CLA-2 CO:R:C:T 952802 jb
Mr. Charles M. Watson
R.L. Swearer Company, Inc.
P.O. Box 471
Sewickley, PA 15143-0471
RE: Classification, country of origin and Canada Free Trade
Agreement eligibility of cotton-wrapped, rubber-core yarns
made in Canada; subheading 5604.10.0000, HTSUSA
Dear Mr. Watson:
This is in response to your letter, dated September 21,
1992, on behalf of your client, Jetnet Corporation, requesting
classification under the Harmonized Tariff Schedule of the United
States Annotated, country of origin determination, and Canada
Free Trade (CFTA) eligibility, for cotton-wrapped, rubber core
yarn made in Canada. Samples were provided to this office for
examination.
FACTS:
The yarn at issue consists of a single-filament rubber core,
around which is wrapped (gimped) a plied cotton yarn. The rubber
will be imported from Malaysia in the form of ribbon which has
been scored to facilitate splitting into individual filaments.
The actual splitting will occur in Canada. The single-ply cotton
yarn will originate in either Egypt or the United States and upon
importation into Canada will be twisted into a three or four ply
yarn and then wrapped around the rubber single-filament core.
ISSUE:
I. What is the classification of the subject merchandise?
II. What is the country of origin of the subject
merchandise?
III. Does this merchandise qualify as an "originating
material" for purposes of the Canada Free Trade
Agreement?
LAW AND ANALYSIS:
I. Classification
Classification of merchandise under the HTSUSA is governed
by the General Rules of Interpretation (GRI). GRI 1 requires
that classification be determined according to the terms of the
headings and any relative section or chapter notes, taken in
order. Where goods cannot be classified solely on the basis of
GRI 1, the remaining GRI will be applied, in the order of their
appearance.
The sample at issue consists of a rubber cord covered with
textile. Heading 5604, HTSUSA, provides for rubber thread and
cord, textile covered; textile yarn, and strip and the like of
heading 5404 or 5405, impregnated, coated, covered or sheathed
with rubber or plastics.
Gimped yarn is defined as:
Yarn consisting of a tightly twisted center or heart yarn
wrapped around by oft twisted yarn, and usually colored,
novelty yarn. Spirality in gimp is very important to bring
out the effect. George E. Linton, The Modern Textile and
Apparel Dictionary, at 265, (1973).
Thus, in a gimped yarn, the yarn's core is separate from the
outer covering. The core is straight and wrapped with the
covering. In a plied yarn on the other hand, the plies are
twisted together at the same rate of speed by the twisting
machine.
The Explanatory Notes to the Harmonized Commodity
Description and Coding System (EN) are the official
interpretation of the tariff at the international level. The EN
to heading 5604, HTSUSA, state:
(A) RUBBER THREAD AND CORD, TEXTILE COVERED
Provided they are covered with textiles (e.g., by
gimping or plaiting), this group includes thread (single
strand) of rubber, of any cross-section, and cord
(multiple strand) of rubber, made of these threads.
Accordingly, the finished yarn, upon importation into the
United States, would be classified in subheading 5604.10.0000,
which provides for rubber thread and cord, textile covered.
II. Country of Origin
Section 12.130 of the Customs Regulations (19 CFR 12.130),
sets forth the principles of country of origin for textiles and
textile products subject to section 204 of the Agricultural Act
of 1956, as amended (7 U.S.C. 1854).
Pursuant to 19 CFR 12.130(b), the standard of substantial
transformation governs the country of origin determination where
textiles and textile products are processed in more than one
country. The country of origin of textile products is deemed to
be that foreign territory or country where the article last
underwent a substantial transformation. Substantial
transformation is said to occur when the article has been
transformed into a new and different article of commerce by means
of substantial manufacturing or processing.
The factors to be applied in determining whether or not a
manufacturing operation is substantial are set forth in 19 CFR
12.130(d). Section 12.130(d)(1) states that a new and different
article of commerce will usually result from a manufacturing or
processing operation if there is a change in: (i) Commercial
designation or identity, (ii) Fundamental character or (iii)
Commercial use.
Section 12.130(d)(2) of the Customs Regulations states that
in determining whether merchandise has been subjected to
substantial manufacturing or processing operations, the following
will be considered:
(i) The physical change in the material or article as a
result of the manufacturing or processing operations in
each foreign territory or country, or insular possession
of the U.S.
(ii) The time involved in the manufacturing or processing
operations in each foreign territory or country, or
insular possession of the U.S.
(iii) The complexity of the manufacturing or processing
operations in each foreign territory or country, or
insular possession of the U.S.
(iv) The level or degrees of skill and/or technology required
in the manufacturing or processing operations in each
foreign territory or country, or insular possession of
the U.S.
(v) The value added to the article or material in each
foreign territory or country, or insular possession of
the U.S., compared to its value when imported into the
U.S.
As the yarn at issue consists of components of two
countries, assembled in a third country, a determination must be
made as to where the last substantial transformation occurred.
It is Customs' view that the assembly of two yarns into one yarn,
whether by plying or gimping, does not substantially transform
those yarns. While it may have a new use, it does not change the
fact that the article is still a yarn. Thus the assembly of the
yarn in Canada is not a substantial transformation.
In a case such as this, where Section 12.130 does not
address the situation where an article is composed of two
components, each contributing equally to the finished article,
and the article is not substantially transformed in a third
country, a different test must be applied to determine country of
origin.
Where for the purposes of our international textile
agreements, a determination must be made in regard to the country
of origin of a composite article comprised of different
countries, where the joining of the components is not sufficient
to confer origin, the origin of the article will be determined by
the component which would be selected under GRI 3, HTSUSA, as
being determinative of classification.
GRI 3(c) provides:
When goods cannot be classified by reference to 3(a) or
3(b), they shall be classified under the heading which
occurs last in numerical order among those which equally
merit consideration.
In the instant case, before the yarns are combined, the
foreign source materials are known commercially by their
independent features, that is single ply cotton yarn and rubber
thread. As the cotton yarn portion occurs last in numerical
order, the subject yarn is a product of either Egypt or the
United States (depending on which of those two countries the
cotton yarn will originate).
III. Canada Free Trade Agreement (CFTA) Eligibility
The CFTA rules for determining whether goods, when imported
into the United States, are originating in the territory of
Canada, are set forth in General Note 3(c)(vii), HTSUSA. General
Note 3(c)(vii)(B)(1) states:
For the purposes of subdivision (c)(vii) of this note, goods
imported into the customs territory of the United States are
eligible for treatment as "goods originating in the
"territory of Canada" only if--
(1) they are goods wholly obtained or produced in the
territory of Canada and/or the United States
General Note 3(c)(vii)(B)(2) provides for the only other
means by which goods may be considered "originating" under the
CFTA:
they have been transformed in the territory of Canada and/or
the United States, so as to be subject--
(I) to a change in tariff classification as described in the
rules of subdivision (c)(vii)(R) of this note, or
(II) to such other requirements subdivision (c)(vii)(R) of
this note may provide when no change in tariff
classification occurs, and they meet the other
conditions set out in subdivisions (c)(vii)(F), (G),
(H), (I), (J), and (R) of this note.
Emphasis added.
For goods classified under chapter 56 (the proper
classification determined for the finished good upon importation
into the United States), subdivision (c)(vii)(R)(11)(ii)
requires:
A change to any heading of chapter 56 from any heading
outside that chapter other than headings 5106 through 5113,
5204 through 5212, 5306 through 5311, or headings of
chapters 54 and 55.
The instant case cannot be addressed by General Note
3(c)(vii)(B)(1) because the materials are not wholly obtained in
the United States or Canada. The materials must therefore be
addressed as per General Note 3(c)(vii)(B)(2), i.e., a change in
tariff classification. The two possible scenarios with which we
are confronted are:
1. Egyptian cotton yarn and Malaysian rubber; or
2. United States cotton yarn and Malaysian rubber
The product in the first scenario, i.e., Egyptian cotton
yarn and Malaysian rubber, fails to qualify as goods originating
in the territory of Canada because the cotton yarns of heading
5205 are among the tariff provisions which, when made into a
chapter 56 product, will not qualify as an eligible change in
classification.
The product in the second scenario, on the other hand, does
qualify as a good originating in the territory of Canada for the
foregoing reasons. Under the United States Free Trade Agreement,
Chapter Three: Rules of Origin, Summary of FTA Provisions, (House
Document 100-216, 100th Congress, 2d Session),it states:
1. General Rule
...The FTA provides that goods wholly produced in the United
States and/or Canada will qualify for such preferential
treatment. Goods containing third-country materials will
qualify for preferential treatment if the materials [i.e.,
foreign materials] undergo, in one or both of the parties, a
sufficient degree of processing or assembly to result in a
designated change, specified in Annex 301.2, in tariff
classification under the Harmonized Commodity Description
and Coding System (Harmonized System)...
This provision was interpreted in HQ 084856, dated
August 31, 1989, in a case involving a motherboard imported into
Canada consisting of third country components and U.S.
components. That ruling stated:
Although the proposed operation, which only involves
components that are "originating materials," appears to
satisfy the intent of the FTA, we interpret the requirement
of a change in tariff classification as a requirement that
applies only to third country materials and is satisfied
only with reference to such materials. This interpretation
is necessary for two reasons. First, it gives the intended
tariff preference to the broadest range of goods which might
otherwise be denied the benefits of the FTA simply by virtue
of the fact that an originating material did not change
classification during the manufacturing. Second, it is
consistent in its treatment of originating materials.
Accordingly, a situation involving a material originating in
either the United States or Canada will satisfy the intent of the
FTA for purposes of General Note 3(c)(vii)(B)(2), without having
to address the question of "change in tariff" which is reserved
only for foreign source materials.
The United States cotton is an "originating" material, not
subject to a change in tariff classification. The Malaysian
rubber, a foreign source material, not originating in the United
States,is subject to a change in tariff classification.
Malaysian rubber, in its unaltered state would be classified in
chapter 40, HTSUSA; when it is gimped, with the cotton, it is
classified in chapter 56. A change from chapter 40 to chapter 56
is a qualifying change in tariff classification. As such, the
gimped yarn made from the non-originating rubber qualifies as a
good originating in the territory of Canada.
In sum, if the original cotton is of Egyptian origin, the
finished product will not qualify for FTA treatment; if the
original cotton yarn is of United States origin, the finished
product will qualify for FTA treatment.
HOLDING:
The finished yarn, upon importation into the United States,
is classified in subheading 5604.10.0000, HTSUSA, as rubber
thread and cord, textile covered. The applicable rate of duty is
7.2 percent ad valorem and the quota category is 201.
For quota and visa purposes, the yarn is a product of either
Egypt or the United States, depending on which of those two
countries the cotton yarn will originate.
Where the yarn consists of Egyptian cotton and Malaysian
rubber, the finished product will not qualify for FTA treatment.
Where the yarn consists of United States cotton and Malaysian
rubber, the finished product will qualify for FTA treatment.
The designated textile and apparel category may be
subdivided into parts. If so, the visa and quota requirements
applicable to the subject merchandise may be affected. Since
part categories ate the result of international bilateral
changes, to obtain the most current information available, we
suggest you check the Status Report on Current Import Quotas
(Restraint Levels), an internal issuance of the U.S. Customs
Service, which is available for inspection at the local Customs
office.
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 the local Customs office prior to
importation to determine the current status of any import
restraints or requirements.
The holding set forth above 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 CFR 177.9(b)(1)). This
section states that a ruling letter is issued on the assumption
that all of the information furnished in the ruling letter,
either directly, by reference, or by implication, is accurate and
complete in every material respect.
Should it be subsequently determined that the information
furnished is not complete and does not comply with 19 CFR
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. Accordingly, it is recommended that a new ruling
request be submitted in accordance with section 177.2, Customs
Regulations (19 CFR 177.2).
Sincerely,
John Durant, Director
Commercial Rulings Division