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HQ 563304




May 18, 2006

CLA-02 RR:CTF:VS 563304 NL

CATEGORY: CLASSIFICATION

Mr. Rodney Ralston
Customs Coordinator
UPS Supply Chain Solutions
One UPS Way
Champlain, NY 12919

RE: Reconsideration of NY L84820; US-Chile Free Trade Agreement; Transshipment; Production; Process Necessary to Preserve the Good in Good Condition; Retail Packaging

Dear Mr. Ralston:

This is in reply to your letter dated June 15, 2005, in which you request reconsideration by this Headquarters office of a ruling issued by the Customs and Border Protection National Commodity Specialist Division in New York. Our decision follows.

FACTS:

Your client, ITA Ltd. (ITA), produces sheepskin garments in Chile and imports them into the United States via Canada. It is not in dispute that the garments, which are produced from sheepskins of Spanish origin, qualify as originating goods of Chile within the meaning of U.S. General Note 26, Harmonized Tariff Schedule of the United States (HTSUS), which sets forth the rules of origin for preferential tariff treatment under the U.S.-Chile Free Trade Agreement (USCFTA).

The garments are shipped from Chile to Canada in bulk, packed tightly into boxes. Upon arrival in Canada, ITA unpacks the garments, vacuums them, presses them, places them on hangers, and individually bags them for shipment to the U.S. You advise that the cost of vacuuming and pressing is approximately $5.00 per garment.

In NY L84820 (June 6, 2005), CBP’s National Commodity Specialist Division (NCSD) ruled that the operations in Canada were beyond those permitted under the transit and transshipment requirements of General Note 26(b)(ii)(a). The ruling found that subsequent to production in Chile the garments underwent further production in Canada or other operations outside the territory of Chile other than unloading, reloading, or any other process necessary to preserve the good in good condition or to transport the good to the United States. The NCSD evidently considered that the Canadian operations of vacuuming, pressing, placing on hangers and into individual bags were more than unloading, reloading or any other process necessary to preserve the goods in good condition.

In this request for reconsideration it is argued that the vacuuming and pressing are operations necessary to preserve the garments in good condition so as to make them saleable. It was noted in the initial request that when shipped from Chile, the goods are bulk packed tightly into boxes to realize economies in shipping costs. It is represented that at this stage the goods should not be packed with hangers, which would leave undesirable impressions on the garments. The operations in Canada consist of breaking down the bulk and preparing the garments for distribution.

The request for reconsideration argues that pursuant to General Note 26(j), the packaging of the garments should have no bearing on their eligibility for preferential tariff treatment as goods originating in Chile. You contend in particular that the vacuuming and pressing should not be counted as “production”, but merely as processes necessary to preserve the goods in good condition that are permissible in the context of preferential tariff treatment under USCFTA.

ISSUE:

Does vacuuming, pressing, placing on hangers and individually bagging sheepskin garments in Canada disqualify the garments from treatment as originating goods of Chile?

LAW & ANALYSIS

Eligibility for preferential tariff treatment under the USCFTA is determined under General Note 26, HTSUS. Also applicable are the USCFTA implementing regulations set out in Part 10, CBP Regulations (19 CFR 10.401-10.490, which follow and supplement the provisions of General Note 26. The provision found applicable in NY L84820 is paragraph (c)(iii), which appears in the regulations as 19 CFR 10.463, providing:

§ 10.463 Transit and transshipment.

(a) General. A good will not be considered an originating good by reason of having undergone production that occurs entirely in the territory of
Chile, the United States, or both, that would enable the good to qualify as an originating good if subsequent to that production the good undergoes further production or any other operation outside the territories of Chile and the
United States, other than unloading, reloading, or any other process necessary to preserve the good in good condition or to transport the good to the territory of Chile or the United States.

Under the facts presented, the vacuuming, pressing, hanging and bagging in Canada must be processes necessary to preserve the garments in good condition and not more; otherwise these operations must be treated as disqualifying third-country activities under GN 26(c)(iii) and 19 CFR 10.463.

Your submission refers to GN 26(j), which concerns the treatment of retail packaging materials and containers and packing materials and containers for shipment. See also 10.461 and 10.462, CBP Regulations. Under those provisions, the origin of retail packaging materials or of packing materials and containers for shipment may be disregarded in determining whether all non-originating materials used in the production of a good undergo applicable changes in tariff classification. The submission suggests that by application of these provisions the retail packaging and packing for shipment performed in Canada should not affect the status of the garments as goods originating in Chile under USCFTA. We believe this is not correct.

The provisions cited are the rules governing how materials for retail packaging or for packing for shipment are counted in the context of determining whether production in a USCFTA territory satisfies an applicable rule of origin. The origin of such materials ordinarily will have no bearing on the operation of the rules of origin based on tariff shift requirements. However, GN 26(j) and sections 10.461 and 10.462 are applicable in the context of production that takes place in the territory of a Party to the USCFTA. Whether transit or transshipment activities in a third country affect the originating status is a separate matter under GN 26(c)(iii)(A) and section 10.463, CBP Regulations. It is noted that although processes necessary to transport a good are permitted, there is no specific reference to retail packaging. It would appear that retail packaging, as in this case, is permitted only to the extent that it is necessary to preserve the good in good condition. In this case, vacuuming, pressing, and placing on individual hangers precede packaging for retail sale.

In our opinion the operations of vacuuming, pressing, and packing the garments individually for retail are more extensive than those necessary to preserve the garments in good condition. These activities by the producer-importer in Canada serve to enhance presentation for final sale beyond their condition at the time of export from Chile, and therefore beyond the processes necessary to preserve the articles in good condition that are permitted under GN 26(c)(iii)(A) and section 10.463, CBP Regulations.

The submission refers also to HQ 554423 (January 15, 1987) in support of ITA Ltd.’s position. Insofar as that ruling concerns whether cleaning and pressing are incidental to an assembly process under former Item 807, Tariff Schedules of the United States (now found at subheading 9802.00.80, HTSUS) prescribing the tariff treatment of articles assembled abroad using fabricated U.S. components, it is not applicable here. Briefly, CBP does not consider a determination whether, under item 807, TSUS, operations are incidental to assembly, to be relevant in the context of construing the transit and transshipment provisions of the USCFTA.

HOLDING:

This office confirms that NY L84820 was correctly decided. The operations of vacuuming, pressing, placing on hangers and individually packaging garments of Chile, when performed in Canada, are beyond those permitted under the transit and transshipment provisions of the USCFTA as set forth in General Note 26(c)(iii)(A), HTSUS and section 10.463, CBP Regulations.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

Monika R. Brenner, Chief
Valuation and Special and

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