HQ W968363 - Eligibility and country of origin under NAFTA for blackout draperies - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2007 HQ Rulings > HQ W968211 - HQ W968385 > HQ W968363

Previous Ruling Next Ruling
HQ W968363

November 7, 2006

CLA-2 RR:CTF:TCM W968363 KSH

CATEGORY: MARKING

Robert Shapiro, Esq.
Thompson Coburn LLP
1909 K Street, N.W., Suite 600
Washington, D.C. 20006-1167

RE: Eligibility and country of origin under NAFTA for blackout draperies

Dear Mr. Shapiro:

This is in response to your letter of June 16, 2006, on behalf of your client, Rockland Industries, Inc., requesting a binding ruling concerning the eligibility of blackout drapery for preferential tariff treatment under the North American Free Trade Agreement ("NAFTA") and the country of origin marking under NAFTA. Your request was forwarded to this office for review and direct reply.

FACTS:

The merchandise at issue is blackout drapery made from a 70% polyester/ 30% cotton woven fabric wholly obtained or produced in the United States or of foreign (non-NAFTA) origin. In the United States, the fabric is coated in a two or three pass operation with a mixture of clay, titanium dioxide, carbon black, flame retardant, acrylic and textile flock. The drapery fabric is exported from the United States in 20 to 300 yard rolls to Mexico for use in the production of the finished draperies. In Mexico, the rolls of fabric are inspected to remove defective portions; the fabric is cut to shape, length, and width; the fabric is hemmed (either on all sides or only the top); buttonholes are sewn into the fabric; rod pockets and frequently loop tape may be formed and attached; the finished draperies undergo final inspection; and the draperies are folded, packaged and consolidated for shipment back to the United States.

ISSUES:

I. Whether the blackout draperies are eligible for preferential tariff treatment under the NAFTA.

II. What is the proper country of origin marking under the NAFTA for the blackout draperies?

LAW AND ANALYSIS:

I. Eligibility of the blackout draperies for NAFTA

General Note 12, Harmonized Tariff Schedule of the United States (HTSUS), incorporates Article 401 of the NAFTA into the HTSUS. General Note (GN) 12(a)(ii) provides, in pertinent part:

(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.

Accordingly, the blackout drapery will be eligible for the “Special” “MX” rate of duty provided it is a NAFTA “originating” good under GN 12(b), HTSUS, and qualifies to be marked as a product of Mexico under the marking rules. GN 12(b), HTSUS, provides, in pertinent part:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if—

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that—

(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein,
or

(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials[.]

If the fabric is wholly obtained or produced in the United States, is coated in the United States and is produced as draperies entirely in Mexico, the draperies meet the terms of GN 12(b)(i), HTSUS, as goods produced entirely in the territory of the NAFTA parties and they are eligible for preferential tariff treatment provided that all other NAFTA requirements are met.

Pursuant to the applicable provisions of GN 12(b)(ii), HTSUS, if the fabric is of foreign origin, the non-originating fabric must undergo a change in tariff classification as set forth in subdivision (t) of General Note 12, HTSUS.

The non-originating fabric is classified in heading 5407, HTSUS. The fabric subsequent to coating in the United States is classified in heading 5907, HTSUS. The tariff shift rule set forth in GN 12(t)/59.3 provides that a qualifying tariff shift occurs if there is “a change to headings 5903 through 5908 from any other chapter, except from headings 5111 through 5113, 5208 through 5212, 5310 through 5311, heading 5407 through 5408 or 5512 through 5516.” (Emphasis added). In accordance with GN 12(t)/59.3, no qualifying tariff shift will occur upon the conversion of the fabric of heading 5407, HTSUS, to coated fabric of heading 5907, HTSUS.

However, the coated fabric of heading 5907, HTSUS, will be used to produce draperies in Mexico. The finished draperies are classified in heading 6303, HTSUS. The tariff shift rule set forth in GN 12(t)/63.3, provides, in relevant part, that a qualifying tariff shift occurs from heading 5907, HTSUS, to heading 6303, HTSUS, provided that the cutting and sewing occurs in the territory of one or more NAFTA parties. Under these facts, the cutting and sewing or assembly occur in Mexico. Thus, the transformation from coated fabric to draperies in Mexico is a qualifying tariff shift and the draperies will be eligible for preferential tariff treatment provided that all other NAFTA requirements are met.

II. Country of origin marking of the imported draperies

Section 304 of the Tariff Act of 1930, as amended, 19 U.S.C. 1304, provides that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs and Border Protection Regulations (CBP) (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 334 of the Uruguay Round Agreements Act (19 U.S.C. 3592), provides the rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. Section 102.21, CBP Regulations (19 CFR 102.21) implements Section 334. Pursuant to 19 CFR 102.21, the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (c)(5).

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."

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 foreign material 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."

Section 102.21(e)(1) states, in pertinent part, 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."

6301-6306Except for goods of heading 6302 through 6304 provided for in paragraph (e)(2) of this section, the country of origin of a good classifiable under heading 6301 through 6306 is the country, territory or insular possession in which the fabric comprising the good was formed by a fabric-making process. Where the fabric is formed in the United States, the country of origin is conferred in the United States. Where the fabric is formed in a non-NAFTA country, the country of origin is conferred in the non-NAFTA country.

However, in accordance with GN 12(b), we have determined, supra, that the blackout draperies qualify as goods originating in the territory of a NAFTA party. Because the draperies qualify for NAFTA preferential treatment but they are of non-NAFTA origin for marking purposes, the NAFTA preference override applies. The NAFTA preference override (19 CFR 102.19) provides that:

(a) Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning of §181.1(q) of this chapter is not determined under §102.11(a) or (b) or §102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see §181.11 of this chapter) has been completed and signed for the good.

(b) If, under any other provision of this part, the country or origin of a good which is originating within the meaning of §181.1(q) of this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its return to the United States.

"Advanced in value" is defined in 19 CFR 102.1(a) as "an increase in the value of a good as a result of production with respect to that good, other than by means of those "minor processing" operations described in paragraphs (m)(5), (m)(6) and (m)(7) of this section." "Improved in Condition" is defined in 19 CFR 102.1(i) as "the enhancement of the physical condition of a good as a result of production with respect to that good, other than by means of those "minor processing" operations described in paragraphs (m)(5), (m)(6) and (m)(7) of this section." The minor processing operations described in paragraphs (m)(5), (m)(6) and (m)(7) of 19 CFR 102.1, include unloading, reloading or any other operation necessary to maintain the good in good condition; putting up in measured doses, packing, repacking, packaging, repackaging; testing, marking, sorting, or grading.

Pursuant to 19 CFR 102.19(a), where the fabric is formed in a non-NAFTA country and the draperies become an originating good after coating the non-originating fabric in the United States and being produced into finished draperies in Mexico, the country of origin for CBP duty and marking purposes is Mexico and the “MX” NAFTA rate will apply as Mexico is the last NAFTA country in which the draperies underwent production, provided that all other requirements are met.

Pursuant to 19 CFR 102.19(b), where the fabric is formed in the United States and the draperies are returned to the United States after having been advanced in value or improved in condition in Mexico by virtue of cutting and sewing the originating fabric into finished draperies, the country of origin for CBP duty purposes is Mexico and the “MX” NAFTA rate will apply. However, the country of origin for marking purposes is the United States.

Under either scenario, you have asserted that the draperies may be marked “Made in Mexico using U.S. components”. Where the draperies have been determined to be of Mexican origin for both marking and duty purposes, the proposed marking would not be acceptable inasmuch as the components are not of U.S. origin. As stated, supra, the fabric does not undergo the requisite tariff shift until the non-NAFTA fabric that has been coated in the United States becomes draperies in Mexico. At no time are the components of U.S. origin.

Further, where the draperies are determined to be of United States origin for marking purposes, the mark “Made in Mexico from U.S. components” may constitute deceptive marking for purposes of 15 U.S.C. 1124. The provision governing deceptive marking, 15 U.S.C. 1124, provides in pertinent part that imported merchandise shall not “bear a name or mark calculated to induce the public to believe that the article is manufactured in the United States, or that it is manufactured in any foreign country or locality other than the country or locality in which it is manufactured.” Merchandise so marked shall not be admitted to entry.

The relevant statute, 15 U.S.C. 1125 provides in pertinent part that imported merchandise which bears any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which is likely to cause confusion, or to cause mistake, or to deceive as to the actual country of origin shall not be admitted to entry.

Whether merchandise is violative of these provisions must be decided on a case-by-case basis and the totality of the circumstances presented in the specific case must be taken into account. Under the circumstances, the mark “Made in Mexico using U.S. components” may lead a consumer to believe the draperies are a product of Mexican origin rather than United States origin. As previously determined, the draperies are not of foreign origin and not subject to the marking requirements of 19 U.S.C. 1304 upon importation into the U.S.

HOLDING:

Based on the information provided, the blackout draperies are originating under the NAFTA and the special “MX” duty will apply. The country of origin of the blackout draperies if coated in the United States from non-originating fabric for marking purposes is Mexico and they may not be marked as “Made in Mexico from U.S. components”. The country of origin of the blackout draperies for marking purposes, if wholly originating, is the United States and they need not be marked.

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

Sincerely,

Gail A. Hamill, Chief
Tariff Classification and Marking Branch

Previous Ruling Next Ruling