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HQ 559661

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April 18, 1997

CLA-2 RR:TC:SM 559661 KBR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.50; 9802.00.90

Daniel Cavazos
Cacheaux, Cavazos, Newton, Martin & Cukjati, L.L.P. The Atrium
1300 N. 10th Street, Suite 320
McAllen, TX 78501

RE: Socks; 9802.00.90, HTSUS; 9802.00.50, HTSUS

Dear Mr. Cavazos:

This is in response to your letter dated January 24, 1996, on behalf of Lyons Hosiery, Inc., concerning the eligibility of socks from Mexico for duty-free treatment under subheading 9802.00.50, Harmonized Tariff Schedule of the United States ("HTSUS") and 9802.00.90, HTSUS. You submitted a sample with this request. We apologize for the delay in responding.

FACTS:

You present two scenarios under which you may import socks into the U.S. after assembly in Mexico. In both cases the materials used to knit and seam the socks are 80% cotton and 20% nylon yarn, elastic, and nylon thread. The yarn and thread are of U.S. origin. In some cases you state that the elastic may be of foreign origin. You state that the elastic is less than 1% of the cost of the sock and less than 1% of the weight of the sock. The plastic anchors and paper used for banding and labeling will be of U.S. origin.

Under the first scenario, the socks will be knit to shape in the U.S. In a greige state, the article will be exported to Mexico. In Mexico the unfinished sock will be turned and the toe portion trimmed, closed and seamed using U.S. thread, and turned again. The sock will be bleached then boarded onto a foot shape for drying and wrinkle removal. The socks are then paired, banded with adhesive labels and bagged for export to the U.S.

Under the second scenario, the socks are knit to shape and finished in the U.S., then exported to Mexico. In Mexico the socks will be boarded for wrinkle removal. The socks are then paired, a plastic anchor is attached and the socks are banded with adhesive labels and bagged for export to the U.S. You state that for some smaller sizes, the boarding is not required and the socks will only be paired and banded with an adhesive label which in both instances has on it the name of the company, fiber content, care instructions and country of origin information. You state that you believe that the socks under this scenario will be excepted from country of origin marking requirements because they remain products of the U.S.

ISSUES:

1. Do the socks under the first scenario qualify for duty-free treatment pursuant to 9802.00.90, HTSUS?

2. Do the socks under the second scenario qualify for duty-free treatment pursuant to 9802.00.50, HTSUS?

3. What are the country of origin marking requirements applicable to the socks under both scenarios?

LAW AND ANALYSIS:

9802.00.90, HTSUS

Subheading 9802.00.90, HTSUS, was created to provide for the duty-free entry of:

Textile and apparel goods, assembled in Mexico in which all fabric components were wholly formed and cut in the United States, provided that such fabric components in whole or in part, (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; provided the goods classifiable in chapters 61, 62, or 63 may have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma-pressing after assembly as provided for herein.

Since subheading 9802.00.90, HTSUS, was intended as a successor provision to subheading 9802.00.80, HTSUS, with respect to certain textile and apparel goods assembled in Mexico, the regulations under subheading 9802.00.80, HTSUS, may be instructive in determining whether a good is eligible for the beneficial duty treatment accorded by subheading 9802.00.90, HTSUS.

Under section 10.14(a), Customs Regulations (19 CFR 10.14(a)), components will not lose their entitlement to the benefits of subheading 9802.00.80, HTSUS, by being subjected to operations incidental to the assembly before, during, or after the assembly with other components. Pursuant to section 10.16(a) of the Regulations (19 CFR 10.16(a)), 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 process.

The foreign operations that entail sewing fabric onto itself using any type of stitch, including a "close-out"/finishing or over-edge stitch are considered acceptable assembly operations. See 19 CFR 10.16(a); L'Eggs Products v. United States, Slip Op. 89-5, 13 CIT 40, 704 F. Supp. 1127 (CIT 1989), which held that sewing together the end of a pantyhose tube is considered an acceptable assembly operation as the thread serves as a joining agent by joining the tube to itself. See HQ 557327 (July 26, 1993).

In the instant case, based on the information and samples provided, we find that the sock is wholly formed prior to its export into Mexico. The sewing operation used to join the toe of the sock is an acceptable assembly operation. The bleaching is an acceptable operation specifically allowed under 9802.00.90, HTSUS. Banding, labeling and bagging of the sock are operations incidental to assembly pursuant to 19 CFR ?10.16(f). Boarding of the sock is similar to pressing which is an acceptable operation under 19 CFR ?10.16(b)(7). Accordingly, the socks that are assembled in Mexico may be entered free of duty under subheading 9802.00.90, HTSUS, provided all other conditions of the subheading are met.

9802.00.50, HTSUS

Annex 307 of the North American Free Trade Agreement (NAFTA) and Annex 307.1 of the Agreement provide that articles exported from the U.S. to Mexico for "repairs or alterations" may, upon their return, enter into the U.S. free of duty.

Subheading 9802.00.50, HTSUS, provides a partial or complete duty exemption for articles exported from and returned to the U.S. after having been advanced in value or improved in condition by repairs or alterations, provided the documentary requirements of section 181.64, Customs Regulations (19 CFR ?181.64), are satisfied. Section 181.64, which implements Article 307 of NAFTA, provides that goods returned after having been repaired or altered in Mexico are eligible for duty-free treatment, provided that the requirements of this section are met. However, entitlement to this tariff treatment is precluded in circumstances where the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See A.F. Burstrom v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'g C.D. 1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corporation v. United States, 3 CIT 9 (1982). Subheading 9802.00.50, HTSUS, treatment is also precluded where the exported articles are incomplete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles. Dolliff & Company, Inc. v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 CCPA 77, C.A.D. 1225, 599 F.2d 1015 (1979).

"Repairs or alterations" for purposes of 19 CFR ?181.64 are defined as:

... restoration, addition, renovation, redying, cleaning, resterilization, or other treatment which does not destroy the essential characteristics of, or create a new or commercially different good from, the good exported from the United States.

In this instance, placing the adhesive label on the paired socks constitutes an "alteration". You are placing an adhesive label on the paired socks which will be printed with the name of the company, the fiber content, the care instructions and the country of origin of the socks. We have held that marking or affixing a label to a product constitutes an alteration. See T.D. 56320(1) dated September 17, 1964 (electrical diodes exported to Mexico for inspection, evaluation, and stamping of their electrical diode characteristics were entitled to treatment under 806.00, TSUS (now 9802.00.50, HTSUS); HRL 071159 dated March 2, 1983 (diodes exported to Mexico for marking and packaging operations were entitled to treatment under 806.20, TSUS, as the printing operation had no more significance than a label for identification purposes); HRL 554996 dated June 30, 1988 (sunglasses exported for inspection, temple adjustment and retagging were entitled to the partial duty exemption in item 806.20, TSUS). See HQ 556956 (July 22, 1993).

Concerning the boarding operation, Customs found in HQ 557600 (September 24, 1994) that "washing, pressing, stapling, tack it', and tack stitching operations performed on the jeans in Mexico constitute alterations'". See also HQ 555318 (September 20, 1989); HQ 557327 (July 26, 1993). Since the boarding operation is similar to a pressing operation, we find this to be an acceptable "alteration" under 9802.00.50, HTSUS. Consistent with the above rulings, we are of the opinion that the operations performed by Lyons Hosiery, Inc. (boarding the socks to remove wrinkles and then pairing the socks together with a band for labeling) are operations that constitute acceptable "alterations" within the meaning of subheading 9802.00.50, HTSUS.

Country of Origin

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. On September 5, 1995, Customs published Treasury Decision (T.D.) 95-69, establishing Section 102.21, Customs Regulations, in the Federal Register, implementing Section 334 (60 FR 46188).

Thus, effective July 1, 1996, the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21.

Paragraph (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 socks are not wholly obtained or produced in a single country, territory or insular possession, paragraph (c)(1) of Section 102.21 is inapplicable.

Paragraph (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 of the 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:".

We have determined that the proper classification of the socks is within subheading 6115, (Panty hose, tights, stockings, socks and other hosiery, including stockings for varicose veins, and footwear without applied soles, knitted or crocheted) Harmonized Tariff Schedule of the United States (HTSUS). The applicable rule for the change in tariff classification is found at 19 CFR ?102.21(e), 6101-6117, which requires "(3) If the good is knit to shape, a change to heading 6101 through 6117 from any heading outside that group, provided that the knit-to-shape components are knit in a single country, territory, or insular possession." Since the socks remain under the same tariff classification after undergoing the operations performed in Mexico, the criteria under ?102.21(c)(2), is not met.

Section 102.21(c)(3) states that where the country of origin cannot be determined under (c)(1) or (c)(2), "(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". In this case the socks were knit to shape in the U.S. Therefore, the country of origin of the socks is the U.S.

However, T.D. 95-69, which established ?102.21(c)(3), did not amend section 12.130(c)(1) which states the following:

Applicability to U.S. articles sent abroad. Chapter 98, Subchapter II, Note 2, Harmonized Tariff Schedule of the United States, 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 order to have a single definition of the term "product of" and, therefore, a single country of origin for a textile or textile product, notwithstanding paragraph (b), merchandise which falls within the purview of Chapter 98, Subchapter II, Note 2, Harmonized Tariff
Schedule of the United States, may not, upon its return to the U.S., be considered a product of the U.S.

Pursuant to T.D. 90-17, published in the Federal Register on March 1, 1990 (55 FR 7303), Customs extended the principles of country of origin for textiles and textile products contained in 19 CFR ?12.130 to such merchandise for all Customs purposes, including duty and marking. The operations performed on the socks in Mexico under the first scenario and for the larger sizes of the second scenario, clearly constitute an advancement in value or improvement in condition. Under the second scenario, for the smaller sizes where the socks are not boarded, the banding of the socks with an adhesive label is considered an alteration which constitutes an advancement in value or improvement in condition. Therefore, the country of origin of the subject socks is Mexico, for quota, marking, and duty purposes pursuant to T.D. 90-17 and Section 12.130(c).

HOLDING:

The socks under the first scenario qualify for duty-free treatment pursuant to subheading 9802.00.90, HTSUS. The socks under the second scenario qualify for duty-free treatment pursuant to subheading 9802.00.50, HTSUS. The country of origin of the socks under the first and the second scenario, is Mexico pursuant to T.D. 90-17 and 19 CFR ?12.130(c).

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
Tariff Classification Appeals

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See also:

• Tariff No.: 9802.00.50 - Articles returned to the U.S. after having been exported for repairs or alterations, nesi
• Tariff No.: 9802.00.80 - U.S. articles assembled abroad, which have not lost their physical identity or have not advanced in value or improved in condition abroad
• Tariff No.: 9802.00.90 - Textile and apparel goods, assembled in Mexico in which all fabric components were wholly formed and cut in the United States, etc.