yarn; country of origin; 19 CFR 12.130(c); subheading9802.00.50, HTSUS; subheading 9802.00.80, HTSUS;Reconsideration of NY C83246

HQ 561092 August 28, 1998 MAR-2 RR:TC:SM 561092 KSG CATEGORY: Marking 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