MAR-2 RR:TC:SM 561092 KSG
Chong-Do Lee
President
Kiju Company
Rm. M201
Namyung Bldg. #37
Seobinggo-Dong
Yongsan-Ku
Seoul, Korea
RE: yarn; country of origin; 19 CFR 12.130(c); subheading
9802.00.50, HTSUS; subheading 9802.00.80, HTSUS;
Reconsideration of NY C83246
Dear Mr. Lee:
This is in response to your letter of March 17, 1998,
requesting reconsideration of a binding ruling issued by the
Customs Service in New York (NY C83246, dated February 24,
1998) regarding the country of origin of imported yarn.
FACTS:
The imported article is 100% nylon filament yarn. The
yarn is extruded in the U.S. by Monsanto Company, U.S.A.
The two ply yarn is then sent to South Korea for twisting
and winding into a cocoon shape by automatic precision cop
winders. According to the National Import Specialist
("NIS"), this twisting and winding operation is a complex
process that prepares the yarn for use on specialized
machines.
A sample of the imported yarn was submitted. Customs
determined in New York ruling C83246, dated February 24,
1998, that the yarn is classified at subheading 5402.10.60,
Harmonized Tariff Schedule of the United States ("HTSUS"),
which has a duty rate of 8.7% ad valorem.
Also, in the holding of that ruling, Customs stated that the
country of origin of the yarn is South Korea and that the
yarn is entitled to a partial duty exemption under
subheading 9802.00.80, HTSUS.
In the memorandum from the National Import Specialist
("NIS") to this office, the NIS suggested that the yarn may
be eligible for a partial duty exemption under subheading
9802.00.50, HTSUS.
ISSUES:
1. What is the country of origin of the imported yarn?
2. Is the imported yarn eligible for a duty exemption
under subheading 9802.00.80, HTSUS, or
subheading 9802.00.50, HTSUS?
LAW AND ANALYSIS:
1. Country of origin
The issue presented is the country of origin of the
imported yarn which is processed in both the U.S. and South
Korea. Pursuant to section 334 of the Uruguay Round
Agreements Act ("URAA"), 19 U.S.C. 3592, the country of
origin of a textile or apparel product is determined by
sequential application of the general rules set forth in 19
CFR 102.21(c)(1) through (5).
Section 102.21(c) (1), Customs Regulations (19 CFR
102.21(c)(1)), states that "The country of origin of a
textile or apparel product is the single country, territory,
or insular possession in which the good was wholly obtained
or produced." As the yarn is not wholly obtained or
produced in a single country, territory or insular
possession, 19 CFR 102.21(c)(1) is inapplicable.
Section 102.21(c)(2), Customs Regulations (19 CFR
102.21(c)(2)), states that "Where the country of origin of a
textile or apparel product cannot be determined under
paragraph (c)(1) of this section, the country of origin of
the good is the single country, territory, or insular
possession in which each foreign material incorporated in
that good underwent an applicable change in tariff
classification, and/or met any other requirement, specified
for the good in paragraph (e) of this section."
Section 102.21(e), Customs Regulations (19 CFR
102.21(e)), provides specific rules for determining the
country of origin of a textile or apparel product under
paragraph (c)(2) of this section. For the subject articles
classified at subheading 5402.10.60, HTSUS, the applicable
rule states as follows:
5401-5406.............. A change to heading 5401
through 5406 from any other heading, provided the
change is the result of an extrusion process.
In this case, there is no extrusion process that occurs
in South Korea. Therefore, there is no change in tariff
classification, and 19 CFR 102.21(c)(2) is inapplicable to
the subject merchandise.
Section 102.21(c)(3), Customs Regulation (19 CFR
102.21(c)(3)), states that:
Where the country of origin of a textile or
apparel product cannot be determined under
paragraph (c)(1) or (2) of this section:
(i) If the good was knit to shape, the country of
origin of the good is the single country,
territory, or insular possession in which the good
was knit; or
(ii) Except for goods of heading 5609, 5807, 5811,
6213, 6214, 6301 through 6306, and 6308, and
subheadings 6209.20.5040, 6307.10, 6307.90, and
9404.90, if the good was not knit to shape and the
good was wholly assembled in a single country,
territory, or insular possession, the country of
origin of the good is the country, territory, or
insular possession in which the good was wholly
assembled.
As the yarn is not knit to shape, 19 CFR
102.21(c)(3)(i) is inapplicable. Additionally, as the good
was not wholly assembled in a single country,
19 CFR 102.21(c)(3)(ii) is inapplicable.
Section 102.21(c)(4), Customs Regulations (19 CFR
102.21(c)(4)), states that:
Where the country of origin of a textile or
apparel product cannot be determined under
paragraph (c)(1), (2), and (3) of this section,
the country of origin of the good is the single
country, territory, or insular possession in which
the most important assembly or manufacturing
process occurred.
Section 334 of the URAA, (19 U.S.C. 3592(b)(1)), states
, in pertinent part, that a textile or apparel product
originates in a country and is the growth, product, or
manufacture of that country if:
(B) the product is a yarn, thread, twine, cordage,
rope, cable, or braiding and
(i) the constituent staple fibers are spun in that
country, territory, or possession, or
(ii) the continuous filament is extruded in that
country, territory, or possession.
These rules explicitly state what is considered
"important processing" in regard to this commodity.
Accordingly, pursuant to 19 CFR 102.21(c)(4), the most
important manufacturing process occurs where the filament is
extruded (the U.S.).
However, there is an exception for products of the U.S.
that are sent abroad for processing. Section 12.130(c),
Customs Regulations
(19 CFR 12.130(c)), provides that any product of the U.S.
which is returned after having been advanced in value or
improved in condition abroad, or assembled abroad, shall be
a foreign article. The subject yarn is significantly
advanced in value and improved in condition in South Korea
when it is twisted and wound onto the cocoons. The winding
onto the cocoons is a complex process that significantly
adds to the value of the finished article.
Section 12.130(c), Customs Regulations (19 CFR
12.130(c)), which remains in effect, was originally intended
to be used to determine the country of origin of textiles
and textile products for quota/visa requirements. In T.D.
90-17, issued February 23, 1990, Customs announced a change
in practice and position. This change resulted in Customs
using 12.130 for quota, duty and marking purposes when
making country of origin determinations for textile goods.
Therefore, in accordance with T.D. 90-17 and 19 CFR
12.130(c), the country of origin of the yarn is South Korea
for quota, duty and country of origin marking purposes.
Please note, however, Customs has proposed a new change
in interpretation that 19 CFR 12.130(c) should not control
for purposes of country of origin marking of textile and
textile products. See 63 FR 32911, dated June 16, 1998.
The comment period for this proposal has been extended to
September 30, 1998.
2. Subheadings 9802.00.80, HTSUS, and 9802.00.50, HTSUS,
applicability
Subheading 9802.00.80, HTSUS, provides a partial
duty exemption for:
articles...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, lubricating 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
article, less the cost or value of the U.S. components, upon
compliance with the documentary requirements of 19 CFR
10.24.
Section 10.16(a), Customs Regulations (19 CFR
10.16(a)), provides that the assembly operations 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, and may be preceded, accompanied, or
followed by operations incidental to the assembly.
Customs has held that winding or twisting operations
may constitute acceptable assembly operations for purposes
of subheading 9802.00.80, HTSUS, where they involve the
joinder of two or more components. See Headquarters Ruling
Letter ("HRL") 557513, dated January 21, 1994, HRL 556160,
dated December 2, 1991, HRL 555533, dated June 4, 1990, HRL
556714, dated July 8, 1992, and HRL 555594, dated May 16,
1990. In this case, based on the information and samples
provided, it does not appear that the twisting and winding
of the yarn results in joining the yarn to any other
component. However, without more detailed information
concerning the processing steps performed in South Korea
with respect to the yarn, we are unable to state
definitively whether the yarn is or is not entitled to
subheading 9802.00.80, HTSUS, treatment.
Subheading 9802.00.50, HTSUS, provides a partial duty
exemption for articles that are returned after having been
exported to be advanced in value or improved in condition by
means of repairs or alterations, provided that the
documentary requirements of 19 CFR 10.8 are met. For
qualifying articles, duty is assessed only on the cost or
value of the foreign processing.
However, in circumstances where the operations abroad
destroy the identity of the exported article or create a new
or commercially different article, entitlement to subheading
9802.00.50, HTSUS, is precluded. See A.F. Burstrom v.
United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd C.D.
1752, 36 Cust. Ct. 46 (1956); Guardian Enterprises
Corporation v. United States; 3 CIT 9 (1982). Additionally,
entitlement to this tariff treatment is not available where
the exported articles are incomplete for their intended
purposes prior to their foreign processing and the foreign
processing is a necessary step in the preparation or
manufacture of the finished articles. Dolliff & Company,
Inc. v. United States, 455 F. Supp. 618 (CIT 1978), aff'd,
599 F.2d 1015 (Fed. Cir. 1979).
In Dolliff, the court found that the processing steps
performed on exported greige goods were undertaken to
produce the finished fabric and could not be considered as
alterations. At issue in Dolliff was the question of
whether certain Dacron polyester fabrics, which were
manufactured in the U.S., and exported to Canada for heat-setting, chemical-scouring, dyeing, and treating with
chemicals were eligible for the partial duty exemption
available under item 806.20, TSUS (the precursor to
subheading 9802.00.50, HTSUS), when returned to the U.S.
The court stated that:
... repairs and alterations are made to completed
articles and do not include intermediate
processing operations which are performed as a
matter of course in the preparation or manufacture
of finished articles. In the instant situation,
the operations performed in Canada comprise
further processing steps which are performed on
unfinished goods and which lead to completed
articles, i.e., the finished fabrics, and,
therefore, the processing cannot be considered
alterations.
In this case, the yarn was not complete for its
intended use until it was twisted and wound onto the cocoons
in South Korea. This yarn is used on machines that can only
use yarn twisted and wound in this manner. Accordingly, we
find that the yarn is not eligible for a partial duty
exemption under subheading 9802.00.50, HTSUS.
HOLDING:
Pursuant to 19 CFR 12.130(c), the country of origin of
the yarn for quota, duty and country of origin marking is
South Korea. NY C83246 is affirmed in this regard.
We are unable to determine whether the imported yarn is
eligible for a partial duty exemption under subheading
9802.00.80, HTSUS, without further information. NY C83246
is clarified in this regard. The imported yarn is not
eligible for a duty exemption under subheading 9802.00.50,
HTSUS.
A copy of this ruling letter should be attached to the
entry documents filed at the time this merchandise is
entered. If the documents have been filed without a copy,
this ruling should be brought to the attention of the
Customs officer handling the transaction.
Sincerely,
John Durant
Director
Commercial Rulings Division