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NY E83303





July 8, 1999

CLA2-RR:NC:TA:349 E83303

CATEGORY: CLASSIFICATION

Mr. Lawrence A. Schneider
Arnold & Porter
555 Twelfth Street
Washington, D.C. 20004-1206

RE: Country of origin determination for sheet sets; Qualifying Industrial Zone; General Note 3(a)(v); 19 CFR 12.130; substantial transformation; 19 CFR 102.21(c)(2); tariff shift

Dear Mr. Schneider:

This is in reply to your letter dated June 4, 1999, on behalf of Zorlu USA, Inc., requesting a country of origin determination for sheet sets which will be imported into the United States.

FACTS:

The subject merchandise consists of cotton sheet sets. A sample was not submitted. You provided a detailed description and cutting diagrams that are representative of the twin, full, queen and king size sets that will be imported. The sets will be made from a 100 percent cotton woven fabric and will consist of a flat sheet, fitted sheet and one or two pillowcases. Each component of the set is cut on all four sides. The fitted sheets are hemmed on all sides and elasticized at the top and bottom. The flat sheet is hemmed on three sides. A separate 10 inch wide piece of self fabric or contrasting fabric is folded and sewn to the top edge of the sheet creating an approximately 4.5 inch wide border or top hem. Piping may or may not be inserted into this seam. The pillowcases are folded in half, sewn together and hemmed at the open end.

The manufacturing operations for the sheet sets are as follows:

Turkey:
-fabrics are woven.
-fabrics are dyed and/or printed.
-rolls of fabrics are shipped to Israel.

Israel:
-fabrics are cut to the size and shape of the various components; -components are shipped to Jordan.

Jordan:
-components are sewn/hemmed/elasticized, creating the sheets and pillowcases. -sheet sets are subject to quality control inspection and shipped directly to the United States or the sets may be returned to Israel for quality control inspection and then shipped from Israel to the United States.

ISSUE:

What is country of origin of the subject merchandise?

CLASSIFICATION:

Classification of merchandise under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is in accordance with the General Rules of Interpretation (GRI's), taken in order. GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes.

Heading 6302, HTSUSA, provides for among other things, bed linen. The Explanatory Notes to heading 6302, HTSUSA, include sheets, pillowcases, bolster cases, eiderdown cases and mattress covers as examples of bed linen. Accordingly, the subject merchandise is properly classified in heading 6302, HTSUSA.

The pillowcases fall within textile category designation 360 and the sheets fall within textile category designation 361. The designated textile and apparel categories and their quota and visa status are the result of international agreements that are subject to frequent renegotiations and changes. To obtain the most current information, we suggest that you check, close to the time of shipment, the U.S. Customs Service Textile Status Report, an internal issuance of the U.S. Customs Service, which is available at the Customs Web Site at WWW.CUSTOMS.USTREAS.GOV. In addition, the designated textile and apparel categories may be subdivided into parts. If so, visa and quota requirements applicable to the subject merchandise may be affected and should also be verified at the time of shipment.

COUNTRY OF ORIGIN - LAW AND ANALYSIS:

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act (codified at 19 U.S.C. 3592) provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. On September 5, 1995, Customs published Section 102.21, Customs Regulations, in the Federal Register, implementing Section 334 (60 FR 46188). Thus, effective July 1, 1996, the country of origin of a textile or apparel product shall be determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21.

You have indicated that the processing operations in Jordan were performed in the Irbid Qualifying Industrial Zone (QIZ). General Note 3(a)(v)(G), HTSUSA, defines a “qualifying industrial zone” as any area that: “(1) encompasses portions of the territory of Israel and Jordan or Israel and Egypt; (2) has been designated by local authorities as an enclave where merchandise may enter without payment of duty or excise taxes; and (3) has been designated by the U.S. Trade representative in a notice published in the Federal Register as a qualifying industrial zone.”

By letters dated June 30, 1997 and July 1, 1997, to the U.S. Trade Representative, the Governments of Jordan and Israel, respectively, requested the designation of the industrial zone in Irbid, Jordan, as a QIZ. Pursuant to subsequent consultations among the three Governments, the Governments of Israel and Jordan entered into a written agreement dated November 16, 1997, relating to the establishment of the Irbid QIZ, which included the following provision, entitled “Rules of Origin”:

The [Governments of Israel and Jordan] agree that the origin of any textile or apparel product that is processed in the Irbid Qualifying Zone, regardless of the origin or place of processing of any of its imputes or materials prior to entry into, or subsequent withdrawal from, the zone, will be determined solely pursuant to the rules of origin for textile and apparel products set out in Section 334 of Uruguay Rounds Act, 19 U.S.C. 3592.

By notice published in the Federal register on March 13, 1998 (63 FR 12572) the Office of the U.S. Trade Representative formally designated the Israeli-Jordanian Irbid Qualifying Industrial Zone as a QIZ. Treasury Decision 98-62, published in the Federal Register on June 26, 1998 (63 FR 34960), determined that pursuant to the agreement between the Governments of Israel and Jordan, and by mutual consent of the U.S. and Israel, Customs will exclusively apply the textile and apparel rules of origin set forth in 19 CFR 102.21 in determining the country of origin of a textile or apparel product processed in the Irbid QIZ. This means that the section 102.21 rules will be used not only with regard to processing performed with respect to a textile or apparel article in the Jordanian and/or Israeli portion of the Irbid Zone, but also with regard to processing performed outside of the Zone in Israel or in any other country either prior to the article's entry into the Zone for processing or subsequent to its withdrawal from the Zone after processing.

However, you have also indicated that the facility that will be used in the Irbid QIZ to assemble the bed linen components does not have an operating certificate identifying it as a QIZ-eligible facility. As the facility has not been approved by the joint Jordan/Israel committee that approves all QIZ facilities, the bed linen is treated as if the Jordanian processing occurred outside of the QIZ.

EXCEPTION FOR TEXTILE GOODS PROCESSED IN ISRAEL

Section 102.21(a) specifically states that the rules in Section 102.21 shall not apply "for purposes of determining whether goods originate in Israel or are the growth, product, or manufacture of Israel." The basis for the Israeli exception is Section 334(b)(5) of the Uruguay Round Agreements Act. Section 334(b)(5) provides that:

This section shall not affect, for purposes of the customs laws and administration of quantitative restrictions, the status of goods that, under rulings and administrative practices in effect immediately before the enactment of this Act, would have originated in, or been the growth, product, or manufacture of, a country that is a party to an agreement with the United States establishing a free trade area, which entered into force before January 1, 1987. For such purposes, such rulings and administrative practices that were applied, immediately before the enactment of this Act, to determine the origin of textile and apparel products covered by such agreement shall continue to apply after the enactment of this Act, and on and after the effective date described in subsection (c), unless such rulings and practices are modified by the mutual consent of the parties to the agreement.

Israel is the only country which qualifies under the terms of Section 334(b)(5). As the Section 334 rules of origin for textiles and apparel products do not apply to Israel, we refer to the 19 CFR 12.130 rules of origin, the rules of origin applicable to textiles and textile products before the enactment of Section 334. Section 334(b)(5) makes clear that if country of origin was conferred in Israel under Section 12.130, Israel will now be accorded the same treatment. This interpretation of Section 334(b)(5) was confirmed in a Notice of a general statement of policy, Treasury Decision 9658, appearing in the Federal Register, Vol. 61, No. 148, dated July 31, 1996.

Accordingly, applying Section 12.130(b), the standard of substantial transformation governs the country of origin determination 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 or country where the article last underwent a substantial transformation. 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.

Section 12.130(d) sets forth criteria for determining whether a substantial transformation of a textile product has taken place. This regulation states that these criteria are not exhaustive; one or any combination of criteria may be determinative, and additional factors may be considered. Section 12.130(d)(1) states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in:

(i) Commercial designation or identity,
(ii) Fundamental character or
(iii) Commercial use.

The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in Section 12.130(d)(2). The following will be considered:

(i) The physical change in the material or article; (ii) The time involved in the manufacturing or processing; (iii) The complexity of the manufacturing or processing; (iv) The level or degree of skill and/or technology required in the manufacturing or processing operations; (v) The value added to the article or material;

The cutting of the fabric in Israel may have, created a new and different article of commerce, however, in order for a substantial transformation to occur the processing operations must be sufficiently complex so as to constitute a substantial manufacturing or processing operation. Customs has previously ruled that in order for flat and fitted sheets to be deemed to have undergone a substantial manufacturing process in a particular country or foreign territory, the fabric must undergo, at the minimum, the cutting to length and width of fabric, hemming and yet another processing step. The term "cutting to length and width" has been defined as cutting on all four sides of the fabric so as to create a component with no selvage edges. The steps taken to create an elasticized fitted sheet have been previously considered acceptable as "another processing step".

The pillowcases, flat and fitted sheets are only cut to size and shape in Israel. These components are not subject to "hemming and another processing step" in Israel. The cutting operations performed in Israel are not complex processing operations and are not substantial as required by Section 12.130(b). Accordingly, as Israel does not confer origin as pursuant to Section 12.130, we then apply the rules in Section 102.21 to determine the country of origin.

SECTION 102.21 RULES OF ORIGIN FOR TEXTILE AND APPAREL PRODUCTS

Paragraph (c)(1) of Section 102.21, Customs Regulations, states that "The 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 not wholly obtained or produced in a single country, territory or insular possession, paragraph (c)(1) of Section 102.21 is inapplicable.

Paragraph (c)(2) states that "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 of the foreign materials 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:"

Paragraph (e) in pertinent part states that "The following rules shall apply for purposes of determining the country of origin of a textile or apparel product under paragraph (c)(2) of this section":

HTSUS Tariff shift and/or other requirements

6301-6306 The country of origin of a good classifiable under heading 6301 through 6306 is the country, territory, or insular possession in which the fabric comprising the good was formed by a fabric making process.

As the fabric comprising the pillowcases, flat and fitted sheets are formed in a single country, that is, Turkey, as per the terms of the tariff shift requirement, country of origin is conferred in Turkey.

HOLDING:

The country of origin of the pillowcases, flat and fitted sheets is Turkey. Based upon international textile trade agreements products of Turkey which fall within textile category designation 361 are subject to quota and the requirement of a visa.

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, either directly, by reference, or by implication, is accurate and complete in every material respect.

This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177). 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.

A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist John Hansen at 212-637-7078.

Sincerely,

Robert B. Swierupski
Director,

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