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HQ 560332

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September 5, 1997

CLA-2 RR:TC:SM 560332 BLS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80, 9802.00.90

Jonathon M. Fee, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman LLP 1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309

RE: Applicability of subheadings 9802.00.80 and 9802.00.90, HTSUS, to garments subject to "filling-in" operations; tufting; wholly formed and cut; Special Access Program; findings and trimmings; Article 509

Dear Mr. Fee:

This is in reference to your letter dated February 20, 1997, on behalf of the Crowntuft Division of the Kellwood Company ("Crowntuft"), requesting a ruling that certain described "filling-in" operations will not disqualify imported garments from the duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), and from duty-free treatment under subheading 9802.00.90, HTSUS. You have also orally advised this office that Crowntuft intends to enter garments that may be imported from a participating Caribbean country under the Special Access Program.

FACTS:

The imported articles will include bathrobes and other garments exported from Mexico or a Caribbean country. You state that the operations will commence in the U.S. at Crowntuft's facility with the production of "tufted" fabric, by combining greige cotton woven sheeting fabric with cotton or polyester tufting yarn. You describe the production of tufted fabric as follows:

Tufted yarn is inserted into the woven fabric with needles similar to sewing needles. Each time a needle passes through the fabric, a hook or looper holds the yarn away from the surface of the fabric while the needle is withdrawn, creating a protruding loop. The loop is cut with a blade to form a tuft. This inserting, looping and cutting process forms lines of tufts on the surface of the fabric. The lines
may be continuous or broken, and the spacing between lines may vary, depending on the desired decorative effect.

After the tufting process is completed, the tufted fabric will be spread on cutting tables in the U.S. and cut into parts of garments. These cut garments will be shipped to an assembly factory in either Mexico or a Caribbean country. In the case of Mexico, the cut garment parts will consist only of U.S. woven (sheeting) fabric that is combined with tufting yarn and cut in the U.S. In the case of the Caribbean country, the cut garment parts will consist of either U.S. or foreign woven sheeting fabric that is combined with tufting yarn and cut in the U.S. In either case, the tufting yarn may be either of U.S. or foreign origin.

In the country of assembly, the cut garment parts will be assembled by sewing onto the bathrobes and other garments. Foreign thread may be used to assemble the garments, and foreign yarn may be used in the "filling-in" process (as described below). In no case will the cost of the foreign thread used to assemble the garments and the foreign yarn used in the filling-in process exceed 25 percent of the cost of all components of the finished garment. You state that no other operation, other than assembly, the filling-in process (when necessary), and packing for shipment to the U.S., will be performed in the country of assembly.

After assembly, the garments will be packed and returned to the U.S., where Crowntuft will perform washing, garment-dyeing, other finishing, and packaging processes prior to shipping the finished garments to its U.S. customers.

"Filling-In" Process

You describe the "filling-in" operation as a repair process in which small amounts of tufting yarn are inserted by needle into garment parts, and then cut to form tufts, to fill in tufting defects ("skips"), discovered during the garment assembly process. Skips are caused by knots or breaks in the tufting yarn or broken tufting needles. Most skips are marked during the original tufting process, and can be cut around during the spreading and cutting operation in the U.S. But skips occasionally remain unnoticed until discovered in the country of assembly during the assembly process.

The filling-in process is performed with a standard single needle sewing machine that has been modified by substituting a relatively heavy tufting needle for a sewing needle and by adding a mechanized looper and cutting blade under the sewing table to form the protruding loop and cut it to make the tuft.

Based on its past experience, Crowntuft expects that filling-in will be necessary on
fewer than one percent of the garments. For each garment requiring this repair,
Crowntuft estimates the cost of filling in to range from $0.025 to $0.070, the cost of assembly to be approximately $2.00 per garment, and the entered value of each assembled garment to be approximately $9.00. Crowntuft estimates the time necessary to perform a single filling-in operation consisting of a repair to a one-inch skip on one piece of a garment is 0.14 standard allowed minutes, as compared to 14 overall standard allowed minutes required to assemble the garment. Crowntuft will require only one modified sewing machine at each assembly location to perform the filling in process. The company plans to utilize used sewing machines for this purpose, the residual book value of which under generally accepted accounting principles is $50.00.

ISSUES:

1) Whether garments subject to the "filling-in" operations performed in a participating Caribbean country will be eligible for the Special Access Program upon entry into the U.S.

2) Whether garments subject to the "filling-in" operations performed in Mexico will be eligible for duty-free treatment under subheading 9802.00.90, HTSUS, upon entry into the U.S.

Law and Analysis

Special Access Program

To qualify for the Special Access Program, products must be eligible for entry under subheading 9802.00.80, HTSUS. The requirements for participating in the Special Access Program provide that all fabric components, with the exception of findings, trimmings and certain elastic strips not exceeding 25 percent of the cost of the components of the assembled product, must be formed in the U.S. Such U.S. formed fabric must also be cut to pattern or shape in the U.S. Customs Directive Number 3500-12 dated September 2, 1986 provides as follows:

[f]indings trimmings, and elastic components of the finished assembled products need not be of United States origin. Products assembled in participating Caribbean countries and made of U.S. formed and cut fabric plus findings, trimmings, and elastic of foreign origin may enter the United States under the program. However, the
total value of such foreign findings, trimmings, and elastic components shall not exceed 25 percent of the cost of the components of the assembled product. Products whose foreign findings, etc., exceed 25 percent do not qualify for the Program. Examples of findings and trimmings are sewing thread, hooks and eyes, snaps, buttons, "bow buds," lace trim, zippers, including zipper tapes, and labels.

The initial question which must be addressed is whether the imported articles are eligible for the partial duty exemption under subheading 9802.00.80, HTSUS. In this regard, you contend that the "filling-in" operation performed in the participating Caribbean country is either an assembly operation or an operation incidental to assembly.

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

(a)rticles 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 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 10.14(a), Customs Regulations (19 CFR 10.14(a)), provides that the components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

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. Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to the component. See 19 CFR 10.16(c).

With the exception of the "filling-in" operations, the operations to be performed abroad are not described. However, we will assume for purposes of this ruling that the sewing and all other such operations performed abroad are acceptable assembly operations or operations incidental to assembly. The question we must now consider is whether the "filling-in" operations are also assembly operations or operations incidental to assembly.

Headquarters Ruling Letter (HRL) 556672 (dated February 25, 1993), involved the production of carpeting by needle insertion of U.S.-origin nylon yarn into backing material. In that case, we held that these tufting operations were analogous to sewing-type operations, and, therefore, pursuant to section 10.16(a), Customs Regulations, were acceptable assembly operations for purposes of subheading 9802.00.80, HTSUS. In support of this position, we cited E. Dillingham & Sons, Inc., v. United States, 60 C.C.P.A. 40 (1970), in which the Court of Customs and Patent Appeals held that a needling operation whereby massed fibers and fabric were shipped to Canada where the fibers were oiled, carded, and opened, and then needled into the fabric, was an acceptable assembly operations under item 807.00, Tariff Schedules of the United States (TSUS), the precursor tariff provision to subheading 9802.00.80, HTSUS.

In the instant case, it is our opinion that the tufting operations performed in the Caribbean countries are analogous to the sewing operations performed in E. Dillingham and in HRL 556672, as in each case the yarn or fibers are needled into the fabric to form the tufts. Accordingly, we find that the "filling-in" operations are acceptable assembly operations. As a result, we need not address the issue as to whether these operations are incidental to assembly.

For purposes of entry under the Special Access Program, we note that the tufted fabric is formed in the U.S. by the process of inserting the tufting yarn into the woven
sheeting fabric. The fabric is then cut into the garment parts in the U.S., as described.
As also noted, foreign origin sewing thread may be used abroad to join the cut components and foreign origin yarn may be used in the "filling-in" process. Sewing thread is specifically enumerated as a finding under the Special Access Program. The tufting yarn, however, under the described facts is not considered to be a finding.

Based on these facts, the imported garments will be eligible for the Special Access Program provided any findings, trimmings, and certain elastic strips do not exceed 25 percent of the cost of the components of the assembled garments.

Subheading 9802.00.90

Annex 300-B of the North American Free Trade Agreement ("NAFTA") is applicable to textile and apparel goods. Appendix 2.4 of Annex 300-B provides that:
[o]n January 1, 1994, the U.S. shall eliminate customs duties on textile and apparel goods that are assembled in Mexico from fabrics wholly formed and cut in the
United States and exported from and reimported into the United States under:

(a) U.S. tariff item 9802.00.80.10; or

(b) Chapter 61, 62, or 63 if, after such assembly, those goods that would have qualified for treatment under 9802.00.80.10 have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma-pressing.

Thereafter, the U.S. shall not adopt or maintain any customs duty on textile or apparel goods that satisfy the requirements of subparagraph (a) or (b) or the requirements of any successor provision to U.S. tariff item 9802.00.80.10. (a) U.S. tariff item 9802.00.80.10; or (b) Chapter 61, 62, or 63 if, after such assembly, those goods that would have qualified for treatment under 9802.00.80.10 have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma-pressing.

Consequently, 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.

As discussed under our analysis pertaining to the Special Access Program, operations, we also find for purposes of eligibility under subheading 9802.00.90 that the exported fabric components are "wholly formed and cut in the United States." Further, as discussed in our analysis under subheading 9802.00.80, while Crowntuft has not described in detail the operations performed abroad except for the process of "filling-in", we will also assume for purposes of eligibility of the articles for duty-free treatment under subheading 9802.00.90 that the sewing and other operations performed in Mexico will otherwise qualify as acceptable assembly operations or operations incidental to assembly. In this regard, our analysis of the "filling-in" operation for purposes of subheading 9802.00.80 is also applicable for purposes of subheading 9802.00.90, i.e., such process is an acceptable assembly operation.

Therefore, based on the information submitted, the imported garments will be entitled to duty-free treatment under subheading 9802.00.90, HTSUS, upon entry into the U.S.

HOLDING:

A "filling-in" process involving the repair of garments abroad through the use of tufted yarn is an acceptable assembly operation. Accordingly, based upon the information provided:

1) The completed garments exported from a participating Caribbean country will be entitled to the partial duty exemption under subheading 9802.00.80, HTSUS, and for the Special Access Program when returned to the U.S. as long as, with the exception of findings, trimmings, and elastic strips not exceeding 25 percent of the total cost of the components, all fabric components are formed and cut to shape or pattern in the U.S.;

2) The completed garments exported from Mexico will be entitled to duty-free treatment under subheading 9802.00.90, HTSUS, provided that all fabric components are formed and cut to shape or pattern in the U.S.

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
Tariff

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See also:

• Tariff No.: 9802.00.80 - U.S. articles assembled abroad, which have not lost their physical identity or have not advanced in value or improved in condition abroad
• Tariff No.: 9802.00.90 - Textile and apparel goods, assembled in Mexico in which all fabric components were wholly formed and cut in the United States, etc.