CLA-2 RR:TC:SM 559856 DEC
Mr. Ron Gerdes
Sandler, Travis & Rosenberg
1341 G Street, N.W.
Washington, D.C. 20005-3105
RE: Eligibility of pantyhose for duty-free treatment under
subheading 9802.00.90; Textile or apparel good; Modification
of HRL 559961 and HRL 559363; HRL 558708; HRL 557875; HRL
553105; L'Eggs Products, Inc. v. United States, 13 CIT 40,
704 F.Supp. 1127 (CIT 1989); subheading 9802.00.80, HTSUS;
HRL 040242; HRL 041987; HRL 555446; Modification of HRL
732257; 19 CFR 1016(b)(6); 19 CFR 10.16(c)(4); 19 CFR 10.14
Dear Mr. Gerdes:
This is in response to a request for a binding ruling dated
April 17, 1996, on behalf of Sara Lee Hosiery, Incorporated
(SLH), concerning the eligibility of pantyhose subjected to
processing in Mexico for duty-free treatment under subheading
9802.00.90, Harmonized Tariff Schedule of the United States
(HTSUS). In addition, you supplemented your original ruling
request with additional submissions dated September 23, 1996, and
January 7, 1997, which provided supplementary information Customs
requested as a result of our November 7, 1996, meeting at our
office at which you and SLH representatives were present. A
sample of the pantyhose, their component parts, and two
videotapes describing the processing were submitted for our
examination.
Pursuant to section 625, Tariff Act of 1930 (19 U.S.C.
1625), as amended by section 623 of Title VI (Customs
Modernization) of the North American Free Trade Agreement
Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993)
(hereinafter section 625), notice of the proposed modification of
Headquarters Ruling Letter (HRL) 559961, HRL 559363, and HRL
732257 was published on September 17, 1997, in the Customs
Bulletin, Volume 31, Number 37/38.
FACTS:
You state that SLH exports the following U.S.-origin
components to Mexico: knitted tubes with a finished knitted
waistband at one end and an open toe at the other
(the tubes are made of knitted man-made fiber yarns (spandex,
nylon, polypropylene)), garment labels, gusset material on rolls,
and sewing yarn. The sewing operation in Mexico is performed
using a linked pair of automatic sewing machines. The machine
operator begins the process by loading two tubes onto the
automatic arms of the Gusset Line Closer portion of the machine.
The machine will slit the tubes lengthwise from the top to the
crotch area and then separate them in preparation for gusset
insertion. The gusset material is a small amount of cloth
material that is inserted into the pantyhose for improved fit and
reinforcement. The gusset material is on a roll and the machine
will cut it to length at an angle. A separator spreads the
gusset material open while a set of clamps holds the two slit
tubes together. The gusset material is then inserted between the
two tubes and after the air is blown under the gusset material,
the machine will sew one side of the gusset to one tube. Another
sewing unit sews the tubes together at the slit, sews the second
side of the gusset to the second tube, and sews a label
approximately two inches from the end seam.
The sewn pantyhose will be transferred to a tube closing
machine known as a Toe Closer machine. This machine will turn
the pantyhose in-side out by means of a vacuum device, and then
will position the tubes so that the machine may sew the open ends
of the tubes closed. The pair of pantyhose is then deposited
into a hosiery bag. Following inspection for sewing and knitting
defects, the finished pantyhose are packed for bulk shipment to
the U.S. You state that the entire assembly process takes
approximately 90 seconds to complete.
ISSUE:
Are the imported pantyhose described above eligible for
duty-free treatment under subheading 9802.00.90, HTSUS, after
being subjected to the processing described above?
LAW AND ANALYSIS:
One of the special provisions contained in Annex 300-B of
the North American Free Trade Agreement (NAFTA) is Appendix 2.4,
which provides for the elimination of customs duties on textile
and apparel goods that are assembled in Mexico from fabrics
wholly formed and cut in the U.S. To implement this provision, a
new tariff item was created in subheading 9802.00.90, HTSUS.
Subheading 9802.00.90, HTSUS, provides as follows:
Textile and apparel goods, assembled in
Mexico in which all fabric components were
wholly formed and cut in the United
States, provided that such fabric components,
in whole or in part (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; provided that goods classifiable in
chapters 61, 62
or 63 may have been subject to bleaching,
garment dyeing, stone-washing, acid-washing
or permapressing after assembly as provided
for herein.
"Textile and Apparel Good" under Subheading 9802.00.90, HTSUS
The initial question we must address is whether the
pantyhose material knitted of man-made fiber yarns including
spandex, nylon and polypropylene is considered a "textile and
apparel good" under subheading 9802.00.90, HTSUS. Previous
rulings on the issue of whether an article is a "textile and
apparel good" for purposes of subheading 9802.00.90, HTSUS, have
applied differing standards. HRL 559961, dated March 3, 1997,
and HRL 559363, dated February 13, 1997, which addressed
eligibility for certain articles for duty-free treatment under
9802.00.90, HTSUS, referenced section 102.21(b)(5), Customs
Regulations (19 CFR 102.21(b)(5)) as the operative definition of
a "textile and apparel good" for purposes of eligibility under
subheading 9802.00.90, HTSUS. For purposes of implementing
subheading 9802.00.90, HTSUS, however, Customs should have
properly deferred to the terms provided for in the NAFTA. See
HRL 558798, dated June 14, 1995, and HRL 557875, dated May 4,
1995.
Specifically, "textile and apparel goods" eligible for
duty-free treatment under subheading 9802.00.90, HTSUS, are
listed in Appendix 1.1 of Annex 300-B of the NAFTA. Chapter 61
of Appendix 1.1 includes various types of pantyhose the exact
classification of which varies based on synthetic fiber yarn
content. The subject pantyhose will qualify as a "textile and
apparel good" since it is classified under heading 6115, HTSUS,
and, therefore, eligible for duty-free treatment under subheading
9802.00.90, HTSUS. Customs hereby modifies HRL 559961 and HRL
559363 to incorporate the NAFTA definition of "textile and
apparel goods" for purposes of subheading 9802.00.90, HTSUS,
eligibility.
Acceptability of the Slitting and Sewing Operation under
Subheadings 9802.00.80 and 9802.00.90, HTSUS
Customs has examined the slitting and sewing operation of
pantyhose in various ruling letters some of which were issued to
companies that have been acquired by SLH. For instance, Customs
issued HRL 553105, dated December 31, 1984, to counsel on behalf
of L'Eggs Products, Incorporated. SLH is an operating division
of
the Sara Lee Corporation which was formerly known as Consolidated
Foods Corporation. On December 26, 1981, L'Eggs Products,
Incorporated, was merged into Consolidated Foods Corporation and
has since been a part of SLH.
In HRL 553105, Customs ruled that no duty allowance should
be granted for the pantyhose tubes which were both slit and sewn
together simultaneously. This position was challenged in the
Court of International Trade, and the court, agreeing with the
plaintiff, granted the duty allowance for U.S. articles assembled
abroad. L'Eggs Products, Inc. v. United States, 13 CIT 40, 704
F. Supp. 1127 (CIT 1989).
In L'Eggs, supra, U.S.-origin components of pantyhose which
consisted of two tubes, sewing yarn or thread, the gusset, and
the garment labels were exported to be assembled. Customs had
allowed the cost of all of the components except the tubes to be
deducted from the appraised value pursuant to item 807.00, Tariff
Schedules of the United States (TSUS) (now subheading 9802.00.80,
HTSUS). A review of the court documents in the L'Eggs case
reveals that the processing of the nylon tubes abroad included
the use of an "overedge" sewing machine which slit both tubes and
sewed them together. See Attachment to Defendant's Memorandum in
Opposition to Plaintiff's Motion for Summary Judgment and in
Support of Defendant's Cross-Motion for Summary Judgment which
describes the step-by-step processes performed on the exported
components. Thus, the court was cognizant of the cutting and
slitting operations performed on the pantyhose components. In
finding for the plaintiff, the court concluded that the nylon
tubes were fully fabricated components exported in condition
ready for assembly, and the slitting and sewing operation was not
cited as a further fabrication operation which would render the
tubes ineligible for partial duty relief.
Prior to the L'Eggs decision, Customs issued HRL 040242,
dated June 25, 1975, to counsel for Hanes Corporation which also
is now owned by SLH. In HRL 040242, Customs determined that
pantyhose tubes that were simultaneously slit through the U-shaped crotch area and seamed with overedge stitching was more
than a mere trimming of a finished component. In addition, the
closing of the open toe ends of the tubes which involved the
sewing of one part of the pantyhose tube onto itself was
determined not to be an assembly since it was not the fitting
together of two or more components. Subsequently, Customs issued
HRL 041987, dated September 19, 1975, which was issued to the
same counsel on behalf of the Hanes Corporation. In this ruling,
however, the Hanes Corporation proposed to perform the slitting
operation at issue in HRL 040242 in the U.S. prior to the
exportation of the tubes. Customs reversed its position in HRL
040242 and determined that the toe-closing operation did not
preclude the partial duty allowance afforded U.S. articles that
are sent abroad for assembly.
Subsequently, in HRL 555446, dated November 6, 1989, Customs
issued another ruling on the eligibility of pantyhose for the
partial duty exemption under subheading 9802.00.80, HTSUS. In
HRL 555446, the toe ends of two tubes were sewn closed, the top
portions of the tubes were slit lengthwise from the waistband to
the crotch area, the tubes were then sewn together where the slit
occurred, except where the crotch patch was inserted, and the
crotch patch was then to be sewn into the crotch area, forming
the completed article. Citing L'Eggs and United States v. Oxford
Industries, Inc., Customs determined that the tube closing
operation constituted an assembly operation, and that the
lengthwise slitting operation was a minor operation and was
deemed to constitute an incidental operation. In addition,
examination of the samples submitted in that case showed that the
knitted tube and crotch patch components did not lose their
physical identity in the assembly operation, and that they were
not otherwise advanced in value or improved in condition except
by assembly or operations incidental thereto.
In HRL 732257, dated May 16, 1990, Customs revisited the
eligibility of pantyhose under subheading 9802.00.80, HTSUS. In
HRL 732257, the manufacturing process consisted of knitting
"tubes" of lycra and/or nylon in the U.S. and a separate patch
for the crotch area. These separate pieces were then shipped to
Mexico where the tubes were cut from the top opening to the
crotch area, the separate pieces were sewn together and, in most
cases, the assembled pantyhose were dyed. Thereafter, the
assembled pantyhose were folded around a piece of cardboard,
placed in a cellophane bag and shipped back to the U.S. Customs
held that the components failed to meet the requirements of
clause (a) of the tariff provision because they were not exported
in a condition ready for assembly without further fabrication.
Cutting the pantyhose tube was not deemed to be an acceptable
assembly operation or operation incidental to assembly, but was
determined to be a further fabrication of the pantyhose. The
cutting operation was deemed not simply cutting a component to
length, but was similar to cutting fabric for a specific pattern
in order to sew the newly cut components together. See 19 CFR
10.16(c)(2). Furthermore, the dyeing operation disqualified the
pantyhose from subheading 9802.00.80, HTSUS, treatment pursuant
to 19 CFR 10.16(c)(4), which states that chemical treatment of
components or assembled articles, such as dyeing, to impart new
characteristics is not a proper operation incidental to the
assembly process. Therefore, the pantyhose did not qualify for
the duty exemption available under subheading 9802.00.80, HTSUS.
In our opinion, the L'Eggs (1989) decision which was issued
14 years after HRL 040242 has effectively revoked the position
articulated in HRL 040242 which stated, in part, that the
simultaneous slitting and sewing operation precluded the
eligibility of the pantyhose tubes from the partial duty
allowance. HRL 732257 which was issued in 1990 is inconsistent
with the Court of International Trade's decision in L'Eggs and
HRL 555446. HRL 732257 is hereby modified to reflect the
position which implicitly flows from L'Eggs that the slitting and
sewing of pantyhose tubes alone is not a further fabrication
rendering the pantyhose tubes ineligible for partial duty relief
pursuant to subheading 9802.00.80, HTSUS. We note that the
result in HRL 732257 does not change because the assembled
pantyhose were also dyed. Customs determined that the dyeing is
not a proper operation incidental to the assembly process
pursuant to 19 CFR 10.16(c)(4). Therefore, the pantyhose in HRL
732257 were properly precluded from the duty allowance available
under subheading 9802.00.80, HTSUS.
Turning to the issue of eligibility of the pantyhose tubes
under subheading 9802.00.90, HTSUS, we are mindful of the fact
that because subheading 9802.00.90, HTSUS, was intended as a
successor provision to subheading 9802.00.80, HTSUS, with respect
to certain textile and apparel goods assembled in Mexico, the
regulations under subheading 9802.00.80, HTSUS, may be
instructive in determining whether a good is eligible for the
beneficial duty treatment accorded by subheading 9802.00.90,
HTSUS. As distinguished from subheading 9802.00.80, HTSUS,
however, it is noted that the new statute requires that all
fabric components be formed and cut in the U.S., and that only
such components, in whole or in part, must satisfy the three
conditions set forth in (a) - (c) of the statute. HRL 558708,
dated June 14, 1995.
Accordingly, it is our position that consistent with L'Eggs
and HRL 555446, the slitting and sewing operations do not
constitute a further fabrication of the nylon tubes. Rather,
this operation is an operation incidental to the assembly of the
pantyhose. See 19 CFR 10.14(a). 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, although they
may precede, accompany or follow the actual assembly operation.
19 CFR 10.16(a).
Acceptability of the Cutting of the Gusset Material under
Subheadings 9802.00.80 and 9802.00.90, HTSUS
The next issue in this case is whether the cutting of the
gusset material in Mexico at an angle so that the cut size
conforms to the requirements of the pantyhose design precludes
the eligibility of the pantyhose for subheading 9802.00.90,
HTSUS, treatment on the ground of being "not incidental to the
assembly process." Based on our review of the history of
subheading 9802.00.90, HTSUS, and the stated objective that
subheading 9802.00.90, HTSUS, was intended as a successor
provision to subheading 9802.00.80, HTSUS, it is our position
that 19 CFR 10.16 is instructive with regard to the types of
operations that Customs will find to be incidental to the
assembly. Section 10.16 states, in pertinent part, that:
(b) Operations incidental to the assembly
process. Operations incidental to the
assembly process whether
performed before, during, or after assembly,
do not constitute further fabrication, and
shall not preclude the application of the
exemption. The following are examples of
operations which are incidental to the
assembly process:
. . .
(6) Cutting to length of wire,
thread, tape, foil, and similar
products exported in continuous
length; separation by cutting of
finished components, such as
prestamped integrated circuit lead
frames exported in multiple unit
strips . . ..
Notwithstanding the fact that the cotton gusset material is cut
at an angle, the cutting-to-length of the continuous rolls of the
gusset material is a straight cutting operation which is not
cutting to shape or a further fabrication that would exceed the
parameters of 19 CFR 10.16(b)(6). Accordingly, we find that the
cutting operation of the gusset material is an operation
incidental to the assembly and should not preclude its
eligibility under subheading 9802.00.90, HTSUS.
HOLDING:
Provided that the pantyhose components are formed and cut in
the U.S. prior to export to Mexico, the pantyhose components
assembled in Mexico as described above may be entered free of
duty under subheading 9802.00.90, HTSUS, since they are exported
in condition ready for assembly without further fabrication, have
not lost their physical identity by change in form, shape, or
otherwise, and have not been advanced in value or improved in
condition abroad except by being assembled and except by
operations incidental to the assembly process.
HRL 559961, HRL 559363, and HRL 732257 are hereby modified.
In accordance with 19 U.S.C. 1625, this ruling will become
effective 60 days after its publication in the Customs Bulletin.
Publication of rulings or decision pursuant to section 625 does
not constitute a change of practice of position in accordance
with section 177.10(c)(1), Customs Regulations (19 CFR
177.10(c)(1)).
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 Customs officer handling the
transaction.
Sincerely,
John Durant
Director
Commercial Rulings Division