CA-2 R:C:M 957167 DFC
Mr. Keith Burdette
K.C. Burdette Company, Inc.
45 John Street
Suite 903
New York, NY 10038
RE: Footwear parts; Uppers; Laces; Composite goods; Sets;
Essential character; Country of origin marking; Articles
assembled abroad; United States v. Mast Industries;
Rudolph Miles v. United States; HRL's 955499, 061429,
956766, 555394`
Dear Mr. Burdette:
In a letter dated October 14, 1994, on behalf of Daedo
America Corp., along with a copy of a letter dated October 13,
1994, with attachments, from Daedo America, you inquired as to
the tariff classification and quota status under the Harmonized
Tariff Schedule of the United States Annotated (HTSUSA), of
textile uppers with shoe laces from China. You also ask whether
the merchandise qualifies for duty-free treatment under
subheading 9802.00.80, HTSUSA, and whether China is the country
of origin. Samples were submitted for examination.
FACTS:
Based on the information provided, Daedo America Corp.
intends to purchase U.S.-origin fabric from a supplier and ship
the fabric to another company in the U.S. who will laminate foam
onto the nylon fabric to produce "crosslink foam." The laminated
material will then be shipped to another U.S. company who will
cut the material into component pieces which are suitable to form
the shoe upper. After the cutting operation, the cut components
will be shipped to China, where they will be sewn together, along
with other Japanese-origin components (i.e., sponge foam, spenco
(nylon tricot) nylon bias, eyelets, lace, polyurethane), to form
the completed shoe upper [open-bottomed upper].
Based upon a telephone conversation on January 9, 1995,
between a representative from Daedo America Corp. and a member of
my staff, it was reported that an automatic eyelet fitting
machine makes the holes and attaches the eyelets in one
operation. It was also reported that the time involved to punch
holes in the footwear upper and insert the eyelets is very
insignificant as compared to the total time required to assemble
the footwear upper. Moreover, that the cost of punching the
holes and inserting the eyelets represents 3.1 percent of the
cost of the U.S. fabricated components.
You ask whether the following phrases will satisfy the
country of origin marking requirements:
1) Upper assembled in China of U.S. components, balance
assembled in U.S.A.
2) Upper assembled in China of U.S. components, bottom
made/attached in U.S.A.
3) Upper made in China, sole made in U.S.A., assembled in
U.S.A.
ISSUES:
Are the textile uppers with inserted shoelaces considered
composite goods or sets within the purview of GRI 3(b), HTSUSA?
Are the shoelaces separately classifiable?
Are the textile uppers eligible for the partial duty
exemption under subheading 9802.00.80, HTSUSA, when imported into
the U.S.?
Are the proposed markings set forth above acceptable country
of origin markings for footwear uppers assembled in China from
U.S. and Japanese-origin components?
LAW AND ANALYSIS:
Classification of goods under the HTSUSA is governed by the
General Rules of Interpretation (GRI's). GRI 1 provides that
"classification shall be determined according to the terms of the
headings and any relative section or chapter notes, and, provided
such headings or notes do not otherwise require, according to
[the remaining GRI's]." In other words, classification is
governed first by the terms of the headings of the tariff and any
relative section or chapter notes.
Composite Goods/Sets
GRI 2(b), HTSUSA, provides in part that '[t]he
classification of goods consisting of more than one material or
substance shall be according to the principles of Rule 3."
GRI 3, HTSUSA, provides, in pertinent part, as follows:
3. When by application of Rule 2(b) or for any other
reason, goods are prima facie classifiable under two or
more headings, classification shall be effected as
follows:
(a) The heading which provides the most specific
description shall be preferred to headings
providing a more general description. However,
when two or more headings each refer to part only
of the materials or substances contained in mixed
or composite goods. . . those headings are to be
regarded as equally specific in relation to those
goods, even if one of them gives a more complete
or precise description of the goods.
(b) Mixtures, composite goods consisting of different
materials or made up of different components, and
goods put up in sets for retail sale which cannot
be classified by reference to 3(a), shall be
classified as if they consisted of the material or
component which gives them their essential
character, insofar as this criterion is
applicable.
The shoe laces and the textile uppers are prima facie
classifiable under separate subheadings of the tariff schedule
which describe only a portion of the materials in the articles as
a whole. Following GRI 3(a), HTSUSA, subheadings
5609.00.3000,HTSUSA, and 6406.10.9040, HTSUSA, are regarded as
equally specific which requires application of GRI 3(b), HTSUSA,
governing the classification of composite goods and goods put up
in sets for retail sale.
The Harmonized Commodity Description and Coding System
Explanatory Notes (EN) to the HTSUSA, although not dispositive,
or legally binding, provide a commentary on the scope of each
heading of the HTSUS, and are generally indicative of the proper
interpretation of the HTSUS. See, T.D. 89-80, 54 FR 35128
(August 23, 1989). EN (IX) to GRI 3(b), at page 4, reads, as
follows:
(IX) For the purposes of this Rule, composite goods made up
of different components shall be taken to mean not only
those in which the components are attached to each
other to form a practically inseparable whole but also
those with separable components, provided these
components are adapted one to the other and are
mutually complementary and that together they form a
whole which would not normally be offered for sale in
separate parts.
The shoe laces and the textile uppers do not qualify as
composite goods within the purview of GRI 3(b), HTSUSA, because
they are not specially adapted to each other. Further, it is
doubtful that the uppers and laces "form a whole which would not
normally be offered for sale in separate parts." The best
description for this import is "uppers with shoelaces in them."
EN (X) to GRI 3(b) at p. 4, provides that for the purposes
of this rule, the term "goods put up in sets for retail sale"
shall be taken to mean goods which:
(a) consist of at least two different articles which are
prima facie classifiable in different headings . . . ;
(b) consist of products or articles put up together to meet
a particular need or carry out a specific activity; and
(c) are put up in a manner suitable for sale directly to
users without repacking (e.g., in boxes or cases or on
boards).
The shoelaces and the textile uppers do not qualify as
"goods put up in sets for retail sale" because they are not
packaged for retail sale.
In view of the foregoing it is our position that the uppers
without bottoms are separately classifiable, assuming that they
are of man-made fibers, under subheading 6406.10.9040, HTSUSA.
The shoelaces are separately classifiable, assuming that they are
of man-made fibers, under subheading 5609.00.3000, HTSUSA. See,
HRL 956766 dated March 3, 1995.
Subheading 9802.00.80, HTSUSA
HTSUS subheading 9802.00.80, HTSUSA, 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 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 U.S. 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)),
states 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 subjected to
operations incidental to the assembly 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. (Emphasis added).
The foreign operations that entail attaching two or more
components together by sewing is considered an acceptable
assembly operation. Therefore, the operations involving sewing
the footwear upper components together with other Chinese-origin
components to produce the completed footwear uppers are
acceptable assembly operations within the meaning of subheading
9802.00.80, HTSUSA. Inserting the eyelets into the uppers is
also an acceptable assembly operation.
The question presented is whether the operation of punching
holes in the cut-to shape footwear upper components is incidental
to the assembly of the footwear uppers.
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. See section 10.16(a), Customs Regulations
(19 CFR 10.16(a)). 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 that component. See, 19 CFR 10.16(c).
In United States v. Mast Industries, Inc., 515 F.Supp. 43, 1
CIT 188, aff'd, 69 CCPA 47, 668 F.2d501 (1988), the court, in
examining the legislative history of the meaning of "incidental
to the assembly process," stated that:
[t]he apparent legislative intent was to not preclude
operations that provide an "independent utility" or that are
not essential to the assembly process; rather, Congress
intended a balancing of all relevant factors to ascertain
whether an operation of a " minor nature" is incidental to
the assembly process.
The court then indicated that relevant factors included:
(1) whether the relative cost and time of the operation are
such that the operation may be considered minor;
(2) whether the operation is necessary to the assembly
process;
(3) whether the operation is so related to the assembly that
it is logically performed during assembly; and
(4) whether economic or other practical considerations
dictate that the operation be performed concurrently with
assembly.
In Rudolph Miles v. United States, C.A.D. 1202, 65 CCPA 32,
567 F.2d 979 (1978) rev'g, C.D. 4689, 78 Cust. Ct. 35, 427
F.Supp. 417 (1977), the issue was whether the burning of slots
and holes into Z-beams in Mexico, so that wear and support plates
and other components could be attached prior to the beams'
joinder to boxcars, constituted a further fabrication of the
beams. The court held that the burning of the holes and slots
was concomitant with the assembly process and was not substantial
enough to preclude the application of the precursor provision to
subheading 9802.00.80, HTSUSA. In addition , we have previously
ruled on several occasions that drilling or punching holes in
various components is an operation incidental to assembly where
the operation is not substantial and is necessary for the
assembly process. See, HRL 061429 dated March 28, 1980 (holes
drilled and punched through plastic cabinet, wood decal, and
oscillator shield to accommodate locks and coil were deemed to be
incidental to assembly, as they were not substantial); and HRL
555394 dated August 15, 1989 (punching a hole into a vertical
blind strip, which allows for the subsequent attachment of a
plastic hook, is considered an incidental operation).
In the instant case, consistent with the cases cited above,
we are of the opinion that the operation that entails punching
holes into the footwear uppers to permit the subsequent insertion
of metal rivets is an acceptable operation incidental to the
assembly of the footwear uppers. As the court found in Rudolph
Miles, punching holes in the footwear upper components does not
constitute a further fabrication of the components. Moveover,
the relative time required to perform the hole punching is
insignificant as compared with the time required to perform the
entire assembly operation. In addition, a comparison of the
relative cost required to perform the operation with the cost of
the U.S. fabricated components reveals that the cost of the hole
punching operation represents approximately 3.1 percent of the
cost of the U.S. fabricated components. It appears that the hole
punching is so related to the assembly that it is logically
performed during the assembly operation. Without the holes in
the footwear uppers, the eyelets cannot be inserted into the
uppers. Finally, we have been informed that economic and
practical considerations dictate that the hole punching be
performed during the assembly operation.
In sum, we are satisfied based on the information provided
that the U.S. components satisfy the requirements of subheading
9802.00.80, HTSUSA, and therefore, are entitled to the duty
allowance available under this tariff provision.
Country of Origin Marking Requirements
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 its 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.
Congressional intent in enacting 19 U.S.C. 1304 was 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.
Section 10.22, Customs Regulations (19 CFR 10.22),
constitutes an exception to the general rule that the country of
origin of an article is the country where the last substantial
transformation occurs. This provision, which specifies the
country of origin marking requirements for articles entitled to a
duty exemption under the subheading 9802.00.80, HTSUSA, provides
as follows:
Assembled articles entitled to the exemption are
considered products of the country of assembly for the
purposes of the country of origin marking requirements
of section 304, Tariff Act of 1930, as amended (19
U.S.C. 1304). If an imported assembled article is made
entirely of American-made materials, the United States
origin of the material may be disclosed by using a
legend such as "Assembled in from material of U.S.
origin," or a similar phrase. (Emphasis added.)
Since the footwear upper in the instant case is not made
entirely of U.S.-origin materials, but also includes Japanese-
origin components, pursuant to 19 CFR 10.22, it is incorrect to
use the phrases "Upper assembled in China of U.S. Components,
balance assembled in U.S.A." and "Upper assembled in China of
U.S. components, bottom made/attached in U.S.A." These
statements are misleading to the consumer since they do not
indicate that any of the components of the upper are made from
non-U.S.-origin materials. However, it is acceptable under 19
U.S.C. 1304 to mark the uppers with the phrase "Upper made in
China, sole made in U.S.A., assembled in U.S.A." However, use
of the phrase "made in U.S.A." is within the jurisdiction of the
Federal Trade Commission. Therefore, you should contact the FTC
regarding the appropriateness of the use of this phrase. The FTC
address is: Federal Trade Commission, Division of Enforcement,
6th and Pennsylvania Avenue, N.W., Washington, D.C. 20508.
HOLDING:
The textile uppers with inserted shoelaces are not
considered composite goods or sets within the purview of GRI
3(b), HTSUSA.
The textile uppers without bottoms are dutiable at the rate
of 8.6% ad valorem under subheading 6406.10.9040, HTSUSA. The
applicable textile category number is 669.
The shoelaces are separately classifiable, assuming they are
of man-made fiber, under subheading 5609.00.3000, HTSUSA. The
applicable rate of duty for this provision is 8.6% ad valorem.
The designated textile and apparel category may be
subdivided into parts. If so, the visa and quota category
requirements applicable to the subject merchandise may be
affected. Since part categories are the result of international
bilateral agreements which are subject to frequent renegotiations
and changes, to obtain the most current information available, we
suggest you check, close to the time of shipment, the Status
Report on Current import quotas (Restraint Levels, an issuance of
the U.S. Customs Service, which is updated weekly and is
available at your local Customs office.
Due to the changeable nature of the statistical annotation
(the ninth and tenth digits of the classification) and the
restraint (quota/visa) categories, you should contact your local
Customs office prior to the importation of this merchandise to
determine the current status of any import restraints or
requirements.
Based on the information and samples submitted, it is our
opinion that the foreign operations performed on the U.S.-origin
footwear upper components are considered proper assembly
operations and operations incidental to the assembly process.
Therefore, the imported footwear uppers may be entered under
subheading 9802.00.80, HTSUSA, with allowances in duty for the
cost or value of the U.S.-origin components incorporated therein,
upon compliance with the documentary requirements of 19 CFR
10.24. It is proper under 19 U.S.C. 1304 to mark the uppers with
the phrase "Upper made in China, Sole Made in U.S.A." However,
you should contact the FTC regarding the appropriateness of the
phrase "Made in U.S.A."
Sincerely,
John Durant, Director
Commercial Rulings Division