CLA-2 RR:TC:SM 559341 BLS
Port Director
1901 Crossbeam Drive
Charlotte, NC 28217
RE: Applicability of subheading 9802.00.80, HTSUS, to mens' knit shirts assembled in Guatamala; 19 CFR 10.17
Dear Sir:
This is in reference to a letter dated July 20, 1995, from Sunrise Apparel Inc. ("Sunrise"), requesting a ruling that certain mens' cotton knit shirts imported from Guatamala will be eligible for the duty allowance under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), upon importation into the U.S. We have been informed by Sunrise that importations have commenced through your port.
FACTS:
The importer is having assembled mens' knit shirts in Guatamala from materials stated to be of U.S.-origin. The production of the shirts is as follows:
1) Fabric is purchased and sent to the facility in Concord, North Carolina.
2) The fabric is cut into the garment parts, including fronts, backs, sleeves and front plackets. On the first two shipments, an interlining is fused to the plackets prior to shipment to Guatamala
3) After cutting, the components are shipped with the following items, all of
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U.S.- origin:
A. Pre-knit collars
B. Pre-knit sleeve welts
C. Neck labels
D. Country of origin, fabric content, size and care labels which are printed in the U.S.
E. Buttons
F. Thread
G. Twill shoulder tape
H. Packaging material - pins, polybags and tissues
I. One dozen prepack boxes
J. Recut material for defective cut parts
In Guatamala, the following sewing operations are performed:
1) The cut pieces are marked.
2) Shirts are hemmed and the placket is set on the garment.
3) Fronts and backs are joined at the shoulder after which time the sleeves are set on the shirt.
4) The shirts are side seamed.
5) Collar and collar tape are then attached to the shirt.
6) Buttons are sewn on the garment and buttonholes are created, followed by final inspection and packing.
Sunrise also advises that the Guatamalan assembler "notches" the knit-to-shape collar to correctly set this component with the shoulder seams. This operation involves trimming a portion of the base of the collar, in order to achieve two notches on the component. From the illustration submitted, the collar retains its basic shape, with the exception of the two small notches placed equidistant from the center.
The assembler also cuts to length sleeve "welt" strips (ribbed pieces of knit goods used to form the end of a sleeve to prevent unrolling or unraveling) to form a left and right sleeve welt. The welt strip is usually about 27" in length.
Sunrise further states that it has on hand U.S. fabric which it purchased for $2.50 per linear yard, but which it now believes has a market value of about $.35/linear yard. This fabric is used in producing the garment components.
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For accounting purposes, Sunrise would like to reflect the $.35/linear yard value on the commercial invoice and entry documents.
ISSUES:
1) Whether the garments will be eligible for the duty allowance under subheading 9802.00.80, HTSUS, upon return to the U.S.
2) Whether a value different from the purchase price of the U.S. fabric may be used in determining the value of the U.S. components for purposes of computing the duty allowance under subheading 9802.00.80, HTSUS.
LAW AND ANALYSIS:
Subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), provides a partial duty 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, HTSUS, 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 value of the imported assembled article, less the cost or value of such components, 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)), provides 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 subject to operations incidental to the assembly
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either before, during, or after their assembly with other components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the
assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.
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. However, any significant 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, HTSUS, to the component. See 19 CFR 10.16(c).
In the instant case, we find that under the facts presented, all three requirements of subheading 9802.00.80, HTSUS, will be satisfied. The foreign operations that entail sewing together pre-cut pattern pieces, which includes sewing on buttons, are acceptable assembly operations under this provision. Hemming the shirts will also be considered an acceptable assembly operation as the thread serves as a joining agent by joining the fabric to itself. See L'Eggs Products v. United States, 704 F. Supp. 1127 (CIT 1989). Notching the collar, trimming the fabric strips to length, and buttonholing are considered operations incidental to the assembly process. See 19 CFR 10.16(b)(4) and 10.16(b)(6) and United States v. Oxford Industries, Inc., 517 F. Supp. 694 (1981)).
Accordingly, we find that the mens' knit shirts will be entitled to the duty allowance under subheading 9802.00.80, HTSUS, upon return to the U.S.
Section 10.17, Customs Regulations (19 CFR 10.17), provides in part that:
The value of fabricated components to be subtracted
from the full value of the assembled article, if acquired
by purchase, is the cost of the components when last
purchased, f.o.b. port of exportation or point of border
crossing as set out in the invoice and entry papers...
However, if the appraising officer concludes that the cost
or value of the fabricated components so ascertained does
not represent a reasonable cost or value, then the value
of the components shall be determined in accordance with
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section 402 or 402a, Tariff Act of 1930, as amended (19 U.S.C.
1401a, 1402).
It is Customs opinion that the "cost of the components when last purchased", refers to the price in effect at the date of exportation. In this regard, since the exported U.S. fabric was acquired by purchase at a price of $2.50 per linear yard,
this value is the cost of this component "when last purchased." As noted, however, if the appraising officer concludes that the cost or value of the components does not represent a reasonable cost or value, then section 402 or 402a, Tariff Act of 1930, as amended, shall be used to determine the value of the components.
HOLDING:
Based on the information submitted, the mens' knit shirts imported from Guatamala will be entitled to a duty allowance under subheading 9802.00.80, HTSUS, for the cost or value of the U.S. components, provided the documentary requirements of 19 CFR 10.24 are satisfied.
Pursuant to 19 CFR 10.17, the value of the exported U.S. fabric is $2.50 per linear yard, the cost of the component when last purchased. Therefore, this value shall be used in calculating the duty allowance under subheading 9802.00.80, HTSUS, unless the appraising officer concludes that the cost or value of the components does not represent a reasonable cost or value, in which case section 402 or 402a, Tariff Act of 1930, as amended, shall be used to determine the value of the components.
Please provide a copy of this decision to Sunrise Apparel Inc., at 484 Caburrus Avenue West, Concord, North Carolina 28027.
Sincerely,
John Durant, Director
Tariff Classification Appeals
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