HQ 560304 - Country of origin determination for knit collars and waistbands; NAFTA; 19 CFR 102.21; 19 CFR 102.19(b); 19 CFR 12.130(c). - United States International Trade Commision Rulings

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HQ 560304

April 25, 1997

CLA-2 RR:TC:SM 560304 JML

CATEGORY: MARKING

Mr. Rodney Ralston
Customs Consultant
Trans-Border Customs Services, Inc.
One Trans-Border Drive
P.O. Box 800
Champlain, NY 12919

RE: Country of origin determination for knit collars and waistbands; NAFTA; 19 CFR 102.21; 19 CFR 102.19(b); 19 CFR 12.130(c).

Dear Mr. Ralston:

This is in response to your letter of January 10, 1997, requesting a country of origin determination for knit collars and waistbands manufactured by your client, Plastic Monofil Co. Ltd. You have submitted samples of individual collars and waistbands, as well as unseparated knit collars and waistbands for our review.

FACTS:

Your client, Plastic Monofil Co. Ltd., is a manufacturer of knit collars and waistbands. Plastic Monofil Co. Ltd. purchases United States ("U.S.")-origin yarn (for purposes of this ruling assumed to be made of U.S.-origin fiber), and sends it to Canada for dyeing. The yarn is then sent back to the U.S. where it is knitted into fabric consisting of collars and waistbands connected by a melting thread so that they can later be separated by steaming.

The fabric is subsequently sent to Canada where it is passed through a steaming machine to separate the individual collars and waistbands. The collars and waistbands are examined for defects and any loose threads trimmed or tucked. Lastly, the goods are packed and returned to the U.S. under subheading 6117.90, Harmonized Tariff Schedule of the United States ("HTSUS"), as "Other made up clothing accessories, knitted or crocheted; knitted or crocheted parts of garments or of clothing accessories: Parts."

ISSUES:

1) What is the country of origin of the separated knit collars and waistbands?

2) Whether the imported knit collars and waistbands are entitled to NAFTA preference.

LAW AND ANALYSIS:

COUNTRY OF ORIGIN MARKING

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 (or its container) imported into 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 the country of origin marking requirements and exceptions of ?1304.

Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as:

The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the country of origin' within the meaning of this part;...

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act ("Act"). Section 334 of the Act provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse for consumption, on and after July 1, 1996. In accordance with the Act, Customs issued section 102.21, Customs Regulations (19 CFR 102.21), implementing Section 334 of the Act (60 Fed. Reg. 46188).

Section 102.21(b)(5), Customs Regulations (102.21(b)(5)), delineates the class of goods covered by the section 102.21 rules as those goods classifiable under Chapters 50 through 63 (that is all of Section XI) of the HTSUS, as well as to specific headings and 6-, 8- or 10-digit subheadings of the HTSUS that fall outside of Section XI. Accordingly, as the subject knit collars and waistbands are classified in subheading 6117.90, HTSUS, a textile good identified by section 102.21(b)(5), the section 102.21 rules are applicable to determine the appropriate country of origin.

Under the section 102.21 rules, the country of origin of a textile or apparel product is determined by sequential application of paragraphs (c)(1) through (c)(5) of section 102.21 and, in each case where appropriate to the specific context, by application of the additional requirements or conditions of sections 102.12 through 102.19, Customs Regulations (19 CFR 102.12; 19 CFR 102.19).

Section 102.21(c)(1), Customs Regulations, states that "[T]he 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 subject merchandise is knit in the U.S. and separated in Canada, it is not wholly obtained or produced in a single country as those terms are defined in section 102.1(g), Customs Regulations (19 CFR 102.1(g)). Thus, section 102.21(c)(1) is inapplicable.

In circumstances where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), section 102.21(c)(2), Customs Regulations, is applicable. That section states:

Where 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.

Accordingly, the required change in tariff classification under paragraph (e) is:

6101-6117 (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.

Knit to shape, as that term is defined in section 102.21(b)(3), Customs Regulations (19 CFR 102.21(b)(3)), applies to any good of which fifty (50) percent or more of the exterior surface area is formed by major parts that have been knitted directly to the shape used in the good. Because the U.S.-origin yarn was knit in the U.S. into the collars and waistbands separated by a melting thread, Customs considers them knit to shape as that term is used in section 102.21(b)(3).

Furthermore, Customs is of the opinion that the knit fabric consisting of the attached collars and waistbands are, contrary to importer's stated classification of subheading 6002.93, HTSUS, classifiable under subheading 6117.90, HTSUS, as "Other made up clothing accessories, knitted or crocheted; knitted or crocheted parts of garments or of clothing accessories: Parts." Since the knit fabric with the collars and waistbands attached by the melting threads and the separated knit collars and waistbands are classified under the same subheading, 6117.90, HTSUS, the tariff shift rule cannot be met.

When country of origin cannot be determined according to the terms of paragraph (c)(2), and in following the sequential application of paragraphs (c)(1) through (c)(5) of section 102.21, Customs Regulations, paragraph (c)(3) is next considered. Section 102.21(c)(3)(i), Customs Regulations (102.21(c)(3)(i)), provides, "[I]f the good was knit to shape, the country of origin of the good is the single country territory, or insular possession in which the good was knit." As the collars and waistbands were knit to shape in the U.S., the country of origin, according to section 102.21(c)(3), Customs Regulations, is the U.S.

However, there is an exception for products from the U.S. that are sent abroad for processing. Pursuant to Treasury Decision ("T.D.") 90-17, published in the Federal Register on March 1, 1990 (55 FR 7303), Customs extended the principles of country of origin for textiles and textile products contained in section 12.130, Customs Regulations (19 CFR 12.130), to such goods for all Customs purposes, including duty and marking. Section 12.130(c)(1) states the following:

(c) Articles exported for processing and returned -- (1) Applicability to U.S. articles sent abroad. Chapter 98, Subchapter II, Note 2, Harmonized Tariff Schedule of the United States, provides that any product of the U.S. which is returned after having been advanced in value or improved in condition abroad, or assembled abroad, shall be a foreign article for the purposes of the
Tariff Act of 1930, as amended. In order to have a single definition of the term product of' and, therefore, a single country of origin for a textile or textile product, notwithstanding paragraph (b), merchandise which falls within the purview of Chapter 98, Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon its return to the U.S., be considered a product of the U.S.

Customs is of the opinion that the processes performed in Canada, separating the collars and waistbands by steaming apart the melting threads, clearly advances them in value and improves them in condition. As collars and waistbands connected together by the melting threads, they are in a condition incomplete for their intended uses. Separating by the steaming process is an operation which clearly results in their being in a condition ready for their intended uses as collars or waistbands, thereby improving their condition and advancing their value. Thus, because the steaming operations performed in Canada advance in value or improve in condition the knit collars and waistbands, the country of origin, for quota/visa and marking purposes, is Canada, pursuant to section 12.130(c)(1), Customs Regulations.

Please be advised that Customs may propose to modify T.D. 90-17 to provide that section 12.130(c), Customs Regulations, would not apply for Customs marking purposes.

NAFTA PREFERENCE

General Note 12, HTSUS, incorporates Article 401 of the North American Free Trade Agreement ("NAFTA") into the HTSUS. Note 12(a)(i) provides, in pertinent part:

(i) Goods that originate in the territory of a NAFTA party under subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the Special' subcolumn followed by the symbol CA' in parentheses, are eligible for such duty rate...

Accordingly, the knit collars and waistbands at issue will be eligible for the "Special" "CA" rate of duty provided it is a NAFTA "originating" good under General Note 12(b), HTSUS, and it qualifies as a product of Canada under the marking rules. Note 12(b) provides, in pertinent part,

For the purposes of this note, goods imported into the customs territory of the United
States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if--

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States;...

Because the knit collars and waistbands are manufactured exclusively in the U.S. and Canada from U.S.-origin materials (yarn and threads), they are considered goods wholly obtained or produced in the territory of a NAFTA party. As such, they will be eligible for the "Special" "CA" rate of duty if they are found to be a product of Canada under the marking rules (19 CFR Part 102).

As previously discussed above, in determining the appropriate country of origin, the knit collars and waistbands qualify as goods of Canada for marking purposes. That result, however, is not based solely on the application of the marking rules set forth in Part 102, Customs Regulations (19 CFR Part 102). It is by operation of section 12.130(c), Customs Regulations, a provision clearly outside Part 102, that the origin of the articles is determined to be Canada.

However, according to the terms of section 102.19(b), Customs Regulations (19 CFR 102.19(b):

If , under any other provision of this part, the country of origin of a good originating within the meaning of section
181.1(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the
United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.

That is, NAFTA originating goods which are exported and returned to the U.S. after having been advanced in value or improved in condition in another NAFTA country and which are determined to be of U.S.-origin under Part 102, Customs Regulations, are treated, for duty purposes only, as products of the last NAFTA country where that good was advanced in value or improved in condition before its return to the U.S. "Originating," as that term is defined in section 181.1(q), Customs Regulations (19 CFR 181.1(q)), means a good or material which qualifies as originating in the U.S., Canada and/or Mexico under the rules in General Note 12, HTSUS, and in the appendix to section 181.1(q). By virtue of their being wholly obtained or produced in the U.S. and Canada under General Note 12(b), the collars and waistbands are originating for purposes of section 181.1(q), Customs Regulations. Under section 102.21(c), they are determined to be a product of the U.S. upon return to the U.S.

As the processes performed in Canada, separating the collars and waistbands by steaming apart the melting threads, clearly advance them in value and improve them in condition, section 102.19(b), Customs Regulations, is applicable, and the country of origin of the collars and waistbands, for duty purposes is Canada. Thus, the imported collars and waistbands are entitled to NAFTA preferential treatment at the "CA" rate, assuming a Certificate of Origin (See 19 CFR 181.11) is completed and signed for the goods.

HOLDING:

Based upon the information submitted, pursuant to 19 CFR 12.130(c) and T.D. 90-17, the country of origin of the knit collars and waistbands, for marking purposes, is Canada. The imported collars and waistbands are entitled to NAFTA duty preference at the "CA" rate.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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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