CLA-02 RR:CR:SM 561865 CW
Mr. John Stahl
President
Stahsac, Inc.
81 Monticello Road
P.O. Box 1673
Weaverville, N.C. 28787
RE: Tariff classification and special tariff treatment applicable to certain travel
luggage assembled in Mexico; NAFTA
Dear Mr. Shahl:
This is in response to your letters dated June 26, and July 26, 2000, to the National Commodity Specialist Division, New York, requesting a binding ruling concerning the classification of a travel bag, described as the Large Dive Cargo Duffel with Wheels, Stahsac part number W 409-B, imported from Mexico. You also inquire regarding the bag’s eligibility for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). By memorandum dated August 10, 2000, your letters were forwarded to this office for the preparation of a response. A sample bag was submitted with your request. We regret the delay in responding.
You state that the bag portion of the luggage will be assembled in Mexico by your sister company, Stahlsac de Merida, S.A. de C.V. The bag consists of 4 different fabrics, 3 of which are of U.S. origin and one of which (nylon packcloth comprising most of the outer surface of the bag) is of Thai origin. You advise that all of the fabrics are cut to shape in the U.S. prior to being assembled in Mexico. The bag also is assembled with a ½ “ shoulder strap foam which originates in Korea and is cut to size in the U.S. and a ¼ “ framing foam of Mexican origin which is cut to size in Mexico. In addition, the bag consists of certain zipper, velcro and polypropylene webbing components of U.S. origin, hardware of U.S. and Chinese origin and labels of the U.S. and Mexican origin. After the bag is assembled in Mexico with the above-described components, it is imported into the U.S. for final assembly of the wheel system and packaging.
ISSUES:
1. What is the tariff classification of the imported assembled travel bag?
2. Whether the imported travel bag is entitled to special tariff treatment
under NAFTA, subheading 9802.00.80, Harmonized Tariff Schedule of
the United States (HTSUS), or subheading 9802.00.90, HTSUS.
LAW AND ANALYSIS:
Tariff Classification
In a memorandum to this office dated August 10, 2000, the Chief, Textiles and Apparel Branch, National Commodity Specialist Division, advised that the subject imported duffel bag is properly classified in subheading 4202.92.3031, HTSUS. This provision provides for travel, sports and similar bags with outer surface of textile materials. The general duty rate for this provision is 18.3% ad valorem.
Applicability of NAFTA
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(b), HTSUS, provides, in pertinent part:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party only if—
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico, and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that--
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note;...
The imported travel luggage is not “wholly obtained or produced entirely in the territory of” one or more NAFTA parties within the meaning of General Note 12(b)(I), HTSUS, as it contains certain non-NAFTA materials. With respect to General Note 12(b)(ii), HTSUS, the tariff shift rule for subheading 4202.92, HTSUS, in GN 12(t) states:
A change to subheading 4202.92 from any other chapter, except from headings 5407, 5408 or 5512 through 5516 or tariff items 5903.10.15, 5903.10.18, 5903.10.20, 5903.10.25, 5903.20.15, 5903.20.18, 5903.20.20, 5903.20.25, 5903.90.15, 5903.90.20, 5903.90.25, 5906.99.20, 5906.99.25, 5907.00.05, 5907.00.15, or 5907.00.60.
The National Commodity Specialist Division advises that the fabric components comprising the duffel bag are classifiable in subheading 5903.20.25, HTSUS. Therefore, as the nylon packcloth of Thai origin does not undergo the requisite tariff shift, the imported travel bag is ineligible for NAFTA preferential treatment.
Applicability of subheading 9802.00.80
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
Articles, except goods of heading 9802.00.90 and goods imported under provisions of subchapter XIX of this chapter and goods imported under provisions of subchapter XX, 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 appraised value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentation requirements of section 10.24, Customs Regulations (19 CFR 10.24). For your information, we have enclosed a copy of an informed compliance publication relating to subheading 9802.00.80, HTSUS.
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 HTSUS
subheading 9802.00.80 to that component. See 19 CFR 10.16(c).
For a component to be eligible for subheading 9802.00.80, HTSUS, treatment, it must be a “product of the United States.” According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a “product of the United States” is an article manufactured within the Customs territory of the U.S. and may consist wholly or partially of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process in the U.S. must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article. Section 10.14(b), Customs Regulations (19 CFR 10.14(b)), states that a substantial transformation occurs when, as a result of manufacturing processes, a new and different articles emerges, having a distinctive name, character or use which is different from that originally possessed by the article or material before being subject to the manufacturing process.
Those fabric components used in the assembly of the duffel bag in Mexico which were cut to shape in the U.S. from fabric woven in the U.S. qualify as “products of the United States” pursuant to the rules of origin for textile and apparel articles set forth in section 334 of the Uruguay Round Agreements Act (URAA) (codified at 19 U.S.C. 3592) and implemented by regulations set forth in section 102.21, Customs Regulations (19 CFR 102.21). However, the nylon packcloth components used in the foreign assembly operation which were cut in the U.S. from Thai fabric are not considered “products of” the U.S. for purposes of subheading 9802.00.80, HTSUS. In this regard, section 334(b)(4)(A) of the URAA (codified at 19 U.S.C. 3592(b)(4)), provides that:
[t]he value of a component that is cut to shape (but not to length, width, or both) in the United States from foreign fabric and exported to another country, territory, or insular possession for assembly into an article that is then returned to the United States --
(I) shall not be included in the dutiable value of such article.
The effect of 19 U.S.C. 3592(b)(4) is to preserve the tariff treatment afforded by subheading 9802.00.80, HTSUS, that otherwise would no longer be available under the section 334 origin rules since cutting foreign fabric to shape in the U.S. no longer results in the cut fabric being considered a “product of” the U.S.
Section 10.25, Customs Regulations (19 CFR 10.25), implements 19 U.S.C. 3592(b)(4), and incorporates by reference the same operational, valuation and documentation requirements applicable to goods entered under subheading 9802.00.80, HTSUS. Therefore, imported goods entitled to a duty allowance under 19 CFR 10.25 are to be entered under subheading 9802.00.8065, HTSUS, and, solely for purposes of calculating the duty allowance under this subheading, Customs treats the textile components cut to shape in the U.S. from foreign fabric as if they were “U.S. fabricated components.”
An analysis of the sample bag submitted reveals that the cutting performed in the U.S. on the Thai-origin nylon packcloth to create components comprising most of the outer surface of the bag involves cutting to shape, as opposed to merely cutting to length and/or width. Therefore, pursuant to 19 CFR 10.25, allowances in duty may be made under subheading 9802.00.80, HTSUS, for the cost or value of the nylon packcloth components cut to shape in the U.S. from Thai fabric.
With respect to the foam of Korean origin which is cut in the U.S. to create the ½ “ shoulder strap foam, we note that foam is not considered fabric and therefore is not subject to the provisions of 19 U.S.C. 3592(b)(4) and 19 CFR 10.25. Thus, it is necessary to determine whether the cutting performed in the U.S. to create this component substantially transforms the Korean foam into a product of the U.S. Generally, Customs has held that cutting or bending materials to defined shapes or patterns suitable for use in making finished articles, as opposed to mere cutting to length and/or width, which does not dedicate the resulting material to a particular use, constitutes a substantial transformation. See, for example, Headquarters Ruling Letter 560466 dated June 18, 1997.
A review of the ½” shoulder strap foam component in the sample bag reveals that it was created by cutting to length and/or width rather than by cutting to a particular pattern shape. Therefore, we find that no substantial transformation results from cutting the Korean foam in the U.S. to create this component. As a result, no allowance may be made under subheading 9802.00.80, HTSUS, for the cost or value of the ½” shoulder strap foam component.
We note that your correspondence included no description of the foreign assembly operation. Therefore, we have no information upon which to determine whether the operations performed in Mexico (with respect to the components otherwise eligible for a duty allowance under subheading 9802.00.80, HTSUS) to create the duffel bags qualify as acceptable assembly operations or operations incidental thereto as described in 10 CFR 10.16.
Assuming that the operations performed in Mexico are acceptable assembly operations or operations incidental thereto, and the documentation requirements of 19 CFR 10.24 are satisfied, the duffel bags may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S.-origin fabric, zipper, velcro and polypropylene components, as well as the U.S.-origin hardware and labels and the nylon packcloth components cut in the U.S. from Thai fabric.
Applicability of subheading 9802.00.90
Subheading 9802.00.90, HTSUS, provides for the duty-free treatment of:
Textile and apparel goods, assembled in Mexico in which all fabric components were wholly formed and cut in the United States, provided that such fabric components, in whole or in part (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, provided that goods classifiable in chapters 61, 62, or 63 may have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma-pressing after assembly as provided for herein.
In this case, the nylon packcloth fabric comprising most of the outer surface of the bag is formed in Thailand. As subheading 9802.00.90, HTSUS, requires all fabric components to be wholly formed in the U.S, the imported duffel bags are ineligible for duty-free treatment under this provision.
HOLDING:
On the basis of the information and sample provided, the imported duffel bags are not entitled to special tariff treatment under NAFTA or subheading 9802.00.90, HTSUS, for the reasons set forth above. However, assuming that the operations performed abroad are acceptable assembly operations or operations incidental thereto, and the documentation requirements of 19 CFR 10.24 are met, the duffel bags may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S.-origin fabric, zipper, velcro, and polypropylene webbing components, as well as the U.S.-origin hardware and labels and the nylon packcloth components cut in the U.S. from Thai fabric. No allowance in duty may be made under this tariff provision for the cost or value of the foam components of Korean and Mexican origin, the hardware of Chinese origin or the labels of Mexican origin.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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
Enclosure