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NY I88729




December 30, 2002

CLA2-61-RR:NC:TA-359:I88729

CATEGORY: CLASSIFICATION

Mr. Jason M. Waite
Alston & Bird, LLP
601 Pennsylvania Avenue, N.W.
North Building, 10th Floor
Washington, D.C. 20004-2601

RE: Classification and country of origin determination for women’s knitwear; 19 CFR 102.21(c)(2); tariff shift; Commonwealth of the Northern Mariana Islands; General Note 3(a)(iv), HTSUSA

Dear Mr. Waite:

This is in reply to your letters dated November 14, 2002, and December 10, 2002, submitted on behalf of your client, Everflow Apparel Industries, Ltd., which requested a classification and country of origin determination for a sample of women’s knitwear which will be imported into the United States. Your sample is retained with permission by this office for instructional purposes.

FACTS:

The subject merchandise consists of a sample of an assembled woman’s knitted pullover, designated as Style 0136/02; the cut-to-shape component panels that represent the front, the back and the sleeves of the pullover in an unassembled condition; narrow strips of knitted fabric for the capping; and a rectangular panel that measures approximately 28 inches X 22 inches and that is decorated with beading. The latter panel is fabric material for the front panel of the pullover after it is beaded but before it is cut to the shape that it will have on the assembled garment.

Style 0136/02 is a woman’s knitted pullover with a v-shaped neckline and three-quarter length sleeves. The sleeve ends and the bottom of the garment are hemmed, while the neckline is capped. On the front of the pullover there is decorative beading. The 1X1 rib knit fabric has more than nine stitches per two centimeters, measured in the direction in which the stitches were formed. The fiber content of the pullover is 100% cotton.

The cut-to-shape component panels consist of a front panel with a v-shaped neckline and with decorative beading, the two sleeve panels, the rear panel and the capping for the neckline.

The manufacturing operations for the pullover are as follows:

In China
-knit fabric into rolls
-cut rectangular panel from rolls
-sew beads on rectangular panel
-ship rectangular panel and rolls of knit fabric to the Commonwealth of the Northern Mariana Islands (CNMI)

In the CNMI
-cut the rolled fabric into the component panels of the pullover, namely the back, the sleeves and the neck capping
-cut the rectangular panel to the shape of the front panel of the pullover -sew the component panels into the assembled pullover -ship the pullover directly to the United States.

ISSUE:

What are the classification and country of origin of the subject merchandise?

CLASSIFICATION:

The applicable subheading for the woman’s knitted pullover, Style 0136/02 will be 6110.20.2075, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for sweaters, pullovers---and similar articles, knitted or crocheted: of cotton: other: other: other: women’s. The general rate of duty will be 17.3% ad valorem for the year 2002, and 16.9% for the year 2003.

The pullover falls within textile category designation 339. 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.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.

Paragraph (c)(1) 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

If the good is not knit to shape and consists of two or more component parts, a change to an assembled good of heading 6101 through heading 6117 from unassembled components, provided that the change is the result of the good being wholly assembled in a single country, territory or insular possession.

The Customs Regulations (C.R.), Section 102.21 (b) defines the term “wholly assembled”:

The term “wholly assembled” when used with reference to a good means that all components, of which there must be at least two, preexisted in essentially the same condition as found in the finished good and were combined to form the finished good in a single country, territory or insular possession. Minor attachments and minor embellishments (for example, appliques, beads, spangles embroidery, buttons) not appreciably affecting the identity of the good, and minor subassemblies (for example, collars, cuffs, plackets, pockets) will not affect the status of a good as “wholly assembled” in a single country, territory or insular possession.

The pullover is not knit to shape and it consists of two or more cut-to-shape component panels that are wholly assembled in a single country, territory or insular possession, namely, the CMNI. Therefore, the requirement of the tariff shift is fulfilled and the country of origin is conferred in the Commonwealth of the Northern Mariana Islands.

General Note 3 (a), (iv), HTSUSA, permits products of insular possessions of the United States (of which the CNMI is one) to be imported into the United States free of duty obligations if certain requirements are met. Duty free status is granted to those goods which are the growth or product of the possession; or are manufactured or produced in any such possession from materials which are the growth, product or manufacture of any such possession or of the Customs territory of the United States, or of both: and do not contain foreign materials which represent more than 50 percent of the goods’ total value (for textile and apparel articles subject to textile agreements); and are shipped directly to the Customs territory of the United States from the insular possession.

Since the CNMI is an insular possession of the United States, and since the good which is produced in the CNMI, namely, the woman’s knitted pullover, is a textile article that is subject to textile agreements, the “foreign materials” which make up the pullover must not represent more than 50% of the article’s appraised value.

In order to meet the requirements of General Note 3(a)(iv), HTSUSA, we must determine whether the component panels which are imported into the CNMI from China are substantially transformed by processing in the Commonwealth and which therefore, become a product of that insular possession. A substantial transformation occurs when an item emerges from a process with a new name, character or use that is different from that possessed by the item prior to processing.

In determining whether the value of the Chinese component panels should be considered part of the cost of the “foreign materials” or if its value should be allocated to the cost of materials produced in the CNMI for the purpose of applying the 50 percent foreign value limitation under General Note 3(a)(iv), we must consider whether the component panels undergo a double substantial transformation during the processing in the insular possession. Treasury Decision (T.D.) 88-17, effective April 13, 1988, determined that the concept of the double substantial transformation should be used in deciding whether foreign material that does not originate in the insular possession may nevertheless qualify as part of the value of material produced in the insular possession. To do this the foreign material must be substantially transformed in the insular possession into a new and different product and then that product must be transformed yet again into another new and different product which is exported directly to the United States. If this happens to the foreign material, then its cost can be considered part of the value of materials produced in the insular possession.

For an example of the double substantial transformation principle as it was applied to textile wearing apparel we look to Headquarters Ruling Letter (HRL) 556214, dated March 20, 1992, in which Customs ruled that foreign rolled fabric that was imported into the CNMI where it was cut to shape and then assembled into golf shirts and pullovers did undergo a double substantial transformation. Similarly, in this instance, the component panels of the pullover are cut to shape in the CNMI, either from the rectangular panel, as is the case of the front panel, or from the rolled fabric, as is true for the back and sleeve panels. Therefore, all of the component panels do undergo a double substantial transformation in the CNMI (that is, from rolled fabric or from rectangular panels to cut-to-shape component panels and then to the assembled pullover). Therefore, the cost of this material can be considered part of the value of materials produced in the insular possession.

Finally, we note that all the component panels are then assembled into the pullover in the CNMI. The fact that the rectangular panel is beaded in China does not alter the conclusion that the pullover is wholly assembled in the CNMI, noting the previously cited definition of “wholly assembled”.

HOLDING:

The country of origin of the woman’s knitted pullover, Style 0136/02, is the Commonwealth of the Northern Mariana Islands. The component panels that are cut to shape in the CNMI met the double substantial transformation test and thus may have their value included as part of the value of materials processed in the insular possession. They are not counted as part of the foreign value content for the purpose of determining the status of the pullover as a duty free item. Since the CNMI is not a foreign country and, since the United States has no bilateral quota or visa agreement with it, the pullover is neither subject to quota restraints nor to 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 Mike Crowley at 646-733-3049.

Sincerely,

Robert B. Swierupski
Director,

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