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HQ 562020




May 16, 2001

MAR-2-05 RR:CR:SM 562020 MLR

CATEGORY: MARKING

Mr. Ralph Saunders
Deringer Logistics Consulting Group
1 Lincoln Blvd.
Suite 225
Rouses Point, NY 12979

RE: Country of Origin Marking; Thread; 19 CFR 102.21; 19 CFR 102.19; 19 CFR 12.130(c)

Dear Mr. Saunders:

This is in reference to your letters dated October 10 and December 8, 2000, and facsimile dated May 11, 2001, requesting a ruling on behalf of Kay Thread Company, concerning the country of origin of certain thread. Samples of two t-shirts, one with a collar and one without, were submitted with your request.

FACTS:

It is stated that thread is extruded from U.S. polyester and formed in the U.S. The thread is then shipped to Canada where it is dyed, except if the thread will be used to make white t-shirts. The thread is then wound onto cones and exported from Canada to the U.S. From the U.S., the thread is exported to Honduras to be used to sew the seams and cut-to-shape pieces of fabric into complete garments.

In addition, Canadian fabric is sent to the U.S. to be cut to specific shapes of garments for t-shirts, sweatshirts, and t-shirts with collars. The cut-to-shape components are then sent to Honduras to be made into finished shirts. The finished shirts are then imported into the U.S.

You specifically ask for a ruling whether the value of the thread formed in the U.S. used to sew the garment pieces together in Honduras may be deducted from the dutiable value of the completed t-shirts upon their importation into the U.S. under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS). ISSUE:

What is the country of origin of the sewing thread imported from Canada?

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. Part 134, Customs Regulations (19 CFR Part 134), implements country of origin marking requirements and exceptions of 19 U.S.C. 1304.

Section 334 of the Uruguay Round Agreements Act, codified at 19 U.S.C. 3592, provides rules of origin “for purposes of the customs laws and the administration of quantitative restrictions” for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. Section 102.21, Customs Regulations (19 CFR 102.21), implements section 334. The country of origin of a textile or apparel product is determined by hierarchical application of the general rules set forth in 19 CFR 102.21(c)(1) through (c)(5). A “textile or apparel product” for purposes of these rules of origin is defined in 19 CFR 102.21(b)(5), in part, as any good classifiable in Chapters 50 through 63, HTSUS. Therefore, the 19 CFR 102.21 rules of origin are applicable to the imported sewing thread at issue here.

Paragraph (c)(1) 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 sewing thread is not wholly obtained or produced in a single country, territory, or insular possession, 19 CFR 102.21(c)(1) is not applicable.

Paragraph (c)(2) states that “[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 sewing thread made of polyester filament is classifiable in heading 5401, HTSUS. Section 102.21(e) states that, “[t]he 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:

5401-5406 A change to heading 5401 through 5406 from any other heading, provided that the change is the result of an extrusion process.“

Although there is a tariff shift in Canada from yarn of heading 5402, HTSUS, to sewing thread of heading 5401, HTSUS, the tariff shift is not the result of an extrusion process. Thus, the subject sewing thread does not undergo the requisite change in tariff classification. Accordingly, section 102.21(c)(2) is inapplicable.

Section 102.21(c)(3) states that, “[w]here the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1) or (2) of this section:

(i) If the good was knit to shape, the country of origin is the single country, territory, or insular possession in which the good was knit; or (ii) Except for goods of heading 5609, 5807, 5811, 6213, 6214, 6301 through 6306, and 6308, and subheadings 6209.20.5040, 6307.10, 6307.90, and 9404.90, if the good was not knit to shape and the good was wholly assembled in a single country, territory or insular possession, the country of origin of the good is the country, territory, or insular possession in which the good was wholly assembled.”

As the subject sewing thread was not knit to shape and did not undergo an assembly process, section 102.21(c)(3) is not applicable.

Section 102.21(c)(4) states that, “[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 the case of the subject sewing thread, the most important manufacturing process occurs at the time the filament yarn is extruded in the United States. Consequently, the country of origin of the subject sewing thread by application of the rules of origin in 19 CFR 102.21 is the U.S.

However, because the subject sewing thread is advanced in value or improved in condition in Canada, 19 CFR 102.19; Chapter 98, Subchapter II, U.S. Note 2(a); and 19 CFR 12.130(c) must also be examined in determining the country of origin. More importantly, pursuant to these provisions, the subject sewing thread will have a different country of origin for purposes of marking than for duty and quota/visa purposes.

Section 102.19(b), Customs Regulations (19 CFR 102.19(b)), provides, in part, that:

(b) If, under any other provision of this part, the country of origin of a good which is 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. Emphasis added.

The duty purposes referred to in section 102.19 concerns the rate of duty applicable to originating textile and apparel goods as set out in Section 2 (Tariff Elimination) of Annex 300-B (Textile and Apparel Goods) of the NAFTA. While no information has been provided that a claim for preferential tariff treatment under the NAFTA will be made, it appears the sewing thread may qualify as an originating good. Therefore, section 102.19(b) would be applicable. Accordingly, although the country of origin under 19 CFR 102.21(c)(4) was determined to be the U.S., if originating sewing thread is exported from, and returned to, the U.S. after having been advanced in value or improved in condition in Canada, the country of origin for duty purposes will be Canada. However, 19 CFR 102.19 has no effect on the country of origin for marking purposes.

We also note that the applicability of section 12.130(c), Customs Regulations, warrants an explanation given the recent change in position concerning the use of this section in making country of origin determinations. Section 12.130(c) (19 CFR 12.130(c)), provides that:

Chapter 98, Subchapter II, Note 2, HTSUS, 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 merchandise which falls within the purview of Chapter 98, Subchapter II, Note 2, HTSUS, may not, upon its return to the U.S., be considered a product of the U.S. On July 11, 2000, Customs published T.D. 00-44 in the Federal Register (65 FR 42634), stating that effective October 10, 2000, Customs will no longer apply 19 CFR 12.130(c) for purposes of country of origin marking, which was a change in the position articulated in T.D. 90-17, issued February 23, 1990, whereby section 12.130(c) was applied in making country of origin determinations for quota/visa, duty, and marking purposes. As stated in T.D. 00-44, Customs noted that applicability of section 12.130(c) is not dependent on whether the returned article is classifiable in Chapter 98, but only if the article is within the purview of Note 2, that is, it is a U.S. product sent abroad and advanced in value, and then returned. Therefore, section 12.130(c) is applicable in this case, as U.S.-origin thread is exported to Canada and advanced in value by the dyeing process. In addition, T.D. 00-44 pointed out that Customs had already concluded, in connection with the development of the final NAFTA Marking Rules (see 60 FR 22312, 22318, May 5, 1995), that Chapter 98, Subchapter II, U.S. Note 2(a), should not apply for general country of origin purposes, including marking. Accordingly, pursuant to T.D. 00-44, section 12.130(c), and section 102.21(c)(4), the country of origin of the sewing thread for duty and quota/visa purposes will be Canada, while the country of origin for marking purposes remains the U.S.

Turning to the subsequent eligibility of the sewing thread under subheading 9802.00.80, HTSUS, namely, whether it may be subtracted from the full value of an assembled article entered under subheading 9802.00.80, HTSUS, this subheading 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 imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of 19 CFR 1 0.24.

Accordingly, one of the elements of subheading 9802.00.80, requires the finished sewing thread exported from the U.S. to be considered a “product of the U.S.” Section 10.12(e), Customs Regulations (19 CFR 10.12(e)), defines a “product of the United States” for purposes of subheading 9802.00.80, HTSUS, as an article manufactured within the Customs territory of the U.S. Section 102.21(a), Customs Regulations (19 CFR 102.21(a)), provides that “except as otherwise provided for by statute, the provisions of this section shall control the determination of the country of origin of imported textile and apparel products for purposes of the Customs laws.” Therefore, on the basis of provisions of section 102.21, the sewing thread is a “product of the U.S.”

Furthermore, Chapter 98, U.S. Note 2, provides that:
in the absence of a specific provision to the contrary, the tariff status of an article is not affected by the fact that it was previously imported into the customs territory of the United States and cleared through customs whether or not duty was paid upon such previous importation.

Accordingly, while the sewing thread may not be considered a “product of” the U.S. for duty purposes upon importation from Canada on the basis of section 102.19(b) and 12.130(c)

We note there are no quota and visa implications for textiles articles imported from Canada., the tariff status of its subsequent eligibility under subheading 9802.00.80 will not be affected by the previous importation as set forth in Chapter 98, U.S. Note 2, and on the basis of the position restated in T.D. 00-44 that Chapter 98, Subchapter II, U.S. Note 2(a) should not apply for general country of origin purposes, including marking. Therefore, for purposes of subsequent eligibility under subheading 9802.00.80, HTSUS, we find that pursuant to 19 CFR 102.21(c)(4), the country of origin of the thread extruded in the U.S., and dyed and hydro-extracted in Canada, and imported into the U.S., will be the U.S. See also Headquarters Ruling Letters (HRL) 562014 dated May 8, 2001, which involved a similar scenario of U.S. thread exported from the U.S. to Canada for dyeing, imported back to the U.S., and subsequently exported to the Caribbean or Mexico for use in an assembly operation.

Please also be advised that the Federal Trade Commission, Division of Enforcement, 601 Pennsylvania, Ave., N.W., Washington, D.C. 20580, should be consulted concerning specific labeling requirements under its jurisdiction.

HOLDING:

Pursuant to 19 CFR 102.21(c)(4), the country of origin of the thread extruded in the U.S. and dyed in Canada will be the U.S. Accordingly, no marking will be required pursuant to 19 U.S.C. 1304. As a product of the U.S., the thread exported from the U.S. to Honduras for use in the assembly of t-shirts is eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, provided all the other requirements of subheading 9802.00.80 are met. The Federal Trade Commission should be consulted for specific labeling requirements under its jurisdiction.

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 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.

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.

Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories, you should contact your local Customs office prior to importation of this merchandise to determine the current status of any import restraints or requirements.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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
Commercial Rulings Division

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