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HQ 557769

May 12, 1994

CLA-2 CO:R:C:S 557769 MLR


Gary Mizumoto, Esq.
American Overseas Air Freight, Inc.
11034 South La Cienega Boulevard
Inglewood, CA 90304-1198

RE: U.S. Note 2(a), Subchapter II, Chapter 98, HTSUS; 19 CFR 12.130(c); T.D. 85-38; T.D. 90-17

Dear Mr. Mizumoto:

This is in reference to your letter of January 4, 1994, requesting a ruling on behalf of Neman Brothers. Inc. ("Neman"), concerning the country of origin of U.S.-woven fabric dyed in Korea.


Neman intends to export rolls of all-rayon greige fabric woven in the U.S. to Korea where the fabric will be dyed, repacked, and returned to the U.S. Neman does not intend to seek any duty allowance provided under Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS). Neman contends that the U.S.-made fabric remains a product of the U.S. since it is merely dyed in Korea. Neman requests that our country of origin determination consider the marking statute (19 U.S.C. 1304), textile quota/visa issues, and the special textile country of origin regulations (19 CFR 12.130).


Whether the dyeing of the rolls of U.S.-woven fabric in Korea, constitutes an advancement in value or improvement in condition, and, therefore, renders the fabric a product of Korea.


By T.D. 85-38, Customs amended Part 12, Customs Regulations (19 CFR Part 12), by adding a new section 12.130 which established criteria to be used in determining the country of origin of imported textiles and textile products for purposes of multilateral or bilateral textile agreements entered into by the U.S. pursuant to section 204, Agricultural Act of 1956, as amended (7 U.S.C. 1854). However, this criteria did not change the "foreign article" status of textiles or textile products under Headnote 2, Part 1, Schedule 8, Tariff Schedules of the United States (TSUS) (19 U.S.C. 1202) {now Chapter 98, Subchapter II, Note 2(a)}. See T.D. 84-171.

Chapter 98, Subchapter II, Note 2(a), HTSUS {"Note 2(a)"}, 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 for the purposes of the Tariff Act of 1930, as amended. In T.D. 85-38, Customs stated that the language of Note 2(a) is clear and unambiguous, and that it applies, without regard to degree of advancement in value, improvement in condition, or assembly, to such merchandise for duty and marking purposes. Furthermore, in order to have a single definition of the term "product of", and, therefore, a single country of origin for imported textile or textile products, T.D. 85-38 added 19 CFR 12.130(c) to indicate that Note 2(a) will also apply to merchandise subject to 7 U.S.C. 1854.

Neman claims that although 19 CFR 12.130 may have been authorized by an Executive Order, those regulations cannot validly modify or extend the legislative enactment of Note 2(a). Neman suggests that 19 CFR 12.130(c) can only be applied, at most, to any article described by the Chapter Note, and for which entry is sought under the provisions of Chapter 98. Therefore, Neman claims that the subheading 9802.00.50, HTSUS, rulings which disqualify U.S.-origin articles for modest operations performed abroad, are not relevant. Likewise, Neman claims that the language in Note 2(a) is not relevant because in T.D. 85-38, Customs recognized that matters such as quota/visa issues, "do not fall within the purview of the Tariff Act of 1930, as amended." Consequently, Neman contends that the broad interpretation of 19 CFR 12.130(c) is not consistent with Customs position to have a single definition of the term "product of" for purposes of duty, marking and textile restraints. The fundamental rule, as announced for quota/visa purposes in 19 CFR 12.130, when two countries are involved, is the transformation by means of substantial manufacturing or processing operations into a new and different article of commerce, which the dyeing operation does not satisfy, pursuant to 19 CFR 12.130(e)(2)(v). Therefore, since the U.S.-woven fabric is not substantially transformed in Korea and the country of origin marking statute, 19 U.S.C. 1304, applies only to articles of foreign origin, Neman claims that the fabric remains a product of the U.S. and is not required to be marked "Made in Korea" at the time of importation. Consequently, the only way to achieve the unitary standard is for Customs to acknowledge that 19 CFR 12.130(c) does not make a U.S. article a foreign one unless it fits the description of Note 2(a), and the importer attempts to avail himself of the Chapter 98 provisions.

In T.D. 85-38, Customs recognized that the language of Note 2(a) is not consonant with the origin rules contained in 19 CFR 12.130; however, in this regard, Customs noted that Note 2(a), in and of itself, is not a rule of origin, but rather a statutory enactment exempting a certain class of merchandise from the normal rules of origin. Furthermore, in T.D. 90-17, Customs determined that unless the courts hold that Customs should not apply this uniform standard in interpreting a particular statute and that an article is to be considered a product of more than one country, Customs intends to continue its application of an unitary origin standard. Consequently, 19 CFR 12.130 is applicable for country of origin determinations for all Customs purposes.

We, therefore, find that the country of origin determination for quota, visa, and duty assessment purposes of U.S.-made fabric dyed abroad, is not based on the substantial transformation test applied to foreign items processed in another foreign country, but rather the test is whether the fabric was advanced in value or improved in condition by any process or other means while abroad. In this case, the U.S-made fabric is dyed in Korea. There is no doubt that the dyeing advances the bolt fabric to a condition suitable for its intended use. Consequently, the dyeing of U.S-woven fabric in Korea makes the fabric a product of Korea for quota, visa, marking, and duty assessment purposes. The fact that Neman does not intend to enter the fabric under the provisions of Chapter 98 is not relevant; a contrary determination would encourage the circumvention of the various multilateral and bilateral agreements to which the U.S. is a party, which 19 CFR 12.130 is designed to prevent. Therefore, since the U.S.-origin fabric will be considered a "product of Korea" pursuant to 19 CFR 12.130(c), if it is advanced in value or improved in condition while in Korea, and since Customs stated in T.D. 90-17, that 19 CFR 12.130 will be applicable for all Customs purposes including country of origin marking, the U.S.-woven fabric which is dyed in Korea will be required to be marked "Korea."


Based on the information submitted, we find that the dyeing of the bolts of U.S.-woven fabric in Korea constitutes an advancement in value and improvement in condition, thereby rendering the fabric a product of Korea.


John Durant, Director

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