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NY L86068




July 28, 2005

CLA-2-RR:NC:TA:N3:356 L86068

CATEGORY: CLASSIFICATION

Mr. Ego Leung
Come Long Fashion Knits Limited
2/F., Yick Shiu Industrial Building
No. 1, San On Street
Tuen Mun, N.T., Hong Kong

RE: Classification and country of origin determination for a men’s knit garment; 19 CFR 102.21(c)(4); most important assembly or manufacturing operation; 19 CFR 102.21(c)(5); last important assembly or manufacturing operation; Commonwealth of the Northern Mariana Islands; General Note 3(a)(iv), HTSUSA; 19 CFR 7.3(d)

Dear Mr. Leung:

This is in reply to your letter dated June 29, 2005, requesting a classification and country of origin determination for a men’s knit garment that will be imported into the United States. Two different production plans are being considered. In each plan, the assembly operations occur in two different countries, China and the Commonwealth of the Northern Mariana Islands. You have provided a sample of the garment parts as they are partially assembled in China in each production plan, as well as a sample of the finished garment as it will be imported directly into the United States from the Commonwealth of the Northern Mariana Islands.

FACTS:

Style SO002 is a men’s pullover garment constructed from 100% cotton, finely knit, jersey fabric. The garment is sleeveless and has a round front neckline; a rear neckline that does not fall below the nape of the neck; oversized armholes; a half-moon at the rear neckline; rib knit capping on the neckline and armholes; an inside rear hanger loop; screen printing on the front and back panels; and a straight, hemmed bottom.

The manufacturing operations are as follows:

VERSION A

CHINA:
the fabric is cut into component parts the front and back panels and the half-moon (facing) are screen printed the half-moon (facing) is attached to the rear panel the shoulder seams are sewn joining the front and back panels the rib knit capping is sewn to the front and rear necklines the twill tape hanger loop and neck binding are sewn to the rear neckline

COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS:
the rib knit capping is attached to the armhole openings the side seams are sewn closed the bottom is hemmed the garment is ironed and packed for export directly to the United States

VERSION B

CHINA:
the fabric is cut into component parts the front and back panels and the half-moon (facing) are screen printed the half-moon (facing) is attached to the rear panel

COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS:
the shoulder seams are sewn joining the front and back panels the rib knit capping is attached to the front and rear necklines the twill tape hanger loop and neck binding are sewn to the rear neckline the rib knit capping is attached to the armhole openings the side seams are sewn closed the bottom is hemmed the garment is ironed and 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 Style SO002 will be 6110.20.2065, Harmonized Tariff Schedule of the United States, (HTS), which provides for: sweaters, pullovers, sweatshirts, waistcoats (vests) and similar articles, knitted or crocheted: of cotton: other: other: other: men's or boys'. The rate of duty is 16.5 percent ad valorem.

Style SO002 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.cbp.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

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.

Although the garment is not knit to shape and consists of two or more component parts, it is not wholly assembled in a single country, territory, or insular possession. Accordingly, as the terms of the tariff shift are not met, 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, 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 Version One, the single country, territory, or insular possession in which the most important assembly or manufacturing operation occurred cannot be determined. Accordingly, Section 102.21(c)(4) is not applicable.

In Version Two, the joining of the shoulders, the attachment of the neckline capping, the attachment of the armhole capping, and the joining of the side seams constitute the most important assembly processes.

Accordingly, under Section 102.21(c) (4), the country of origin of Style SO002 in Version Two is the Commonwealth of the Northern Mariana Islands.

Section 102.21 (c)(5) states that “Where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), (2) or (3) or (4) of this section, the country of origin of the good is the last country, territory, or insular possession in which an important assembly or manufacturing process occurred.”

In Version One, the last country in which an important assembly process occurred is the Commonwealth of the Northern Mariana Islands where the rib knit capping was attached to the armhole openings and where the side seams were sewn joining the front and back panels.

Accordingly, under Section 102.21 (c) (5), the country of origin of Style SO002 in Version One is 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
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 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 men’s knit pullover, 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. Further, these parts are partially assembled in China. 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 garment, in Version One and Version Two, is the Commonwealth of the Northern Mariana Islands. The component parts knit and partially 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 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,

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