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NY K80643

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December 12, 2003
CLA2-61-RR:NC:TA-359:K80643

CATEGORY: CLASSIFICATION

Mr. Patrick Yeung
Come Long Fashion Knits, Ltd.
8/F Universal Industrial Bldg.
60-62 Sha Tsui Road
Tsuen Wan, New Territory,
Hong Kong

RE: Classification and country of origin determination for women’s knitwear; 19 CFR 102.21(c) (4); Commonwealth of the Northern Mariana Islands: General Note 3(a)(iv), HTSUSA; 19 CFR 7.3(d)

Dear Mr. Yeung:

This is in reply to your letter dated November 11, 2003, requesting a classification and country of origin determination for women’s knitwear that will be imported into the United States. You have submitted a prototype sample of the finished dress and, in addition, its component panels and parts. These are retained with your permission for instructional purposes.

FACTS: The subject merchandise consists of a woman’s knitted, sleeveless dress, no style number, which consists of 100% cotton fibers. The dress extends from the neck and shoulders of the wearer to her knees. It has a round neckline that is finished with woven fabric bands and an eight inch long partial opening in the front at the neck that is finished with a placket made from woven fabric bands. The bands of the placket have grommets inserted into them and a functional drawstring tie is strung through the grommets. The armhole openings of the dress are also finished with woven fabric bands. There is a small, embroidered logo sewn at the left chest. The bottom is hemmed and it has a 2- inch high slit on each side. A narrow strip of fabric, the “neck binding”, is sewn to the inside of the neck at the back. Labels for the country of origin, fiber content and retail store identification are sewn to the back inside neckline. A label that details the care instruction for the garment is sewn at the side on the inside at the bottom.

. You have also submitted the component parts of the garment that show the partially assembled dress after it is processed in China according to each of two possible versions that are detailed in your submission. In the first version the front and back panels are sewn at the shoulders. The neckband and the front placket with the grommets and the drawstring inserted are sewn to the front; the chest is embroidered; and all the labels are attached. The neck binding is sewn to the inside at the back. The two woven fabric bands for the armholes are separate. In the second version the front and back panels are not sewn together. On the front panel there is sewn a woven fabric band of the placket which has the grommets and the drawstring attached to it. The care label is sewn to the inside of the back panel at the bottom. Parts not attached to either panel include the woven fabric neckband, the woven fabric armhole bands, the fabric for the inside neck binding and the label for origin and store identification.

The manufacturing operations for the sleeveless dress are as follows:

Under Version I
In China
-cut the component panels and parts from the rolled fabric -construct the woven neckband and the woven placket with the grommets installed
-construct the woven armhole bands
-sew the neckband and the placket to the panels -embroider the front panel
-sew the neck binding to the inside back panel -sew the front and back panels at the shoulder seams -insert the drawstring through the placket -sew the neck labels
-sew the care label at the inside bottom side seam;

In the Commonwealth of the Northern Mariana Islands (CNMI) -sew the woven bands to the armhole openings -sew the side seams
-hem the bottom
-iron, inspect and pack the dress;

Under Version II
In China
-cut the fabric into component panels and parts -construct the woven neckband and the woven placket including the grommets -construct the woven armhole bands
-sew the woven placket to the front panel -embroider the front panel
-insert the drawstring into the front placket -sew the care label to the back panel

In CNMI
-sew the woven neckband to the front and back panels -sew the woven armbands to the armhole openings -sew the front and back panels at the shoulders -sew the side seams
-hem the bottom
-sew the neck label to the back panel
-iron, inspect and pack the dress.

ISSUE:

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

CLASSIFICATION:

The applicable subheading for the woman’s knitted dress, no style number, will be 6104.42.0010, Harmonized Tariff Schedule of the United States, HTS, which provides for women’s --- dresses ---knitted or crocheted: dresses: of cotton: women’s. The rate of duty for the year 2003 is 11.6% ad valorem; while the rate for 2004 is 11.5% ad valorem.

The dress falls within textile category designation 336. 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:

Section 334 of the Uruguay Round Agreements Act (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 FR 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 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

6104.42 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 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.

Section 102.21(e) states that the good must be assembled in a single country, territory or insular possession. Accordingly, as the dress, according to each of the versions of your processing operations, is assembled in more than one country, territory or insular possession, it does not satisfy the conditions of the tariff shift. Therefore, Section 102.21(c)(2) is inapplicable.

Section 102.21(c)(3) states that, "Where 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 of the good 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 merchandise is neither knit to shape nor wholly assembled in a single country, territory or insular possession, Section 102.21 (c)(3) is inapplicable.

Section 102.21 (c)(4) states, "Where 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 merchandise, the woman’s knitted dress, the following constitute the most important assembly processes: Under Version I
-the sewing of the neckband and the front placket to the panels and -the sewing of the front and back panels at the shoulders, all of which occur in China;

Under Version II
-the sewing of the neckband to the front and back panels -the sewing of the front and back panels at the shoulders and -the sewing of the side seams, all of which occur in the CNMI.

Accordingly, the country of origin of the woman’s knitted, sleeveless dress under the production process described in Version I is China; the country of origin under the production process described in Version II is the CNMI.

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% 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 sleeveless dress under the production process described in Version II, is a textile article that is subject to textile agreements, the “foreign materials” which make up the dress must not represent more than 50% of the article’s 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 the processing in the CNMI and 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 cost or the value of the Chinese component panels should be considered part of the cost of the “foreign materials” or of the cost of the materials produced in the CNMI for the purpose of applying the 50% 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 that 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 the 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. In contrast, the present question involves component panels that are cut in China, not in the CNMI. Further, in your proposed production process the dress undergoes partial assembly in China. Thus, the component panels do not undergo a double substantial transformation in the insular possession and their cost may not be included as part of the value of materials produced in the CNMI.

Despite the fact that the Chinese knitted and cut component panels of the dress are considered foreign materials when they are shipped to the CNMI, and regardless of the determination that those foreign panels do not undergo a double substantial transformation when they are processed in the insular possession, the dress may still qualify for duty free tariff status as long as it does not contain foreign materials which represent more than 50% of the total value of the good and it is shipped directly to the United States from the insular possession. Section 7.3 of the Customs Regulations (C.R.) states that such a determination must be based on a cost comparison between -the manufacturer’s actual materials cost plus the cost of transporting those materials to the insular possession (excluding duties, taxes and charges after landing) VERSUS
-the final appraised value of the imported goods under Section 402a, Tariff Act of 1930, as amended. We note that the final determination regarding whether the foreign value limitation is satisfied for the dress can only be made at the time of its importation into the United States.

HOLDING:

The country of origin of the woman’s knitted sleeveless dress under your proposed production process designated as Version I is China. Based on international textile trade agreements this product from China is subject to the restraints of quota and the requirement of a visa.

The country of origin of the dress under your proposed production process designated as Version II is the Commonwealth of the Northern Mariana Islands. The component panels that are knitted, cut and partly assembled in China are considered foreign materials for the purpose of calculating the 50% foreign value limitation under General Note 3(a)(iv), HTSUSA. However, the dress may still be entitled to duty free status under the same General Note to the tariff schedule provided that it is imported directly from the CNMI to the United States, and that the 50% foreign value limitation is satisfied at the time of entry of the merchandise into the United States. Since the CNMI is not a foreign country and therefore, the United States has no quota or visa agreement with it, the dress under production process designated as Version II 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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See also:

• Tariff No.: 6104.42.00 - Women's or girls' dresses, knitted or crocheted, of cotton
• Tariff No.: 6209.20.50 - Babies' garments & clothing acc. nesoi, of cotton, incl. sunsuits & sim app, sets & parts of sets, & diapers, not knitted or crocheted