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HQ 556461




March 12, 1992
CLA-2 CO:R:C:S 556461 RA

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. Don C. Rudy
Vice President
Easy Products, Inc.
P.O. Box 27157
Salt Lake City, Utah 84127-0157

RE: Applicability of partial duty exemption to textile lunch, shopping and tote bags assembled in Central America

Dear Mr. Rudy:

This is in response to your letters of October 9, and November 12, 1991, to our New York office, and a letter to this office dated December 20, 1991, requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to textile lunch, shopping and tote bags to be assembled in Central America, probably El Salvador, from fabric of U.S. and foreign origin. Also considered in connection with this case was additional information which you provided to members of my staff by telephone.

FACTS:

You state that your company purchases nylon, canvas and cotton netting fabrics in rolls from U.S. suppliers. The nylon and canvas fabrics are imported by the U.S. suppliers from Taiwan, while the cotton netting fabric is made in the U.S. Also purchased are polypropylene handles and wash tags of U.S. origin and hook and loop strips, cotton edge binding, and thread of U.S. or foreign origin. In the U.S., the rolls of fabric are cut to length and width to create large rectangular pieces which comprise the main body of each bag. Eight small notches are also cut into the canvas and nylon pieces for use as guides in the final assembly operation, and four holes are drilled in the canvas piece to identify the location of the pocket and four holes are drilled into the nylon piece to identify the location of the hook and loop strip. Your company's logo, "Reesaq", is also silk-screened onto the rectangular fabric pieces. You state that the cutting and printing operations add 54% to the value of the fabric. The hook and loop strips, which are purchased in 25-yard lengths, are cut to length in the U.S. into pieces 2 inches long.

The cut fabric components and the other components are then exported to a Central American country where they are joined together by sewing to create the three types of bags.

ISSUE:

Whether the assembled bags are entitled to the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

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, 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 appraised value of the 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 10.16(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, laminating, sewing, or the use of fasteners.

For a component to receive a duty allowance under subheading 9802.00.80, HTSUS, it must be a "product of the U.S." According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a "product of the U.S." is an article manufactured within the customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.

Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for determining the country of origin of textiles and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854). These principles are applicable to such merchandise for all purposes including duty, quota and marking.

Pursuant to 19 CFR 12.130, the standard of substantial transformation governs the determination of the country of origin where textiles and textile products are processed in more than one country. The country of origin of textile products is deemed to be that foreign territory, country or insular possession where the article last underwent a substantial transformation. A substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing operations.

The primary issue presented in this case concerns whether the cutting, drilling and silk-screening operations performed in the U.S. on the foreign-origin nylon and canvas fabrics substantially transform the fabrics into "products of the United States." According to 19 CFR 12.130(e)(iv), a textile article usually will be a product of a particular country if the cutting of the fabric into parts and the assembly of those parts into the completed article has occurred in that country. However, 19 CFR 12.130(e)(2)(ii) states that a material usually will not be considered to be a product of a particular country by virtue of merely having undergone cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use.

Customs has held under certain circumstances that cutting of fabric to defined shapes or patterns which dedicate the article to a particular use will result in a substantial transformation. See Headquarters Ruling Letter (HRL) 731028 dated July 18, 1988 (cutting of fabric into garment parts for wearing apparel constitutes a substantial transformation); HRL 555489 dated May 14, 1990 (cutting of fabric into glove pattern pieces results in a substantial transformation); and HRL 555693 dated April 15, 1991 (cutting of fabric to create pattern pieces for infant carriers results in a substantial transformation).

However, we have held that cotton surgical cloth woven in one country and cut to both length and width and hemmed on all four sides in a second country was not substantially transformed in the second country. See HRL 733601 dated July 26, 1990, and HRL 555719 dated November 5, 1991. Similarly, we held in HRL 083544 dated February 28, 1990, that material cut to both length and width and hemmed to be made into towels and dishcloths was not substantially transformed. See, also, HRL 733600 dated November 16, 1990 (cloth cut and hemmed on all four sides to make napkins and table cloths was not substantially transformed). These holdings were based upon our determination that the processing operations were not substantial and that the cloth, before the cutting and hemming operations, had limited potential uses and, therefore, was readily identifiable as being intended for particular commercial uses.

In the instant case, the cutting and drilling operations performed on the imported nylon and canvas fabric are more analogous to the cited rulings involving the cutting of fabric to specific shapes or patterns for garments, gloves, etc. Unlike the fabric for surgical towels, napkins and table cloths, the imported fabric in this case has numerous uses and possesses nothing in its character which indicates the main body of a bag or sack. However, after the nylon and canvas fabric is cut to length and width, eight small notches are cut into the fabric, and four holes are drilled to identify the location of components to be attached later (and the company's logo is printed onto the fabric), the cut fabric piece clearly is dedicated to its use as the main body of a lunch or grocery sack. Moreover, as the cutting, drilling and silk-screening operations add more than 50% to the value of the fabric, we conclude that, together, these processes constitute a substantial manufacturing or processing operation. Therefore, the cutting, drilling and silk-screening will substantially transform the foreign nylon and canvas fabrics into "products of the United States."

However, the other materials which may be of foreign origin, including the hook and loop strips and cotton edge binding, which are merely cut to smaller lengths in the U.S. will not be substantially transformed into "products of the United States."

Therefore, as the operations performed abroad to create the finished textile bags involve merely assembling the various components together by sewing, allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the nylon, canvas and cotton netting components, as well as other components which are of U.S. origin, upon return of the assembled bags. No allowances may be made for the cost or value of hook and loop strips, cotton edge binding and thread of foreign origin.

The cotton netting tote bag and the canvas shopping bag are classifiable in subheading 4202.92.1500, HTSUS, dutiable at the rate of 7.2% ad valorem, while the nylon lunch bag is classifiable in subheading 4202.92.3030, HTSUS, dutiable at the rate of 20% ad valorem.

HOLDING:

Based on the information submitted, the cutting, drilling and silk-screening operations performed in the U.S. on the imported nylon and canvas fabrics will substantially transform the fabrics into "products of the U.S." Therefore, when the bags are assembled abroad by sewing and returned to the U.S., allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the cotton netting, nylon, and canvas fabric components and other components of U.S. origin, assuming compliance with the documentation requirements of 19 CFR 10.24. No allowances may be under this tariff provision for the cost or value of the hook and loop strips, cotton edge binding and thread of foreign origin.

Sincererly,

John Durant, Director
Commercial Rulings
Division


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