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HQ 560637




December 22, 1997

CLA-2 RR:CR:SM 560637 KSG

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Port Director
Nogales, Arizona

RE: Application for Further Review of Protest No. 2604-97-100011; 19 CFR 10.25

Dear Sir:

This is in reference to your memorandum dated August 28, 1997, forwarding an Application for Further Review of Protest No. 2604-97-100011 timely filed by Atlas International Contract Sewing, Inc., concerning the eligibility for a partial duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS"), of sunglass bags. Two samples of the sunglass bags were submitted for our review.

FACTS:

The merchandise in question are two types of nylon bags used to contain and protect a pair of sunglasses. The origin of the nylon fabric is Japan. The first bag is a rounded bag assembled in Mexico from components cut in the U.S. into a shape that is straight on one edge and rounded on the other three sides. The second bag is assembled in Mexico from components cut in the U.S. into a rectangular form.

ISSUE:

Whether the nylon fabric components assembled in Mexico into sunglass bags are eligible for the duty allowance under subheading 9802.00.80, HTSUS.

LAW AND ANALYSIS:

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 U.S., 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 articles, less the cost or value of the U.S. component assembled therein, upon compliance with the documentary requirements of 19 CFR 10.24.

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that the components must be in condition ready for assembly without further fabrication at the time of their exportation from the U.S. to qualify for the exemption. Components will not lose their entitlement to the exemption by being subject 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, 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. 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 HTSUS subheading 9802.00.80 to that component. See 19 CFR 10.16(c).

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act (codified at 19 U.S.C. 3592) provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on or after July 1, 1996. On September 5, 1995, Customs published Section 102.21, Customs Regulations (19 CFR 102.21), in the Federal Register, implementing section 334 (60 FR 46188). Thus, effective July 1, 1996, the country of origin of textile or apparel products are determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21.

Section 334(b)(4)(A) of the Uruguay Round Agreements Act,
19 U.S.C. 3592(b)(4)(A), provides that:
the value of a component that is cut to shape (but not to length, width, or both) in the U.S. from foreign fabric and exported to another country, territory, or insular possession for assembly into an article that is then returned to the U.S.-

(i) shall not be included in the dutiable value of such article ...

The effect of 19 U.S.C. 3592(b)(4) is to preserve the tariff treatment afforded by subheading 9802.00.80, HTSUS, that otherwise would no longer be available under the section 334 origin rules since cutting the fabric in the U.S. will no longer result in the cut fabric being considered a "product of" the U.S.

Section 10.25, Customs Regulations (19 CFR 10.25), implements
19 U.S.C. 3592(b)(4), and incorporates by reference the same operational, valuation, and documentation requirements applicable to goods entered under subheading 9802.00.80, HTSUS. Therefore, imported goods entitled to a duty allowance under 19 CFR 10.25 are to be entered under subheading 9802.00.80, HTSUS, and , solely for purposes of calculating the duty allowance under this subheading, Customs will treat the textile components cut to shape in the U.S. from foreign fabric as if they were "U.S. fabricated components."

The issue in this case is whether the processing of the foreign-origin nylon fabric in the U.S. for the two bags satisfies the requirements of 19 CFR 10.25 so that a reduction in the dutiable value of the bag will include an allowance for the cost or value of the nylon fabric components.

With regard to the rounded bag, the fabric is cut in the U.S. into a figure eight on one side and a straight line on the other side. With regard to the rectangular bag, the fabric is cut in the U.S. into a rectangular form.

The processing in the U.S. of the foreign fabric to create the rounded bag components meets the requirements under 19 CFR 10.25 as it involves cutting the fabric to shape. Therefore, we find that the cost or value of the Japanese-origin fabric components may be excluded from the appraised value of the rounded sunglasses bag.

The processing of the foreign fabric in the U.S. to create the rectangular bag components, which includes cutting the fabric to length and width, does not meet the requirements under 19 CFR 10.25 because this provision specifically excludes from entitlement textile components which are cut to length, width, or both in the U.S. This case is similar to HRL 560380, dated June 17, 1997, in which Customs held that fabric slit to width to make sweat bands did not meet the requirements under 19 CFR 10.25. Accordingly, the cost or value of the Japanese-origin rectangular fabric components may not be excluded from the appraised value of the sunglass bag.

HOLDING:

An allowance in duty is permitted pursuant to subheading 9802.00.80, HTSUS, for the Japanese origin fabric components used for the rounded sunglass bag because the textile component satisfies the requirements of 19 CFR 10.25.

An allowance in duty pursuant to subheading 9802.00.80, HTSUS, is not permitted for the Japanese origin fabric components used for the rectangular sunglass bag, because the textile component does not satisfy the cut to shape requirements under 19 CFR 10.25. This protest should be granted in part and denied in part in accordance with this decision.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Services, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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