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NY K80733




December 3, 2003
CLA-2-52:RR:NC:N3:351 K80733

CATEGORY: CLASSIFICATION

TARIFF NO.: 5207.10.0000

Joanne Burke
Willson International, Inc.
One Heritage Place
Southgate, MI 48195

RE: The tariff classification and status under the North American Free Trade Agreement (NAFTA), of cotton yarn from Canada; country of origin determination; 19 CFR 102.21(c)(2); tariff shift; Chapter 98; 19 CFR 102.19(b); Article 509

Dear Ms. Burke:

In your letter dated November 14, 2003, on behalf of your client, Spinrite Inc., of Canada, you requested a ruling on the status of cotton yarns from Canada under the NAFTA. You also inquired about their eligibility under provisions of Chapter 98, Harmonized Tariff Schedule of the United States Annotated (HTSUSA).

In your letter you state that the yarns are 100% cotton. You included samples of ten; they are identified as follows:

Part number Product name

102001 Lily Sugar “N Cream
102002 Lily Sugar “N Cream Ombres
104001 Lily Sugar Babies
104002 Lily Sugar Babies OM
162013 Bernat Handicrafter Cotton
162023 Bernat Handicrafter Cotton Om
164102 Bernat Love Bug (two samples)
246102 Patons Love Bug (two samples)

You state that cotton yarns will be shipped from the United States to Canada where they will be reeled, dyed, dried, balled, and packaged for retail sale. The finished balls will weigh between 42.5 grams and 113 grams. In a telephone conversation with National Import Specialist Mitchel Bayer, you stated that the yarns are uncombed and that the decitex exceeds 2000 in each case. The yarns meet the tariff definition of “put up for retail sale.” They have a final “S” twist. They do not meet the tariff definition of sewing thread, which requires, among other things, a final “Z” twist.

CLASSIFICATION

The applicable tariff provision for the finished cotton yarns when imported from Canada into the U.S. will be will be 5207.10.0000, HTS, which provides for cotton yarn (other than sewing thread) put up for retail sale, containing 85 percent or more by weight of cotton. The general rate of duty will be 0.5 percent ad valorem. In 2004, the rate will be free.

CHAPTER 98

You ask whether the yarns of U.S. origin, shipped to Canada for the above-mentioned processing, would qualify under any provision of Chapter 98, HTS, when reimported into the U.S. We shall discuss the only two provisions that might apply.

Subheading 9801.00.10, HTS, provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process of manufacture or other means while abroad. While some change in the condition of the product while it is abroad is permissible, operations which either advance the value or improve the condition of the exported product render it ineligible for duty-free entry upon return to the U.S. In this instance, the yarn is dyed, which is an advancement in value and an improvement in condition. Therefore, the yarn does not qualify for duty-free treatment under 9801.00.10, HTS.

Subheading 9802.00.50, HTS, provides a partial or complete duty exemption for articles exported from and returned to the U.S. after having been advanced in value or improved in condition by repairs or alterations. However, entitlement to this tariff treatment is precluded in circumstances where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Customs has consistently held that dyeing constitutes a finishing operation, a step in the manufacture of finished textile goods that exceeds the meaning of the term "alteration" under this tariff provision. Accordingly, the U.S. yarn is an incomplete article when exported from the U.S. to Canada and is ineligible for the partial duty exemption under subheading 9802.00.50, HTS, upon its return to the U.S.

NAFTA

You describe the yarns as “originating in the U.S.” By this we assume you mean that they are spun in the United States, whether or not of U.S.-origin cotton fibers. By virtue of this, the completed yarns will meet the requirements of either HTSUSA General Note 12(b)(i) (if of originating cotton fibers) or (b)(ii) (if of non-originating fibers), and will therefore be entitled to a free rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements.

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 yarns are 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

5204-5207 A change to heading 5204 through 5207 from any heading outside that group, provided that the change is the result of a spinning process.

As the yarns are spun in a single country, that is, in the United States, as per the terms of the tariff shift requirement, country of origin would be conferred in the U.S. However, Section 102.19(b) of the Customs Regulations (19 C.F.R. 102.19(b)) reads:

If, under any other provision of this part, the country of origin of a good which is originating within the meaning of § 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.

Thus, the country of origin of the yarn, spun in the U.S. and further processed in Canada, is Canada, and must be marked as such. We note that the individual balls of yarn you sent us are marked, “Product of U.S.A - Packaged in Canada.” This is incorrect and would not be considered legal marking.

HOLDING

The cotton yarns which are spun in the U.S. and shipped to Canada for dyeing are classified in subheading 5207.10.0000, HTS, and are not eligible for duty-free entry under any provision of Chapter 98, HTS. They are, however, eligible for duty-free entry under NAFTA. The country of origin is Canada.

This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).

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 Mitchel Bayer at 646-733-3102.

Sincerely,

Robert B. Swierupski
Director,

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