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HQ 560068




January 27, 1997

MAR-2-05 RR:TC:SM 560068 DEC

Diane Weinberg
Sandler, Travis & Rosenberg, P.A.
1341 G Street, N.W.
Washington, D.C. 20005

RE: Country of origin marking of comforters; 19 CFR 102.21; HRL 959912;
HRL 959304; 19 CFR 134.46; HRL 559625; HRL 559627

Dear Ms. Weinberg:

This is in reference to your letter of September 5, 1996, requesting a ruling on behalf of American Pacific Enterprises, Incorporated (American Pacific), concerning the country of origin marking for certain comforters to be sold in the U.S.

FACTS:

American Pacific intends to manufacture comforters from components made in both the U.S. and China. American Pacific intends to manufacture comforter faces in China from Chinese fabric. The comforter faces will be imported into the U.S. where the comforters will be further processed. You describe the production process of two scenarios as follows:

Scenario I

(1) Fabric for the face is woven and printed in China (2) Fabric is cut and sewn in China to construct comforter face from
4-6 pieces
(3) Face is shipped to the U.S.
(4) Fabric for the back is woven and printed in the U.S.
(5) Backing fabric is cut and sewn into a comforter back in the U.S. from 1-2 pieces
(6) Batting fabric is manufactured in the U.S. (7) Face and back are joined into a shell in the U.S. (8) The batting fabric is inserted into the comforter shell in the U.S.

(9) Comforter shell with inserted batting fabric is clamped to quilting frame in the U.S.
(10) Comforter is machine quilted in the U.S.

Scenario II
The processes are the same as indicated in Scenario I except that the fabric for the back described in number 4 is woven and printed in China and shipped to the U.S.

You contend that the comforter faces at the time of importation are excepted from country of origin marking and that the finished goods produced in either production scenario detailed above should be properly marked "Made in USA of US and imported components" or "Made in USA of imported fabric."

We are aware that you received a letter dated October 22, 1996, from the Federal Trade Commission which stated that "If the comforters are not subject to Tariff Act marking requirements and are therefore subject only to Textile Act origin marking requirements, they would fall under Rule 33(a)(3) and may be labeled Made in USA of US and imported components.'" Furthermore, that letter went on to correctly state that "if the comforters are subject to Customs marking provisions, an appropriate marking must comply with the requirements of both the Textile Act and Rules and the laws enforced by Customs."

ISSUE:

What are the country of origin marking requirements for the comforters produced pursuant to the two production scenarios described above?

LAW AND ANALYSIS:

The marking statute, section 304, 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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. Inc., 27 CCPA 297, 302, C.A.D. 104 (1940). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304.

You contend that section 334 is intended to apply to goods imported into the U.S., but that for goods which undergo post-importation processing in the U.S., the statutorily applicable Customs and Federal Trade Commission (FTC) marking requirements apply, including the Customs country of origin marking exceptions provided for under 19 U.S.C. 1304. Therefore, you contend that the imported comforter faces are entitled to an exception from marking based upon their "substantial transformation" into comforters by their ultimate purchaser, American Pacific. Accordingly, you claim that the imported shells are eligible for a marking exception under 19 U.S.C. 1304(h), which is applicable when:
an ultimate purchaser, by reason of the character of such article or by reason of the circumstances of its importation, must necessarily know the country of origin of such article even though it is not marked to indicate its origin.

Furthermore, you claim that the finished goods may be properly marked in compliance with applicable FTC requirements as "Made in USA of US and imported components" or "Made in USA of imported fabric."

In this case, you contend there is no rationale underlying the enactment of section 334 to impose the 19 U.S.C. 1304 country of origin marking requirements on imported articles that are substantially transformed in the U.S. You argue that once the country of origin is established for the comforter faces that are imported into the U.S., the marking exception under 19 U.S.C. 1304 and 19 CFR 134.32(h) will apply.

On December 8, 1994, President Clinton signed into law the Uruguay Round Agreements Act (URAA), Public Law 103-465, 108 Stat. 4809. Subtitle D of Title III of the URAA deals with textiles and includes section 334 (codified at 19 U.S.C. 3592) which concerns rules of origin for textile and apparel products. Paragraph (a) of section 334 provides that the Secretary of the Treasury shall prescribe rules implementing the principles contained in paragraph (b) for determining the origin of "textiles and apparel products."

Section 334(b)(1) of the URAA sets forth general principles concerning how the origin of textile and apparel products should be determined. That section provides in pertinent part as follows:

Except as otherwise provided for by statute, a textile or apparel product, for purposes of the customs laws and the administration of quantitative restrictions, originates in a country, territory, or insular possession, and is the growth, product, or manufacture of that country, territory, or insular possession, if-

(A) the product is wholly obtained or produced in that country, territory or insular possession;

(B) the product is a yarn, thread, twine, cordage, rope, cable or braiding and-
(i) the constituent staple fibers are spun in that country, territory, or possession, or

(ii) the continuous filament is extruded in that country, territory, or possession,

(C) the product is a fabric, including a fabric classified under chapter 59 of the HTS, and the constituent fibers, filaments or yarns are woven, knitted, needled, tufted, felted, entangled or transformed by any other fabric-making process in that country, territory, or possession from its component pieces; or

(D) the product is any other textile or apparel product that is wholly assembled in that country, territory, or possession from its component pieces.

(2) Special Rules - Notwithstanding paragraph (1)(D)-

(A) the origin of a good that is classified under one of the following HTS headings or subheadings shall be determinant in accordance with paragraph (A),(B), or (C) of paragraph (1), as appropriate: 5609, 5807, 5811, 6209.20.50.40, 6213, 6214, 6301, 6302, 6303, 6304, 6305, 6306, 6307.10, 6307.90, 6308, or 9404.90; .... (Emphasis added).

On September 5, 1995, Customs published in the Federal Register the final regulations implementing section 334 of the URAA. 60 Fed. Reg. 46188. These regulations are set forth in 19 CFR 102.21.

We disagree with your contention that 19 U.S.C. 1304 represents a statutory exception precluding the application of section 334 to textile or apparel products that an importer processes in the U.S. Since there is no dispute that the marking statute (19 U.S.C. 1304) is a Customs law, then section 334 of the URAA must be applied to determine the proper country of origin of the comforters "for purposes of the customs laws." Under circumstances such as are present in this case, Customs is required to examine post-importation processing to determine the article's proper country of origin.

As cited above, the marking statute specifically states that "every article of foreign origin (or its container) imported into the U.S. ... shall be marked ... in such a manner as to indicate to the ultimate purchaser in the U.S. ... the country of origin of the article." In this case, the article imported into the U.S. is the comforter face, and it is of foreign origin. In order to determine whether the imported comforter face, after it has been used to make a comforter, remains an article of foreign origin for purposes of the marking requirements under 19 U.S.C. 1304, Customs must apply the statutory rules of origin set forth in section 334 of the URAA and 19 CFR 102.21, which are applicable for the determination of the country of origin of all textile and apparel products entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996.

Section 102.21(c)(1) sets forth the general rule for determining the country of origin of a textile product in which the good is wholly obtained or produced in a single country, territory, or insular possession. Section 102.21(c)(1) is inapplicable here because the comforters at issue are not wholly obtained or produced in a single country.

Section 102.21(c)(2) provides for instances where the country of origin of a textile product cannot be determined under Section 102.21(c)(1). Section 102.21 (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.

The subject merchandise is a comforter, classifiable under subheading 9404.90, Harmonized Tariff Schedule of the United States (HTSUS). Accordingly, we are directed to paragraph (e) of this section which states the following rule for subheading 9404.90:

[t]he country of origin of a good classifiable under subheading
9404.90 is the country, territory, or insular possession in which the fabric comprising the good was formed by a fabric-making process.

In both scenarios, the subject comforter is comprised of fabric formed in more than one country. In scenario I, the fabric for the face is woven, printed, cut and sewn in China
while the fabric for the back and the batting fabric are of U.S. origin. In scenario II, the fabric for the face and the back are of Chinese origin, while the batting fabric is of U.S. origin. Accordingly, there is no single country in which the fabric was formed for the subject merchandise and our hierarchical application of Section 102.21(c) continues.

Section 102.21(c)(3) governs instances where country of origin of a textile or apparel product cannot be determined pursuant to paragraphs (c)(1) or (c)(2) and where the subject merchandise consists of either a good that was knit to shape in a single country or, except for goods of certain specifically enumerated headings, if not knit to shape, a good that was wholly assembled in a single country. Section 102.21(c)(3) is inapplicable to this case inasmuch as the subject comforter is not a knit to shape good and, as an article classifiable under subheading 9404.90, HTSUS, it is specifically excepted from paragraph (c)(3)(ii)'s application.

Section 102.21(c)(4) provides:

[W]here the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), (2) or (3) of this section, the country of origin of the good is the single country, territory, or insular possession in which the most important assembly or manufacturing process occurred.

In scenario I where the fabric for the face is woven in China and the fabric for the back is woven in the U.S., the most important manufacturing process occurs at the time of the fabric making. As the fabric for these articles is sourced in more than one country, and no one fabric is more important than the other, the country of origin cannot be readily determined based on the fabric making process. See Headquarters Ruling Letter (HRL) 959912, dated November 1, 1996. As such, paragraph (c)(4) is not applicable to this merchandise.

Section 102.21(c)(5) states the following:

Where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), (2), (3) or (4) of this section, the country of origin of the good is the last country, territory, or insular possession in which an important assembly or manufacturing process occurred.

Accordingly, in scenario I, the country of origin of the comforters will be the last country in which an important assembly or manufacturing process occurred, that is, the U.S.

Since the imported Chinese fabric in scenario 1 will be processed in the U.S. in a manner that would result in the fabric becoming a good of the U.S., American Pacific will be considered the ultimate purchaser of the imported fabric used for the comforter faces within the context of the marking statute (19 U.S.C. 1304) and the fabric will be excepted from marking. 19 CFR 134.35. The outermost containers of the imported fabric faces must be marked with their country of origin. Since the finished comforter will become a product of the U.S., it will not be subject to the marking requirements. Whether the finished comforters may be marked to indicate that they are made in the U.S. is an issue for the FTC. We defer to that agency's determination as set forth in their staff opinion letter dated October 22, 1996.

However, in the case of the comforters at issue under scenario II, the fabric making process of the comforters' outer shell (face and backing) constitutes the most important manufacturing process. It is the outer shell which actually forms the merchandise. Moreover, basing the country of origin determination on the fabric making process as opposed to the assembly process carries out the clear intent of Section 334 as expressed in Section 334 (b)(2) and Part 102.21(c)(3)(ii). Accordingly, the fabric making process in China, where the comforters' outer shell fabric is formed, constitutes the most important manufacturing process. Therefore, the country of origin for the comforters described in Scenario II is China pursuant to 19 CFR 102.21(c)(4) (see HRL 959304, dated September 3, 1996). Accordingly, the ultimate purchaser of the imported shell fabric, which remains of foreign origin after processing by American Pacific, is the retail purchaser of the finished comforters.

Since American Pacific is not the ultimate purchaser in scenario II, the exception in 19 U.S.C. 1304(a)(3)(H) and 19 CFR 134.32(h) is not applicable to it. There is no evidence that the retail purchasers of the finished comforters "necessarily knows" the origin of the imported shell fabric.

You claim that the finished goods may be properly marked in compliance with applicable FTC requirements as "Made in USA of US and imported components" or "Made in USA of imported fabric." Since the origin of the finished comforter pursuant to 19 CFR 102.21 is China, these two proposed markings are not acceptable.

In HRL 559625, dated January 19, 1996, the marking of down comforters produced in the U.S. from imported Chinese origin comforter shells was considered. Customs held that the finished down comforters were of Chinese origin based upon the Chinese-origin fabric used to make the shell in China. We also found that the imported shells remained of Chinese origin when they were combined with U.S. down feathers and sewn in the U.S., and, therefore, the markings "Made in the U.S. of U.S. Components and Chinese Shell" or "Made in the U.S. of U.S. and Imported Components," did not meet the requirements of 19 U.S.C. 1304. See HRL 559627, dated June 27, 1996.

Section 134.46, Customs Regulations (19 CFR 134.46), requires that the name of the country of origin must appear legibly, permanently, in close proximity, and in at least comparable size, preceded by the additional words "Made in," "Product of," or other words of similar meaning to the name, when any city or locality in the U.S. or the name of any foreign country or locality which is not the country of origin appears on the imported article or its container. The purpose of this section is to prevent the possibility of misleading or deceiving the ultimate purchaser. Since the country of origin of the imported fabric remains China in scenario II, for purposes of 19 U.S.C. 1304, the article which reaches the ultimate purchaser must indicate that the fabric is from China. If American Pacific wishes to make reference to a locality which is not its country of origin, the name "China" must be preceded by "Made in," "Product of," or words of similar meaning pursuant to 19 CFR 134.46. However, to the extent that American Pacific wishes to use any added references on the finished comforters, which include a "Made in USA" claim, this is a matter within the jurisdiction of the FTC. Customs has no objection to indicating the U.S. processing in the country of origin marking and has approved of the marking "Comforter Filled, Sewn and Finished in the U.S. With Shell Made in China." See HRL 559627, dated June 27, 1996.

HOLDING:

Based upon the information provided pursuant to 19 CFR 102.21(c)(5), the comforters produced under scenario I will become a product of the U.S. as a result of the processing in the U.S. Accordingly, the finished comforters are excepted from the marking requirements. The outermost containers of the imported fabric faces are required to be marked to indicate their origin for the benefit of American Pacific, the ultimate purchaser.

The country of origin of the finished comforter produced under scenario II will be China pursuant to 19 CFR 102.21(c)(4). The comforters described above will not be properly marked "Made in the U.S. of U.S. Components and Chinese Shell" or "Made in the U.S. of U.S. and Imported Components," as these markings would not comply with 19 U.S.C. 1304.

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 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, if there is any change in the facts submitted to Customs, it is recommended that a new ruling request be submitted in accordance with 19 CFR 177.2.

Sincerely,

John Durant, Director
Tariff Classification Appeals

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