CLA-2 CO:R:C:S 555648 KCC/RD
Marking
Mr. Ken W. Read
Baxter Healthcare Corporation
Convertors Operation
One Butterfield Trail
El Paso, Texas 79906
RE: Surgical Towels created from U.S.- and foreign-origin fabric
by cutting, folding and hemming.Assembly; incidental
operations; country of origin; 19 CFR 12.130; 088078;
733601; L'Eggs; marking; quota and visa; 6307.90.8610;
9813.00.05
Dear Mr. Read:
This is in response to your letters dated April 24, October
11, and 24, 1990, requesting a ruling concerning the
applicability of subheading 9802.00.80, Harmonized Tariff
Schedule of the United States (HTSUS), and country of origin
marking requirements to surgical towels imported from Mexico.
Samples of the surgical towels were submitted for examination.
We regret the delay in responding.
FACTS:
Baxter intends to manufacture high quality surgical towels
using U.S.- and foreign-origin fabric in rolls. Baxter will
import rolls of foreign-origin fabric into the U.S. under
subheading 9813.00.05, HTSUS, or under a transportation and
exportation bond. See, section 18.10, Customs Regulations (19
CFR 18.10). In the U.S., some of the U.S. and foreign fabric
will be quality evaluated and cut to length or to length and
width, while other U.S. and foreign rolls of fabric will be
exported to Mexico for cutting operations. The width of the
rolls of fabric will be approximately 18 inches, 36 inches, or
wider. The 18 inch wide rolls will be cut to approximately 30
inch lengths. The 36 inch wide rolls will be cut to
approximately 18 inches in width by 30 inches in length. The
wider width materials will also be cut to approximately 18 inches
in width by 30 inches in length. The uncut U.S.- and foreign-
origin fabric in rolls, the cut fabric pieces and U.S. thread
will be shipped to Mexico.
In Mexico, the uncut U.S. and foreign fabric will be cut to
the proper dimensions as described above. The cut fabric will
then be subjected to a hemming operation using U.S.-origin
thread. The fabric pieces which were merely cut to length (18
inch rolls) require a double fold and finish hem on only the cut
ends. The fabric pieces which are cut to length and width (36
inch rolls) require a double fold and finish hem on both ends and
one side. The wider width fabric pieces which are cut to length
and width also require a double fold and finish hem on both ends
and sides. The surgical towels are then washed, dried to remove
lint, folded and packaged.
The surgical towels will be packaged into surgical procedure
packs. The packs not only include a number of surgical towels
but other articles necessary to perform a surgical procedure,
such as gowns, drapes, table covers, surgical blades, needles,
etc. The surgical procedure packs (approximately 2-10) are then
packaged into cardboard cases or 1,000 to 1,500 individual
surgical towels will be bulk packaged into cardboard cases.
After shipment to the U.S., the surgical procedure packs
contained in the cardboard cases are sterilized and placed in the
distribution system for sale by the case to hospitals, surgical
clinics, etc. The bulk packaged surgical towels are repacked
into the above described surgical procedure packs which are then
packaged into marked cases, sterilized and placed in the
distribution system.
ISSUE:
I. Whether the surgical towels will be entitled to the partial
duty exemption available under subheading 9802.00.80, HTSUS, when
returned to the U.S.
II. What are the country of origin and the proper marking
requirements applicable to the imported surgical towels?
III. What are the applicable tariff classification and the quota
and visa categories for the surgical towels?
LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty
exemption for:
[a]rticles assembled abroad in whole or in part of
fabricated components, the product of the United States,
which (a) were exported in condition ready for assembly
without further fabrication, (b) have not lost their
physical identity in such articles by change in form, shape,
or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and
except by operations incidental to the assembly process,
such as cleaning, lubricating, and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance. An
article entered under this tariff provision is subject to duty
upon the full cost or value of the imported assembled article,
less the cost or value of the U.S. components assembled therein,
upon compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:
[t]he components must be in condition ready for assembly
without further fabrication at the time of their exportation
from the United States to qualify for the exemption.
Components will not lose their entitlement to the exemption
by being subjected to operations incidental to the assembly
either before, during, or after their assembly with other
components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing,
laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the
assembly operations. However, any significant process, operation
or treatment whose primary purpose is the fabrication,
completion, physical or chemical improvement of a component
precludes the application of the exemption under subheading
9802.00.80, HTSUS, to that component. See, 19 CFR 10.16(c).
According to section 10.14(b), Customs Regulations (19 CFR
10.14(b)), foreign-made articles or materials may become products
of the U.S for purposes of subheading 9802.00.80, HTSUS, if they
undergo a process of manufacture in the U.S. which results in
their substantial transformation. This provision further states
that a substantial transformation occurs when, as a result of
manufacturing processes, a new and different article emerges,
having a distinctive name, character, or use which is different
from that originally possessed by the article or material.
Section 12.130, Customs Regulations (19 CFR 12.130), sets
forth the principles for making country of origin determinations
for textile and textile products subject to section 204 of the
Agricultural Act of 1956, as amended (7 U.S.C. 1854) ("section
204"). Pursuant to 19 CFR 12.130, the standard of substantial
transformation governs this determination. The factors to be
applied in determining whether or not a manufacturing operation
is substantial are set forth in 19 CFR 12.130(d) and (e).
Section 12.130 (e)(iv) states that a textile article will
usually be a product of a particular country if the cutting of
the fabric into parts and the assembly of those parts into the
completed article has occurred in that country. However, 19 CFR
12.130(e)(2)(ii) states that a material will usually not be
considered to be a product of a particular foreign country by
virtue of merely having undergone cutting to length or width and
hemming or overlocking fabrics which are readily identifiable as
being intended for a particular commercial use.
We have previously held that the country of origin of
surgical towels is the country where the fabric for the surgical
towels is manufactured. In Headquarters Ruling Letter (HRL)
088078 dated November 14, 1990, Customs stated that "[a]though
most of the manufacturing processes at issue occur in Mexico, the
weaving of the raw material in China is deemed to be the factor
which contributes most to the creation of the final product. The
fabric constructed in China is manufactured in such a way as to
be readily identifiable in the industry as surgical toweling
fabric; the special weave and the blue dye of the raw material
further marks its intended use in the manufacture of these
towels." See also, HRL 733601 dated July 26, 1990, which held
that toweling cut, hemmed, washed, shrunk, and folded in Mexico
or the Philippines does not constitute a substantial
transformation, so the country of origin of the surgical towels
is China--the country where the fabric was manufactured.
Therefore, in regard to this case, the foreign-origin fabric
which is cut to length or to length and width in the U.S. remains
a product of the country where the fabric was manufactured, and
is not entitled to the partial duty exemption available under
subheading 9802.00.80, HTSUS. Moreover, we wish to point out
that material entered under bond pursuant to subheading
9813.00.05, HTSUS, for manufacture or production, and then
exported for assembly operations abroad, is ineligible for
subheading 9802.00.80, HTSUS, treatment when returned to the U.S.
See, U.S. Note 1(d), Subchapter II, Chapter 98, HTSUS.
Additionally, only the U.S.-origin fabric cut to length or
to length and width in the U.S. and hemmed in Mexico and the 18
inch wide U.S.-origin fabric cut only to length in Mexico and
hemmed there will be eligible for the partial duty exemption
available under this tariff provision. The U.S.-origin fabric
which is cut to length and width in Mexico will not qualify for
subheading 9802.00.80, HTSUS, consideration because the fabric
fails to meet the requirements of clause (a) of this tariff
provision. Cutting fabric to width and length abroad is not an
acceptable assembly operation or operation incidental to
assembly, but rather is a further fabrication of the fabric.
These cutting operations are similar to cutting fabric to a
specific pattern piece in order to enter it into a proper
assembly (i.e., sewing) operation. See, 19 CFR 10.16(c)(2).
The operations that entail sewing fabric onto itself using
any type of stitch, including the tucking, shirring, pleating,
and hemming operations will be considered acceptable assembly
operations. See, L'Eggs Products, Inc. v. United States, Slip
Op. 89-5, 13 CIT , 704 F.Supp. 1127 (CIT 1989). Cutting the 18
inch wide fabric to length is considered an acceptable operation
incidental to the assembly process pursuant to 19 CFR
10.16(b)(6). The washing operation performed in Mexico is an
acceptable incidental operation pursuant to 19 CFR 10.16(c)(1).
Folding the surgical towels after assembly is also considered an
operation incidental to the assembly process pursuant to 19 CFR
10.16(b)(7), which states that final folding operations are
incidental to the assembly process. Therefore, the U.S.-origin
fabric pieces cut in the U.S. and the 18 inch wide U.S.-origin
fabric cut to length in Mexico, which are subjected to hemming,
washing and folding operations in Mexico, will qualify for a duty
allowance under subheading 9802.00.80, HTSUS.
II. Country of Origin and Marking Requirements
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or 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 (1940). Part 134, Customs Regulations (19
CFR Part 134), implements the country of origin marking
requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b),
Customs Regulations (19 CFR 134.1(b)), provides that "country of
origin" means the country of manufacture, production, or growth
of any article of foreign origin entering the U.S. Further work
or material added to an article in another country must effect a
substantial transformation in order to render such other country
the "country of origin" within the meaning of the marking laws
and regulations.
Because the article in question is a textile product, it is
governed by 19 CFR 12.130 which provides that generally the
country of origin of a textile product is that foreign territory,
country or insular possession where the article last underwent a
substantial transformation. However, there is an exception to
the general rule set forth in section 12.130(c), which provides
that U.S. textile articles that are advanced in value or improved
in condition, or assembled in a foreign country are considered to
be products of that foreign country.
Based on our previous analysis, the country of origin of the
towels made from foreign-origin fabric will be the country where
the foreign fabric was manufactured. The cutting and hemming of
the U.S.-origin fabric in Mexico advances the value and improves
the condition of fabric and thus renders them products of Mexico.
Accordingly, the surgical towels must be marked with the
appropriate country name, legibly, conspicuously and permanently.
Those towels which are eligible for importation under subheading
9802.00.80, HTSUS, may be marked "Assembled in Mexico" or a
similar phrase. See, section 10.22, Customs Regulations (19 CFR
10.22).
Pursuant to 19 U.S.C. 1304(a)(3)(D) and section 134.32(d),
Customs Regulations (19 CFR 134.32(d)), articles for which the
marking of the containers will reasonably indicate the country of
origin of the articles are excepted from individual marking.
This exception applies in cases where the articles are imported
in a properly marked container and Customs officials at the port
of entry are satisfied that the ultimate purchaser will receive
it in its original unopened marked container.
Customs has previously ruled that in cases, such as with
surgical towels, where the imported item must be sterile and an
ultimate purchaser would be unable to use the product unless it
was received in its sterile sealed container, the imported
article is entitled to the exception set forth at 19 U.S.C.
1304(a)(3)(D) and 19 CFR 134.32(d). See, HRL 733678 dated August
30, 1990. In this case, the surgical towels will be packaged
into sterilized surgical procedure packs. Because the ultimate
purchasers, hospitals and surgical clinics, will receive the
imported towels in the sterilized surgical procedure packs, the
surgical towels can be excepted from marking under the provisions
set forth at 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d),
provided the towels are imported in surgical procedure packs that
are properly marked to indicate the country of origin of the
surgical towels.
Since the bulk packaged surgical towels will be repackaged
into the sterilized surgical procedure packs after importation,
they are subject to the requirements of section 134.34, Customs
Regulations (19 CFR 134.34), which provides that an exception
from marking may be authorized in the discretion of the district
director under 19 CFR 134.32(d) for imported articles which are
to be repacked after release from Customs custody under the
following conditions: (1) The containers in which the articles
are repacked will indicate the origin of the articles to an
ultimate purchaser in the U.S.; (2) The importer arranges for
supervision of the marking of the containers. Therefore,
approval for marking the surgical procedure packs instead of the
towels must be obtained from the district director at the port of
entry.
Because no origin or other information has been provided
regarding the other articles in the surgical packs, this ruling
is limited to the country of origin marking requirements of the
surgical towels.
III. Tariff Classification and the Applicable Quota and Visa
Categories
The individual surgical towels at issue are classified under
subheading 6307.90.8610, HTSUS, which provides for other made up
articles, other, other, surgical towels. See, HRL 087470 dated
February 1, 1991. The rate of duty is 7% ad valorem, and falls
within textile category 369.
Please note that the foreign fabric imported into the U.S.
under subheading 9813.00.05, HTSUS, (a temporary importation bond
(TIB)) will be charged against the appropriate country's quota
restraint levels or subject to any textile visa requirements.
Additionally, the U.S. fabric which has been advanced in
value and improved in condition by the Mexican operations is
considered to be of Mexican origin and will be charged against
Mexican quota and visa when entered into the U.S. The foreign
fabric which remains the country of origin where it was made will
be charged against that country's quota and visa when it enters
the U.S. from Mexico.
Due to the changeable nature of the statistical annotation
(the ninth and tenth digits of the classification) and the
restraint (quota/visa) categories applicable to textile
merchandise, you should contact your local Customs office prior
to importation of the merchandise to determine the current status
of any import restraints or requirements.
The designated textile and apparel category may be
subdivided into parts. If so, visa and quota requirements
applicable to the subjected merchandise may be affected. Since
part categories are the result of international bilateral
agreements which are subject to frequent renegotiations and
changes, to obtain the most current information available, we
suggest that you check, close to the time of shipment, the Status
Report on Current Import Quotas (Restraint Levels), an internal
issuance of the U.S. Customs Service, which is available for
inspection at your local Customs office.
HOLDING:
From the information and samples submitted, it is our
opinion that the foreign operations performed on the U.S.-origin
fabric cut to length or to length and width in the U.S. and the
18 inch wide U.S.-origin fabric cut to length in Mexico are
considered proper assembly operations or operations incidental to
the assembly process. Therefore, these surgical towels may be
entered under subheading 9802.00.80, HTSUS, with allowances in
duty for the cost or value of the U.S. fabric and thread
incorporated therein, upon compliance with the documentary
requirements of 19 CFR 10.24.
The surgical towels are classified under subheading
6307.90.8610, HTSUS, dutiable at the rate of 7% ad valorem, and
fall under textile category 369.
The country of origin of the foreign fabric is the country
where the fabric was manufactured. Pursuant to 19 CFR 12.130(c),
the country of origin of the U.S. manufactured fabric is Mexico,
as the U.S. fabric was advanced in value and improved in
condition by the Mexican operations.
Pursuant to 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d),
the surgical towels contained in the surgical procedure packs may
be properly marked to indicate the country of origin of the
surgical towels on the surgical procedure packs containers. The
surgical towels which will be repackaged after importation into
the U.S. are subjected to the repackaging requirements of 19 CFR
134.34. The towels which are eligible for importation under
subheading 9802.00.80, HTSUS, may be marked "Assembled in Mexico"
or other similar wording pursuant to 19 CFR 10.22.
Surgical towel fabric entering the U.S. under subheading
9813.00.05, HTSUS, will be charged against the appropriate
country's quota restraint levels or subject to any textile visa
requirements. The U.S. fabric which is considered to be of
Mexican origin will be charged against the Mexican quota and
visa. The foreign fabric which country of origin is the country
where the fabric was manufactured will be charged against the
appropriate country's quota and visa when entering the U.S. from
Mexico.
Sincerely,
John Durant, Director
Commercial Rulings Division