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NY L80456




December 1, 2004

CLA-2-RR:NC:TA:N3:356 L80456

CATEGORY: CLASSIFICATION

Ms. Rhoda A. Salus
Sandler, Travis & Rosenberg, P.A.
The Waterford
5200 Blue Lagoon Drive
Miami, FL 33126-2022

RE: Classification and country of origin determination for a men’s knit garment; 19 CFR 102.21(c)(2); tariff shift; Commonwealth of the Northern Mariana Islands; General Note 3(a)(iv), HTSUSA; 19 CFR 7.3(d)

Dear Ms. Salus:

This is in reply to your letter dated November 4, 2004 on behalf of US-CNMI Development Corporation, requesting a classification and country of origin determination for a men’s knit garment that will be imported into the United States. You have provided a sample of the garment parts as they are partially assembled in Country “A” (China) and a sample of the finished garment as it will be imported directly into the United States from Country “B” (the Commonwealth of the Northern Mariana Islands). As requested, your samples will be returned.

FACTS:

The submitted sample, Style PS04-12417, is a men’ polo shirt constructed from 100% cotton, pique knit fabric that measures 10 stitches per linear centimeter counted in the horizontal direction and 19 stitches per linear centimeter counted in the vertical direction. The garment has a partial front opening with a two button, left over right placket; a rib knit spread collar; short sleeves with rib knit cuffs; a large floral reverse applique (a cut out design underlayed with printed woven fabric) on the front panel; and a straight, hemmed bottom with side slits and a tail.

The manufacturing operations for the polo shirt are as follows:

- the fabric is cut into component parts
- the collar and cuffs are knit to shape and separated into component parts - the floral design is cut out and the woven fabric is embroidered to the underside of the front panel
- the placket sections are bonded to interlining fabric - the component parts are packed and shipped to Saipan for assembly

COUNTRY “B” (COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS):

- the shoulder seams are sewn joining the front and back panels - the collar is attached
- the sleeves are attached to the body of the garment - the sleeve seams are sewn closed
- the side seams are sewn closed and the side slits are formed - the main and care labels are attached
- the placket is attached to the front panel - the buttonholes are formed and the buttons are attached - the bottom of the garment is hemmed
- the garment is trimmed, washed and inspected - the garment is packed for export directly to the United States

ISSUE:

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

CLASSIFICATION:

The applicable subheading for the polo shirt will be 6105.10.0010, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), which provides for men’s or boys’ shirts, knitted or crocheted: of cotton: men’s The general rate of duty is 19.7 % ad valorem.

The polo shirt falls within textile category designation 338. Quota and visa status are the result of international agreements that are subject to frequent renegotiations and changes. To obtain the most current information as to whether quota and visa requirements apply to this merchandise, we suggest that you check, close to the time of shipment, the “Textile Status Report for Absolute Quotas” available at our web site at www.cpb.gov. In addition, you will find current information on textile import quotas, textile safeguard actions and related issues at the web site of the Office of Textiles and Apparel, at otexa.ita.doc.gov.

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

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.

Paragraph (b) (6) defines “wholly assembled” as:

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 submitted garment is not knit to shape and consists of two or more parts. Since the embroidered reverse appliqué is considered a minor embellishment, it does not affect the status of the good as being wholly assembled in a single country. As all of the assembly operations occur in Country “B” (the Commonwealth of the Northern Mariana Islands), the garments are considered “wholly assembled” in a single country, that is, Country “B” (the Commonwealth of the Northern Mariana Islands). As per the terms of the tariff shift requirement, country of origin is conferred in Country “B” (the Commonwealth of the Northern Mariana Islands).

General Note 3(a)(iv), HTSUSA, permits products of insular possessions of the United States to be imported into the United States free of duty obligations if certain requirements are fulfilled. Duty free status is granted to those goods which 1) are the growth or product of the possession, or 2) 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 3) 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 4) are shipped directly to the customs territory of the United States from the insular possession.

Since the Commonwealth of the Northern Mariana Islands is an insular possession of the United States, and since the goods which are produced in the Commonwealth of the Northern Mariana Islands, namely, the man’s polo shirt, are textile articles that are 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 first determine whether the component parts which are imported into the Commonwealth of the Northern Mariana Islands from China are substantially transformed by processing in the Commonwealth and thereby 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 parts should be considered part of the cost of the “foreign materials” or part of the cost of the materials produced in the Commonwealth of the Northern Mariana Islands for the purpose of applying the 50% foreign value limitation under General Note 3(a)(iv), we must consider whether the component parts 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 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 the materials produced in the insular possession.

As an example of the double substantial transformation principle as it was applied to textile wearing apparel, see Headquarters Ruling Letter (HRL) 556214, dated March 20, 1992, in which Customs ruled that foreign rolled fabric that was imported into the Commonwealth of the Northern Mariana Islands 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 parts that are cut in China, not in the Commonwealth of the Northern Mariana Islands. Therefore, the component parts 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 Northern Mariana Islands.

Despite the fact that the Chinese knit and cut component parts of the garment are considered foreign materials when they are shipped to the Commonwealth, and regardless of the determination that these parts do not undergo a double substantial transformation when they are processed in the insular possession, the garment 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 goods and it is shipped directly to the United States from the insular possession. Section 7.3(d) 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 a final determination regarding whether the foreign value limitation is satisfied for the instant merchandise can only be made at the time of entry of the goods into the United States.

HOLDING:

The country of origin of the subject merchandise is Country “B” (the Commonwealth of the Northern Mariana Islands). The component parts knit and cut 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 garment may still be eligible for duty free status provided that it is imported directly from the Commonwealth to the United States, and that the 50% foreign value limitation is satisfied at the time of entry. Since the Commonwealth of the Northern Mariana Islands is not a foreign country and, therefore, the United States has no bilateral quota or visa agreement with it, the garment is not subject to quota or visa requirements.

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 Mary Ryan at 646-733-3271.

Sincerely,

Robert B. Swierupski, Director
National Commodity Specialist Division


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