MAR-2-05 CO:R:C:V 732502 KG
Duncan A. Nixon
Sharretts, Paley, Carter & Blauvelt, P.C.
67 Broad Street
New York, N.Y. 10004
RE: Country of origin marking of sweatshirts
Dear Mr. Nixon:
This is in response to your letter of June 21, 1989, and
your submission of October 13, 1989 requesting a country of
origin marking ruling on imported sweatshirts to be assembled in
Jamaica. You submitted samples of the cut pieces and also a
completed sweatshirt.
FACTS:
Your client plans to purchase knit fabric of Asian origin.
This fabric will be cut to shape in its country of production.
The cut components will then be exported to Jamaica for assembly
into finished sweatshirts. The sweatshirt will be assembled
using two different types of knit fabric. The body panel and the
sleeve panels will be cut from knit fleece fabric, while the four
side panels on the cuffs, collar and bottom will all be cut from
ribbed knit fabric. The cutting operation will cost between
$0.05 and $0.10 per garment. The time involved in cutting is
minimal. The total cost of the cut components landed in Jamaica
is estimated to be $4.20 to $4.80 per garment with the fabric
cost estimated at approximately $3.50 per garment.
The sewing operation in Jamaica will cost approximately
$0.85 per garment and will take approximately 1/2 hour per
garment. The sewing will be performed primarily with flat lock
sewing machines which cost approximately $5,000.00 each. The
assembly will include the following operations: (1) The double
side panels will be carefully aligned and sewn to the main body
piece; (2) The sleeve pieces must be sewn closed; (3) The sleeves
will be sewn to the body; (4) Each cuff piece, the bottom piece
and the collar piece must be carefully folded and sewn closed;
(5) The cuffs, bottom and collar must be sewn to the body of the
garment and (6) The logo must be embroidered on one of the
sleeves. A total of 16 sewing operations and one embroidery
operation will be performed in Jamaica. Exhibit 1 of the
submission lists 28 different operations to be performed in
Jamaica. Exhibit 2 is a chart setting forth the cost of the
proposed training program for the operators of the flat lock
operations and the double needle cover stitch operations, which
is estimated at about $20,000.
ISSUE:
What is the country of origin of an imported sweatshirt
assembled as described above for quota and country of origin
marking purposes.
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or container) will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article.
Section 12.130, Customs Regulations (19 CFR 12.130), sets
forth the principles for making country of origin determinations
for textile and textile products subject to section 204 of the
Agricultural Act of 1956, as amended (7 U.S.C. 1854)("section
204"). According to T.D. 85-38, published in the Federal
Register on March 5, 1985, (50 FR 8714), which is the final rule
document which established 19 CFR 12.130, the principles of
country of origin for textiles and textile products contained in
19 CFR 12.130 are applicable to such merchandise for all
purposes, including duty and marking. This regulation, which
became effective in 1985, came about as a result of Executive
Order No. 12,475, 49 FR 19955 (1984), which directed the
Secretary of Treasury, in accordance with policy guidance
provided by the Committee for the Implementation of Textile
Agreements, to issue regulations governing the entry or
withdrawal from warehouse for consumption of textile and textile
products subject to section 204. The regulations were to include
clarifications in or revisions to the country of origin rules for
textiles and textile products subject to section 204 in order to
avoid circumvention of multilateral and bilateral textile
agreements.
The Court of International Trade upheld the interim
regulations, published as T.D. 84-171 in the Federal Register on
August 3, 1984 (49 FR 31248), in Mast Industries, Inc. v. Regan,
596 F. Supp. 1567 at 1582 (CIT 1984). The court stated that the
purpose of the interim textile regulations is "prevention of the
entry of textile products into the United States on quotas not
applied to the country which manufactured all or a substantial
part of the textile products. Accordingly, interim regulation
section 12.130 defines country of origin and established criteria
for substantial transformation in order to prevent nearly
completed textile products of one country from being imported
into the United States on the quota of another country."
When T.D. 85-38 was published, the background information
cited an intention to change the result of Cardinal Glove Co. v.
United States, 4 C.I.T. 41 (1982), as one of the motivations of
the drafting of the new textile regulations. Cardinal Glove
involved cotton work gloves. The cotton fabric was produced in
Hong Kong, and cut into front and back panels in Hong Kong.
These front and back panels were assembled by sewing in Haiti.
The gloves were then turned inside out, pressed, inspected,
paired, folded and bundled in Haiti. The court held that the
assembly and processing of the gloves in Haiti transformed the
gloves into an export of Haiti and that therefore, the bilateral
textile agreement between the U.S. and Hong Kong was inapplicable
and a Hong Kong export license or visa was unnecessary for entry
into the U.S. The court noted that "the exportation of
merchandise from a country producing a product to an intermediate
country for the purpose of processing, manipulating or assembling
that product, is a common practice in our present day industrial
and technological economy." Cardinal Glove at 43-44. This very
practice was feared as a method of attempting to circumvent the
textile import program and multilateral and bilateral textile
agreements rather than as a mechanism for effecting a substantial
manufacturing process that Customs desired to halt through
implementation of 19 CFR 12.130.
Pursuant to 19 CFR 12.130, the standard of substantial
transformation governs the determination of the country of origin
where textiles and textile products are processed in more than
one country. The country of origin of textile products is deemed
to be that foreign territory, country, or insular possession
where the article last underwent a substantial transformation.
Substantial transformation is said to occur when the article has
been transformed into a new and different article of commerce by
means of substantial manufacturing or processing operations.
The factors to be applied in determining whether or not a
manufacturing operation is substantial are set forth in 19 CFR
12.130(d) and (e). Assembly by sewing is considered in 19 CFR
12.130(e)(v) as usually resulting in a article being deemed a
product of the country in which the sewing was done where the
assembly is substantial such as the complete assembly and
tailoring of all cut pieces of suit-type jackets, suits, and
shirts. After considering all the comments received on the
interim regulation regarding assembly by sewing, Customs
concluded that "factors such as time, nature of the sewing
operation, and the skill required to sew together a tailored
garment should be considered in determining whether the
merchandise was substantially transformed.... Where either less
than a complete assembly of all the cut pieces of a garment is
performed in one country, or the assembly is a relatively simple
one, then Customs will rule on the particular factual situations
as they arise, utilizing the criteria in section 12.130(d)." 50
FR 8715 (March 5, 1985), T.D. 85-38. Customs overtly rejected
the adoption of an arbitrary rule of origin based solely on the
minutes of production in each country.
In HQ 731036 (July 17, 1989), Customs held that the assembly
by sewing of polo-style shirts in Country B was not a substantial
transformation because the manufacturing process was not complex,
took very little time and did not require highly skilled workers.
The assembly of polo-style shirts did not require tailoring or
detail work. This case is similar. The assembly by sewing takes
approximately 1/2 hour and costs $0.85 per garment. There is no
evidence that the Jamaica processing requires highly skilled
workers or that putting together a sweatshirt is any more
difficult than putting together a polo-style shirt. Therefore,
the sweatshirt is not substantially transformed in Jamaica.
Wherever the fabric is purchased and cut would be the country of
origin pursuant to 19 CFR 12.130 for quota and country of origin
marking purposes. This conclusion is further supported by the
fact that the cost of the fabric is approximately $4.20 to $4.80
per garment plus $0.05 to $0.10 to cut the fabric while the
sewing only costs about $0.85 per garment.
In your submission of October 13, 1989, you made several
arguments to support your position that Jamaica is the country of
origin of the assembled sweatshirts. First, you stated that the
importer intends to significantly increase its business
operations in Jamaica. This point is not relevant to a
determination of what country a textile good is from for the
purposes of 19 CFR 12.130. The purpose of 19 CFR 12.130, as
stated above, is to insure that a textile good is credited to the
proper country and is not intended to favor or penalize any
particular country or geographic area.
Your second argument contrasts the cost and time involved
in cutting the garment in Korea with the cost and time involved
in assembling the garment in Jamaica. These factors are relevant
but not conclusive. The major cost involved in the manufacture
of the sweatshirts is the cost of the material itself. This
material will not be purchased in Jamaica. Further, although
cutting does not involve a high labor cost (particularly in
Korea), the machines which are used for cutting are expensive.
Thirdly, you argue that because heavy knit fleece fabric and
knit ribbed fabric are being used, the sewing operation is more
sophisticated and expensive. The polo-style shirts discussed in
HQ 731036 involved cotton knit and knit ribbed fabric. Although
the fabric used in this case is clearly heavier, we are not
convinced that the sewing operation differs that greatly.
Your fourth point is that the importer will have to train
workers to use the flat lock machines because the importer
currently does not employ any experienced operators. Training is
a factor taken into account. However, 19 CFR 12.130 places
greater weight on work done by highly trained workers such as
tailors and craftsmen. A short training program to teach someone
to operate a flat lock machine does not carry great weight.
We regard your fifth point, that Customs adopted 19 CFR
12.130 to address the problem of assembly of knit to shape
sweater panels, as an oversimplification of the rationale which
led to the adoption of T.D. 85-38. There were a myriad of policy
reasons for the adoption of 19 CFR 12.130.
Your sixth point is that the importer's proposed operation
is based entirely on legitimate commercial considerations
unrelated to quota. T.D. 85-38 states that "the origin rules in
12.130 are effective only for textile restraint purposes." 50 FR
8714. While Customs does not question the legitimacy of the
proposed commercial operation and even if the sweatshirts would
be subject to quota restraints with both Korea and Jamaica, we
are not persuaded that the proposed assembly operations in
Jamaica are substantial.
We note that the sample submitted is marked "Made in U.S.A."
and has a U.S. address both on the neck label and on the hangtag
attached to the sleeve. This marking may be improper depending
on the origin of the fabric making up the sample and where the
fabric was cut and sewn. Without further information, we can
not issue a country of origin marking ruling for the sample.
However, if the sweatshirt is imported, the U.S. address on the
neck label and the hangtag could trigger the special marking
requirements of section 134.46, Customs Regulations (19 CFR
134.46).
HOLDING:
The sweatshirt is not substantially transformed in Jamaica.
Wherever the fabric is purchased and cut would be the country of
origin for the purposes of 19 CFR 12.130.
Sincerely,
John Durant
Director,
Commercial Rulings Division