HQ 732673

Novemer 6, 1989

MAR-2-05 CO:R:C:V 732673 KG

CATEGORY: Marking

Syed Sikander Abbas

Terrymanila, Inc.

SFB NO. 7

Bataan Export Processing Zone

Bataan, Philippines

RE: Country of origin marking of imported beach towels

Dear Mr. Abbas:

This is in response to your letter of August 18, 1989,

requesting a country of origin ruling regarding imported beach

towels.

FACTS:

A textile manufacturing company situated in the Philippines

imports greige terry towelling in bales. In the Philippines the

fabric will be desized, bleached, dyed, hydro extracted, dried,

printed by hand, cut to size, stitched, mended, graded and

packed in polybags which are placed in cartons for export.

The process time involved in the Philippines from the

importation of greige fabric to the exportation of finished

printed towels would be around 40 to 45 days. The value added to

the product would be approximately 86%.

ISSUE:

What is the country of origin for the purposes of 19 CFR

12.130 for imported beach towels manufactured as described above.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.

1304), provides that, unless excepted, every article of foreign

origin imported into the U.S. shall be marked in a conspicuous

place as legibly, indelibly, and permanently as the nature of the

article (or container) will permit, in such a manner as to

indicate to the ultimate purchaser in the U.S. the English name

of the country of origin of the article. The U.S. Court of

International Trade stated in Koru North America v. United

States, 701 F.Supp. 229, 12 CIT \_\_\_(CIT 1988), that: \"In

ascertaining what constitutes the country of origin under the

marking statute, a court must look at the sense in which the term

is used in the statute, giving reference to the purpose of the

particular legislation involved. The purpose of the marking

statute is outlined in United States v. Friedlaender & Co., 27

CCPA 297, 302, C.A.D. 104 (1940), where the court stated that:

\'Congress intended that the ultimate purchaser should be able to

know by an inspection of the marking on the imported goods the

country of which the goods is the product. The evident purpose

is to mark the goods so that at the time of purchase the ultimate

purchaser may, by knowing where the goods were produced, be able

to buy or refuse to buy them, if such marking should influence

his will.\"

Part 134, Customs Regulations (19 CFR Part 134), implements

the country of origin marking requirements and exceptions of 19

U.S.C. 1304. Section 12.130, Customs Regulations (19 CFR

12.130), sets forth the principles for making country of origin

determinations for textile and textile products subject to

section 204 of the Agricultural Act of 1956, as amended (7 U.S.C.

1854)(\"section 204\"). According to T.D. 85-38, the final rule

document published in the Federal Register on March 5, 1985 (50

FR 8714),which established 19 CFR 12.130, the principles of

country of origin for textiles and textile products contained in

19 CFR 12.130 are applicable to such merchandise for all

purposes, including duty and marking. This regulation, which

became effective in 1985, came about as a result of Executive

Order No. 12,475, 49 FR 19955 (1984), which directed the

Secretary of Treasury, in accordance with policy guidance

provided by the Committee for the Implementation of Textile

Agreements, to issue regulations governing the entry or

withdrawal from warehouse for consumption of textile and textile

products subject to section 204. The regulations were to include

clarifications in or revisions to the country of origin rules for

textiles and textile products subject to section 204 in order to

avoid circumvention of multilateral and bilateral textile

agreements.

The U.S. Court of International Trade upheld the interim

regulations which included 19 CFR 12.130, published as T.D. 84-

171 in the Federal Register on August 3, 1984 (49 FR 31248), in

Mast Industries, Inc. v. Regan, 596 F. Supp. 1567 at 1582 (CIT

1984). The court stated that the purpose of the interim textile

regulations is \"prevention of the entry of textile products into

the United States on quotas not applied to the country which

manufactured all or a substantial part of the textile products.

Accordingly interim regulation section 12.130 defines country of

origin and established criteria for substantial transformation in

order to prevent nearly completed textile products of one country

from being imported into the United States on the quota of

another country.\"

When T.D. 85-38 was published, the background information

cited an intention to reject the theory of Cardinal Glove Co. v.

United States, 4 C.I.T. 41 (1982), as one of the motivations of

the drafting of the new textile regulations. Cardinal Glove

involved cotton work gloves. The cotton fabric was produced in

Hong Kong, and cut into front and back panels in Hong Kong.

These front and back panels were assembled by sewing in Haiti.

The gloves were then turned inside out, pressed, inspected,

paired, folded and bundled in Haiti. The court held that the

assembly and processing of the gloves in Haiti transformed the

gloves into an export of Haiti and that therefore, the gloves

were considered to be from Haiti, the country of exportation.

This meant that the bilateral textile agreement between the U.S.

and Hong Kong was inapplicable and a Hong Kong export license or

visa was unnecessary for entry into the U.S. The court noted

that \"the exportation of merchandise from a country producing a

product to an intermediate country for the purpose of processing,

manipulating or assembling that product, is a common practice in

our present day industrial and technological economy.\" Cardinal

Glove at 43-44. It was feared that this theory or principle

would create a mechanism to circumvent the textile import

program and multilateral and bilateral textile agreements.

Customs stated in T.D. 82-169 its intention not to follow

the country of exportation concept set forth in Cardinal Glove,

but rather to apply the substantial transformation test.

Pursuant to 19 CFR 12.130, the standard of substantial

transformation governs the determination of the country of origin

where textiles and textile products are processed in more than

one country. The country of origin of textile products is deemed

to be that foreign territory, country, or insular possession

where the article last underwent a substantial transformation.

Substantial transformation is said to occur when the article has

been transformed into a new and different article of commerce by

means of substantial manufacturing or processing operations. The

factors to be applied in determining whether or not a

manufacturing operation is substantial are set forth in 19 CFR

12.130(d) and (e).

Specifically, 19 CFR 12.130(e)(i) states that dyeing of

fabric and printing when accompanied by two or more of the

following finishing operations: bleaching, shrinking, fulling,

napping, decating, permanent stiffening, weighting, permanent

embossing or moireing in a foreign country may transform the

article into a product of that foreign country. Fairchild\'s

Dictionary of Textiles (1970) defines finishing as \"all processes

through which fabric passes after being taken from loom. This

covers bleaching, dyeing, sizing, and processes which give the

desired surface effect, e.g., napping, calendering, embossing,

etc. Special finishes are used for crease resistance and water

repellency. Covers both chemical and mechanical finishing

processes, e.g. acetylation, (cotton) and saponification, (rayon)

(sic) alter composition of basic fiber.\"

Although the manufacturing processes in the Philippines

involve dyeing and printing of the fabric, it does not include

at least two major finishing operations such as the ones listed

in 19 CFR 12.130(e)(i). Desizing, which is the process of

converting the size in grey goods into a soluble form which is

then washed out, either to permit dyeing or bleaching or in

testing the unsized weight of the fabric, is considered a minor

finishing operation. Hydro extraction, drying, cutting to size,

stitching, and mending are also all considered minor finishing

operations. Therefore, although the grey fabric is dyed,

printed, and bleached in the Philippines, the processing does not

include at least two major finishing operations plus dyeing and

printing in conformity with the examples set forth in 19 CFR

12.130(e)(i). For this reason, the country of origin for the

purposes of 19 CFR 12.130 would be that country where the greige

terry towelling is made and not the Philippines.

HOLDING:

The country of origin for the purposes of 19 CFR 12.130 of

greige terry towelling processed as described above would be

that country where the greige terry towelling is made and not the

Philippines.

Sincerely,

John Durant

Director,

Commercial Rulings Division