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NY L80425





November 23, 2004
CLA2-61-RR:NC:TA:359:L80425

CATEGORY: CLASSIFICATION

Ms. Hannah Chan
Business Faith International Limited
A8 & A13 7/F, Blk A
Hong Kong Ind. Centre
No 489-491 Castle Peak Road
Kowloon, 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); ; duty-free treatment for products of the West Bank, Gaza Strip, or a Qualifying Industrial Zone; General Note 3(a)(v); T.D. 98-62

Dear Ms. Chan:

This is in reply to your letter dated October 23, 2004, in which you requested a classification and country of origin determination for women’s knitwear that will be imported into the United States. Your sample and its component parts are returned as requested.

FACTS:

The subject merchandise consists of Style xxJGSH737, a woman’s knitted cardigan, made of 100% cotton, which features a hood with a drawstring, long sleeves with rib knit cuffs, a loose fitting rib knit bottom which does not provide tightening, a full front opening with a zipper, printed and embroidered logos on the front panels, and two front pockets with openings so small as to render them incapable of use. The body of the jacket is made of two front panels, one back panel and two side panels made of rib knit fabric identical to the waistband and cuffs of the garment.

In your request you asked for country of origin determination for goods that would be produced in China and the Commonwealth of the Northern Marianas Island, (CNMI), or in China and the Irbid Al-Hassan, Jordan QIZ, (QIZ). In both scenarios, the goods will be shipped directly to the United States from either the CNMI or the QIZ. For both, the manufacturing steps will take place in exactly the same manner.

The manufacturing operations for the woman’s knitted cardigan are as follows:

China:

Cut the fabric into component parts for the front panels, the back panels, the sleeves, and the hood Print the logo onto the center front panel Embroider the logo to the left front panel Sew the double layer hood
Sew the woven fabric around the edge of the hood Sew the eyelets (for the drawstring) to the hood Finish the drawstring
Sew the woven pouch pockets to the front panels with four eyelets Cut the lower center front up to the middle part of the panel Sew the woven fabric to the upper back panel Sew the zipper tape

CNMI or QIZ:

Cut the rib knit fabric for the side panels, the waistband and the cuffs Sew the front and back panels at the shoulders Cut the remaining part of the center front panel Sew the zipper to the right and left front panels Attach the hood to the body of the garment Sew the labels to the neckline
Sew the neck tape to the neckline
Sew the rib side seam panels to the front and back panels Sew the sleeves to the body of the garment Sew the edges of the armholes
Sew the rib bottom to the body of the garment Trim, wash, inspect and pack the garment

ISSUE:

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

CLASSIFICATION:

In your letter, you asked what the classification would be if the fiber content changed. Although you listed some exemplars, at this time, we will limit ourselves to the fiber content of the submitted sample. Please note that as the fiber content of the garment changes, the classification would change as well, but would most likely remain within the 4-digit HTSUSA heading.

The applicable subheading for the woman’s knitted cardigan will be 6110.20.2075, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for sweaters, cardigansand similar articles, knitted or crocheted: Of cotton: Other: Other: women’s or girls’. The general rate of duty is 16.5% ad valorem.

The cardigan 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.

You have stated that the processing operations in Jordan are performed in the Irbid, Jordan, Qualifying Industrial Zone (QIZ). General Note 3(a)(v)(G), HTSUSA, defines a “qualifying industrial zone: as any area that (1) encompasses portions of the territory of Israel and Jordan or Israel and Egypt; (2) has been designated by local authorities as an enclave where merchandise may enter without payment of duties or excise taxes; and (3) has been designated by the United States Trade Representative in a notice published in the Federal Register as a qualifying industrial zone.

By letters dated June 30, 1997, and July 1, 1997, to the U.S. Trade Representative, the Governments of Jordan and Israel, respectively, requested the designation of the industrial zone in Irbid, Jordan, as a QIZ. Pursuant to subsequent consultations among the three governments, the Governments of Israel and Jordan entered into a written agreement dated November 16, 1997, relating to the establishment of the Irbid, Jordan, QIZ, which included the following provision, entitled “Rules of Origin”:

“The (Governments of Israel and Jordan) agree that the origin of any textile or apparel product that is processed in the Irbid, Jordan, Qualifying Industrial Zone, regardless of the origin or place of processing of any of its inputs or materials prior to entry into, or subsequent withdrawal from, the zone, will be determined solely pursuant to the rules of origin for textile and apparel products set out in Section 334 of the Uruguay Rounds Act, 19 U.S.C. Section 3592.”

By notice published in the Federal Register on March 13, 1998, (63 FR 12572), the Office of the U.S. Trade Representative formally designated the Israeli-Jordanian Irbid Qualifying Industrial Zone as a bona fide qualifying industrial zone. Treasury Decision (T.D.) 98-62, published in the Federal Register on June 26, 1998 (63 FR 34960), determined that pursuant to the agreement between the Government of Israel and the Government of Jordan, and by mutual consent of the U.S. and Israel, Customs will exclusively apply the textile and apparel rules of origin set forth in 19 C.F.R. Section 102.21 in determining the country of origin of a textile or apparel product processed in the Irbid, Jordan, QIZ.

Paragraph (c)(1) states, "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

6101 - 6117 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 cardigan is assembled in more than one country, territory or insular possession, it does not satisfy the conditions of the tariff shift and 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 cardigan, sewing the front and back panels at the shoulders, sewing the side panels to the front and back panels, sewing the zipper to the front panels, attaching the hood, attaching the sleeves, and attaching the cuffs and waistband, all of which occur in the CNMI or the QIZ, constitute the most important assembly processes.

Accordingly, the country of origin of the woman’s cardigan is the CNMI or the QIZ.

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 that:
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 woman’s cardigan, is a textile article that is subject to textile agreements, the “foreign materials” which make up the cardigan 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 cardigans did undergo a double substantial transformation. In contrast, the present question involves component panels that are cut in China, not in the CNMI. Further, those panels are partially assembled 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 cardigan 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 cardigan 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 cardigan can only be made at the time of its importation into the United States.

STATUS UNDER THE UNITED STATES-ISRAEL FREE TRADE AGREEMENT

Pursuant to the authority conferred by section 9 of the U.S.-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. Section 2112 note), the President issued Proclamation No. 6955 dated November 13, 1996 [published in the Federal Register on November 18, 1996 (61 Fed. Reg. 58761)], which modified the Harmonized Tariff Schedule of the United States, HTSUS, by creating a new General Note 3(a)(v) to provide duty-free treatment to articles which are the product of the West Bank, Gaza Strip or a qualifying industrial zone entered or withdrawn from warehouse for consumption on or after November 21, 1996. Under General Note 3(a)(v), HTSUS, articles which are the products of the West Bank, Gaza Strip or a qualifying industrial zone which are imported directly into the United States from the West Bank, Gaza Strip, a qualifying industrial zone or Israel itself qualify for duty-free treatment, provided that the sum of (1) the cost or value of materials produced in the West Bank, Gaza Strip, a qualifying industrial zone or Israel, plus (2) the direct cost of processing operations performed in the West Bank, Gaza Strip, a qualifying industrial zone or Israel is not less than 35% of the appraised value of such articles when imported into the United States. An article is considered to be a product of the West Bank, Gaza Strip or a qualifying industrial zone if it is wholly the growth, product or manufacture of one of those areas or a new and different article of commerce that has been grown, produced or manufactured in one of the areas.

Regarding the requirement that the articles be imported directly, General Note 3(a)(v)(B)(1), HTSUS, provides that
articles are “imported directly” for purposes of this paragraph if, (1) they are shipped directly from the West Bank, Gaza Strip, a qualifying industrial zone or Israel into the United States without passing through the territory of any intermediate country.

You have stated in your submission that the woman’s knitted cardigan will be directly imported into the United States from the QIZ, Irbid, Jordan. However, we are unable to comment on whether the imported goods will meet the 35% value content requirement. This can only be ascertained at the time of the entry of this merchandise into the commerce of the United States when the appraised value of the cardigan is determined by a Customs’ import specialist.

HOLDING:

The country of origin of the woman’s cardigan is the Commonwealth of the Northern Mariana Islands. The component panels that are 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. The cardigan 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. That value determination cannot be made at this time. Since the CNMI is not a foreign country and therefore, the United States has no quota or visa agreement with it, the cardigan is neither subject to quota restraints nor to the requirement of a visa.

Where manufacturing occurs in China and the QIZ, the country of origin of the woman’s knitted cardigan is Jordan. Based on the information provided that the cardigan will be imported directly from the QIZ in Jordan, under General Note 3(a)(v), HTSUS, the cardigan is eligible for duty-free treatment if the 35% value content requirement is met. That value determination cannot be made at this time, but will be established at the time the merchandise enters the commerce of the United States. Based upon international textile trade agreements products of Jordan are neither subject to quota nor 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 Camille R. Ferraro at 646-733-3049.

Sincerely,

Robert B. Swierupski
Director,

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