United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2003 HQ Rulings > HQ 966191 - HQ 966277 > HQ 966238

Previous Ruling Next Ruling
HQ 966238





May 12, 2003

CLA-2: RR:CR:TE 966238 ASM

CATEGORY: CLASSIFICATION

TARIFF NO.: 7018.90.5000

Brian S. Goldstein, Esq.
Duane Morris LLP
380 Lexington Avenue
New York, NY 10168

RE: Request for Binding Ruling; Classification of unfinished metal handbags; Denial of partial duty exemption under subheading 9802.00.80, HTSUSA; Country of origin marking of women’s handbags

Dear Mr. Goldstein:

This is in response to your request dated January 8, 2003, on behalf of your client, Judith Leiber LLP (JL), concerning the classification under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) of certain unfinished metal handbags. This office has also reviewed your additional written submission dated May 8, 2003, and we have participated in a telephone conference call with you, in lieu of the requested meeting. Samples have been provided with the request.

FACTS:

The subject articles are three unfinished metal handbags, identified as styles 9123, 1010, and 1104, which have been imported into the United States from China. The samples consist of metal handbags, commonly known in the trade as “box” style handbags. These metal box handbags are constructed in Italy or Spain of 100 percent brass or of aluminum with brass borders and are produced pursuant to U.S. art work and design work specifications. The exterior finish of these metal boxes may be gold plated or nickel plated.

The raw metal boxes, which have been produced in Italy or Spain, are imported into the U.S. by JL where they will be lined with leather. For the leather linings, JL purchases and imports Nappa leather skins from Italy with a finish in gold or silver foil. These Nappa leather skins may range in size from 1.5 ft. to 2.75 ft. In the U.S., JL develops and designs the die patterns for cutting the leather skins, purchases dies in the U.S. to cut the patterns, cuts and stitches the patterns, and glues the lining to the metal boxes as required. Depending upon the handbag style, the leather lining can be applied to the inside and outside of the metal box handbag. The outside may also be padded before the leather lining is applied. The padding is composed of plastic foam glued to paper. While in the U.S., the metal box exteriors will also be specially prepared by painting each box with either one solid color or painting a multi-colored pattern that will serve as a color/design guide for applying the glass crystal beads.

The unfinished leather lined and painted metal box handbags will then be exported from the U.S. to Hong Kong. In Hong Kong, the exterior of each handbag will be wholly or mainly covered with glass crystals, produced in Austria, that have been purchased by the U.S. importer. According to JL, usage of glass crystals will be anywhere from 40 gross to 110 gross per handbag.

Once the glass crystals are applied in Hong Kong, the embellished handbags will then be re-imported into the U.S. where they will be finished by assembling a shoulder strap or handle and a jeweled “button” clasp/closure. A lock, produced in the U.S., may also be added or the lock may be a pre-existing part of the raw metal box produced in Italy or Spain. Coin purse metal frames, mirrors, and combs are also purchased from Italy and will be separately imported into the U.S for retail sale as a set with the finished handbags. The coin purse will be completed in the U.S. by physically joining the imported change purse metal frame to leather linings produced in the U.S. from imported leather skins.

ISSUE:

What is the proper classification for the merchandise? What is the country of origin of the merchandise? Is the value of the component described as the metal box eligible for duty exemption within subheading 9802.00.80, HTSUSA, upon re-importation to the U.S.?

LAW AND ANALYSIS:

A. Classification

Classification under the Harmonized Tariff Schedule of the United States Annotated (HTSUSA) is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied. The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).

The embellished handbags are imported from China to the United States for finishing processes and retail sale. As such, they are “unfinished articles” and cannot be classified pursuant to a GRI 1 analysis. GRI 2(a) governs the classification of incomplete or unfinished articles. The EN to GRI 2(a) provides:

The first part of Rule 2(a) extends the scope of any heading which refers to a particular article to cover not only the complete article but also that article incomplete or unfinished, provided that, as presented, it has the essential character of the complete or finished article.

Upon re-importation to the U.S., the embellished handbags are almost complete save the attachment of a shoulder strap or handle, and/or jeweled button clasp/lock. For all practical purposes, these articles are identifiable as handbags upon re-importation into the U.S. As such, it is our determination that the article has the essential character of a complete or finished handbag.

Handbags are eo nomine provided for under heading 4202, HTSUSA, as follows: “ handbags of leather or of composition leather, of sheeting of plastics, of textile materials, of vulcanized fiber or of paperboard, or wholly or mainly covered with such materials or with paper.” The bags now at issue have a base construction of metal (brass, aluminum, gold or nickel plating) and are wholly or mainly covered with glass crystals. The EN’s to heading 4202 specifically state that the articles covered by the second part of the heading, i.e., “handbags”, must be wholly or mainly covered with such materials specified therein (leather, composition leather, sheeting of plastics, textile materials, vulcanised fiber of paperboard, or paper).

In this case, it is also necessary to consider Note 2(b), Ch. 42, which permits certain articles to be classified in heading 4202, HTSUSA, where they are “Articles of headings 4202 and 4203 which have parts of precious metal or metal clad with precious metal, of natural or cultured pearls, of precious or semiprecious stones (natural, synthetic or reconstructed) remain classified in those headings even if such parts constitute more than minor fittings or minor ornamentation, provided that these parts do not give the articles their essential character.”

The subject articles are constructed of a metal box foundation wholly or mainly covered with thousands of glass crystals, which have been applied in intricate patterns. In fact, as we discuss in greater detail below, it is the glass crystals that provide the essential character to the article by covering, almost completely, the entire outer surface of the metal box with elaborate ornamentation. Thus, Note 2(b), Ch. 42, does not apply and the subject articles cannot be classified in heading 4202, HTSUSA.

GRI 2(b) provides that the classification of combinations, which are prima facie classifiable under two or more headings, must be classified according to the principles of Rule 3. The subject articles are constructed of a metal box of brass and/or aluminum which may have an exterior finish of gold or nickel plate; a leather lining; and a glass crystal exterior. Thus, the bags are prima facie classifiable in more than one heading. If classified separately, and depending on the base metal and exterior finish, the metal boxes may be classified in Chapter 71, HTSUSA, as an article of metal clad with precious metal or within the provisions of Section XV of the HTSUSA, which provides for articles of base metals. The leather lining may be separately classified in subheading 4114.20, HTSUSA, which provides for “metallized leather.” The glass crystals are separately classified in subheading 7018.10.5000, HTSUSA, which provides for “Glass beads, imitation pearls, imitation precious or semiprecious stones and similar glass smallwares and articles thereof other than imitation jewelry; glass microspheres not exceeding 1 mm in diameter: Glass beads, imitation pearls, imitation precious or semiprecious stones and similar glass smallwares: Other.”

GRI 3(b) provides that composite goods consisting of different materials or made up of different components shall be classified as if they consisted of the material or component which gives them their essential character. The EN for GRI 3(b) states, in relevant part, that the factor which determines essential character will vary as between different kinds of goods, e.g., by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.

In the subject case, the glass crystals have imparted significant ornamentation and value to the metal box frame. It is the expensive Austrian glass crystals that wholly cover the bag’s exterior and convey the unique visual attributes/designs for which the articles will be marketed and purchased. Thus, it is our determination that the essential character is represented by the glass crystals and not by the metal box. Furthermore, Customs and Border Protection (CBP) has previously classified textile handbags covered with glass beads in subheading 7018.90.5000, HTSUSA, which provides for “Glass beads, imitation pearls, imitation precious or semiprecious stones and similar glass smallwares and articles thereof other than imitation jewelry; Other: Other.” See CBP Headquarters Rulings (HQ) 084250, dated July 14, 1989, and HQ 084626, dated August 25, 1989.

Based on a GRI 3(b) analysis, it is our determination that the articles are classified in subheading 7018.90.5000, HTSUSA.

B. Country of Origin

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin 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. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were purchased, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C 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 U.S. 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 the marking laws and regulations. A substantial transformation occurs when articles lose their identity and become new articles having a new name, character, or use. United States v. Gibson-Thomsen Co., 27 C.C.P.A. 267 at 270 (1940).

We first consider whether or not a substantial transformation has occurred in China with the application of glass crystals to the metal box component. For classification purposes and pursuant to a GRI 3(b) analysis, we have determined that the essential character of this article is represented by the glass crystals covering the exterior surface of the bag, a process which was performed in China. However, we cannot base a finding of substantial transformation solely on the fact that the articles have been classified under a new tariff heading. In the case of Belcrest Linens v. United States, 741 F.2d 1368 (1984), it was noted that a change in tariff identity is not definitive in determining whether a substantial transformation has occurred. The process of applying glass crystals to the exterior of the bag in China did not cause the article to lose its identity as a handbag, i.e., the “name” and “use” of the article is not transformed by the application of the glass crystals. The subject articles are exported from the U.S. to China as unfinished handbags and the application of the Austrian crystal glass beads fails to transform the articles into something other than handbags. Thus, we have determined that the subject articles have not been substantially transformed in China for country of origin/marking purposes.

You have asserted that the country of origin for the subject articles is the United States. We note that in the U.S., a lining is cut from Nappa leather of Italian origin and adhered to the interior of the metal box. Some handbags receive an additional application of foam padding and leather to the exterior surface of the metal box. Finally, the boxes are coated with acrylic paint to provide a color/design pattern for application of the glass crystals in China. When the raw metal boxes are imported into the U.S. from Italy or Spain, the subject articles are still identifiable as handbags. The insertion of a leather lining and exterior processing fails to cause the articles to lose their identity as handbags and emerge from the processing as an article having a new name, character, or use. Thus, it is our determination that a substantial transformation has not occurred in the United States for country of origin/marking purposes.

The country of origin of the subject articles is the country where the raw metal box frame was produced, i.e., Italy or Spain.

C. Partial Duty Exemption: 9802.00.80, HTSUS

Subheading 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA) (19 U.S.C. § 1202), provides for a partial duty exemption when certain criteria are met:

Articles, except goods of heading 9802.00.90 and goods imported under provisions of subchapter XIX of this chapter and goods imported under provisions of subchapter XX, 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.

In order to qualify for a partial duty exemption under subheading 9802.00.80, HTSUSA, an article must meet the criteria set out in the language of the subheading which is set forth above. If the article meets these requirements, then the duty upon the full value of the imported article, less the cost or value of such products of the United States, will be levied upon entry. See 19 C.F.R. § 10.17 and 19 C.F.R. § 10.18.

The raw metal box handbags are imported from Italy or Spain to the United States where a leather lining is processed from Italian leather and the exterior receives processing for the later application of glass crystals in China. However, this additional processing in the United States fails to render a substantial transformation to the goods that would cause them to become something other than handbags. As such, the goods are exported from the United States to China as handbags, which are products of Italy or Spain. Thus, the subject handbags do not qualify as “Articles, assembled abroad in whole or in part of fabricated components, the product of the United States” upon re-importation to the U.S. and fail to meet the threshold requirement for partial duty exemption under subheading 9802.00.80, HTSUSA.

You argue that our decision in HQ 561956, dated August 16, 2002, which stated that certain assembled goods must be marked to indicate Chinese origin of a plastic storybook character figure, supports your contention that the subject handbags may be entitled partial duty exemption under subheading 9802.00.80, HTSUSA. However, we note that our determination in HQ 561956, specifically states that the goods must still satisfy the requirements of subheading 9802.00.80, HTSUSA, and related provisions in the law in order to qualify for partial exemption from duty under this subheading. As we have already noted, the goods in the instant case did not undergo a substantial transformation in the U.S. and do not qualify upon re-importation as articles which are “the product of the United States” for purposes of a partial duty exemption under subheading 9802.00.80, HTSUSA.

In view of the foregoing, and pursuant to the provisions of subheading 9802.00.80, HTSUSA, the cost or value of the U.S. components may not be deducted from the full value of the imported articles.

HOLDING:

The subject merchandise is correctly classified in subheading 7018.90.5000, HTSUSA, which provides for “Glass beads, imitation pearls, imitation precious or semiprecious stones and similar glass smallwares and articles thereof other than imitation jewelry; glass eyes other than prosthetic articles; statuettes and other ornaments of lamp-worked glass, other than imitation jewelry; glass microspheres not exceeding 1 mm in diameter: Other: Other.” The general column one duty rate is 6.6 percent ad valorem.

The country of origin of the subject articles is the country where the raw metal box frame was produced, i.e., Italy or Spain.

The subject articles do not qualify for a partial duty exemption under subheading 9802.00.80, HTSUSA, upon re-importation from China to the United States.

Sincerely,

Myles B. Harmon, Director

Previous Ruling Next Ruling

See also: