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HQ 559390




August 6, 1996

CLA-2 RR:TC:SM 559390 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Daniel Cavazos, Esq.
Cacheaux, Cavazos, Newton & Kimball, L.L.P. 1300 N. 10th Street, Suite 320
McAllen, Texas 78501

RE: Applicability of partial duty exemption under HTSUS subheading 9802.00.80 to emblems from Mexico; further fabrication; embroidery; cutting; binding

Dear Mr. Cavazos:

This is in response to your letter of August 10, 1995, requesting a ruling on behalf of Conrad Industries, Inc. ("Conrad"), regarding the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to emblems and badges from Mexico. Additional information and samples were submitted on March 21, 1996.

FACTS:

Synthetic woven fabric ground cloth in rolls approximately 60 inches wide, thread yarn, and polyvinyl chloride (plastic) backing solution, all stated to be of U.S. origin, are used to manufacture emblems in the U.S. The ground cloth is embroidered with yarn according to the pattern of the emblem, forming 30 to 45 feet long sheets of emblems. The sheets of emblems are then laminated on the reverse side with the polyvinyl chloride solution to impregnate and protect the threads to prevent shrinking and wrinkling when washing. The laminated sheets of emblems are then rolled and packed for shipment to Mexico, together with U.S.-origin thread for binding.

In Mexico, the laminated sheets of emblems are unrolled, and all surface connecting float threads are manually trimmed and removed, as well as the remaining connecting threads from the front of the sheets of the emblems. The laminated sheets are then cut into horizontal strips so that they may be fed through a die cutting machine. The width of the strips will vary depending on the number, types, and shapes of the emblems embroidered on the ground cloth. The strips of emblems are then die cut to separate the emblem from the laminated sheet. Depending on the size or the shape of the emblem, separation is sometimes done manually with scissors or a hot needle. Next, the emblems are sewn with an overlock stitch to bind the edges. The excess of the overlock is then fused to the back of the emblem. The emblems are then inspected and packed for shipment to the U.S.

It is stated that the direct labor cost of the emblem separating operation is 10.8 percent of the total direct labor cost of the Mexican operations, and represents 9.65 percent of the emblem production time. However, these figures vary depending on the size and shape of the emblem. The cost structure for the manufacture of emblems in the U.S. for 1994 and 1995 was also provided.

ISSUE:

Whether the emblems will qualify for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, 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 (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 cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

Further Fabrication

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, lamination, sewing, or the use of fasteners.

In this case, it is stated that the assembly operations performed in Mexico involve the sewing of an overlock stitch with thread to bind the edges of the emblems, and the sealing of the excess thread from the overlock operation to the back of the emblem. Peg Bandage v. United States, 17 CIT 1337 (1993), is cited as support. In Peg Bandage, the Court of International Trade distinguished Zwicker Knitting Mills v. United States, 469 F. Supp. 727, (Cust. Ct. 1979), aff'd, 613 F.2d 295 (CCPA 1980), from the decision in L'eggs Products, Inc. v. United States, 704 F. Supp. 1127 (CIT 1989).

In Zwicker, the closing of glove fingers constituted an operation necessary to complete the component, and, therefore, was not an acceptable assembly operation. The operations included a tipping procedure which involved cutting the yarn floats which were continuations of yarn between the open fingertip and base of the finger to expose new loops to allow the closure of the fingertip. This was held to constitute a further fabrication because it actually constructed a portion of the glove that did not exist before the fingertips. Accordingly, it was found that the tipping operation had to be completed after the knitting of the glove shell "since without the tipping' the yarn would unravel during the brushing and steaming steps." 469 F. Supp. at 733.

In L'eggs, the leg blanks were not further weaved or knitted prior to assembly, but only a small amount of fabric was trimmed prior to closing the tube-ends. Noting that the bandage ends were created when the woven material was cut in the U.S. and the sewing did not create the bandage but prevented it from unraveling, the court in Peg Bandage held that the sewing operation amounted to an assembly within the meaning of item 807.00, Tariff Schedules of the United States (TSUS) (now subheading 9802.00.80, HTSUS).

In Samsonite Corporation v. United States, 702 F. Supp. 908 (CIT 1988), aff'd, 889 F.2d 1074, 1076 (Fed. Cir. 1989), the court considered the bending of steel strips to be more than an adjustment of the article, but the creation of the component to be assembled, the essence of which is its configuration. The court concluded that a process which was as necessary to the fabrication of the component as it was to subsequent assembly thereof is not incidental to assembly. Consistent with this decision, in Headquarters Ruling Letter (HRL) 555425 dated October 17, 1989, Customs held that the notching of ribbon to a narrow width where a plastic clip and drawstring were attached constituted the creation of a component prior to its assembly (i.e., further fabrication), and was more than a trimming of excess material.

In this case, the emblems are not precut as the bandages in Peg Bandage, and the cutting of the emblems to shape is necessary to allow the overlocking operation to occur. Unlike L'eggs, where only a small amount of fabric was cut which permitted the tubes to be sewn shut, in this case, the cutting performed depends upon the shape of the emblem. Similar to the tipping operation in Zwicker or the bending operation in Samsonite, we find that the cutting actually completes the emblem. The cutting operation is actually analogous to the cutting of fabric to a pattern shape in order to create a garment, and whether there are prescribed lines does not make the article ready for assembly without further fabrication. Accordingly, it is our opinion that the exported sheets are not ready for assembly without further fabrication.

HOLDING:

On the basis of the information and samples submitted, it is our opinion that the exported sheets are not fully fabricated components, and thus, the question whether or not the cutting operations are incidental to the assembly process is not relevant for purposes of subheading 9802.00.80, HTSUS, eligibility. Accordingly, the imported emblems are not eligible for subheading 9802.00.80, HTSUS, treatment.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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

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