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HQ

560052
January 2, 1997
CLA-02 RR:TC:SM 560052 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80, 9802.00.90

Port Director
300 S. Ferry Street
Los Angeles, California 90731

RE: Applicability of subheadings 9802.00.80 and 9802.00.90, HTSUS, to commingled garment accessories

Dear Director:

This is in reference to a letter dated August 12, 1996, by Elon A. Pollack, Esq., on behalf of Simbex Co., requesting a ruling concerning a duty allowance under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), for the value of certain accessories which are included as part of finished garments imported from Mexico. Counsel also requests the tariff consequences when such accessories are imported as part of wearing apparel which may be the subject of a claim for duty-free treatment under subheading 9802.00.90, HTSUS. Additional information clarifying Mr. Pollack's request was orally transmitted to this office in a telephonic communication on November 21, 1996. Mr. Pollack has further requested by fax that we consider whether the imported merchandise would be eligible for preferential treatment under the NAFTA.

FACTS:

Simbex currently purchases a variety of garment accessories, including buttons, zippers, and labels, from domestic sources. Simbex also intends to commence importing accessories from foreign suppliers. In both cases, counsel states that Simbex may be unable to determine which of the buttons or zippers, for example, are of domestic or foreign origin. As a result, the accessories will not be segregated once they enter the company's warehouse. Counsel also states that at any time the amount of domestic accessories will outnumber the foreign purchases.

Simbex sells these accessories to manufacturers of wearing apparel some of whom export the items to Mexico for assembly into finished garments. Upon return, the manufacturers may either claim a duty allowance for the cost or value of all U.S.- origin components, pursuant to subheading 9802.00.80, HTSUS, or, if applicable, duty-free treatment for the imported apparel under subheading 9802.00.90, HTSUS.

ISSUE:

(1) Whether the accessories may be included in determining the duty allowance under subheading 9802.00.80, HTSUS, based on the relative value of the U.S.-origin items versus the foreign-origin items.

(2) Whether the presence of these accessories as part of imported wearing apparel will effect a claim for duty-free treatment under subheading 9802.00.90, HTSUS.

LAW AND ANALYSIS:

Subheading 9802.00.80

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

Articles 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 must be satisfied before a component may receive a duty allowance. An article entered under this subheading is subject to a duty upon the full value of the imported article, less the cost or value of the U.S. components assembled therein, provided there has been compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).
In this regard, 19 CFR 10.24 requires a declaration of the foreign assembler upon entry that to the best of that person's knowledge and belief the articles were assembled in whole or in part from fabricated components which are products of the

U.S. Counsel believes that the value of the accessories may be included in the declaration of U.S. components submitted upon entry under subheading 9802.00.80, HTSUS, based on the relative value of such domestic items as compared to the value of the foreign-origin accessories. He cites Headquarters Ruling Letter (HRL) 557615 dated December 7, 1994 and HRL 555409 dated March 12, 1990 in support of his position.

In HRL 557615, which concerned the value of U.S.-origin components to be used in determining the duty allowance under subheading 9802.00.80, we held that the "cost of the components when last purchased" under 19 CFR 10.17 may be based on a price application methodology utilizing actual U.S. manufacturer's invoices and an average turnaround time for the particular component. However, the issue in that case as noted was the value to be used for components that were identifiably of U.S.-origin, and did not involve commingling of foreign origin parts with components of domestic origin as in this situation. Accordingly, we find this decision to be inapposite to the situation presently before us.

In HRL 555409, we stated the following:

"... [t]his office has consistently taken the position that under 19 CFR 10.24, an allowance under... HTSUS subheading 9802.00.80 may be granted only if the importer can demonstrate, on an entry-by-entry basis, that those components claimed to be products of the U.S. are, in fact, products of the U.S. 19 CFR 10.24 requires that the importer and assembler establish reliable controls, including the strict physical segregation of U.S. and foreign components and the maintenance of any other records pertaining to the U.S. components, so that the district director can identify, by audit if necessary, the specific components of U.S. origin in particular shipments which are entitled to the duty allowance. Thus, we have taken the position that various accounting procedures, such as the aggregate-quantity method or the cost-ratio method, could not be used to support a claim under this tariff provision under circumstances in which U.S. and foreign components had been commingled in the foreign assembly operation in such a way that the precise quantity and value of the U.S. components in a given shipment could not be substantiated... ."
In HRL 555409, the importer was unable to substantiate for each and every entry the precise quantity and identity of the U.S. components entitled to the HTSUS subheading 9802.00.80 duty exemption. Similarly, in the instant case, the importer will not be able to substantiate for each entry the precise quantity and identity of U.S.-origin accessories entitled to the allowance. Accordingly, the importer will not
be permitted an allowance in duty under subheading 9802.00.80 based on a comparison of the relative value of the U.S.-origin accessories to the foreign accessories or on any other accounting methodology.

We note that in HRL 555409, the quantity of commingled foreign components was estimated by the importer to be between 1% and 1.6% of the total number of components (capacitors) sent abroad for assembly. In that case, we stated that the number of reimported capacitors was very small in comparison to the total number of capacitors imported, and that under certain circumstances, the district director (now port director) may waive the production of certain documents or information. (See 19 CFR 10.24(e)). There is no indication in the instant case that the number of commingled foreign components will constitute a percentage of the total quantity of components comparable to the percentages estimated in HRL 555409. Accordingly, we do not find the facts in the present situation to be analagous to the situation in HRL 555409.

Subheading 9802.00.90

Subheading 9802.00.90, HTSUS, was created to provide for the duty-free entry of:

Textile and apparel goods, assembled in Mexico in which all fabric components were wholly formed and cut in the United States, provided that such fabric components, in whole or in part (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 have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process; provided that goods classifiable in chapters 61, 62, or 63 may have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma- pressing after assembly as provided for herein.

In view of the fact that the enactment of subheading 9802.00.90, HTSUS,
specifically was intended to extend duty-free and quota-free status to all goods assembled in Mexico, which previously were eligible for entry under the Special Regime Program administered under U.S. tariff item 9802.00.8010, HTSUS, it is Customs view that all of the policy directives implementing this program should be considered applicable in the administration of subheading 9802.00.90, HTSUS.
One such policy under the Special Regime Program included the allowance of "findings, trimmings, and certain elastic strips of foreign origin" to be incorporated into the assembled good "provided they do not exceed 25 percent of the cost of the components of the assembled product." Examples of findings and trimmings are sewing thread, hooks and eyes, snaps, buttons, "bow buds", lace trim, zippers, including zipper tapes, and labels. See 53 Fed. Reg. 15726 (May 3, 1988).

In the instant case, it appears that at least some of the accessories, such as buttons and zippers, constitute findings as described under this Program. Accordingly, if such foreign findings, trimmings and elastic strips as described in the Program do not exceed 25% of the cost of the components of the assembled garments, the imported apparel will qualify for duty-free treatment under subheading 9802.00.90, HTSUS, provided all other statutory and documentary requirements are satisfied. However, duty-free treatment under subheading 9802.00.90 will not be available if the importer is unable to substantiate, on an entry-by-entry basis, due to commingling of U.S. and foreign accessories, that foreign findings and trimmings constitute 25% or less of the cost of the completed garments. Furthermore, the importer's inability to distinguish U.S. accessories from foreign accessories on an entry-by-entry basis due to comingling will cause all such commingled accessories to be treated as if of foreign origin.

HOLDING:

(1) An allowance in duty under subheading 9802.00.80, HTSUS, will not be available for U.S.-origin garment accessories which are commingled with foreign accessories and the cost or value of such U.S. accessories cannot be quantified on an entry-by-entry basis.

(2) Claims under subheading 9802.00.90, HTSUS, for duty-free treatment for textile and apparel articles imported from Mexico will be granted, provided all fabric components are cut and formed in the U.S., and all other requirements of the provision are satisfied. Duty-free treatment under subheading 9802.00.90 will not be
available if the cost of foreign findings and trimmings, and certain elastic strips, constitutes more than 25% of the cost of the completed wearing apparel. Where the importer is unable to distinguish, on an entry-by-entry basis, whether apparel accessories are of U.S. or foreign origin due to commingling, all of the accessories will be treated as if of foreign origin.

Please provide a copy of this decision to Elon Pollack, Esq., 865 Figueroa Street, Suite 1388, Los Angeles, California, 90017. You should also advise Mr. Pollack that whether the goods imported (or to be imported) may be eligible for preferential treatment under the NAFTA, as requested, will require additional information concerning the particular import transactions, including a description of the imported articles, the origin of the materials assembled into the completed garments, and the operations performed abroad.

Sincerely,

John Durant,

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