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HQ 559499





February 14, 1996

CLA-2 RR:TC:SM 559499 MLR

CATEGORY: CLASSIFICATION

S. Richard Shostak, Esq.
Scott E. Rosenow, Esq.
Stein Shostak Shostak & O'Hara
1620 L Street, N.W., Suite 807
Washington, D.C. 20036-5605

RE: Men's Shirts; U.S. or Taiwanese origin fabric; American Samoa; General Note 3(a)(iv), HTSUS; insular possession

Dear Mr. Shostak and Mr. Rosenow:

This is in reference to your letter of October 12, 1995, requesting a ruling on behalf of BCTC Corporation ("BCTC"), concerning the eligibility of men's shirts from American Samoa for duty-free treatment under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

It is stated that three styles of shirts will be manufactured in American Samoa. Two styles are men's polo shirts, one of which will be made of 65 percent polyester and 35 percent cotton pique knit fabric, while the other will be made of 100 percent cotton interlock knit fabric. Both of these styles will have polo-type flat knit collars and welts, and double interlined front plackets with side slits. The classification of these two styles of shirts is stated to be subheadings 6105.20.20 and 6105.10.00, HTSUS, respectively. The third style will be a men's banded-bottom pullover which will be made from a 65 percent polyester and 35 percent cotton knit fabric. This style contains a partial frontal opening and button closure, a breast pocket, a collar, short ribbed sleeves, and a waistband. It is stated that this style is classified under subheading 6110.30.30, HTSUS.

It is stated that knit fabric of U.S. and/or Taiwanese origin will be sent to American Samoa in bolts which have not been marked with cutting lines. In American Samoa, it is planned to mark the fabric with cutting lines, and cut it into approximately 10 polo shirt components, including the front, back, sleeves, collar, pocket, lining, etc. The components will then be assembled by numerous sewing operations, including hemming, serging, top stitching, and cover stitching. The garments are then inspected, trimmed, pressed, folded, and packaged before being shipped directly to the U.S. It is stated that the cost of assembly operations constitutes approximately 40 percent of the total cost of each shirt, and that the time involved in assembly is approximately 42 percent of the time required for all the operations performed in American Samoa.

It is stated that the banded-bottom shirts will also be made from knit fabric bolts of U.S. or Taiwanese origin, and that in American Samoa the fabrics will be marked and cut into 29 pieces of fabric for each shirt of various shapes and sizes. The front, back, and sleeve panels are cut from the bolts of knit fabric, while the ribbed sleeve cuffs and banding are cut from bolts of ribbed fabric. It is stated that the assembly process of this style of shirt constitutes approximately 35 percent of the total cost of the shirt, and that the time involved in assembly is approximately 62 percent of the time required for all operations performed in American Samoa. The banded bottom shirts are also inspected, folded, packaged, and shipped directly to the U.S.

ISSUES:

I. Whether the men's shirts will be entitled to duty-free treatment under General Headnote 3(a)(iv), HTSUS, when imported into the U.S.

II. Whether the men's shirts are excepted from the country of origin marking requirements of 19 U.S.C. 1304.

LAW AND ANALYSIS:

General Note 3(a)(iv), HTSUS, provides that goods imported from a U.S. insular possession may enter the customs territory of the U.S. free of duty if the goods:

(1) are the growth or product of the possession; or

(2) are manufactured or produced in any such possession from materials which are the growth, product or manufacture of any such possession or of the customs territory of the U.S., or of both;

(2) do not contain foreign materials which represent more than 70 percent of the goods' total value (or more than 50 percent with respect to textile and apparel articles subject to textile agreements, and other goods described in section 213(b) of the Caribbean Basin Economic Recovery Act) (CBERA); and

(3) come directly to the customs territory of the U.S. from the possession.

American Samoa is a U.S. insular possession. Since men's knit shirts and pullovers are subject to textile agreements, and are not considered eligible articles entitled to duty-free treatment under the CBERA (i.e., they are described in section 213(b) of the CBERA), the "foreign materials" making up the golf shirt and pullover may not represent more than 50% of each article's appraised value.

A. "Product of" Requirement

To comply with the requirements of General Note 3(a)(iv), HTSUS, we must first determine whether the bolts of cloth material imported into American Samoa are substantially transformed, and, therefore become a product or manufacture of that possession. A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982).

Because the articles in question are textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854), section 12.130, Customs Regulations (19 CFR 12.130), currently is applicable. See T.D. 90-17 dated February 23, 1990 (country of origin rules regarding imported textiles are applicable to insular possessions). Section 12.130, Customs Regulations (19 CFR 12.130), sets forth criteria for determining whether a textile or textile product has been substantially transformed. 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.

Section 12.130(e)(iv), Customs Regulations (19 CFR 12.130(e)(iv)), states that the cutting of fabric into parts and the assembly of those parts into the completed article in a foreign country or insular possession will usually result in a substantial transformation of the fabric so that the completed article becomes a product of the particular foreign country or insular possession. In this case, the operations of marking the imported fabric into pattern pieces, cutting the fabric into pieces of various sizes and shapes, and assembling the pieces together by means of numerous sewing operations to produce polo shirts and banded-bottom pullovers, result in a substantial transformation of the foreign fabric. Therefore, we find that the polo shirts and pullovers are "products of" American Samoa, and will be eligible for duty-free treatment under General Note 3(a)(iv), HTSUS, provided the 50 percent foreign value limitation is not exceeded..

For polo and pullover shirts entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996, the general rules set forth in paragraphs (c)(1) through (5) of section 102.21, Customs Regulations, which implement section 334 of the Uruguay Round Agreements Act will be used to determine whether the shirts are "products of" American Samoa for purposes of General Note 3(a)(iv), HTSUS. Paragraph (c)(1) states that "the country of origin of a textile or apparel product is the single country, territory, or insular possession in which the good was wholly obtained or produced." As the shirts are not wholly obtained or produced in a single country, territory, or insular possession, paragraph (c)(1) of section 102.21 is inapplicable.

Paragraph (c)(2) provides:

[w]here the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1) of this section, the country of origin of the good is the single country, territory, or insular possession in which each foreign material incorporated in that good underwent an applicable change in tariff classification, and/or met any other requirement, specified for the good in paragraph (e) of this section.

It is stated that the shirts are classifiable under subheadings 6105.20.20, 6105.10.00, and 6110.30.30, HTSUS. The rule set forth under paragraph (e) for shirts classifiable under subheading 6105.20.20, 6105.10.00, and 6110.30.30, HTSUS, provides:

6101-6117 (1) If the good is not knit to shape and consists of two or more component parts, a change to an assembled good of heading 6101 through 6117 from unassembled components, provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession.

(2) If the good is not knit to shape and does not consist of two or more component parts, a change to heading 6101 through 6117 from any heading outside that group, except from heading 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5806, 5809 through 5811, 5903, 5906 through 5907, and 6001 through 6002, and subheading 6307.90, and provided that the change is the result of a fabric-making process.

(3) If the good is knit to shape, a change to heading 6101 through 6117 from any heading outside that group, provided that the knit-to-shape components are knit in a single country, territory, or insular possession.

In this case, for all of the shirts considered, section 102.21(e), 6101-6117(1) is applicable. All of the shirts are not knit to shape, they consist of two or more component parts, and the component parts are changed to an assembled good of heading 6101 through 6117 as a result of being wholly assembled in American Samoa. Accordingly, pursuant to section 102.21, the shirts will be considered "products of" American Samoa.

B. Foreign Value Limitation Requirement

In order to determine whether the foreign value limitation is satisfied, the U.S.-origin fabric will not be considered as "foreign" pursuant to General Note 3(a)(iv)(A), HTSUS. In order to determine whether the cost or value of the Taiwanese fabric should be considered part of the cost of "foreign materials" or the cost of materials produced in the American Samoa for purposes of the 50% foreign value limitation under General Note 3(a)(iv), we must consider whether such fabric undergoes a "double substantial transformation" in the insular possession. T.D. 88-17 applied the double substantial transformation concept to products of U.S. insular possessions for purposes of determining whether the products meet the value requirement under General Note 3(a)(iv), HTSUS. T.D. 88-17 concluded that:

If foreign material (material not originating in an insular possession) is transformed into a new and different product in an insular possession and then that product is transformed again in that insular possession to yet another new and different product which is imported into the U.S., its cost will be considered part of the value of materials produced in the insular possession.

In Headquarters Ruling Letter (HRL) 556214 dated March 20, 1992, Customs held that foreign fabric imported into the Northern Mariana Islands where it was cut to shape and assembled into golf shirts and pullovers constituted a double substantial transformation of the fabric. In HRL 556214, the operations considered are virtually identical at issue here. As it was held in HRL 556214, we find that the cutting in the American Samoa of the imported bolts of fabric into panels and other pieces of defined shapes will transform the foreign fabric into a new and different article of commerce. Furthermore, we find that the assembly of the cut pieces, along with the trimming, pressing, folding, inspection, and packaging operations, constitutes a second substantial transformation of the foreign imported fabric. Although the assembly operations standing alone may not be sufficient to be considered a substantial transformation, in Texas Instruments, Inc. v. United States, 681 F.2d 778 (Fed. Cir. 1982), the court pointed out that in situations where all the processing is accomplished in one beneficiary country, as in this case, the likelihood that the processing constitutes little more than a pass-through operation is greatly diminished. Accordingly, we find that the cost of the Taiwanese fabric may be included as part of the value of materials produced in American Samoa.

As you indicated in your ruling request, the Final Rule of the Rules of Origin for Textile and Apparel Products, published at 60 Fed. Reg. 46188, 46193 (September 5, 1995), states that section 334 of the Uruguay Round Agreements Act (19 U.S.C. 3592) will not affect the foreign material value determinations required under General Note 3(a)(iv). Therefore, under the circumstances of this case, as we determined in HRL 556214, the Taiwanese fabric will not be considered as "foreign material" for purposes of calculating the 50 percent foreign value limitation under General Note 3(a)(iv), HTSUS, both before and after the effective date of section 102.21.

Country of Origin Marking

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. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

Section 134.1(c) defines "foreign origin" as "a country of origin other than the U.S., as defined in paragraph (e) of this section, or its possessions and territories." In HRL 556070 dated July 1, 1991, Customs held that women's and men's garments were substantially transformed into a product of the Northern Mariana Islands, and, therefore, were excepted from the country of origin marking requirements of 19 U.S.C. 1304. See also HRL 725787 dated July 25, 1984.

In this case, pursuant to 19 CFR 12.130(e)(iv), the men's polo and pullover shirts are considered products of American Samoa. For polo and pullover shirts entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996, the country of origin for marking purposes shall be determined by section 102.21, Customs Regulations. As discussed above, for all of the shirts considered, they will also be considered products of American Samoa pursuant to section 102.21(e), 6101-6117(1). Accordingly, since American Samoa is a U.S. possession, the shirts will not be considered to be of foreign origin pursuant to 19 CFR 134.1(c) and they will not be subject to the country of origin marking requirements of 19 U.S.C. 1304.

Country of Origin for Quota Purposes

As indicated above, under both 19 CFR 12.130(e)(iv), and section 102.21(e), 6101-6117(1), Customs Regulations, the country of origin of the shirts is American Samoa. Therefore, the shirts are considered to be products of American Samoa for quota purposes. Since the U.S. has not concluded a bilateral textile and apparel agreement with American Samoa, there is no quota or visa requirement on products of American Samoa.

HOLDING:

On the basis of the information submitted, the men's polo and pullover shirts will be considered "products of" American Samoa pursuant to 19 CFR 12.130(e)(iv), and section 102.21(e), 6101-6117(1), Customs Regulations. Furthermore, we find that the U.S. and Taiwanese fabric imported into American Samoa will not be considered "foreign material" for purposes of calculating the 50 percent foreign value limitation under General Note 3(a)(iv), HTSUS. Accordingly, the men's golf and pullover shirts will be entitled to duty-free treatment under General Note 3(a)(iv), HTSUS, provided they are imported directly from American Samoa to the U.S., and the 50 percent foreign value limitation at the time of entry is satisfied. Since the shirts will not be considered to be of foreign origin pursuant to 19 CFR 134.1(c), they will not be subject to the country of origin marking requirements of 19 U.S.C. 1304. There is no quota or visa requirement on products of American Samoa.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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