MAR-2-05 CO:R:C:V 732673 KG
Syed Sikander Abbas
Terrymanila, Inc.
SFB NO. 7
Bataan Export Processing Zone
Bataan, Philippines
RE: Country of origin marking of imported beach towels
Dear Mr. Abbas:
This is in response to your letter of August 18, 1989,
requesting a country of origin ruling regarding imported beach
towels.
FACTS:
A textile manufacturing company situated in the Philippines
imports greige terry towelling in bales. In the Philippines the
fabric will be desized, bleached, dyed, hydro extracted, dried,
printed by hand, cut to size, stitched, mended, graded and
packed in polybags which are placed in cartons for export.
The process time involved in the Philippines from the
importation of greige fabric to the exportation of finished
printed towels would be around 40 to 45 days. The value added to
the product would be approximately 86%.
ISSUE:
What is the country of origin for the purposes of 19 CFR
12.130 for imported beach towels manufactured as described above.
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. The U.S. Court of
International Trade stated in Koru North America v. United
States, 701 F.Supp. 229, 12 CIT ___(CIT 1988), that: "In
ascertaining what constitutes the country of origin under the
marking statute, a court must look at the sense in which the term
is used in the statute, giving reference to the purpose of the
particular legislation involved. The purpose of the marking
statute is outlined in United States v. Friedlaender & Co., 27
CCPA 297, 302, C.A.D. 104 (1940), where the court stated that:
'Congress intended that the ultimate purchaser should be able to
know by an inspection of the marking on the imported goods the
country of which the goods is the product. The evident purpose
is to mark the goods so that at the time of purchase the ultimate
purchaser may, by knowing where the goods were produced, be able
to buy or refuse to buy them, if such marking should influence
his will."
Part 134, Customs Regulations (19 CFR Part 134), implements
the country of origin marking requirements and exceptions of 19
U.S.C. 1304. 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, the final rule
document published in the Federal Register on March 5, 1985 (50
FR 8714),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 U.S. Court of International Trade upheld the interim
regulations which included 19 CFR 12.130, 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 reject the theory 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 gloves
were considered to be from Haiti, the country of exportation.
This meant that 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. It was feared that this theory or principle
would create a mechanism to circumvent the textile import
program and multilateral and bilateral textile agreements.
Customs stated in T.D. 82-169 its intention not to follow
the country of exportation concept set forth in Cardinal Glove,
but rather to apply the substantial transformation test.
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).
Specifically, 19 CFR 12.130(e)(i) states that dyeing of
fabric and printing when accompanied by two or more of the
following finishing operations: bleaching, shrinking, fulling,
napping, decating, permanent stiffening, weighting, permanent
embossing or moireing in a foreign country may transform the
article into a product of that foreign country. Fairchild's
Dictionary of Textiles (1970) defines finishing as "all processes
through which fabric passes after being taken from loom. This
covers bleaching, dyeing, sizing, and processes which give the
desired surface effect, e.g., napping, calendering, embossing,
etc. Special finishes are used for crease resistance and water
repellency. Covers both chemical and mechanical finishing
processes, e.g. acetylation, (cotton) and saponification, (rayon)
(sic) alter composition of basic fiber."
Although the manufacturing processes in the Philippines
involve dyeing and printing of the fabric, it does not include
at least two major finishing operations such as the ones listed
in 19 CFR 12.130(e)(i). Desizing, which is the process of
converting the size in grey goods into a soluble form which is
then washed out, either to permit dyeing or bleaching or in
testing the unsized weight of the fabric, is considered a minor
finishing operation. Hydro extraction, drying, cutting to size,
stitching, and mending are also all considered minor finishing
operations. Therefore, although the grey fabric is dyed,
printed, and bleached in the Philippines, the processing does not
include at least two major finishing operations plus dyeing and
printing in conformity with the examples set forth in 19 CFR
12.130(e)(i). For this reason, the country of origin for the
purposes of 19 CFR 12.130 would be that country where the greige
terry towelling is made and not the Philippines.
HOLDING:
The country of origin for the purposes of 19 CFR 12.130 of
greige terry towelling processed as described above would be
that country where the greige terry towelling is made and not the
Philippines.
Sincerely,
John Durant
Director,
Commercial Rulings Division