CLA-2 CO:R:C:F 089832 STB
TARIFF NO: 9502.99.1000, 9902.95.0100, 9802.00.8000
Ms. Anibal Roges
The Toy Works, Inc.
Fiddler's Elbow Road
Middle Falls, New York 12848
RE: Doll Skin, GSP
Dear Ms. Roges:
This letter is in response to your inquiry of May 17, 1991,
requesting a tariff classification, marking advice, and other
information concerning a textile doll skin from Mexico. A sample
was submitted with your inquiry.
FACTS:
The submitted sample consists of a textile doll skin. The
Toy Works will be purchasing rolls of United States materials,
cutting the rolls into squares which will then be silk screened
with the doll pattern. The printed square pieces of material
will then be exported to Mexico where they will be cut, sewn,
clipped and turned before their return to the U.S. for stuffing.
The Toy Works wishes to obtain duty free treatment for the
work performed in Mexico. In addition, the inquirer seeks Customs
advice on acceptable country of origin marking for this product.
The inquirer submitted two possible alternatives for marking
format on hang tags; one reads, in part, "Screen printed in
U.S.A., Sewn in Mexico" and the other reads, in part, Screen
printed in U.S.A., Assembled in Mexico."
ISSUES:
1. What is the proper classification of the subject doll
skins from Mexico?
2. Whether the doll skins are entitled to duty-free
treatment under the Generalized System of Preferences (GSP)?
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3. Whether the doll skins will qualify for the partial duty
exemption available under subheading 9802.00.8000, HTSUSA, when
imported into the United States?
4. What is the proper marking format for the doll skins?
LAW AND ANALYSIS:
Classification
Classification under the Harmonized Tariff Schedule of the
United States (HTSUSA) is made in accordance with the General
Rules of Interpretation (GRI's). The systematic detail of the
harmonized system is such that virtually all goods are classified
by application of GRI 1, that is, according to the terms of the
headings of the tariff schedule and any relative Section or
Chapter Notes. In the event that the goods cannot be classified
solely on the basis of GRI 1, and if the headings and legal notes
do not otherwise require, the remaining GRI's may then be
applied.
The subject doll skin can be classified by reference to GRI
1. This item is classified under subheading 9502.99.1000,
HTSUSA, the eo nomine provision for skins for stuffed dolls.
Although the applicable duty rate is 12% ad valorem, the duty is
temporarily suspended and the merchandise is entitled to duty
free consideration under subheading 9902.95.01, HTSUSA, if
imported on or before December 31, 1992.
Generalized System of Preferences
After December 31, 1992, unless the temporary duty
suspension is extended, the proper duty of this item will have to
be assessed. One question will be whether these doll skins will
be entitled to duty-free treatment, as a product of Mexico, under
the Generalized System of Preferences (GSP).
Under the GSP, eligible products, the growth, product or
manufacture of a beneficiary developing country (BDC), may enter
the U.S. duty-free if such products are imported directly into
the U.S., and the sum of 1) the cost or value of the materials
produced in the BDC, plus 2) the direct costs involved in
processing the eligible article in the BDC is equivalent to at
least 35% of the appraised value of the article upon its entry
into the U.S. 19 U.S.C. 2463(b).
Mexico is a designated BDC, and the doll skins are
classifiable in subheading 9502.99.1000, HTSUSA, which is a GSP-
eligible provision. Therefore, the doll skins will receive duty-
free treatment under the GSP if they are "products of" Mexico,
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the 35% value-content requirement is satisfied, and they are
imported directly to the U.S.
The cost or value of materials which are imported into the
BDC and used in the production of the GSP-eligible article, as in
this case, may be included in the 35% value-content computation
only if the materials undergo a double substantial
transformation. That is, the cost or value of the silk-screened
square pieces of material imported into Mexico may be counted
toward the 35% requirement only if the fabric pieces are
substantially transformed in Mexico into a new and different
intermediate article of commerce, which is then used in the
production of the final imported article, the doll skins. See
section 10.177(a), Customs Regulations (19 CFR 10.177(a)), and
Azteca Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988),
aff'd, 890 F. 2d 1150 (Fed. Cir. 1989).
A substantial transformation occurs when an article emerges
from a process with a new name, character, or use different from
that possessed by the article prior to processing. See Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F. 2d 778
(1982).
Section 12.130, Customs Regulations (19 CFR 12.130), sets
forth criteria for determining whether a textile or textile
product has been substantially transformed. 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. See 19 CFR 12.130(b). According
to 19 CFR 12.130(e)(1)(iv), a substantial transformation usually
will result from the "[c]utting of fabric into parts and the
assembly of those parts into the completed article." Therefore,
in regard to the facts of this case, the cutting in Mexico of the
silk-screened fabric squares into doll parts and the assembly of
those parts by sewing, substantially transform the imported
fabric into "products of" Mexico.
However, there is no indication from the information you
have provided that the cut doll parts are distinct "articles of
commerce" in the sense they are actually traded or are ready to
be put into a stream of commerce. See The Torrington Company v.
United States, 3 CAFC 158, 764 F.2d 1563 (1985), and Azteca
Milling, supra. Therefore, it is our opinion that the operations
performed in Mexico constitute a continuous process which results
in only one new and different article of commerce--the assembled
doll skins. Consequently, as the printed fabric squares imported
into Mexico are not subjected to a double substantial
transformation, the cost or value of the fabric squares may not
be counted toward the GSP 35% value-content requirement.
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In view of the above, the doll skins will be entitled to
duty-free treatment under the GSP only if the direct costs of
processing operations performed in Mexico represent at least 35%
of the appraised value of articles when imported into the United
States. 19 CFR 10.171-10.178. A discussion of those costs which
are, and are not, includable as direct processing costs is set
forth in 19 CFR 10.178.
Partial Duty Exemption
Another issue to consider is whether this item qualifies for
a partial duty exemption under subheading 9802.00.80, HTSUSA,
which provides such an 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,
lubrication, and painting.
All three requirements of subheading 9802.00.80, HTSUSA, 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.
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. See 19 CFR 10.16(b). However, any significant
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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, HTSUSA, to that component. See 19 CFR
10.16 (c).
It is our opinion that the U.S.-origin fabric is not
exported in a condition ready for assembly without further
fabrication. The cutting to shape of the fabric in Mexico
constitutes a further fabrication of the fabric which is
necessary to create the components to be assembled. According to
19 CFR 10.14(a), materials which are cut into specific shapes or
patterns abroad are ineligible for a duty allowance under this
tariff provision. See also Headquarters Ruling Letter (HRL)
556099 dated July 31, 1991.
Proper Marking Format
The question which you submitted concerning the proper
marking of the subject doll skins has been referred to the Value
and Marking Branch, Office of Regulations and Rulings; a
response will be issued to you by separate correspondence.
HOLDING:
The subject doll skins from Mexico are properly
classifiable under subheading 9502.99.1000, HTSUSA, the provision
for dolls representing only human beings and parts and
accessories thereof, parts and accessories, other, skins for
stuffed dolls. Although the applicable duty rate is 12% ad
valorem, the duty is temporarily suspended and the merchandise is
entitled to duty free consideration under subheading 9902.95.01,
HTSUSA, if imported on or before December 31, 1992.
At any time that this duty suspension is no longer in
effect, the doll skins will be entitled to duty-free treatment
under the GSP only if the direct cost of processing operations
performed in Mexico represent at least 35% of the appraised
value of the articles when imported into the U.S. As the printed
fabric squares imported into Mexico are not subjected to a double
substantial transformation, the cost or value of the U.S.-origin
fabric may not be included in the 35% value-content calculation.
If, at any time, the subject doll skins are not entitled to
duty-free entry, either through the duty suspension or GSP, then
a possible partial duty exemption under subheading 9802.00.80,
HTSUSA, must be considered. Based on the information and sample
presented, it is our opinion that the cutting to shape of the
U.S. fabric in Mexico constitutes a further fabrication of the
material and precludes the sewn doll skins from receiving the
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benefits of subheading 9802.00.80, HTSUSA. Therefore, the
articles will be dutiable on their full value when imported into
the U.S., if not entitled to duty-free entry because of one of
the reasons mentioned above.
Sincerely,
John Durant, Director
Commercial Rulings Division