CLA-2 CO:R:C:V: 555608 DSN
Diane L. Weinberg, Esquire
Sandler, Travis & Rosenberg, P.A.
505 Park Avenue
New York, New York 10022-1106
RE: Duty-free treatment for dress shirts from an insular
possession.Substantial transformation;textile article.
Dear Ms. Weinberg:
This is is response to your inquiry of March 12, 1990,
requesting an information letter concerning whether foreign
fabric which is cut into shirt parts and assembled into men's
dress shirts in a U.S. insular possession would be considered
"foreign materials" for purposes of the foreign value limitation
under General Note 3(a)(iv), Harmonized Tariff Schedule of the
United States Annotated (HTSUSA). Due to the nature of your
request and the detailed factual description given, we cannot
issue an information letter under section 177.1(d)(2), Customs
Regulations (19 C.F.R. 177.1(d)(2)). Rather, this will serve as
a ruling letter under 19 CFR 177.1(d)(1) as to the specific
facts set forth below. Samples were submitted for examination.
FACTS:
Either cotton or man-made fiber fabric of foreign origin,
along with foreign buttons, polybags, collar stays, thread and
cardboard, will be sent to a U.S. insular possession where they
will be manufactured into men's dress shirts.
In the insular possession, the fabric will be cut into shirt
parts, consisting of two front panels, one back panel, band, two
sleeves, yoke, upper and lower collars, cuffs, and interlining
for the cuffs and collars. These parts then will be assembled in
the possession by sewing and tailoring, after which the finished
shirts will be shipped to the U.S.
You state that more than 50% of the total value of the dress
shirts are attributable to the foreign piece goods, findings and
trim with approximately 10% representing the value of the foreign
findings and trim. You assert that the foreign piece goods will
undergo a double substantial transformation in the insular
possession and, therefore, their cost or value should not be
counted toward the General Note 3(a)(iv), HTSUSA, 50% limitation
on foreign materials, citing T.D. 88-17 published in the Federal
Register on April 13, 1988 (53 Fed. Reg. 12143).
ISSUE:
Whether the value of foreign fabric which is imported into
an insular possession, cut into shirt parts, and then assembled
into men's dress shirts is considered part of the cost of
"foreign materials" or the cost of materials produced in the
insular possession for purposes of the foreign value limitation
under General Note 3(a)(iv), HTSUSA.
LAW AND ANALYSIS:
Under General Note 3(a)(iv), HTSUSA, goods imported from a
U.S. insular possession may enter the customs territory of the
U.S. free of duty if they:
(1) are the growth or product of the possession;
(2) do not contain foreign materials which represent more
than 70% of the goods' total value (or more than
50% with respect to textile and apparel articles
subject to textile agreements, and other goods
described in section 213(b) of the Caribbean Basin
Economic Recovery Act)(CBERA); and
(3) come directly to the customs territory of the U.S. from
the possession.
Since textile dress shirts are subject to textile
agreements, they are not considered eligible articles entitled to
duty-free treatment under the CBERA. Therefore, the foreign
materials making up the merchandise at issue may not represent
more than 50% of the shirts' appraised value.
T.D. 88-17 applied the double substantial transformation
concept to products of U.S. insular possessions for purposes of
determining whether the products meet the value requirement under
General Note 3(a)(iv), HTSUS. T.D. 88-17 concluded that:
If foreign material (material not originating in an insular
possession) is transformed into a new and different product
in an insular possession and then that product is
transformed again in that insular possession to yet another
new and different product which is imported into the U.S.,
its cost will be considered part of the value of materials
produced in the insular possession.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." See The Torrington Co. v. United States, 764 F.2d
1563, 1568 (Fed. Cir. 1985).
You contend that the foreign piece goods in this case
undergo a double substantial transformation in the insular
possession so that only the foreign findings and trim would be
considered "foreign materials" for purposes of calculating the
50% foreign value limitation under this program. You state that
the Customs Service has consistently ruled that cutting fabric
into garment parts is a complex operation that results in a
substantial transformation of the merchandise. Moreover, you
assert that the assembly of the shirt pieces into the finished
dress shirts constitutes a second substantial transformation.
According to your letter, the assembly operation is very complex,
and includes, among other things, fusing the interlining to the
collar and cuffs, trimming before stitching can be performed,
blocking sleeve plackets, sewing the band to the collar, joining
the yoke to the back panel, placing the buttonholes, sewing the
components together, and double-needle stitching the side seams.
All totalled, there are 30 different steps in the assembly
operation.
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 section
12.130(d)(2), the following will be considered in determining
whether merchandise has been subjected to substantial
manufacturing or processing operations: (1) the physical change
in the material or article; (2) the time involved; (3) the
complexity of the operations; (4) the level or degree of skill
and/or technology required; and (5) the value added to the
article in each country or territory.
Examples of processes which usually will result in a
substantial transformation and those which usually will not are
set forth in 19 CFR 12.130(e). The cutting of fabric into parts
and the assembly of those parts into the completed article is an
example of a substantial transformation. See 19 CFR
12.130(e)(1)(iv). However, as you note, we have consistently
held that the cutting of fabric into specific or defined shapes
which serve as components in an assembly operation is, in itself,
sufficient to substantially transform the fabric into new and
different articles of commerce. See, for example, Headquarters
Ruling Letters (HRL's) 067823 dated June 2, 1982, 081155 dated
February 3, 1988, 554025 dated December 16, 1986, and 555189
dated June 12, 1989. Therefore, we agree that the cutting of the
foreign piece goods into shirt parts in an insular possession
results in a substantial transformation of the fabric.
According to 19 CFR 12.130(e)(1)(v), a substantial
transformation usually will result from the following:
Substantial assembly by sewing and/or tailoring of all cut
pieces of apparel articles which have been cut from fabric
in another foreign territory or country, or insular
possession, into a completed garment (e.g. the complete
assembly and tailoring of all cut pieces of suit-type
jackets, suits, and shirts).
Since shirts are specifically mentioned in the above example,
and the complete assembly of the dress shirts in the instant case
involves numerous steps, some of which are complex and require a
high level of skill, we conclude that the assembly of the shirt
parts results in a second substantial transformation. We also
find that the dress shirts are "tailored" as that term is defined
in the Textile Category Guidelines for Fabric and Garments
Reported under Various Textile Categories, CIE 13/88, (November
23, 1988). "Tailoring" is defined therein as "the shaping of a
rigid fabric into a garment so as to neatly fit the contours of
the body by means of cutting, seaming and finishing." Dress
shirts are traditionally tailored, as evidenced by the rigidity
of the fabric used, and the detail work necessary to achieve a
close fitting look. This is achieved in the instant case by
substantial cutting, seaming and finishing.
HOLDING:
Based on the samples and descriptive information provided,
the foreign piece goods imported into an insular possession will
undergo the requisite double substantial transformation when
manufactured into finished men's dress shirts. Therefore,
pursuant to T.D. 88-17, the foreign fabric will not be considered
"foreign material" but will be considered material produced in
the insular possession for purposes of calculating the 50%
foreign value limitation under General Note 3(a)(iv), HTSUSA.
However, the cost or value of the foreign trim and findings will
be included in the "foreign material" content for purposes of
the value requirement under this program.
Sincerely,
John Durant, Director
Commercial Rulings Division