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HQ 557160/735000


June 28, 1993

CLA-2 CO:R:C:S 557160 MLR/
MAR-2-05 CO:R:C:V 735000 RC

CATEGORY: CLASSIFICATION MARKING
TARIFF NO.: 9802.00.80

Mr. Dean Gannet
Kaufman
13245 N.W. 47 Ave.
Miami, Florida 33054

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 and country of origin marking requirements for towels; sewing; lace; trimmings; embroidery.

Dear Mr. Gannet:

This is in response to your letter of February 18, 1993, requesting a ruling regarding the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to towels. Samples of two finished towels, one with trimming and the other with an embroidered design, were submitted with your request.

FACTS:

You plan to purchase finished towels from an American towel mill, probably Fieldcrest/Cannon Mills located in Columbus, Georgia, and trimmings, laces, and embroidery yarns from various other U.S. companies. These U.S. components will be shipped to an independent contractor in Guatemala. In Guatemala, the lace or trimmings will be sewn to the towel, or an embroidery design will be stitched. In a telephone conversation with a member of my staff, you indicated that in the case where an embroidery design is stitched on the towels, a pelon backing may be used; however, the bulk of the towels will not have the backing. From the sample of the embroidered towel, it appears that a pelon backing was used; however, all of the pelon is removed except the pelon caught between the towel and the thread used to stitch the embroidered design. The finished towels will then be shipped back to the U.S. Because the towels and decorative features are made in the U.S., you request that duty only be paid on the added value of the labor which will be approximately 30 to 50 cents for each towel.

ISSUES:

I. Whether the towels will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the United States.

II. Whether country of origin marking requirements of 19 U.S.C. 1304 are applicable to the imported towels.

LAW AND ANALYSIS:

I. Application of Subheading 9802.00.80, HTSUS

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 this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, 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 that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners.

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 operations. 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 subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c).

In Headquarters Ruling Letter (HRL) 555565 dated May 14, 1990, we considered the sewing of a patch or small label or the embroidering of a logo onto beach towels. The operation of sewing a patch or label onto the towel was considered an acceptable assembly operation pursuant to 19 CFR 10.16(a). Therefore, the operation of sewing lace or trimmings onto the towels is considered an acceptable assembly operation because two solid components are being joined (i.e., sewn) together. However, the operation of embroidering a logo onto the beach towels was not considered an acceptable assembly operation because we have previously held that embroidering a single layer of fabric does not qualify as an acceptable assembly operation for purposes of subheading 9802.00.80, HTSUS. See HRL 063098 dated June 7, 1979, and 071031 dated November 12, 1982.

However, in HRL 555625 dated August 1990, U.S.-origin thread, knit fabric, and pelon backing were shipped to Mexico for an embroidery operation. The pelon backing was considered necessary to the embroidery operation because, without the backing, the thread would become entangled in the embroidery machine, making the embroidery operation impossible. The pelon backing also prevented the embroidery stitch from unraveling. After the design was complete, the portion of the pelon backing not caught between the material and embroidered thread was removed. Based upon C.S.D. 90-28, 24 Cust. Bull. 346 (1990), (HRL 555399 dated December 26, 1989), which held that an embroidered design which penetrated two or three layers of fabric was an acceptable assembly operation, the embroidery operation in HRL 555625 was also found to be acceptable because the embroidery stitch was used to join the knit fabric and the pelon backing together. In C.S.D. 90-28, the embroidered design served as a binding agent, as it penetrated two or three layers of a slipper vamp and served to keep the center of the vamp from puckering. See, L'Eggs Products Inc. v. United States, 704 F. Supp. 1127 (CIT 1989), which held that thread used as a binding agent to join material to itself qualified as a component and was eligible for the duty exemption available under subheading 9802.00.80, HTSUS.

In the present case, if a pelon backing is used as in the sample submitted, the embroidery stitch will be used to join the towel and the pelon backing together, which is an acceptable assembly operation as in HRL 555625. Therefore, the embroidery operation will qualify for the duty exemption available under subheading 9802.00.80, HTSUS. However, HRL 555625 determined that the pelon backing was not eligible for the duty exemption upon import into the U.S., because nearly all of the pelon backing was removed after the assembly operation. (Section 10.16(b)(4), Customs Regulations {19 CFR 10.16(b)(4)}, considers trimming, filing, or cutting off of small amounts of excess material to be incidental operations.) Because the removal of the backing was too significant an operation to be considered incidental and was not an assembly operation, no allowance in duty was granted under subheading 9802.00.80, HTSUS, for the cost or value of the pelon backing. Therefore, if the pelon backing is removed as in HRL 555625, it will not be eligible for the duty allowance under this tariff provision.

With respect to those towels which are embroidered without the use of a pelon backing, as in HRL 555565, only a single layer of fabric is embroidered; therefore, the towels and embroidery yarns will not be eligible for the partial duty exemption.

II. Section 304 of the Tariff Act of 1930

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 in the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its 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.

Part 134, Customs Regulations (19 CFR Part 134), implements country of origin marking requirements and exceptions of 19 U.S.C. 1304. 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. 19 CFR 12.130(c) provides that U.S. textile articles that are advanced in value or improved in condition, or assembled in a foreign country, are considered to be products of that foreign country. In this case, all the towels are advanced in value or improved in condition as a result of the embroidery/trimming/lace operations performed in Guatemala. Accordingly, under 12.130(c), the country of origin of the towels is Guatemala. Thus, the following are acceptable markings:

(2) "Made in Guatemala";

However, to the extent that the towels are eligible for the duty treatment set forth in subheading 9802.00.80 HTSUS, under 19 CFR 10.22, the following markings are acceptable:

(3) "Assembled in Guatemala";
(4) "Assembled in Guatemala of U.S. components".

HOLDING:

On the basis of the information and samples submitted, the operations of sewing trimmings or lace onto the towels or using an embroidery stitch to join a towel and pelon backing together, are considered acceptable assembly operations. However, the removal of the pelon backing is not incidental to the embroidery operation. Therefore, these imported towels may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S. components (except the pelon backing), provided the documentary requirements of 19 CFR 10.24 are satisfied. The towels that are embroidered without the use of pelon backing will be ineligible for the partial duty allowance under this tariff provision because the embroidery of a single layer of fabric is not considered an acceptable assembly operation. Pursuant to 19 CFR 12.130(c), the towels must be marked to indicate Guatemala as the country of origin. To the extent that the towels are eligible for subheading 9802.00.80, HTSUS, treatment, section 10.22 allows the marking to include the word "assembled" and the indication that the components are of U.S. origin.

Sincerely,

John Durant, Director

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