin of the article will be determined by the component which would be selected under GRI 3, HTSUSA, as being determinative of classification.

GRI 3(c) provides:

When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

In the instant case, before the yarns are combined, the foreign source materials are known commercially by their independent features, that is single ply cotton yarn and rubber thread. As the cotton yarn portion occurs last in numerical order, the subject yarn is a product of either Egypt or the United States (depending on which of those two countries the cotton yarn will originate).

III. Canada Free Trade Agreement (CFTA) Eligibility

The CFTA rules for determining whether goods, when imported into the United States, are originating in the territory of Canada, are set forth in General Note 3(c)(vii), HTSUSA. General

For the purposes of subdivision (c)(vii) of this note, goods imported into the customs territory of the United States are eligible for treatment as "goods originating in the "territory of Canada" only if--

(1) they are goods wholly obtained or produced in the territory of Canada and/or the United States

General Note 3(c)(vii)(B)(2) provides for the only other means by which goods may be considered "originating" under the CFTA:
they have been transformed in the territory of Canada and/or the United States, so as to be subject--

(I) to a change in tariff classification as described in the rules of subdivision (c)(vii)(R) of this note, or

(II) to such other requirements subdivision (c)(vii)(R) of this note may provide when no change in tariff classification occurs, and they meet the other conditions set out in subdivisions (c)(vii)(F), (G), (H), (I), (J), and (R) of this note.

Emphasis added.

For goods classified under chapter 56 (the proper classification determined for the finished good upon importation into the United States), subdivision (c)(vii)(R)(11)(ii) requires:

A change to any heading of chapter 56 from any heading outside that chapter other than headings 5106 through 5113, 5204 through 5212, 5306 through 5311, or headings of chapters 54 and 55.

The instant case cannot be addressed by General Note 3(c)(vii)(B)(1) because the materials are not wholly obtained in the United States or Canada. The materials must therefore be addressed as per General Note 3(c)(vii)(B)(2), i.e., a change in tariff classification. The two possible scenarios with which we are confronted are:

1. Egyptian cotton yarn and Malaysian rubber; or

2. United States cotton yarn and Malaysian rubber

The product in the first scenario, i.e., Egyptian cotton yarn and Malaysian rubber, fails to qualify as goods originating in the territory of Canada because the cotton yarns of heading 5205 are among the tariff provisions which, when made into a chapter 56 product, will not qualify as an eligible change in classification.

The product in the second scenario, on the other hand, does qualify as a good originating in the territory of Canada for the foregoing reasons. Under the United States Free Trade Agreement, Chapter Three: Rules of Origin, Summary of FTA Provisions, (House Document 100-216, 100th Congress, 2d Session),it states:

1. General Rule

...The FTA provides that goods wholly produced in the United States and/or Canada will qualify for such preferential treatment. Goods containing third-country materials will qualify for preferential treatment if the materials [i.e., foreign materials] undergo, in one or both of the parties, a sufficient degree of processing or assembly to result in a designated change, specified in Annex 301.2, in tariff classification under the Harmonized Commodity Description and Coding System (Harmonized System)...

This provision was interpreted in HQ 084856, dated August 31, 1989, in a case involving a motherboard imported into Canada consisting of third country components and U.S. components. That ruling stated:

Although the proposed operation, which only involves components that are "originating materials," appears to satisfy the intent of the FTA, we interpret the requirement of a change in tariff classification as a requirement that applies only to third country materials and is satisfied only with reference to such materials. This interpretation is necessary for two reasons. First, it gives the intended tariff preference to the broadest range of goods which might otherwise be denied the benefits of the FTA simply by virtue of the fact that an originating material did not change classification during the manufacturing. Second, it is consistent in its treatment of originating materials.

Accordingly, a situation involving a material originating in either the United States or Canada will satisfy the intent of the FTA for purposes of General Note 3(c)(vii)(B)(2), without having to address the question of "change in tariff" which is reserved only for foreign source materials.

The United States cotton is an "originating" material, not subject to a change in tariff classification. The Malaysian rubber, a foreign source material, not originating in the United States,is subject to a change in tariff classification. Malaysian rubber, in its unaltered state would be classified in chapter 40, HTSUSA; when it is gimped, with the cotton, it is classified in chapter 56. A change from chapter 40 to chapter 56 is a qualifying change in tariff classification. As such, the gimped yarn made from the non-originating rubber qualifies as a good originating in the territory of Canada. In sum, if the original cotton is of Egyptian origin, the finished product will not qualify for FTA treatment; if the original cotton yarn is of United States origin, the finished product will qualify for FTA treatment.

HOLDING:

The finished yarn, upon importation into the United States, is classified in subheading 5604.10.0000, HTSUSA, as rubber thread and cord, textile covered. The applicable rate of duty is 7.2 percent ad valorem and the quota category is 201.

For quota and visa purposes, the yarn is a product of either Egypt or the United States, depending on which of those two countries the cotton yarn will originate.

Where the yarn consists of Egyptian cotton and Malaysian rubber, the finished product will not qualify for FTA treatment. Where the yarn consists of United States cotton and Malaysian rubber, the finished product will qualify for FTA treatment.

The designated textile and apparel category may be subdivided into parts. If so, the visa and quota requirements applicable to the subject merchandise may be affected. Since part categories ate the result of international bilateral changes, to obtain the most current information available, we suggest you check the Status Report on Current Import Quotas (Restraint Levels), an internal issuance of the U.S. Customs Service, which is available for inspection at the local Customs office.

Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories applicable to textile merchandise, you should contact the local Customs office prior to importation to determine the current status of any import restraints or requirements.

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 the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.

Should it be subsequently 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

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