HQ H019439

September 5, 2008

**CLA-2 OT:RR:CTF:TCM** H019439 GC

**CATEGORY:** Country of Origin Marking

**TARIFF NO.:** 9404.90

Port of Laredo

Post Office Box 3130

Laredo, Texas 78044-3130

**RE:** Internal Advice Request No. 07/029: NAFTA tariff preference and
country of origin marking requirements for bed-in-bag set

Dear Port Director:

This is in reference to the request for internal advice, dated October
17, 2007, initiated by Revman International, Inc. (Revman). The internal
advice request pertains to the marking requirements and tariff treatment
under the North American Free Trade Agreement (NAFTA) of an imported
bed-in-a-bag set, along with the components that comprise the set.
Additional consideration was given to the substance of our meeting with
Revman and counsel on July 22, 2008. We have also reviewed the
supplemental submission prepared by counsel, dated July 25, 2008.

**FACTS:**

The subject merchandise is a "bed-in-a-bag" set that contains a
comforter, flat sheet, fitted sheet, pillowcases and pillow shams. The
fabric used to create the set's components comes from Pakistan, and all
of the components of the set except for the comforter are completed in
Pakistan. The sheets, pillowcases, shams and comforter shell are then
shipped to Mexico, where the comforter shell is filled with batting
fabric and sewn closed. The set is then packaged for sale and shipped to
the United States.

The marking on the outer packaging of the sample "bed-in-a-bag" reads,
"Assembled in Mexico of foreign components". The sheets, pillowcases and
shams are marked, "Made in Pakistan".

**ISSUE:**

May the subject set receive preferential tariff treatment under NAFTA
where some of the components that make up the set are marked as products
of a non-originating country?

**LAW AND ANALYSIS:**

The principal issue in this case is whether or not the subject set, with
its non-originating country of origin markings, qualify for NAFTA tariff
preference under General Note 12, Harmonized Tariff Schedule of the
United States (HTSUS). General Note 12(a) provides, in pertinent part:

\* \* \*

> \(ii\) Goods that originate in the territory of a NAFTA party under
> the terms of subdivision (b) of this note and **that qualify to be
> marked as goods of Mexico under the terms of the marking rules** set
> forth in regulations issued by the Secretary of Treasury (without
> regard to whether the goods are marked), and goods enumerated in
> subdivision (u) of this note, when such goods are imported into the
> customs territory of the United States and are entered under a
> subheading for which a rate of duty appears in the \"Special\"
> subcolumn followed by the symbol \"MX\" in parentheses, are eligible
> for such duty rate, in accordance with section 201 of the North
> American Free Trade Agreement Implementation Act. (Emphasis added).

General Note 12(b) provides in pertinent part:

> For the purposes of this note, goods imported into the customs
> territory of the United States are eligible for the tariff treatment
> and quantitative limitations set forth in the tariff schedule as
> \"[goods originating in the territory of a NAFTA party]{.underline}\"
> only if \--

(i) they are goods wholly obtained or produced entirely in the territory
    of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico
     and/or the United States so that --

```{=html}
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(A) except as provided in subdivision (f) of this note, each of the
    non-originating materials used in the production of such goods
    undergoes a change in tariff classification described in
    subdivisions (r), (s) and (t) of this note or the rules set forth
    therein, or

(B) the goods otherwise satisfy the applicable requirements of
    subdivisions (r), (s) and (t) where no change in tariff
    classification is required, and the goods satisfy all other
    requirements of this note; or...

Accordingly, the bed-in-a-bag set at issue will be eligible for the
\"Special\" \"MX\" rate of duty provided it is a NAFTA \"originating\"
good under General Note 12(b), HTSUS, and it qualifies to be marked as a
good of Mexico.[^1]

Counsel for Revman argues that General Note 12 does not require all of
the items in the set to be marked as products of Mexico. Only the
overall set must be marked as a product of a NAFTA country to receive
the NAFTA tariff preference. Counsel correctly notes that General Note
12 does not explicitly require merchandise to be marked as a product of
a NAFTA country to receive the NAFTA tariff preference. Counsel further
argues that the parenthetical in General Note 12(a), which states,
"without regard to whether the goods are marked", should be interpreted
to mean that General Note 12 incorporates the marking rules only for the
purpose of determining eligibility for tariff preference, and does not
incorporate the requirement that the goods be so marked in order to
benefit from the tariff preference.

The words "without regard to whether the goods are marked" in General
Note 12(a) refer to marking exemptions delineated by the marking rules.
Consequently, if the applicable marking rules in this case provide for
an exception to NAFTA marking rules with respect to components
comprising the set, then the subject merchandise would not be required
to be marked as a product of a NAFTA country to satisfy the terms of
General Note 12. If no such exemption exists, then General Note 12
requires that the imported merchandise qualify to be marked as a good of
Mexico in order to receive the benefit of the NAFTA tariff preference.
By incorporating the marking rules for the tariff preference analysis,
General Note 12 also requires that the result of the marking rules be
followed.

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 and after July 1, 1996. On
September 5, 1995, CBP published 19

C.F.R. §102.21 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 shall be determined by sequential application of the
general rules set forth in paragraphs (c)(1) through (5) of 19 C.F.R. §
102.21. With specific regards to sets, 102.21(d) provides the following:

> Where a good classifiable in the HTSUS as a set includes one or more
> components that are textile or apparel products and a single country
> of origin for all of the components of the set cannot be determined
> under paragraph (c) of this section, the country of origin of each
> component of the set that is a textile or apparel product shall be
> determined separately under paragraph (c) of this section.

Per the terms of section 102.21(d) the country of origin of each item in
the set must be determined separately if there is not a single country
of origin for all the components in the set as determined under section
102.21(c). Per 19 C.F.R. §102.21(c)(1), the subject sheets, pillowcases
and pillow shams initially appear to be products of Pakistan.[^2] With
respect to the comforter, the relevant provision in this case is 19
C.F.R. §102.21(c)(4), which states:

> Where the country of origin of a textile or apparel product cannot be
> determined under paragraph (c)(1), (2) or (3) of this section, the
> country of origin of the good is the single country, territory or
> insular possession in which the most important assembly or
> manufacturing process occurred.

The fabric-making process of the subject comforter's outer shell in
Pakistan constitutes the most important manufacturing process. *See* HQ
562498, dated November 13, 2002. Therefore, the country of origin of the
subject comforter initially appears to be Pakistan. However, 19 C.F.R.
§102.19(a) provides for a NAFTA override, which states as follows:

> Except in the case of goods covered by paragraph (b) of this section,
> if a good which is originating within the meaning of §181.1(q) of this
> chapter is not determined under §102.11(a) or (b) or §102.21 to be a
> good of a single NAFTA country, **the country of origin of such good**
> is the last NAFTA country in which that good underwent production
> other than minor processing, provided that a Certificate of Origin
> (see §181.11 of this chapter) has been completed and signed for the
> good. (Emphasis added).

Although packing is considered a non-qualifying operation under 19
C.F.R. §102.17, the assembly of the comforter in Mexico meets the
requirement that the subject merchandise undergo production other than
minor processing. CBP has previously stated that as long as one item in
the set undergoes productions other than minor processing, the remaining
items in the set will receive the benefit of the NAFTA override of 19
C.F.R. §102.19. *See* HQ 559421, dated September 16, 1996; HQ 560456,
dated September 26, 1997; HQ 560577, dated August 4, 1997. Accordingly,
pursuant to 19 C.F.R. 102.19(a), the country of origin of the
bed-in-a-bag set is Mexico.

Counsel for Revman asserts that the analysis regarding NAFTA
preferential treatment should be considered separate from the marking
requirements. As pointed to by counsel, this distinction was noted in HQ
966974, dated March 22, 2004, which pertained to the tariff
classification and eligibility for NAFTA tariff preference of microscope
sets. Among the components of the sets from Canada and the U.S., the
microscope sets subject to HQ 966974 also contained components from
China, Japan and Russia (i.e. eyepieces, tripods and a digital camera).
We explicitly stated that HQ 966974 concerned tariff classification and
eligibility for preferential treatment under NAFTA. Because all of the
components of the set met the terms of the applicable tariff shift
rules, we held in HQ 966974 that the subject set was indeed eligible for
NAFTA preference. We did not specify whether or not the merchandise
subject to HQ 966974 was required to be marked as a product of a NAFTA
country. Because of this, counsel for Revman concludes that there is no
such requirement.[^3] We find this logic faulty, and decline to infer
from the above-referenced rulings whether or not a requirement exists to
mark products that receive the benefit of the NAFTA tariff preference.

Likewise, counsel argues the NAFTA preference override applies not to
determine country of origin marking requirements, but only for the
purpose of determining whether or not imported merchandise is eligible
to receive the benefit of lower tariff rates under NAFTA. Thus,
according to counsel, it is entirely acceptable for the subject sheets,
pillowcases and pillow shams to be marked as products of Pakistan, and
receive preferential tariff treatment under NAFTA per 19 C.F.R. §102.19.
Accordingly, counsel advances the position that requiring the subject
sheets, pillowcases and pillow shams to be marked as products of Mexico
amounts to requiring products of Pakistan to be marked incorrectly in
order to receive preferential tariff treatment under NAFTA.

Counsel for Revman points our attention to NY E80179, dated May 5, 1999,
in which CBP (then the U.S. Customs Service) issued a ruling on the
tariff classification, eligibility for NAFTA tariff preference and
country of origin marking requirements of a battery pack and charger set
for use with radio controlled toy vehicles. The battery pack was
considered a product of Mexico, while the charger unit was a product
non-NAFTA country such as China or Thailand. Because the non-originating
charger unit underwent the applicable tariff shift rule, we held that
the overall set was considered to be "originating goods" pursuant to
General Note 12(b)(ii)(A), HTSUS. We then held that, pursuant to 19
C.F.R. §102.11(c), the battery pack could be marked as a product of
Mexico, and the charger unit could be marked as a product of the
non-origin country (i.e. China, Taiwan, Malaysia, etc.). Counsel for
Revman cites this conclusion as support for its position that the
components of the subject bed-in-a-bag set should be marked as products
of Pakistan while the overall set still benefits from the NAFTA tariff
preference.

This conclusion, however, overlooks the fact that applicable marking
rule in NY E80179 was 19 C.F.R. §102.11(c), which provides for the
country of origin marking requirements for sets. Pursuant to that rule,
the battery pack and charger that comprised the subject set were
properly marked respectively as products of Mexico and China. In the
instant case, the country of origin of the subject bed-in-a-bag set is
not determined under 19 C.F.R. §102.21 to be a good of a single NAFTA
country. Consequently, the country of origin marking requirements of the
subject merchandise are governed by 19 C.F.R. §102.19, which compels a
different result than in NY E80179. We further note that NY E80179 is
not applicable in this case because in that ruling, we considered only
whether the subject battery pack satisfied the terms of General Note
12(b). We did not provide analysis on the operation of General Note
12(a).

Nowhere in 19 C.F.R. §102.19 does it state that the NAFTA preference
override is applicable only with respect to the eligibility of
merchandise to receive preferential tariff treatment. In fact, section
102.19 serves as the rule of origin where NAFTA preferential tariff
treatment is at issue. Thus, by virtue of being incorporated into a set,
and thus undergoing a tariff shift, the subject sheets, pillowcases and
pillow shams become products of Mexico by application of 19 C.F.R.
§102.19, and must be marked accordingly. Indeed, marking these
components as products of Pakistan while marking the entire set as a
product of Mexico would serve to confuse the ultimate purchaser.[^4]

We agree with counsel for Revman that if the sheets, pillowcases and
pillow shames were imported separately, they would be considered
products of Pakistan. However, by virtue of being incorporated into the
subject bed-in-a-bag set, the components become products of Mexico by
application of 19 C.F.R. §102.19, the terms of which clearly indicate
that it applies to the country of origin of certain items, not just to
eligibility for favorable tariff treatment under NAFTA. Consequently,
the subject sheets, pillowcases and pillow shams are considered to be
products of Mexico for both marking and NAFTA preference purposes. *See
also* HQ 562498, dated November 13, 2002; HQ 964960, dated September 4,
2002; and HQ 963904, dated May 30, 2002 (holding that "\[b\]y virtue of
the NAFTA override, each item in the \[comforter\] set must be marked
country of origin Canada in order to receive preferential treatment
under NAFTA as claimed").

**HOLDING:**

Inasmuch as General Note 12, HTSUS, incorporates the marking rules for
tariff preference eligibility, General Note 12 also requires the result
of the marking rules to be followed. By application of 19 C.F.R.
§102.19, each bedding item, if entered in a set under subheading
9404.90, HTSUS, must be marked country of origin Mexico in order to
receive preferential treatment under the NAFTA as claimed.

You are to mail this decision to the internal advice requester no later
than 60 days from the date of the decision. At that time, the Office of
International Trade, Regulations and Rulings, will make the decision
available to CBP personnel, and to the public on the CBP Home Page on
the World Wide Web at www.cbp.gov, by means of the Freedom of
Information Act, and other methods of public distribution.

> Sincerely,
>
> Myles B. Harmon, Director
>
> Commercial and Trade Facilitation Division

[^1]: Because the operation of General Note 12(b) is not at issue here,
    we will omit the full analysis of that section in the interest of
    brevity. We do find that the subject bed-in-a-bag set qualifies as
    an "originating good" for the purposes of General Note 12(b) by
    virtue of the tariff shift rule delineated in General Note 12(t)
    94/7, which requires "\[a\] change to subheading 9404.90 from any
    other chapter, except from heading 5007, 5111 through 5113, 5208
    through 5212, 5309 through 5311, 5407 through 5408 or 5512 through
    5516". *See also* Headquarters Ruling Letter (HQ) 561326, dated
    April 26, 1999.

[^2]: Title 19 C.F.R. §102.21(c)(1) states that "\[t\]he 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."

[^3]: In our meeting, counsel drew the same conclusion from a number of
    rulings issued by CBP. *See, e.g.,* HQ 561326, dated April 26, 1996
    (discussing the eligibility for NAFTA preference of childrens'
    washable paint set); New York Ruling Letter (NY) N028256, dated June
    4, 2008 (discussing the eligibility for NAFTA preference of bedding
    sets similar to the merchandise at issue here).

[^4]: As the components at issue here have undergone a tariff shift
    making them products of Mexico, they would be subject to additional
    duties if they are not marked accordingly. *See* 19 C.F.R. §134.2.
    Counsel for Revman has also expressed concern that this result would
    cause Revman to run afoul of the Textile Fiber Products
    Identification Act (16 C.F.R. §303.33), which states that, "\[e\]ach
    imported textile fiber product shall be labeled with the name of the
    country where such imported product was processed or manufactured."
    This law is administered by the Federal Trade Commission (FTC). As
    such, we will not address its applicability to this case. We
    recommend that Revman contact the appropriate party in the Division
    of Enforcement at the FTC.