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HQ 966917

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May 24 , 2004

CLA-2 RR:CR:TE 966917 SG

CATEGORY: CLASSIFICATION

TARIFF NO.: 6203.42.4010, 6204.62.4010

Mr. Robert L. Morris, Jr.
Operations/Customs Compliance
Jamco International, Inc.
8401 FM3464
Embarcadero Commerce Center Building 1
P.O. Box 430321
Laredo, Texas 78043-0321

RE: North American Free Trade Agreement (NAFTA); Caribbean Basin Economic Recovery Act (CBERA); United States-Caribbean Basin Trade Partnership Act (CBTPA); Yarns "Wholly Formed"; Country of Origin

Dear Mr. Morris:

This is in reply to your letter of February 12, 2004, on behalf of Cia. Manufacturera Libra S.A. de C.V. (Libra), requesting a ruling on the eligibility for North American Free Trade Agreement (NAFTA) and Caribbean Basin Economic Recovery Act (CBERA) trade preferences for denim jeans sewn in Nicaragua and to be imported into the United States. You have provided an executed power of attorney and indicate that you act as the United States broker for Libra.

FACTS:

You advise that Libra cuts and sews men's and women's cotton jeans that are classified in subheading 6203.42.4010, HTSUSA, and 6204.62.4010, HTSUSA, respectively. You indicate that Libra is investigating the possibility of moving part of their assembly work to Nicaragua and would like a ruling on how this would affect their eligibility for special duty treatment under the NAFTA or the CBERA.

You present 11 different scenarios:

1. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of U.S. origin. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then imported into the United States.

2. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of Hong Kong origin. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then imported into the United States.

3. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of Mexican origin. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then sent to the United States.

4. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of U.S. origin. The assembled jeans (already washed, labeled, inspected, and packaged) would be sent to Mexico for consolidation with other Mexican production. The jeans would then be imported into the United States.

5. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of Mexican origin. The assembled jeans (already washed, labeled, inspected, and packaged) would be sent to Mexico for consolidation with other Mexican production. The jeans would then be imported into the United States.

6. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of U.S. origin. The finished product would be imported directly into the United States.

7. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of Mexican origin. The finished product would be imported directly into the United States.

8. In Nicaragua, the jeans would be cut and sewn from 100% cotton denim of Hong Kong origin. The finished product would be imported directly into the United States.

9. In Nicaragua, the jeans would be sewn from 100% cotton denim of Mexican origin that is cut in Mexico. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then imported into the United States.

10. In Nicaragua, the jeans would be sewn from 100% cotton denim of U.S. origin that is cut in Mexico. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then imported into the United States.

11. In Nicaragua, the jeans would be sewn from 100% cotton denim of Hong Kong origin that is cut in Mexico. The assembled jeans would be sent to Mexico to be washed, labeled, inspected, packaged, and then imported into the United States.

You would like to confirm that the origin of the finished product will be Nicaragua. In addition you would like to know whether General Note 7(d)(iii)(A) is applicable to these jeans, and whether the washing, labeling, inspection, etc. done in Mexico would exclude the product from consideration under General Note 7(b)(i)(A).

ISSUES:

What is the country of origin of the jeans?

Are they eligible for preferential tariff treatment under the NAFTA or the CBERA?

Are they eligible for preferential treatment under the Caribbean Basin Trade Partnership Act (CBTPA)?

LAW AND ANALYSIS:

NAFTA ELIGIBILITY

The jeans in the scenarios described above undergo processing operations in Mexico and the United States and therefore may be eligible for the NAFTA preferential duty free status if they are considered "originating goods."

To be eligible for the duty preference provided under the NAFTA, goods must be "originating goods" within the rules of origin in General Note 12(b), HTSUSA.

General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(b), HTSUS, provides, in pertinent part:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if—

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—

(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or

(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials;

Because the jeans are not wholly obtained or produced entirely in the U.S. or Mexico, they will only qualify as a NAFTA originating good if the non-originating materials undergo the applicable change in tariff classification. Therefore, we must ascertain whether the non-originating materials in the subject jeans are transformed in the U.S. or Mexico pursuant to General Note 12(b)(ii)(A). To qualify under this provision, the non-originating materials must undergo the change in tariff classification set forth in General Note 12(t), HTSUS. For headings 6203 and 6204, HTSUSA, the appropriate subdivision (t) rules state that:

A change to subheadings 6203.41 through 6203.49 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, chapter 54, or headings 5508 through 5516, 5801 through 5802 or 6001 through 6006, provided that the good is both cut and sewn or otherwise assembled in the territory of one or more of the NAFTA parties.

A change to subheadings 6204.61 through 6204.69 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, chapter 54, or headings 5508 through 5516, 5801 through 5802 or 6001 through 6006, provided that the good is both cut and sewn or otherwise assembled in the territory of one or more of the NAFTA parties.

To qualify under the tariff shift rules the jeans must be both cut and sewn or otherwise assembled in either the U.S. or Mexico. A review of the scenarios you describe indicates that the jeans will, in all instances, be sewn in Nicaragua, and only in scenarios 9, 10, and 11, will they be cut in a NAFTA country (Mexico). In addition, the denim fabric when exported is classifiable in heading 5208 or 5209, which are headings excepted in the rules above. Accordingly, the jeans do not meet the transformation requirement of 12(b), and do not satisfy the applicable change in tariff classification.

Pursuant to the analysis set forth above, the jeans do not qualify as a good originating in the territory of a NAFTA party and are not entitled to preferential duty treatment under the NAFTA.

CARIBBEAN BASIN ECOMONIC RECOVERY ACT (CBERA) ELIGIBILITY

Under the CBERA, eligible articles the growth, product, or manufacture of a designated beneficiary country (BC), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BCs, plus (2) the direct costs of processing operations performed in a BC or BCs is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. 19 U.S.C. 2703(a)(1). In addition, the cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content minimum in an amount not to exceed 15 percent of the imported article's appraised value. See 19 CFR 10.195(c). As stated in General Note 7(a), Harmonized Tariff Schedule of the United States (HTSUS), Nicaragua is a designated BC under the CBERA.

To determine whether an article will be eligible to receive duty-free treatment under the CBERA, it must first be classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "E" or "E*." See General Note 7(c), HTSUS. The jeans, which you indicate are classified in subheading 6203.42.4010, HTSUSA, and subheading 6204.62.4010, HTSUSA, are precluded from duty-free treatment under the CBERA because the symbol “E” or “E*” does not appear in the “Special” subcolumn opposite these tariff provisions, as required by General Note 7(c).

Therefore, the jeans are not entitled to preferential duty treatment under the CBERA.

CARIBBEAN BASIN TRADE PARTNERSHIP ACT (CBTPA)

Although you have not requested treatment under the United States-Caribbean Basin Trade Partnership Act (CBTPA), we note that the CBTPA extends NAFTA duty treatment standards to non-textile articles that previously were ineligible for preferential treatment under the CBERA and provides for duty- and quota-free treatment for certain textile and apparel articles which meet the requirements set forth in section 211 of the CBTPA (amended 213(b) of the CBERA, codified at 19 U.S.C. 2703(b)). Beneficiary countries are designated by the President of the United States after having met eligibility requirements set forth in the CBPTA. Eligibility for benefits under the CBTPA is contingent on designation as a beneficiary country by the President of the United States and a determination by the United States Trade Representative (USTR), published in the Federal Register, that a beneficiary country has taken the measures required by the Act to implement and follow, or is making substantial progress toward implementing and following, certain customs procedures, drawn from Chapter 5 of the NAFTA, that allow the United States to verify the origin of products. Once both these designations have occurred, a beneficiary country is entitled to preferential treatment provided for by the CBTPA. Nicaragua was designated a beneficiary country by Presidential Proclamation 7351, published in the Federal Register on October 4, 2000 (65 Fed. Reg. 59329). It was determined to have met the second criteria concerning customs procedures by the USTR and thus eligible for benefits under the CBTPA, effective October 2, 2000 (see 65 Fed. Reg. 60236).

The provisions implementing the textile provisions of the CBTPA in the Harmonized Tariff Schedule of the United States (HTSUS) are contained, for the most part, in subchapter XX, Chapter 98, HTSUS (two provisions may be found in subheading 9802.00.80, HTSUS). The regulations pertinent to the textile provisions of the CBTPA may be found at §§ 10.221 through 10.228 of the Customs Regulations (19 CFR §§10.221 through 10.228).

Section 213(b)(2)(A)(ii), as recently amended by section 3107(a) of the Trade Act of 2002, provides that preferential treatment applies to:

(ii) Apparel article sewn or otherwise assembled in one or more CBTPA beneficiary countries with thread formed in the United States from fabrics wholly formed in the United States and cut in one or more CBTPA beneficiary countries from yarns wholly formed in the United States, or from components knit-to-shape in the United States from yarns wholly formed in the United States, or both (including fabrics not formed from yarns, if such fabrics are classifiable under heading 5602 or 5603 of the HTS and are wholly formed in the United States).

Apparel articles entered on or after September 1, 2002, shall qualify under the first sentence of this clause only if all dyeing, printing, and finishing of the fabrics from which the articles are assembled, if the fabrics are woven fabrics, is carried out in the United States.

Section 10.222 of the Customs Regulations (19 CFR 10.222) contains definitions of various terms used in the provisions applicable for preferential treatment under the CBTPA. "Apparel articles" is defined in these interim regulations for CBTPA as including, among other things, "goods classifiable in Chapters 61 and 62." As the jeans are classifiable in Chapter 62, they are clearly "apparel articles."

From the information you provided if appears that the jeans in a number of the scenarios may be eligible for preferential treatment under the CBTPA provided that the yarn used in making the denim fabric used in making the jeans qualifies as "wholly formed" in the United States.

The definition of "wholly formed" states in pertinent part:

"Wholly formed," when used in reference to yarns, means that all of the production processes, starting with the extrusion of filament, strip, film, or sheet and including slitting a film or sheet into strip or the spinning of all fibers into yarn or both and ending with a yarn or plied yarn, took place in a single country, . . . .

The denim fabric is formed of cotton yarn. In order to be "wholly formed" the constituent staple fibers must be spun in United States.

In regard to the scenarios presented in this case, the jeans which are said to be cut and assembled in Nicaragua from fabrics produced in the United States (which we assume are wholly formed in the U.S.) if from yarns wholly formed in the U.S., would appear to meet the requirements for preferential treatment under the CBTPA provided the dyeing, printing and finishing of the fabric is done in the United States. We note that the goods must be imported directly, see U.S. Note 1 Subchapter XX, Chapter 98 and 19 CFR 10.223(d). Two of the scenarios appear to meet these requirements. However you have not provided us with enough information for us to rule on eligibility for duty free treatment under the CBPTA, including whether the imported directly requirement is met.

If you would like to request a CBPTA determination please include information on the entire production process. This should include information on whether the yarn is composed of staple or filament fibers, where the yarn was formed, where the fabrics were formed, where, if any, knit-to-shape portions were formed, and where the items were assembled. Please also supply information regarding the origin of any sewn-in labels, findings and trimmings, and their assembly onto the jeans.

COUNTRY OF ORIGIN

With regard to the country of origin, section 334 of the Uruguay Round Agreements Act (URAA) (codified at 19 U.S.C. §3592), enacted on December 8, 1994, provided rules of origin for textiles and apparel entered, or withdrawn from warehouse for consumption, on and after July 1, 1996. Section 102.21, Customs Regulations (19 C.F.R. §102.21), published September 5, 1995, in the Federal Register, implements section 334 (60 Fed. Reg. 46188). Section 334 of the URAA was amended by section 405 of the Trade and Development Act of 2000, enacted on May 18, 2000, and accordingly, section 102.21 was amended (68 Fed. Reg. 8711). Thus, the country of origin of a textile or apparel product shall be determined by the 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 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.” As discussed above, the jeans are classified in heading 6203 or 6204, HTSUS. Section 102.21(e)(1) states that for goods classified in headings 6201- 6208, HTSUS, the following rules apply:

(1) If the good consists of two or more component parts, a change to an assembled good of heading 6201 through 6208 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 term “wholly assembled” is defined in 19 CFR 102.21(b)(6) to mean 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.

In this case, the jeans are not knit to shape and consist of more than two components. The jeans are wholly assembled in Nicaragua. Therefore, pursuant to 19 CFR 102.21(c)(2), the country of origin of the jeans is Nicaragua.

HOLDING:

Based on the information provided, the jeans manufactured as described in all 11 scenarios are not eligible for duty free/quota free treatment under NAFTA or the CBERA.

Pursuant to 19 CFR 102.21, the country of origin of the jeans in all 11 scenarios is Nicaragua.

Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories, your client should
contact the local CBP 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 this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.

Sincerely,

Myles B. Harmon, Director

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See also:

• Tariff No.: 6203.42.40 - Men's or boys' trousers and shorts, not bibs, not knitted or crocheted, of cotton, not containing 15% or more by weight of down, etc
• Tariff No.: 6204.62.40 - Women's or girls' trousers, breeches and shorts, not knitted or crocheted, of cotton, nesoi
• Tariff No.: 9802.00.80 - U.S. articles assembled abroad, which have not lost their physical identity or have not advanced in value or improved in condition abroad