CLA-2 CO:R:C:G 087472 JS
Nelson Kwong
A.Y.K. Enterprises Ltd.
Suite 7
265 Duthie Avenue
Burnaby, B.C.
Canada V5A 2P3
RE: Country of origin; baby's diaper; United States-Canada
Free-Trade Agreement; originating good
Dear Mr. Kwong:
This is in reference to your letter of June 19, 1990,
requesting a country of origin determination and tariff status of
a baby's cotton diaper under the Harmonized Tariff Schedule of
the United States Annotated (HTSUSA).
FACTS:
The merchandise at issue is a 100 percent cotton baby's
diaper, measuring approximately 13 x 20 inches, which is
constructed in the following manner:
In China, the cotton flannel is woven and placed on large
rolls for exportation.
In Canada, one layer of fabric is placed onto the cutting
table. The fabric is cut to a size 36" in width x 16" in length.
The sides of the fabric are then folded in the following manner:
a. right to left 9"
b. left to right 4 1/2 "
c. left to right 9"
Next the folded edges are sewn with a straight sewing
machine, and a serging machine will trim and overedge the top and
bottom of the article. All excess threads are also trimmed, and
the diaper is ready for inspection. Finally, the finished
merchandise is packed in cartons for shipment.
ISSUE:
1) Whether for all Customs purposes, including quota,
marking and export licensing, China or Canada is determined to be
the country of origin under 19 CFR 12.130.
2) Whether for purposes of determining the rate of duty, the
product is considered goods originating in the territory of
Canada in accordance with General Note 3(c)(vii) HTSUSA; if so,
what is the applicable duty rate for 1990 and subsequent years.
3) What quota and duty rates would apply if the diaper at
issue were to be fully manufactured in China and exported to the
United States.
LAW AND ANALYSIS:
Textile commodities produced in more than one foreign
country are subject to the country of origin requirements
delineated in Section 12.130 of the Customs Regulations (19
C.F.R. 12.130). Section 12.130(b) provides that a textile
product which consists of materials produced or derived from, or
processed in, more than one foreign...country shall be a product
of that foreign country where it last underwent a substantial
transformation. A substantial transformation is said to occur if
a commodity undergoes a transformation, by means of substantial
manufacturing or processing operations, into a new and different
article of commerce.
The criteria used to determine whether a textile product has
undergone substantial manufacturing or processing operations are
outlined in Section 12.130(d), and include, among other things,
the physical change in the material or article and the complexity
of the operations. Under 19 C.F.R. Section 12.130(e)(1), an
article will be considered a product of a particular country on
the basis of the following operations:
(iv) Cutting of fabric into parts and the assembly of
those parts into the completed article;
Since the raw material produced in China is specially cut,
folded, and sewn in Canada, in a manner distinctive to the
formation of a diaper, a substantial transformation is deemed to
have occurred such that a new and different article of commerce
results. When the diaper material is exported from China, on the
other hand, it is mere cotton fabric which is suitable for
multiple uses. No evidence, i.e., lines of demarcation, exist
at that stage to aid the examiner in determining that the fabric
is meant to be diapers. Therefore, the Canadian assembly of cut
fabric into the completed article, a diaper, constitutes a
substantial manufacturing process in accordance with Section
12.130(b).
The second issue which you raised is whether the diapers in
question would be eligible for special tariff treatment under the
United States-Canada Free-Trade Agreement Implementation Act of
1988 (FTA).
General Note 3(c)(vii) of the HTSUSA embodies the United
States-Canada Free-Trade Agreement of 1988. Subdivision
(vii)(A) provides that "[g]oods originating in...Canada" and
imported into the United States may be subject to a different
rate of duty set forth in the "Special" subcolumn of the Tariff
Schedule. For the purposes of this subdivision, General Note
3(c)(vii)(B) allows consideration of goods as "goods originating
in the territory of Canada" if:
(2) 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.
Assuming heading 6209, Section XI, HTSUSA, provides for the
present merchandise in its completed form, and heading 5208 prior
to the manufacturing processes in Canada, General Note 3(c)(vii)
(R)(11) governs the change in tariff classification. Subdivision
(R)(11) states, in pertinent part, that in order to be considered
goods originating in the territory of Canada, merchandise must
undergo
(oo) A change to any heading of chapter 62 from any
heading outside that chapter other than headings
...5208 through 5212...
(qq) Notwithstanding rules (nn) and (oo), apparel goods
provided for in chapters 61 and 62 that are both
cut and sewn in ...Canada (emphasis added)...from
fabric produced or obtained in a third country, and
that meet other applicable conditions for preferred
tariff treatment under subdivision (c)(vii) of this
note, shall be subject to the rate of duty provided
in the "Special" subcolumn for goods that originate
in Canada, in the annual quantities set forth
below, and shall, above those quantities for the
remainder of the annual period, be subject to duty
at the rates provided for in the "General"
subcolumn of column 1:
Non-wool apparel 41,806,500 sq.m.
Wool apparel 5,016,780 sq.m.
Since the baby's diaper is both cut and sewn in Canada,
imports of this item will be eligible for the "Special" rate of
duty up to the annual quantities set forth above, at 7.9 percent
ad valorem, assuming classification in heading 6209, HTSUSA.
Beyond the annual quantities set forth above, or in case of
failure to comply with Section 10.307 requirements, this
merchandise will be subject to the "General" rate of duty at 9.9
percent ad valorem.
In order to qualify for the preferential rate, one must
satisfy the requirements in 19 CFR 10.307, which state that a
claim for FTA benefits must be based on documentation indicating
origin. An existing Exporter's Certificate of Origin will
satisfy this requirement if it is properly completed and signed
by the person who exports or knowingly causes the goods to be
exported from Canada. In addition, it must be made available to
Customs at the time preferential treatment is claimed.
Further conditions to qualification for preferential
treatment are mandated by General Note 3(c)(vii)(E) of the HTSUSA
which require that
goods exported from the territory of Canada must be
shipped to the territory of the United States without
having entered the commerce of any third country, and
the goods, if shipped through the territory of a third
country, do not undergo any operations other than
unloading, reloading, or any operation necessary to
transport them to the territory of the United States
or to preserve them in good condition, and the
documents related to the exportation and shipment of
the goods from the territory of Canada show the
territory of the United States as their final
destination.
The requirement that a claim be made at the time entry
summary is filed, as stated in Section 10.307, has been modified
by VBT-88-105. A Certificate of Eligibility is now required for
all entries of textile articles from Canada seeking tariff rate
quota status under rules 17 and 18 of the FTA and covered above.
You must obtain this certificate from the Canadian government and
attach it to the entry. The Certificate of Eligibility must
indicate the permit number assigned to you by the Canadian
government, as well as the country from which the fabric
was obtained, the quantity of the articles contained in the
shipment, and a description of the articles in HTSUSA terms.
The pink copy of the certificate must be presented with the
entry package in order to be eligible for the "Special" subcolumn
rates of duty up to the designated quantity for each quota.
In accordance with Presidential Proclamation 5923 dated
December 16, 1988, the following duty rates are applicable in the
future with respect to merchandise considered goods originating
in the territory of Canada under the FTA:
6.9 percent ad valorem in 1991
5.9 percent ad valorem in 1992
4.9 percent ad valorem in 1993
3.9 percent ad valorem in 1994
2.9 percent ad valorem in 1995
1.9 percent ad valorem in 1996
.9 percent ad valorem in 1997
Free in 1998
With respect to the third issue, if the diaper were to be
fully manufactured in and imported from China, classification
would be subheading 6209.20.5040, HTSUSA, which provides for
babies' garments and clothing accessories: of cotton: other:
other, diapers, textile category 239. The applicable rate of
duty is 9.9 percent ad valorem.
HOLDING:
Our analysis of the other applicable conditions for
preferential tariff treatment under subdivision (c)(vii) of the
Free-Trade Agreement establishes that the present merchandise, in
its completed form, is considered goods originating in Canada for
duty purposes under the HTSUSA.
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 Customs
Regulations 19 CFR 177.9 (b)(1), which states that a ruling
letter is issued on the assumption that all information
furnished in connection with the ruling request and incorporated
therein, 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 that
there is a change in the facts previously furnished, the country
of origin determination may be affected. In such case, 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 Operations Division