Country of origin of area rugs; 19 CFR 12.130; 19 CFR 10.14; subheading 9802.00.80

HQ 958069 September 26, 1995 CLA-2 CO:R:C:T 958069 NLP CATEGORY: Classification Mr. Tyler Lee All Floor Co., Inc. 1919 Alameda De Las Pulgas #55 San Mateo, CA 94403 RE: Country of origin of area rugs; 19 CFR 12.130; 19 CFR 10.14; subheading 9802.00.80 Dear Mr. Lee: This is in response to your letter of May 18, 1995, in which you requested a country of origin determination for area rugs and inquired as to the applicability of a textile visa exemption based on the U.S. material used in constructing the rugs. You provided us with a sample of the carpet used to make the area rugs, as well as photographs of the finished area rugs. FACTS: 100% nylon carpet made in the U.S. is sent to China where it is cut into a pre-designed pattern. The cut pieces are then pasted and glued together. An adhesive backed cloth is applied and the edges of the rug are banded. These rugs are then shipped back to the U. S. You state that all the materials used in constructing the area rugs, including the carpet, backing cloth, glue, banding tape and thread for sewing the edges, are made in the U.S. ISSUE: What is the country of origin of the area rugs? Whether the operations performed on the U.S. carpet in China will entitle the merchandise to the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), when returned to the U.S.? LAW AND ANALYSIS: Country of origin determinations for textile products are subject to Section 12.130 of the Customs Regulations (19 CFR 12.130). Section 12.130(b) provides that a textile product that is processed in more than one country or territory shall be a product of that country or territory -2- where it last underwent a substantial transformation. A textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce. Section 12.130(d) of the Customs Regulations sets forth criteria for determining whether a substantial transformation of a textile product has taken place. This regulation states that these criteria are not exhaustive; one or any combination of criteria may be determinative, and additional factors may be considered. Section 12.130(d)(1) of the Customs Regulations states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in: (I) Commercial designation or identity. (ii) Fundamental character or (iii) Commercial use. Section 12.130(d)(2) of the Customs Regulations states that in determining whether merchandise has been subjected to substantial manufacturing or processing operations, the following will be considered: (I) The physical change in the material or article as a result of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (ii) The time involved in the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (iii) The complexity of the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (iv) The level or degree of skill and/or technology required in the manufacturing or processing operations in each foreign territory or country, or insular possession of the U.S. (v) The value added to the article or material in each foreign territory or country, or insular possession of the U.S., compared to its value when imported into the U.S. -3- Under 19 CFR 12.130(c), U.S. textile articles that are advanced in value or improved in condition, or assembled in a foreign country are considered to be products of that foreign country. In this case, the U.S. nylon carpet is cut into a pre-designed pattern and pasted and glued together to make the finished area rug. The processing done in China clearly advances in value and improves the condition of the U.S. nylon carpet. Therefore, the country of origin of the carpet is China. ISSUE #2 The next issue that must be determined is whether the area rugs are eligible for the partial duty exemption available under subheading 9802.00.80, HTSUS when they are returned to the U.S. Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: Articles a ssembled abroad in whole or in part of fabricated comp onents, the product of the United States, which (a) were exported in condition re ady 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 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: (a) Fabricated components, the product of the United States. Except as provided in [section] 10.15, the exemption provi ded under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)( 19 U.S.C. 1202), applies to fabricated components, the product of the United States. The components must be in condition ready for assembly without further fabrication at the time of 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. Materials undefined in final dimensions and shapes, which are cut into specific shapes or patterns abroad are not considered fabricated components. -4- 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. Examples of operations incidental to the assembly process includes: trimming, filing, cutting off small amounts of excess materials; and cutting to length of wire, thread, tape, foil and similar products exported in continuous length. 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 the component. See, 19 CFR 10.16(c). We have previously held that subheading 9802.00.80, HTSUS, does apply to materials exported in continuous lengths that are merely cut to individual lengths abroad prior to assembly. However, it does not apply to materials which are cut into specific shapes or patterns abroad prior to the assembly process. Cutting parts to pattern shape from exported material is a further fabrication and would not be considered incidental to the assembly operation under subheading 9802.00.80, HTSUS. See, Headquarters Ruling Letter (HRL) 555146, dated January 4, 1989 and HRL 555012, August 22, 1988. See also, section 10.16, Customs Regulations (19 CFR 10.16). In the instant case, once the nylon carpet is imported into China it is cut according to a pre-designed pattern. This cutting constitutes further fabrication and based on section 10.14(a), the carpet is not considered a fabricated component for purposes of subheading 9802.00.80, HTSUS. Therefore, no allowances in duty may be made under this subheading for the cost or value of the U.S. nylon carpet exported to China for assembly. HOLDING: The U.S. made carpet is advanced in value and improved in condition when it is cut, pasted and glued together and placed on the backing material in China to make a finished area rug. Under 19 CFR 12.130(c), the county of origin of the carpet is China. The area rugs do not qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S. Sincerely, John Durant, Director Commercial Rulings Division