CLA-2 CO:R:C:T 088395 HP
Mr. John M. Peterson
Neville, Peterson & Williams
Counsellors at Law
39 Broadway
New York, NY 10006
RE: Country of origin of diapers. China; Guatemala; cut;
sew; substantial; transformation
Dear Mr. Peterson:
This is in reply to your letter of December 17, 1990,
concerning the country of origin determination of diapers,
produced in either The Peoples' Republic of China or
Guatemala, for textile quota/visa purposes, duty assessment
under the Harmonized Tariff Schedule of the United States
Annotated (HTSUSA), and marking. Please reference your client
Pro Diaper, Inc., case No. 1606-01.
FACTS:
The merchandise at issue is described by you as follows:
The merchandise in question will be
imported at the port of Portland, Oregon,
and, from time to time, at such other
ports of entry as may be appropriate.
* * *
Pro Diaper will purchase 100% cotton woven
fabric piece goods made in the People's
Republic of China (PRC) and ship them to
Guatemala, where they will be manufactured
into reusable cotton diapers for infants.
The cotton fabric will be plain, and will
feature no lines of demarcation or other
distinguishing features dedicating the
fabric to a particular use. Diapers will
be made in three basic styles:
Style 1, a 4 ply X 10 ply
diaper;
Style 2, a 4 ply X 6 ply diaper;
and
Style 3, a 4 ply X 8 ply diaper.
Style 1 and 2 diapers will measure
approximately 20.5 inches in length and
14.5 inches in width, while Style 3
diapers will measure approximately 16
inches in length by 12 inches in width.
In Guatemala, the fabric is cut to
width and to length. The top of the fabric
is folded and refolded one-third of the
distance to the bottom, and the bottom is
folded and refolded one-third of the
distance to the top. This creates a 4 ply
fabric in the end panels. Additional
layers of woven cotton fabric, cut to size
and shape, are assembled by sewing into
the center panels, to provide the desired
levels of thickness and absorbency. The
fabric is then sewn lengthwise with double
rows of stitching, one-third and
two-thirds of the distance from the top,
an operation which fixes the end panels in
place and joins the additional center
panel fabric to the diaper. The diaper is
then hemmed on its edges, (reinforced with
double end stitching), inspected, and
folded. The diapers are then packaged into
bales of 25 dozen diapers and shipped to
the United States, where they are sold to
diaper service companies, which in turn
provide them (with necessary laundry
services) to customers with infants and
young children.
* * *
The cost of the PRC-origin cotton
fabric used in manufacturing the diapers
is approximately 63.5 cents per square
yard (delivered to Guatemala). The cost of
Guatemalan cutting, sewing and finishing
operations amounts to approximately 15
cents per square yard. * * * [T]he
finished diapers sell for a price equal to
approximately $1.32 per square yard, that
is, about 209% as great as the cost of the
fabric and 168% as great as the total cost
of production.
* * *
The fiber staple length, yarn
characteristics, and fabric weave are
controlled within narrow tolerances.
Thread used in sewing the diapers must be
either a 3 ply spun yarn containing a
minimum of 50% polyester, or textured
false twist or airjet continuous yarn, in
either event of a specified denier.
Colored threads may only be used if they
do not bleed into the diapers or lose
color after 100 launderings, and threads
must not exhibit inconsistent shrinkage.
* * *
Center panel stitching is specified
as two rows of either a 401 chain stitch
or 301 lock stitch which does not pucker,
lose stitches or skip stitches. Stitch
density is controlled at between 10 and 12
stitches per inch, and stitching
tolerances are specified for the sides of
the diaper, where the weaving selvages are
exposed. End panel stitching must be by
overlock type stitching which trims and
wraps around the raw edges. Colored thread
is used in end-panel stitching, with a
different color designated for each [4 x 6
= white, 4 x 8 = green, 4 x 10 = blue].
Overlock thread tails are bar tacked.
After all of the above operations are
performed, the finished diaper is ready
for packaging.
ISSUE:
Whether the cutting and sewing of Chinese fabric in
Guatemala, plus the insertion of additional center panels,
constitute a substantial manufacturing operation such that the
merchandise is deemed to have been substantially transformed
pursuant to 19 C.F.R. 12.130?
LAW AND ANALYSIS:
In HRL 087949 of January 8, 1991, we stated:
Pursuant to section 12.130, Customs
Regulations (19 CFR 12.130), a textile or
textile product which consists of
materials produced or derived from, or
processed in, more than one foreign
territory or country shall be a product of
that foreign territory or country where it
last underwent a substantial
transformation. A textile or textile
product will be considered to have
undergone a substantial transformation if
it has been transformed by means of
substantial manufacturing or processing
operations into a new and different
article of commerce.
Section 12.130(d) establishes
criteria for determining whether an
article has been substantially
transformed. However, the criteria set
forth in 19 CFR 12.130(d) are not
exhaustive; one or any combination of
these criteria may be determinative and
additional factors may be considered.
According to 19 CFR 12.130(d)(2), the
following factors are to be considered in
determining whether merchandise has been
subjected to substantial manufacturing or
processing operations: the physical
change in the material or article, the
time involved in the manufacturing or
processing operations, the complexity of
the operations, the level or degree of
skill and/or technology required, and the
value added to the article.
Nevertheless, section 12.130(e)(2)
provides that an article will usually not
be considered to be a product of a
particular country merely by having
undergone:
(ii) Cutting to length or width and
hemming or overlocking fabrics which
are readily identifiable as being
intended for a particular commercial
use....
In this case, when the cotton fabric is
exported from China it is not identifiable
as being intended for use as diapers. As
we stated in Headquarters Ruling Letter
(HRL) 086779 dated April 25, 1990:
Upon exportation...the merchandise is
mere cotton fabric, suitable for
multiple uses. There is no evidence,
i.e., lines of demarcation,
that...the fabric is meant to be
diapers.
Moreover, in Thailand, the fabric is
prefolded and stitch sewn into the 14
width configuration, cut to length, and
then sent to a second sewing operation
where the raw cut edges are closed. Based
on the foregoing, Customs is of the view
that the above constitute substantial
manufacturing or processing operations
under 19 CFR 12.130(e)(1). Consequently,
Customs considers the fabric has been
substantially transformed pursuant to 19
CFR 12.130.
In this case, the processing operations taking place in
Guatemala are virtually identical to those described in HRL
087949. In addition, the insertion of supplementary panels in
the instant diapers comprises an even more substantial
processing operation. It is our opinion, therefore, that for
quota/visa, tariff, and marking purposes, the fabric has been
substantially transformed in Guatemala.
HOLDING:
As a result of the foregoing, the instant merchandise is
considered country of origin Guatemala.
The holding in this ruling applies only to the specific
factual situation and merchandise identified in the ruling
request. This position is clearly set forth in section
177.9(b)(1), CUSTOMS REGULATIONS (19 C.F.R. 177.9(b)(1)).
This section states that a ruling letter is issued on the
assumption that all of the information furnished in connection
with the ruling request and incorporated in the ruling letter,
either directly, by reference, or by implication, is accurate
and complete in every material respect. Should it
subsequently be determined that the information furnished is
not complete and does not comply with 19 C.F.R. 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. In
such a case, it is recommended that a new ruling request be
submitted in accordance with section 177.2, CUSTOMS
REGULATIONS (19 C.F.R. 177.2).
Sincerely,
John Durant, Director
Commercial Rulings Division