[Federal Register Volume 60, Number 87 (Friday, May 5, 1995)]
[Proposed Rules]
[Pages 22312-22332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10856]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10, 12, 102, 134 and 177

[RIN 1515-AB19; RIN 1515-AB34]


Rules for Determining the Country of Origin of a Good for 
Purposes of Annex 311 of the North American Free Trade Agreement; Rules 
of Origin Applicable to Imported Merchandise

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document proposes to amend the interim Customs 
Regulations, published in the Federal Register on January 3, 1994, as 
T.D. 94-4, which established the rules for determining when the country 
of origin of a good is one of the parties to the North American Free 
Trade Agreement for purposes of Annex 311 of that Agreement. This 
document also republishes, with some modifications, proposed amendments 
to the Customs Regulations to set forth uniform rules governing the 
determination of the country of origin of imported merchandise, which 
were also published in the Federal Register on January 3, 1994. The 
purpose of the proposals set forth in this document is to clarify the 
intent, or otherwise facilitate understanding of, the previously-
published interim and proposed regulatory amendments. In addition, this 
document solicits public comments on the appropriate effective date for 
a final rule action regarding the interim and proposed regulatory 
amendments.

DATES: Comments must be received on or before June 19, 1995.

ADDRESSES: Written comments (preferably in triplicate) may be addressed 
to the Regulations Branch, U.S. Customs Service, Franklin Court, 1301 
Constitution Avenue, NW., Washington, DC 20229. Comments submitted may 
be inspected at the Regulations Branch, Office of Regulations and 
Rulings, Franklin Court, 1099 14th Street, N.W., Suite 4000, 
Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Sandra Gethers, Office of Regulations 
and Rulings (202-482-6980).

SUPPLEMENTARY INFORMATION:

Background

    On January 3, 1994, Customs published T.D. 94-4 in the Federal 
Register (59 FR 110) setting forth interim regulations to establish 
rules for determining the country of origin of a good for purposes of 
Annex 311 of the North American Free Trade Agreement (NAFTA). The 
United States, Canada and Mexico entered into the NAFTA on December 17, 
1992, and the provisions of the NAFTA were adopted by the United States 
with the enactment of the North American Free Trade Agreement 
Implementation Act, Public Law 103-182, 107 Stat. 2057. T.D. 94-4 
stated that the interim regulations were effective on January 1, 1994, 
and also provided for a 90-day public comment period which was 
subsequently extended to July 5, 1994, by a notice published in the 
Federal Register on March 11, 1994 (59 FR 11547). On February 3, 1994, 
a notice was published in the Federal Register (59 FR 5082) setting 
forth corrections to the interim regulations contained in T.D. 94-4.
    On January 3, 1994, Customs also published a document in the 
Federal Register (59 FR 141) which proposed to amend the Customs 
Regulations to set forth uniform rules governing the determination of 
the country of origin of imported merchandise; this notice of proposed 
rulemaking represented a refinement and replacement of an earlier 
proposal published in the Federal Register on September 25, 1991 (56 FR 
48448). This January 3, 1994, document proposed: (1) To amend 
Sec. 102.0 of the interim regulations published as T.D. 94-4 so that 
those interim regulations would apply not only for the purposes stated 
in Annex 311 of the NAFTA but would also apply in the broader context 
of country of origin determinations ``for purposes of the Customs and 
related laws and the navigation laws of the United States''; and (2) to 
amend various provisions within Parts 4, 10, 12, 134 and 177 of the 
Customs Regulations (19 CFR Parts 4, 10, 12, 134 and 177) to ensure 
that the rules contained in interim Part 102 would control wherever 
language requiring a country of origin determination appears in those 
other regulatory provisions. Thus, under this notice of proposed 
rulemaking the interim rules set forth in T.D. 94-4 would apply 
wherever a provision of the Customs and related laws or the 
[[Page 22313]] navigation laws or a regulation thereunder uses language 
such as ``new and different article of commerce'', ``wholly the growth, 
product, or manufacture'', ``product of'', or ``substantial 
transformation'' for purposes of establishing the criteria for country 
of origin of a good. The notice of proposed rulemaking provided for a 
90-day public comment period which was subsequently extended to July 5, 
1994, by a notice published in the Federal Register on March 10, 1994 
(59 FR 11225).
    In view of the fact that the January 3, 1994, notice of proposed 
rulemaking presented the same regulatory scheme as the rules contained 
in T.D. 94-4, each document referred to the other and stated that 
public comments submitted in response to either document would be 
considered in connection with the review of both documents. The notice 
of proposed rulemaking further indicated that the background section 
and interim Part 102 regulatory texts set forth in T.D. 94-4 were 
applicable to it. Thus, it was intended that the two documents be read 
together so that, following public notice and comment procedures, one 
final rule document could be derived from the interim and proposed rule 
documents, consistent with the overall goal of promulgating uniform 
rules of origin for Customs and related purposes.
    The publication of the interim regulations set forth in T.D. 94-4 
was specifically intended to fulfill the United States obligation under 
paragraph 1 of NAFTA Annex 311 which provides that the parties to the 
NAFTA shall establish, by January 1, 1994, rules (referred to as 
``Marking Rules'') for determining whether a good is a good of a party 
(that is, whether the country of origin of a good is either the United 
States, Canada or Mexico) for purposes of the following NAFTA Annexes: 
(1) Annex 311 (Country of Origin Marking); (2) Annex 300-B (Textile and 
Apparel Goods); and (3) Annex 302.2 (Tariff Elimination). T.D. 94-4 set 
forth these interim ``Marking Rules'' as a new Part 102 of the Customs 
Regulations (19 CFR Part 102), entitled ``Rules of Origin'', and also 
set forth consequential conforming interim amendments to existing 
sections within Parts 12 and 134 of the Customs Regulations (19 CFR 
Parts 12 and 134).
    Interim Part 102 consists of Secs. 102.0-102.20 and, following 
Sec. 102.0 (Scope), is divided into two subparts. Subpart A is entitled 
``General'' and consists of Sec. 102.1 (Definitions), and Subpart B is 
entitled ``Rules of Origin'' and consists of Secs. 102.11 through 
102.20. Section 102.11 sets forth the general rules for determining the 
country of origin of a good and consists of paragraphs (a) through (d) 
which are applied in a hierarchical and sequential manner. Thus, 
reference must be had first to paragraph (a) which provides that the 
country of origin of a good is: under subparagraph (1), the country in 
which the good is wholly obtained or produced; under subparagraph (2), 
the country in which the good is produced exclusively from domestic 
materials; or, under subparagraph (3), the country in which each 
foreign material incorporated in the good undergoes an applicable 
change in tariff classification set out in Sec. 102.20 and/or satisfies 
any other applicable requirements contained in that section or 
elsewhere in Part 102. If the country of origin cannot be determined 
under paragraph (a) because the good does not meet the terms of 
subparagraph (1), (2) or (3), then resort must be had to paragraph (b) 
and, if that fails, then to paragraph (c) and, if that fails, finally 
to paragraph (d). Sections 102.12-102.19 set forth additional rules 
that serve to interpret, clarify, limit or otherwise control the 
application of the general rules contained in Sec. 102.11 as well as 
the specific rules contained in Sec. 102.20. Section 102.20 contains 
the specific change in tariff classification rules and/or related 
requirements referred to in the country of origin rule set forth in 
Sec. 102.11(a)(3); the rules in Sec. 102.20 are set forth for each 
Harmonized Tariff Schedule of the United States (HTSUS) chapter, and 
the applicable rule is determined by the HTSUS tariff classification 
that is applicable to the finished good at the time the country of 
origin determination is being made.
    Based on a review of the comments received in response to the 
interim and proposed rule documents published in the Federal Register 
on January 3, 1994, and as a result of independent review of the 
interim and proposed texts within Customs, it has been determined (1) 
that some clarification and further explanation of the intent behind 
the proposed uniform rule concept should be provided and (2) that some 
changes should be made to the interim and proposed texts and that those 
changes should be the subject of public notice and comment procedures 
before proceeding to the final rule stage in this matter; the interim 
texts as published in T.D. 94-4 (and as subsequently corrected) remain 
in effect pending completion of such final rule action. In addition, 
Customs believes, for the reasons set forth below, that public comments 
should be solicited at this time regarding the appropriate use of a 
delayed effective date for any final rule that results from the interim 
and proposed rules, including any changes thereto as proposed in this 
document.
    Accordingly, this document (1) provides supplemental background 
information regarding the proposed uniform rule concept, (2) sets forth 
proposals, as discussed in detail below, to amend the interim 
regulatory texts contained in T.D. 94-4 published at 59 FR 110 and 
corrected at 59 FR 5082, (3) republishes all of the proposed regulatory 
amendments published at 59 FR 141 on January 3, 1994, with certain 
changes thereto as discussed in detail below, and (4) invites public 
comments on the appropriate effective date for a final rule on this 
matter. It is the intention of Customs to address in this document only 
those comments submitted in response to the January 3, 1994, notices 
that involve substantive changes to the interim or proposed texts 
requiring further public comment procedures; other such previously 
submitted comments will be addressed in an appropriate final rule or 
other document to be published at a later date. Comments will be 
accepted and considered in response to this document only in regard to 
the following: (1) The proposed changes to the interim regulatory texts 
as discussed and set forth below; (2) all other proposed regulatory 
amendments as discussed and set forth below which represent a 
substantive change to the proposals published on January 3, 1994; and 
(3) the final rule delayed effective date issue. Accordingly, comments 
which concern other issues involved in the January 3, 1994, documents, 
or which do not otherwise relate to the new proposals set forth in this 
document, will not be accepted and considered by Customs. For purposes 
of this document, the background sections of the January 3, 1994, 
interim and proposed rule documents are applicable except where 
otherwise required by a change set forth in this document.

Supplemental Background Information

    Based on an apparent misunderstanding reflected in some of the 
comments received in response to the January 3, 1994, notice of 
proposed rulemaking, Customs believes that further clarification of the 
purpose of the development of these rules for all non-preference 
country of origin purposes is needed. This misunderstanding most 
probably stemmed from the following statement made in the Background 
portion of that document: ``The change in tariff classification 
standard was specifically developed as an alternative to the 
traditional substantial transformation [[Page 22314]] rule in order to 
obviate the problems described above.'' This statement referred only to 
the distinction in format between the proposed rulemaking, which 
defines substantial transformation on the basis of published rules, and 
the traditional application of the substantial transformation 
principle. Customs was not proposing that the criteria for origin 
determination be based on a new standard; quite to the contrary, 
Customs intended that the same standard, substantial transformation, be 
applicable. As stated in the Discussion of Proposals portion of the 
January 3, 1994, notice of proposed rulemaking, the new Part 102 rules, 
which are proposed to be used for all non-preference country of origin 
determinations, are specifically intended to ``codify'', rather than 
constitute an alternative to the substantial transformation rule, i.e., 
``the criteria for determining whether a good has become a `new and 
different article of commerce' as a result of a manufacturing process 
in a given country,'' and to ``provide the results that would be 
reached under the case-by-case application of the substantial 
transformation rule.''
    The interim Part 102 rules, which Customs proposes to use for all 
non-preference country of origin determinations, are in fact 
specifically designed to implement the principles of the substantial 
transformation standard. In this regard, it should be noted that 
Customs views as relevant all court decisions involving substantial 
transformation for purposes of country of origin determination, 
regardless of the purpose for which the origin determination is being 
made. As favorably noted by the Court of International Trade in Target 
Sportswear, Inc. v. United States, Slip Op. 95-7 (January 23, 1995), 
the purpose of these rules is ``to add more certainty and uniformity to 
the substantial transformation test.'' A summary of court decisions 
involving substantial transformation for country of origin purposes and 
their relationship to the interim Part 102 rules is set forth below in 
order to demonstrate the approach which Customs took in drafting the 
interim and proposed rules at issue, including the further proposals 
set forth in this document.

1. Country of Origin Marking Cases

    With regard to country of origin marking, the area in which the 
substantial transformation principle is employed most often, the Part 
102 rules will implement this principle consistent with court decisions 
in this area.
    U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (1970). The court 
held that the manufacturer of hair and tooth brushes from imported wood 
blocks and toothbrush handles was the ``ultimate purchaser'' by having 
manufactured the imported articles into new articles having a new name, 
character, and use. In this case, wooden toothbrush handles and brush 
blocks were imported for use in the manufacture of tooth and hair 
brushes. In the manufacture of the brushes, holes were bored into the 
handles and blocks; bristles were inserted and imbedded; the bristles 
were trimmed; and the handles were polished and stamped. In the opinion 
of the court, the imported wood blocks and handles lost their 
identities in a tariff sense as a result of the assembly process and 
became an integral part of a new article. Therefore, the court held 
that the imported articles were substantially transformed in the United 
States so that country of origin marking of the hair and tooth brushes 
was not required. The Part 102 rules are consistent with this case 
since the Sec. 102.20 specific tariff shift rule for hairbrushes and 
toothbrushes allows a change to heading 9603 from any other heading, 
and the components which make up the finished toothbrushes and 
hairbrushes (handles, brush blocks, bristles) are all classified 
outside heading 9603.
    National Juice Products Assn. v. U.S., 628 F.Supp. 978 (CIT 1986). 
In this case the court upheld Customs' determination that production of 
frozen concentrated and reconstituted orange juice from manufacturing 
concentrate is not a substantial transformation. The court also upheld 
Customs' determination that the manufacturing concentrate imparts the 
essential character to the juice and makes it orange juice. The court 
noted that the addition of water, orange essences, and oils to the 
concentrate, while making it suitable for retail sale, does not change 
the fundamental character of the product, which is still essentially 
the product of juices. The court concluded that the orange juice 
processors in the United States are not the ultimate purchasers of the 
imported product because consumers are the last purchasers to receive 
the product in essentially the form in which it is imported. Thus, in 
accordance with 19 U.S.C. 1304, the court held that the retail 
packaging must indicate the country of origin of the manufacturing 
concentrate. The Part 102 rule which covers reconstituted orange juice 
(and which specifies a change to subheading 2009.11 through 2009.30 
from any other chapter) is consistent with National Juice. Thus, just 
as the court in National Juice found that the process of mixing various 
ingredients with foreign manufacturing concentrate to create 
reconstituted orange juice did not result in a substantial 
transformation, the applicable Part 102 rule likewise does not allow 
origin to be conferred by a change from manufacturing concentrate to 
reconstituted orange juice.
    Uniroyal, Inc. v. U.S., 542 F.Supp. 1026 (CIT 1983). In Indonesia, 
an upper was manufactured from sheets of leather into a substantially 
complete shoe, that is, it was ``lasted'' or permanently molded so that 
it was in its ultimate shape, form, and size when exported. The uppers 
were shipped to the United States where pre-shaped, pre-sized outsoles 
were attached to the uppers. The court held that despite the name 
change (upper to shoe) there was no substantial transformation because 
the attachment of the outsole to the upper was a minor manufacturing or 
combining process which left the identity of the upper intact. The 
upper when imported was readily recognizable as a distinct item apart 
from the outsole to which it was attached. The court found that the 
imported upper was the very ``essence'' of the finished shoe. 
Therefore, the court held that the operations performed in the United 
States did not constitute a substantial transformation and therefore 
the uppers were required to be marked with the country of origin. The 
Part 102 standard is consistent with the court's holding in Uniroyal 
because the specific tariff shift rule for shoes (headings 6401-6405) 
provides for a change to heading 6401 through 6405 from any tariff item 
outside that group except from formed uppers.
    Koru North America v. U.S., 701 F.Supp. 229 (CIT 1988). In this 
case, Hoki fish caught off the coast of New Zealand were beheaded, de-
tailed, eviscerated, and frozen aboard the ships in New Zealand. The 
fish were then sent to Korea for further processing which included 
thawing, skinning, boning, trimming, glazing, refreezing, and packaging 
the fish for shipment to the United States. The court held that the 
processing in Korea constitutes a substantial transformation. The court 
based this finding on a change in name and character, noting that there 
was a name change from ``headed and gutted Hoki'' to ``individually 
quick-frozen fillets'' as a result of the processing performed in 
Korea. The court also noted that the two types of fish are classified 
in separate tariff provisions. The court also found that the processing 
in Korea resulted in a change in the fundamental nature and character 
of the [[Page 22315]] fresh fish. The court noted that the fillets are 
considered discrete commercial goods and are sold in separate areas and 
markets different from the headed and gutted fish. Therefore, the court 
held that the Hoki should be properly marked as products of Korea. The 
Part 102 rules are consistent with this court decision since the rule 
for frozen fish fillets (heading 0304) allows a change to frozen fish 
fillets of heading 0304 from any other heading, and frozen, beheaded, 
de-tailed, eviscerated fish are classified in heading 0303 rather than 
in heading 0304.
    MBI Merchandise Industries Inc. v. United States, 16 CIT 495 
(1992). The court held that any Korean magnetic pages of a photo album 
were substantially transformed in Taiwan and in the People's Republic 
of China when they were incorporated into the finished photo album. The 
court noted that the character of the pages was transformed from 
refills into a fully salable photo album (classifiable in heading 
4820). The court also stated that the use of the pages was also 
transformed from loose refill pages to completed albums suitable for 
display on a customer's bookshelf, the primary purpose of a photo 
album. Finally, the court found that the combination of the various 
parts (cover, pages, binder, and label) results in an item having a new 
identity. Distinguishing the Uniroyal case discussed above, the court 
found that the pages in this case were not the ``essence'' of the photo 
albums. The court also considered the value added as a result of making 
the photo albums as support for the conclusion that the photo album 
pages were substantially transformed. The permitted changes under the 
applicable Part 102 tariff shift rule include a change to heading 4820 
from any other heading, and the loose filler paper is classified 
outside of heading 4820. Thus, under the Part 102 rules the magnetic 
pages will be transformed into products of the country in which the 
albums were produced, consistent with the conclusion reached by the 
court in M.B.I.
    Carlson Furniture Industries v. United States, 65 Cust.Ct. 474 
(1970). In the United States, wooden chair parts imported from Japan 
were assembled and fitted together, glued, the joints steel-pinned, the 
legs cut to length and leveled, and, in some instances, the chairs 
upholstered and the legs fitted with glides and casters. The court held 
that the work performed on the imported articles by the importer was 
substantial in nature and more than the mere assembly of parts 
together. The court further stated that the result of the assembly of 
the chair parts was the transformation of the parts into a ``functional 
whole''--which resulted in a new and different article of commerce. The 
court concluded that the importer was the ``ultimate purchaser'' of the 
imported articles, so that the marking of the country of origin on the 
containers in which such articles were imported was deemed sufficient 
to meet the statutory marking requirements. The Part 102 rules are 
consistent with this court decision. In this case, the goods for which 
country of origin had to be determined were ``chairs'', which are 
classified under subheadings 9401.10 through 9401.80 for which the 
following Sec. 102.20 tariff shift rule is prescribed: A change to 
subheading 9401.10 through 9401.80 from any subheading outside that 
group, except from subheading 9403.10 through 9403.80, and except a 
change from subheading 9401.90 or 9403.90 when that change is pursuant 
to GRI 2(a). The Court in Carlson Furniture also found that the 
imported articles were ``not chairs in unassembled or knocked-down 
condition'', but were ``at best the wooden parts which go into the 
making of chairs''. Since the chair parts were assembled into finished 
chairs by the U.S. importer, the change in classification from the 
imported chair parts to finished chairs did not occur pursuant to GRI 
(2)(a). Consequently, the assembly and other processing of the chair 
parts, classifiable under 9401.90, would be treated as a substantial 
transformation under the Part 102 rules.
    Midwood Industries, Inc. v. United States, 313 F.Supp. 951 
(Cust.Ct. 1970). In this case, steel forgings manufactured in West 
Germany, England, or Italy were imported into the United States where 
they were manufactured into flanges and fittings. The purpose of the 
fittings was to connect pipes of matching sizes. To that end, the 
forgings were faced, bored, threaded or bevelled, drilled, or spot-
faced, or they were heated and one end was reduced in size and diameter 
by compression, excess steel was removed, and the ends were aligned, 
trimmed, and bevelled for welding purposes. In finding that the steel 
forgings were substantially transformed in the United States, the court 
drew a distinction between consumer and producer goods, stating that 
the imported articles are ``not in fact used by the consumer in such 
state of manufacture and are not capable of use by the consumer in that 
state.'' The Part 102 rules do not stipulate that all forgings 
manufactured into flanges and fittings undergo a substantial 
transformation. The Court of International Trade has not employed the 
consumer-good-versus-producer-good analysis used by the Customs Court 
in Midwood. Nor does Customs believe that the court is bound to follow 
that reasoning. Cf. Algoma Steel Corp., Ltd. v. U.S., 865 F.2d 240, 243 
(Fed.Cir. 1989). In Midwood, the Customs Court based its decision on an 
analysis of the facts presented regarding the manufacturing processes 
employed by a single pipe fittings company circa 1970 as well as the 
legal arguments presented in that case. The court noted that it did not 
need ``to determine whether or not the processes employed'' at the 
plaintiff's plant were ``generally prevalent throughout any segment of 
the industry in the United States.'' Midwood, 313 F.Supp. at 956. 
Customs believes that the Midwood result would have been consistent 
with the proposed rules set forth in this document had it been 
presented as such. Consequently, Customs is confident that the Court of 
International Trade will sustain the uniform rules of general 
applicability contained herein, which are relevant to current industry 
practices and are entirely consistent with the general principles 
enunciated by the court.
    National Hand Tool Corp. v. United States, 16 CIT 308 (1992). The 
articles involved in this case were nine kinds of components of hand 
tools which were further processed and assembled in the United States. 
The components were either cold-formed or hot-forged in Taiwan into 
their final shape before importation. Some of the tools underwent a 
heat treatment, were reshaped by bending, or were further machined by 
knurling in the United States, and other articles were electroplated in 
the United States. The various components were then assembled in the 
United States to produce the finished tools. The court found that there 
was no name change and that the character of the imported articles 
remained unchanged after heat treatment, electroplating, and assembly. 
The court stated that although there may be changes in the 
characteristics of the material, they did not change the character of 
the articles. The court also found no change in use as a result of the 
processing in United States. Finally, the court found that there was no 
reason to find a substantial transformation on the basis of the value-
added in the United States. Accordingly, since the operations performed 
in the United States did not result in a substantial transformation, 
the court held that the imported articles must be marked to indicate 
the country of origin pursuant to 19 U.S.C. 1304. The Part 102 rules 
are [[Page 22316]] totally consistent with the application of the 
substantial transformation principle in this case, not only in the case 
of hand tools but also as applied to other products involving similar 
processing operations.

2. Subheading 9802.00.80 and Products of the United States

    This document sets forth, without change, the proposal contained in 
the January 3, 1994, notice of proposed rulemaking to amend Sec. 10.14 
of the Customs Regulations to provide for application of the Part 102 
rules for purposes of determining when imported foreign materials are 
substantially transformed in the United States so as to be considered 
products of the United States and thus not subject to duty under 
subheading 9802.00.80, HTSUS, when exported for assembly abroad and 
then returned to the United States. The Part 102 rules are totally 
consistent with the following court decision which involved substantial 
transformation for purposes of determining country of origin in 
connection with item 807.00, TSUS (the predecessor to subheading 
9802.00.80, HTSUS).
    Data General Corporation v. United States, 4 CIT 182 (1982). The 
court considered the question of whether programming a programmable 
read only memory (PROM) imported into the United States constitutes a 
substantial transformation. The court analyzed the processing in terms 
of the name, character, and use test. The court found that there was a 
change in name in that a PROM when programmed is no longer a PROM and 
is sometimes referred to as a read only memory (ROM). The court found 
that there was also a change in character as a result of the 
programming which changed the pattern of interconnections with the 
PROM. According to the court, a distinct physical change was effected 
in the PROM by the opening or closing of the fuses. Citing Uniroyal, 
the court stated that the ``essence'' of the article, its pattern of 
interconnections or stored memory, was established by the programming. 
The court also noted that there was a change in use in that the PROM 
had no function or use except for programming. The court analogized 
programming a PROM to assembling the components on a printed circuit 
board, which is cited in 19 CFR 10.14(b) as an example of substantial 
transformation. Therefore, the court held that programming the PROM 
resulted in a substantial transformation into a ``fabricated 
component'' which was a product of the United States for purposes of 
item 807.00, TSUS. The result reached in this case is reflected in the 
Part 102 rules since the applicable tariff shift rule (subheadings 
8541-8542) allows a change to any programmed chips from any 
unprogrammed.

3. Application of Most-Favored-Nation Duty Rates

    The Part 102 rules are consistent with the court's application of 
the substantial transformation principle in the following case which 
involved the question of whether the most favored-nation duty rate (as 
opposed to the higher column 2 duty rate) should be applied to the 
imported merchandise at issue.
    Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255 
(CIT 1986). The court held that mixing gas oil from the Soviet Union 
and fuel oil from Italy in Italy does not result in a new and different 
article of commerce so that the mixture becomes a product of Italy. The 
court concluded that there was no change in the appearance, character, 
identity, or use of the Russian oil to warrant the conclusion that the 
imported blend was solely a product of Italy. Furthermore, the court 
stated that the essential character of the Russian component as a fuel 
oil used primarily for heating remained unchanged. The court found that 
``although a change in tariff classification is certainly not 
controlling * * * the same classification treatment of the products * * 
* is some indication that the imported blend was not a new and 
different product.'' Accordingly, the Part 102 rules do not allow a 
change of origin when fuel oil and gas oil, both of which are 
classified in heading 2710, are simply blended together.

4. Voluntary Restraint Arrangement Cases

    On balance, and as explained below, the Part 102 rules are 
consistent with the following cases involving substantial 
transformation for purposes of determining origin in the trade policy 
area. These cases involved voluntary restraint arrangements that the 
United States had with various countries regarding the exportation of 
steel products to the United States.
    Ferrostaal Metals Corporation v. U.S., 664 F.Supp. 535 (CIT 1987). 
In New Zealand, full hard cold rolled steel sheet imported from Japan 
was annealed and galvanized by a process known as ``continuous hot-dip 
galvanizing'' to produce galvanized steel sheet. The court held that 
the hot-dipped galvanized steel sheet was a new and different article 
of commerce when compared to the full hard cold rolled steel sheet. In 
making this determination, the court found that the processing of the 
hard cold rolled steel sheet into hot-dipped galvanized steel sheet 
results in a change in name, character, and use. The court noted the 
change in name, that is, from full hard cold rolled steel sheet to 
continuous hot-dip galvanized steel sheet. The court also stated that 
the annealing and galvanizing process resulted in a change in character 
by significantly altering the mechanical properties and chemical 
composition of the steel. In addition, the court noted that cold-rolled 
steel cannot be used for the same purposes as steel that has undergone 
the hot-dip galvanizing process. The Ferrostaal opinion represents a 
trial court's resolution of a single, particular dispute involving a 
specific product and process. The case was not appealed. While the 
Court of International Trade's substantial transformation analysis in 
Ferrostaal remains relevant, Customs has not codified the specific 
result of Ferrostaal and does not propose it as a uniform rule of 
general applicability based on a comprehensive review of industry 
practices. Again, Customs believes that the Ferrostaal court would have 
reached the result contained in those rules had they been presented as 
such to the court. Moreover, Customs is confident that the Court of 
International Trade will sustain those rules based on an industry-wide 
analysis, notwithstanding the result that was reached based on the 
particular facts of a single case. Cf. Algoma Steel Corp., Ltd. v. 
U.S., 865 F.2d 240, 243 (Fed.Cir. 1989).
    Superior Wire v. United States, 867 F.2d 1409 (CAFC 1989). The 
Court of Appeals for the Federal Circuit affirmed the Court of 
International Trade decision that the process of drawing wire in Canada 
from wire rod produced in Spain is not a substantial transformation. 
The lower court had employed the traditional name, character, and use 
test, finding that, although there is a name change from wire rod to 
wire, there is no change in character or use when wire rod is drawn 
into wire. Therefore, the court held that wire drawn in Canada from 
Spanish wire rod was not substantially transformed for purposes of 
determining the country of origin under the voluntary restraint 
arrangement between the United States and Spain, thus resulting in 
Spain remaining the country of origin of the imported steel. The Part 
102 rules are consistent with the court's application of the 
substantial transformation principle in this case: the specific 
Sec. 102.20 tariff shift rule applicable to such goods provides for a 
change to heading 7223 (wire) from any [[Page 22317]] other heading, 
except from heading 7221 through 7222 (wire rod).

5. Generalized System of Preferences Cases

    Although the Generalized System of Preferences (GSP) statute 
currently requires that the imported article must be product of a 
designated beneficiary developing country (BDC) in order to be eligible 
for GSP duty-free treatment, all of the court decisions to date 
involved Customs entries pre-dating that statutory provision and thus 
focused only on the GSP statutory preference standard that 35 percent 
of the value consist of materials the product of a BDC plus direct 
costs of processing performed in the BDC. These cases remain relevant 
as examples of substantial transformation analysis to the extent that 
the question addressed by the court did not involve the origin of the 
final product exported from the BDC but rather involved whether a 
material imported into the BDC was substantially transformed into a new 
and different intermediate article of commerce in the BDC before being 
used to make the good exported from the BDC, so that its value could be 
counted toward the 35 percent requirement. Although the court in each 
of the cases discussed below did not specifically address the issue of 
the origin of the final article exported to the United States, it 
appears both that all of the involved goods as exported to the United 
States were products of the BDC and that the same conclusion would be 
reached under the Part 102 rules.
    Texas Instruments v. U.S., 681 F.2d 778 (CCPA 1982). The court held 
that silicon chips, wire and lead strips, which were imported into a 
BDC where they were assembled into integrated circuits and photodiodes, 
and where the chips had first to be severed from silicon slices prior 
to the assembly process, were substantially transformed into 
``materials produced in the BDC'' which were then used in the 
production of electronic camera parts exported to the United States.
    Azteca Milling Co. v. U.S., 703 F.Supp. 949 (CIT 1988), and F.F. 
Zuniga Refractarios Monterrey, 996 F.2d 1203 (CAFC 1992). These GSP 
cases involved the issue of whether there existed a new and different 
article of commerce versus ``materials in process advancing toward the 
finished product''. In Azteca Milling which involved corn flour 
imported into the United States, the court found that the production of 
corn flour nixtamal and masa from imported corn did not result in a 
substantial transformation into new and different articles of commerce, 
since the nixtamal and masa were ``clearly recognizable as processed 
corn.'' Similarly, the court in Zuniga found that the production of a 
casting slip for kiln furniture from imported dry materials did not 
result in a substantial transformation into new and different articles 
of commerce since the casting slip was only a ``transitional stage of a 
material in process, advancing toward the finished product'', the kiln 
furniture. The casting slip, like the nixtamal and masa in Azteca, was 
not found by the court to be ``readily susceptible of trade''.
    Torrington v. United States, 764 F.2d 1563 (CAFC 1985). The court 
held that the production of swage needle blanks from imported wire and 
the further production of sewing machine needles from swage blanks 
represented a double substantial transformation of the imported wire. 
The Part 102 rules support the trial court's first finding of a 
substantial transformation--the transformation of wire into unfinished 
sewing machine needles--but not the second finding regarding the 
transformation from unfinished to finished needles. The appellate 
court's decision upholding the second substantial transformation found 
by the trial court was based on a rare citation of the producer good-
consumer good standard of Midwood, which the courts have not favored. 
Moreover, the court's decision appears to have been influenced heavily 
by its desire to effectuate what it believed to be the intent of 
Congress. In sustaining the trial court's finding of double substantial 
transformation, the court noted the Congressional intent behind the GSP 
statute, which was to foster industrialization of BDCs, and focused on 
the ``actual manufacturing process by which the intermediate article 
becomes the final product''. In this regard, the court concluded that 
in light of the significant manufacturing process, there was not a 
``mere pass-through'' operation in the BDC.

6. Textile Cases

    The court decisions involving substantial transformation of 
textiles and textile products were superseded by the rules of origin 
established under Sec. 12.130 of the Customs Regulations (19 CFR 
12.130) for textiles and textile products subject to the U.S. textile 
import program. The authority to promulgate these rules was upheld by 
the court in Mast Industries v. Regan, 596 F.Supp. 1597 (CIT 1984). In 
that case, the court found that the promulgation of Sec. 12.130, which 
was at the direction of the President and which set forth rules for the 
determination of country of origin for textiles and textile products 
subject to import quotas, was fully in accordance with law. See also 
Target Sportswear, Inc. v. United States, supra. This document 
republishes the January 3, 1994, proposals to delete paragraphs (d) and 
(e) from Sec. 12.130 and to amend paragraph (b) thereof to cross-refer 
to the Part 102 rules as Customs in T.D. 90-17 made those Sec. 12.130 
rules generally applicable for textiles and textile products. Thus, the 
Part 102 rules track the principles of, as well as the origin results 
that would be reached under, Sec. 12.130 in the case of textiles and 
textile products.

Proposed Changes to the Interim and Proposed Texts and Proposed Delayed 
Effective Date

A. Proposed Amendments to the Interim Rules

1. Part 102 General Origin Criteria

Section 102.11--General Rules

    It is proposed to revise paragraph (d) of interim Sec. 102.11 in 
part to simplify the text but principally in order to ensure that 
paragraph (d) will provide for an origin determination in all cases in 
which origin cannot be determined under paragraph (a), (b) or (c). 
Customs notes that the interim paragraph (d) text in some cases will 
not effectuate an origin determination when the good in question last 
undergoes production in a country where only minor processing was 
performed with respect to that good. For example, various furniture 
parts classifiable under subheading 9403.90, HTSUS, enter Country A 
from various countries; in Country A, the parts are collected and 
packaged into unassembled boxes of desks and tables classifiable under 
subheading 9403.30, HTSUS, pursuant to GRI 2(a) which are then shipped 
to Country B. The interim Sec. 102.20 tariff shift rule for goods 
classified in subheading 9403.30 provides for ``a change to subheading 
9403.10 thorugh 9403.80 from any subheading outside that group, except 
from subheading 9401.10 through 9401.80, and except a change from 
subheading 9401.90 or 9403.90 when that change is pursuant to GRI 
2(a).'' In the stated example this tariff shift rule will not be met 
because the change in classification indeed does occur as a result of 
classification of the collection of furniture parts as the unassembled 
desks and tables pursuant to GRI 2(a); thus, origin cannot be 
determined under interim Sec. 102.11(a)(3). If no single component can 
be found to impart the essential character to the desks and tables, 
then origin of the goods also cannot be determined under interim 
Sec. 102.11 (b). Moreover, since the desks [[Page 22318]] and tables 
are not classified as sets, mixtures or composite goods under the 
HTSUS, origin cannot be determined under interim Sec. 102.11(c). 
Finally, since the parts came into Country A from various countries and 
only minor processing (packaging) was performed in Country A to make 
the goods, the origin of the goods cannot be determined under interim 
Sec. 102.11(d)(1) or (2). Thus, no determination of origin can be 
achieved under the interim texts with regard to the good described in 
this example.
    In order to address the problem outlined above, the proposed 
revision of paragraph (d) as set forth below incorporates the following 
three subparagraphs: subparagraph (1) covers a good produced only as a 
result of minor processing and provides in such a case that the country 
of origin of the good is the country or countries of origin of each 
single material that merits equal consideration for determining the 
essential character of the good; subparagraph (2) covers a good 
produced by simple assembly, where the assembled parts that merit equal 
consideration for determining the essential character of the good are 
from the same country, and provides in such a case that the country of 
origin of the good is the country of origin of those parts; and 
subparagraph (3) covers cases in which the country of origin of a good 
cannot be determined under paragraph (d)(1) or (d)(2) and provides that 
in such cases the country of origin of the good is the last country in 
which the good underwent production.

Removal of Sec. 102.14--Goods Returned

    Based on comments received and as a result of further internal 
review, Customs has reconsidered the position stated in T.D. 94-4 that 
U.S. Note 2(a), Subchapter II, Chapter 98, HTSUS, has application for 
general country of origin purposes. In light of this change in 
position, it is proposed to remove this section (see also the proposed 
revision of interim Sec. 102.19 discussed below).

Removal of Sec. 102.16--Good and its Parts; Parts of Parts

    It is proposed to remove interim Sec. 102.16 which sets forth 
special origin rules where, for any of several specified reasons, a 
part of a good or a part of a part does not undergo an applicable 
change in tariff classification provided for in Sec. 102.20. The 
experience of Customs in administering the interim NAFTA Marking Rules 
has shown that the hierarchical application of Secs. 102.11 (b) through 
(d), coupled with the proposed change to Sec. 102.11(d) discussed 
above, yield an appropriate origin result that codifies the substantial 
transformation principle. Accordingly, Customs no longer believes that 
Sec. 102.16 is necessary.

Section 102.17--Non-qualifying Operations

    It is proposed to revise the introductory text of interim 
Sec. 102.17 to clarify the intent that the section applies whenever the 
change in tariff classification or other condition specified in 
Sec. 102.20 was met only as a result of one or more of the listed non-
qualifying operations having been performed with respect to the good.
    In addition, it is proposed to revise paragraph (e) of interim 
Sec. 102.17 which specifies, as a ``non-qualifying operation'' for 
purposes of section 102.20, any process or work the sole object of 
which is demonstrated by a preponderance of evidence to be the 
circumvention of the Part 102 rules. Upon reconsideration of this 
provision, it is Customs view that this provision is not administrable 
since the text does not make clear how it is possible for a person to 
``circumvent'' these rules. First, if the Sec. 102.20 rule or any other 
Part 102 rule does not preclude a specific operation from being the 
means by which a foreign material satisfies a Sec. 102.20 rule, any 
operation is deemed allowable under Part 102. Second, if a Part 102 
rule specifically precludes a type of operation (for example, ``simple 
assembly'' or ``dismantling or disassembly'') and it was only as a 
result of such an operation that the change in tariff classification 
requirement or other conditions specified for the foreign material 
under the Sec. 102.20 rule were met, the Sec. 102.20 rule is simply not 
deemed to have been satisfied. In either case, there could not have 
been a ``circumvention'' of the rules as a result of the operation, 
since either the Part 102 rules permitted the operation or, as a result 
of the operation, the Part 102 rules were not satisfied.
    Nevertheless, to further protect against circumstances which may 
appear to be a ``circumvention'' of the spirit or intent of the Part 
102 rules, Customs proposes to redraft paragraph (e) of Sec. 102.17 to 
specify, as an additional ``non-qualifying operation'', collecting 
parts that, as such, are classifiable in the same tariff provision as 
an assembled good pursuant to General Rule of Interpretation (GRI) 
2(a), without any additional operation other than minor processing. 
Thus, no specified change in tariff classification will be deemed to 
have occurred if such change resulted solely from the act of collecting 
parts which are then classified under the tariff provision applicable 
to the assembled good. If, on the other hand, in addition to the 
collecting of parts, processing constituting more than minor processing 
also occurred in the country in question, this rule would be 
inapplicable.

Section 102.18--Rules of Interpretation

    It is proposed to revise paragraph (a) of interim Sec. 102.18 in 
order to: (1) Simplify, and thus clarify the application of, the 
introductory text; (2) remove subparagraph (a)(1)(i) which refers to 
the collection of parts classified as an assembled good and thus would 
become redundant because it would be encompassed within the broader 
terms of proposed new Sec. 102.17(e) as discussed above (which would 
apply to all tariff shift rules rather than to only those rules that 
specifically cite classification under GRI 2(a) as a basis for not 
allowing a specified change in tariff classification); (3) remove 
paragraph (a)(2) which would no longer be needed in view of the 
proposed removal of paragraph (a)(1)(i) from this section; and (4) 
simplify the remaining portion of paragraph (a) (subparagraph 
(a)(1)(ii) in the interim text) and remove therefrom the unnecessary 
reference to ``a subassembly''.
    In addition, it is proposed to revise paragraph (b) of interim 
Sec. 102.18 in order to effect the following changes: (1) The removal 
of the undefined parenthetical reference to ``self-produced materials'' 
in interim subparagraph (b)(2); (2) the reversal of the order of 
interim subparagraphs (b)(1) and (b)(2); (3) in newly designated 
subparagraph (b)(1), the addition of new subparagraphs (b)(1)(i) and 
(b)(1)(ii) to clarify and illustrate, by way of a statement and an 
example in each case, the intended operation of the subparagraph (b)(1) 
rule; and (4) the simplification, and thus clarification, of the 
paragraph (b) text.

Section 102.19--NAFTA Preference Override

    It is proposed to make some editorial modifications to the text of 
interim Sec. 102.19, to designate that text as paragraph (a), and to 
add a new paragraph (b). New paragraph (b) is intended to facilitate 
the application of the appropriate NAFTA preferential duty rate under 
General Note 12(a), HTSUS, in the case of originating goods the origin 
of which is determined to be the United States under the Part 102 
provisions. It should be noted that the term ``Customs duty'' used in 
this new paragraph (b) is intended to include merchandise processing 
fees which are treated as Customs duties under 
[[Page 22319]] Sec. 24.23(e) of the Customs Regulations (19 CFR 
24.23(e)).
2. Section 102.20 Specific Rules
    Customs proposes to make a number of amendments to the tariff shift 
rules and other requirements set forth in interim Sec. 102.20. These 
proposed amendments, and the reasons therefor, are summarized below 
with reference to the HTSUS provisions and general types of goods 
involved.

Elimination of the Specific Rules Referring to ``Substantial 
Transformation''

    Customs proposes to amend the tariff shift rules for headings/
subheadings 1901.90, 2103.90, 4823.20 through 4823.59, 4823.70 through 
4823.90, 6811.90, 6812.90, 6814.90, 7010 through 7018, 7019.90, 7020, 
8708.99, 9110, 9401.90, 9403.90, and 9606.21 through 9606.29, by 
eliminating in each case the rule which permits a specified change ``if 
that change results in a substantial transformation.'' In administering 
the interim Part 102 rules Customs has determined that these specific 
statements in the rules are redundant and do not need to be included in 
Sec. 102.20 in order to codify the substantial transformation 
principle. As a result of this proposal and the proposed removal of 
Sec. 102.16 discussed above, the term ``substantial transformation'' 
would no longer appear in the Part 102 texts; accordingly, it is also 
proposed to remove the definition of ``substantial transformation'' in 
interim Sec. 102.1(p).

Section II Note

    It is proposed to amend the Note under Section II by adding the 
words ``or from whole plants,'' after the words ``slips or other live 
parts of plants,''. This proposed change is intended to clarify, 
consistent with the definition of ``a good wholly obtained or 
produced'' in interim Sec. 102.1(g), that when an agricultural product 
is grown and harvested from a plant that was transplanted from another 
country, the product has its origin in the country in which the product 
was harvested.

Headings 0904-0910 (Spices)

    It is proposed to delete the second tariff shift rule for headings 
0904-0910, which provides for a change to crushed, ground, or powdered 
products of heading 0904 through 0910 (principally spice products) from 
within Chapter 9, if put up for retail sale. Customs is of the opinion 
that processing raw spices to create crushed, ground or powdered 
spices, whether or not accompanied by cleaning, merely changes the form 
of the spice and does not result in any significant change in the name, 
character or use of the product. This view is consistent with previous 
Customs rulings which have held that the processing of raw cheese into 
grated cheese packed for retail sale does not constitute a substantial 
transformation.

Subheading 1517.90 (Vegetable Oils Consisting of Preparations and 
Mixtures)

    The interim rule requires a change from any other chapter. It is 
proposed to amend this rule by adding a second tariff shift rule which 
would allow a change from any other heading so long as the resulting 
product contains no more than 60 percent by volume of a single oil 
ingredient from a single country. This change would make the rule for 
mixtures of different types of oils consistent with the rule for a 
similar type of product, mixtures of different types of fruit juices 
(heading 2009.90), and would incorporate the results reached under the 
traditional application of the substantial transformation rule with 
respect to such types of products.

Headings 4104-4107 (Leather)

    Based both on a comment and on further review by Customs, it is 
proposed to delete the second tariff shift rule which allows a change 
to finished leather of heading 4104 through 4107 from wet blue hides or 
leather. This proposed change reflects the following considerations: 
(1) There is no established definition of the term ``finished leather'' 
and, in fact, the meaning of the term can vary according to the end use 
of the goods; and (2) the processes necessary to change wet blues to 
finished leather can vary and may not, in all cases, result in a change 
in the country of origin, as reflected in rulings issued by Customs.

New Chapter 42 Note

    It is proposed to add a Note to the Chapter 42 rules to ensure that 
a single country of origin always will be identifiable in the case of 
textile goods. This new Note is modeled on Note 3 to the Section XI 
rules and thus also reflects the proposed amendment to that Note as 
discussed below.

Headings 4810-4814 (Coated Paper)

    Customs proposes to revise this interim tariff shift rule by 
dividing it into separate rules for heading 4810, subheading 4811.10 
through 4811.31, subheading 4811.39, subheading 4811.40 through 
4811.90, and headings 4812 through 4814. Of these five proposed new 
rules, only the proposed rule for subheading 4811.39 would constitute a 
substantive change from the current interim rule for headings 4810 
through 4814. The proposed rule for subheading 4811.39 would disallow a 
change from paper of heading 4804 to paper that is only ``coated, 
impregnated or covered with plastics''. This is consistent with Customs 
rulings which generally have held that laminating, coating or 
encapsulating does not result in a substantial transformation.

Subheadings 4823.70-4823.90 (Other Paper, Paperboard, etc. Products)

    It is proposed to amend the tariff shift rule which would remain 
(if the ``substantial transformation'' rule is eliminated as proposed 
above) to specify a change ``from any other subheading, including 
another subheading within that group'' rather than a change ``from any 
other chapter''. This amendment would result in a more liberal rule 
which reflects the conclusions reached by Customs under the traditional 
approach.

Section XI (Textiles)

    The proposed amendments to the interim Sec. 102.20 specific rules 
applicable to textiles as discussed below are intended to conform the 
rules in question to the practice of, and positions taken by, Customs 
in the case-by-case administration of Sec. 12.130 of the Customs 
Regulations (19 CFR 12.130):

a. Note (1)d

    In response to a comment, it is proposed to replace the word 
``body'' by the words ``major parts'' and to delete the words 
``together with its sleeves and/or legs'', in order to preclude 
interpretation of this Note as not applying to garments that have 
padding in the body and linings in the sleeves.

b. New Note (1)f

    It is proposed to add a new Note (1)f to clarify the meaning of 
``minor embellishments'' (see the proposed amendment to the specific 
rules applicable to goods of headings 6302 and 6304 as discussed 
below).

c. Note 3

    It is proposed to amend Note 3 by adding a sentence at the end to 
cover a case where more than one component determines classification or 
where the component that determines classification is attributable to 
more than one country. This new sentence provides that in such cases 
the country of origin shall be the last country in which the good 
underwent production other than minor processing. Customs believes that 
this amendment is [[Page 22320]] necessary for purposes of 
administration of the U.S. textile import program which makes no 
provision for multiple countries of origin.

d. Heading 5105 (Wool Tops)

    It is proposed to add a second tariff shift rule for headings 5101-
5105 in order to reflect the Customs position that the processing of 
greasy wool into combed wool is a substantial transformation.

e. Heading 5609 (Articles of Yarn)

    It is proposed to amend the tariff shift rule for heading 5609 to 
include, in the exception language, a reference covering headings 5604 
and 5605 which include different types of yarns. This proposed change 
would reflect the Customs view that the assembly or other processing of 
such yarns into articles classifiable in heading 5609 does not 
constitute a substantial transformation.

f. Heading 5804 (Net Fabrics)

    Customs has determined that, under certain circumstances, it is 
commercially feasible to convert made up nets of heading 5608 to 
netting of subheading 5804.10 by simple cutting, and Customs does not 
believe that such a tariff shift should confer origin. Accordingly, it 
is proposed to divide the interim heading 5804 tariff shift rules into 
two sets of rules, one for subheading 5804.10 and the other for the 
remainder of the heading, in order to add in the case of subheading 
5804.10 an exception involving a change to that subheading from heading 
5608.

g. Subheadings 5806.10-5806.39 (Narrow Fabrics)

    It is proposed to amend the first tariff shift rule for subheadings 
5806.10-5806.39 by adding heading 5801 to the listed exceptions. 
Heading 5801 provides for woven pile and chenille fabrics, and it is 
the position of Customs that the processing of those fabrics into goods 
classifiable in subheadings 5806.10-5806.39 does not constitute a 
substantial transformation.

h. Heading 5810 (Embroidered Fabric)

    In response to several similar comments, it is proposed to 
rearrange, and revise the wording of, the two tariff shift rules for 
goods of this heading in order to conform to prior rulings regarding 
the weight and effect of the embroidery.

i. Heading 5903 (Coated Fabrics)

    It is proposed to amend the first tariff shift rule for this 
heading by replacing the exclusion reference to subheadings ``5806.31 
through 5806.39'' by a reference to heading ``5806''. This will have 
the principal effect of widening the reference to include woven pile 
fabrics which were inadvertently omitted from the exclusion language in 
this tariff shift rule.

j. Headings 6101, 6102, 6201 and 6202 (Assembled Garments)

    In response to a comment, it is proposed to amend the third tariff 
shift rule for each of these headings in order to conform the wording 
to that used in other Sec. 102.20 rules which specify a change ``to 
assembled garments from unassembled parts''.

k. Subheadings 6103.21-6103.29, 6104.21-6104.29, 6203.21-6203.29 and 
6204-21-6204.29 (Ensembles)

    In response to a comment, it is proposed to add to each of these 
subheadings two new tariff shift rules in order to make the rules for 
suits (see, for example, the interim rules for subheadings 6103.11-
6103.19) applicable to sets of garments (ensembles) that are 
essentially the same as suits.

l. Headings 6115-6117 and 6213-6214 (Shawls, Scarves, and the Like and 
Handkerchiefs)

    In response to a comment, it is proposed to divide the interim 
tariff shift rule for headings 6115-6117 in order to set forth a 
separate rule for subheading 6117.10 which would allow a change from 
greige fabric to shawls, scarves, etc. by means of dyeing, printing, 
cutting and stitching. The proposed separate rules set forth in this 
document for headings 6115-6116 and for subheadings 6117.20-6117.90 
reflect the terms of the interim rule.
    In response to the same commenter, it is proposed to amend the 
interim rule for headings 6213-6214: (1) to remove the knit-to-shape 
proviso which does not appear to be appropriate for the type of goods 
covered; and (2) to add a second tariff shift rule for the same reason 
stated above for subheading 6117.10.

m. Heading 6205 (Shirts)

    In response to a comment, it is proposed to delete the word 
``shoulder'' before ``yokes'' in the second and third tariff shift 
rules because (1) yokes on shirts by definition are only in the 
shoulder area and (2) this would conform the wording to the terminology 
used in the rules under headings 6105, 6106 and 6206.

n. Headings 6302 and 6304 (Bed Linen and Other Furnishings)

    In response to a comment, it is proposed for each of these headings 
to add a second tariff shift rule to the interim paragraph (1) rule to 
reflect current Customs rulings. The proviso in each new rule, which 
requires at least cutting ``finished fabric'' on all sides and hemming 
``all cut edges'' and ``at least one other subsequent process'', 
clarifies the fact that fabric finishing operations are not considered 
and eliminates any uncertainty regarding the minimum amount of hemming 
that must be performed. The present view of Customs is that such minor 
embellishments should not be considered.

o. Heading 6303 (Curtains, Blinds and Valences)

    In the second tariff shift rule, it is proposed to amend the 
proviso as follows: (1) to require ``more than'' (rather than ``at 
least'') cutting on all sides ``and'' hemming the cut edges; (2) by 
removing the requirement for ``a significant sewing or assembly 
operation''; and (3) by adding at the end the words ``and with no 
consideration being given to minor processing''. Customs believes that 
the ``minor processing'' standard, which is defined in Sec. 102.1(m), 
is preferable to the undefined ``significant'' standard; thus, 
processing which is other than ``minor'' should, by definition, be 
considered significant.
    In addition, it is proposed to amend the third tariff shift rule by 
adding a reference to heading 5811 so as to include quilted fabrics in 
the listed exceptions since a good may contain a small amount of 
quilted fabric without being considered a ``quilted article''.

p. Subheadings 6306.91-6306.99 (Awnings, Sunblinds and Camping Goods)

    It is proposed to amend this tariff shift rule by adding language 
at the end of the proviso to clarify that minor processing may not be 
considered in determining whether the proviso conditions have been met.

q. Subheading 6307.90 (Made up Articles)

    Customs believes that the interim tariff shift rule should be 
amended to prescribe that the sewing or assembly operation be 
``substantial'' in amount rather than simply ``significant''. While 
this proposed amendment appears to be minor and does not materially 
alleviate the subjectivity of the rule, Customs notes that it: (1) 
effectively changes the test for manufacturing or processing 
[[Page 22321]] operations from a qualitative standard to a quantitative 
standard, which is how Customs has been applying Sec. 12.130; and (2) 
conforms the terminology used in the rule to the wording of 
Sec. 12.130.

New Chapter 65 Note

    It is proposed to add a Note to the Chapter 65 rules to ensure that 
a single country of origin always will be identifiable in the case of 
textile goods. As in the case of the new Note proposed for the Chapter 
42 rules as discussed above, this new Note is modeled on Note 3 to the 
Section XI rules and thus reflects the proposed amendment to that 
Section XI Note as discussed above.

Headings 7010-7018 (Glass Articles)

    With particular regard to lead crystal stemware of heading 7013, a 
commenter argued that the interim rules for headings 7010-7018 
represent an abandonment of existing principles used for determining 
country of origin and such action would significantly harm its client's 
business. This commenter cited, as an example of an existing principle, 
Headquarters Ruling Letter (HRL) 734387 dated June 8, 1992, in which 
Customs held that the processing in Ireland of uncut lead crystal 
stemware ``blanks'' originating in various continental European 
countries ``substantially transformed'' the ``blanks'' into ``formal 
crystal stemware'', thus making Ireland the country of origin of the 
finished product.
    Customs on a number of occasions has previously ruled on the 
question of whether extensive and intricate cutting of crystal 
constituted a substantial transformation. In HRL 734387 mentioned by 
the commenter, Customs ruled that crystal glassware ``blanks'' were 
substantially transformed into formal, elegant stemware suitable for 
indoor decoration by the extensive hand-cutting operations performed in 
Ireland. Customs based this determination on the fact that the hand-
cutting operation was a substantial and intricate processing operation 
performed by highly skilled craftsmen which significantly changed the 
appearance and the shape of the stemware, imparting a decorative use to 
the glassware. Customs also noted that the glassware lost its identity 
as mere glassware and became a new article bought primarily for its 
appearance rather than for its utilitarian use. Similarly, in HRL 
734283 dated June 16, 1992, Customs found that a crystal blank bowl, 
vase and basket were substantially transformed as a result of extensive 
and intricate hand-cutting done in Ireland. In another ruling, HRL 
734653 dated October 22, 1992, Customs found that crystal blank bowls, 
which were hand-cut in the United States, were substantially 
transformed by the extensive operations performed there.
    Most recently, Customs held in HRL 735310 dated April 6, 1994, that 
hand-cutting and acid polishing crystal stemware blanks in the United 
States resulted in a substantial transformation of the blanks. Customs 
found in this case that the hand-cutting and polishing operations were 
extensive and intricate and were performed entirely in a single 
country, the United States.
    The foregoing cases are to be distinguished from HRL 731617 dated 
September 1, 1989, in which Customs held that the grinding and 
polishing of aluminum trays and bowls in Mexico did not substantially 
transform the articles. Customs held that neither the grinding nor the 
polishing changed the fundamental character or use of the articles. 
Rather, Customs concluded that it was the constituent material, 
aluminum alloy, coupled with the shape and design of the articles 
created by the U.S. sandcasting process, that imparted the essential 
character to the finished articles and determined their ultimate use.
    Customs, however, also concluded that in certain cases the 
operation of cutting stemware did not result in a substantial 
transformation. One such case was HRL 733036 dated April 9, 1990, in 
which Customs found that there was no change in name, character or use 
caused by the simple hand cuts made to the glass in East Germany which, 
although attractive, did not increase the value of the stemware.
    The case-by-case application of the substantial transformation 
standard in this area has been very controversial over the years. 
Therefore, in order to allow the results that would be achieved under 
the case-by-case approach while promoting objectivity and 
predictability of origin determinations involving these articles, 
Customs is proposing in this document to amend the interim rules 
prescribed for headings 7010-7018 to include a new rule that specifies 
a change from uncut and unpolished glassware blanks of heading 7013 to 
cut and polished glassware of that heading, provided that there has 
been a substantial amount of both cutting and polishing operations in a 
single country. As an example, Customs would consider the goods covered 
by HRL 735310, discussed above, as meeting this proposed new standard.
    Also, upon further review of these rules, Customs has discovered 
that the specific rule applicable to goods classified in heading 7011, 
which covers glass envelopes and parts thereof for electrical lamps, 
cathode-ray tubes or similar items, does not reflect Customs position 
regarding substantial transformation. This rule allows changes from 
glass profiles, classified in subheading 7003.30. In HRL 557387 dated 
October 1, 1993, Customs ruled that glass face plates for cathode ray 
tubes, classified in subheading 7011.20, which were produced in Mexico 
from Korean-origin glass profiles classified in subheading 7003.30, had 
not been substantially transformed into a product of Mexico. Customs 
concluded that ``the essential form, shape and character of the glass 
product [the face plates] were determined by the manufacturing 
operation in Korea'' for the production of the profiles. Since Customs 
continues to maintain the position stated in HRL 557387, it is proposed 
to modify the interim Sec. 102.20 specific rules to disallow a change 
to heading 7011 from subheading 7003.30.
    Finally, Customs has reconsidered the necessity for that provision 
contained in the interim rules for headings 7010 through 7018 which 
precludes a tariff shift from heading 7020. Customs believes that in 
order for such a change in tariff classification to occur, there would 
have to be either (1) a genuine creation of a new and different article 
having a new name, character or use, or (2) a tariff classification 
change resulting solely from a non-qualifying operation, such as a 
``change in end use'' or ``dismantling or disassembly'', which pursuant 
to Sec. 102.17 would not confer origin. Since the Part 102 rules 
already accomplish the purpose behind the limitation regarding a shift 
from heading 7020, it is proposed to remove that limitation. In 
addition, it is proposed to modify the interim rules to specifically 
allow a change from another heading within the group, because the same 
principles would apply in such a case.
    Accordingly, in order to reflect the above considerations, it is 
proposed to replace the interim rules for headings 7010-7018 with a new 
structure involving one rule for heading 7010, one rule for heading 
7011, and two rules for headings 7012-7018.

Subheadings 8301.10-8301.50 (Padlocks, Locks, Clasps and Frames)

    It is proposed to amend the tariff shift rule for these subheadings 
in order to rectify the incorrect reference ``8301.40'' which should 
read ``8301.50'' so as to correspond to the subheadings covered in the 
``HTSUS'' column. [[Page 22322]] 

Section XVI--Note

    This note, which disallows tariff changes within Chapters 84 and 85 
occurring only as a result of the application of GRI 2(a), would no 
longer appear necessary since the proposed amendment to interim 
Sec. 102.17(e), as discussed above, would accomplish the same purpose. 
Accordingly, it is proposed to delete this note.

Subheading 8401.20 (Machinery and Apparatus for Isotopic Separation)

    It is proposed to modify the text of the interim tariff shift rule, 
and to add a second tariff shift rule, in order to clarify that no 
change is allowed from parts of subheading 8401.20 to parts of the same 
subheading. Thus, under the proposed new standard for subheading 
8401.20, a change from parts of subheading 8401.20 is allowed only if 
the change is to completed machinery and apparatus of that subheading.

Subheading 8415.90 (Parts of Air Conditioning Machines)

    The interim rule allows a change to this subheading ``from any 
other heading, except a change resulting from a simple assembly.'' It 
is proposed to revise this rule to allow a change to this subheading 
``from any other subheading, except when the change is from heading 
7411, 7608, 8414, 8501, and 8535 through 8537 as a result of merely a 
simple assembly.'' Under this proposed change, the simple assembly 
limitation is specified only with reference to headings from which a 
tariff shift could possibly result merely from a simple assembly as 
defined in Sec. 102.1(o).

Subheadings 8470.10-8471.91 (Calculating, Accounting and ADP Machines)

    The interim rule allows a change to these subheadings ``from any 
other subheading, except when resulting from a simple assembly.'' It is 
proposed to revise this rule to allow a change to these subheadings 
either ``from any subheading outside that group, except from heading 
8473'' or ``from any subheading within that group or from heading 8473, 
provided the change is not the result of merely a simple assembly.'' 
Under this proposed change, the simple assembly limitation is specified 
only with reference to that heading from which a tariff shift could 
possibly result merely from a simple assembly as defined in 
Sec. 102.1(o). Thus, under the proposed rule, changes would be allowed 
to subheading 8470.10 through 8471.91 from any subheading outside that 
group, except heading 8473.

Subheadings 8471.92-8472.90 (Other Machines for Transcribing or 
Processing Coded Data and Other Office Machines)

    The interim rule allows a change to these subheadings ``from any 
other subheading, except when resulting from a simple assembly.'' It is 
proposed to revise this rule in the same manner, and for the same 
reasons, as stated above for subheadings 8470.10-8471.91.

Heading 8473 (Parts and Accessories of Machines of Headings 8469-8472)

    The interim tariff shift rule provides for a change to this heading 
``from any other heading, except heading 8501, when resulting from a 
simple assembly.'' Upon a further review, Customs has identified other 
provisions from which a change to heading 8473 could possibly result 
merely from a simple assembly as defined in Sec. 102.1(o). Therefore, 
it is proposed to revise this rule to allow a change to this heading 
``from any other heading, except when the change is from heading 8414, 
8501, 8504, 8534, 8541, or 8542 as a result of merely a simple 
assembly.''

Subheadings 8474.10-8474.80 (Machinery for Sorting, Grinding, etc.)

    The interim rule allows a change to these subheadings ``from any 
other subheading, except when resulting from a simple assembly.'' It is 
proposed to revise this rule to allow a change to these subheadings 
either ``from any subheading outside that group, except heading 8501'' 
or ``from a subheading within that group or heading 8501, provided the 
change is not the result of a simple assembly.'' Under this proposed 
change the simple assembly limitation is specified only with reference 
to those tariff provisions from which a tariff shift could possibly 
result merely from a simple assembly as defined in Sec. 102.1(o), in 
consideration of the fact that the machinery in this group is very 
similar and frequently consists of little more than a motor with some 
form of attachment.

Subheadings 8482.10-8482.80 (Bearings)

    A commenter cited HRL 083455 dated September 6, 1989, which held 
that the assembly of a tapered roller bearing was a simple assembly 
that did not result in a substantial transformation; therefore, the 
country of origin was held to be Romania where the cup and cone were 
manufactured. This commenter noted that although the second tariff 
shift rule under subheadings 8482.10-8482.80 is not a total departure 
from this ruling since the rule provides for bearings with domestic 
inner and outer races, nevertheless, this tariff shift rule is 
inconsistent with the ruling insofar as it allows for assemblies of 
parts which incorporate only domestic balls/rollers. Another commenter 
asserted that the rollers or balls represent a small percentage of the 
value (5 to 10 percent of the cost of production) and cited a finding 
by the Commission of the European Communities that the process or 
operations which result in the manufacture of balls or rollers or 
needle bearings and cages are of minor importance compared with the 
manufacture of the inner and outer rings and may be disregarded for the 
purposes of defining the origin of roller bearings.
    In light of both the imputed minimal value of the balls/rollers and 
the fact that the above-cited ruling held that the cup and cone provide 
the essential character of the bearing, it is proposed to amend the 
second tariff shift rule for goods of subheadings 8482.10-8482.80 to 
not allow origin to be based upon the country where the balls and 
rollers are made.

Subheading 8512.40 (Windshield Wipers, Defrosters and Demisters)

    The interim rule allows a change to this subheading ``from any 
other subheading, except when resulting from a simple assembly.'' It is 
proposed to revise this rule to allow a change to this subheading 
``from any other subheading, except when the change is from subheading 
8512.90 or heading 8501 as a result of a simple assembly.'' Under this 
proposed change, the simple assembly limitation is specified only with 
reference to those tariff provisions from which a tariff shift could 
possibly result merely from a simple assembly as defined in 
Sec. 102.1(o).

Subheadings 8517.10-8517.82 (Telephone and Telegraph Apparatus)

    The interim rule allows a change to these subheadings ``from any 
other subheading, including another subheading within that group, 
except when resulting from a simple assembly.'' It is proposed to 
revise this rule to allow a change to these subheadings either ``from 
any subheading outside that group, except from subheading 8517.90'' or 
``from subheading 8517.90, provided the change is not the result of a 
simple assembly.'' Under this proposed change, the simple assembly 
limitation is specified only with reference to that subheading from 
which a tariff shift could possibly result merely from a simple 
assembly as defined in Sec. 102.1(o). [[Page 22323]] 

Subheadings 8528.10-8528.20 (Television Receivers)

    The interim rule allows a change to these subheadings ``from any 
other subheading, including another subheading within that group.'' 
Thus, the interim rule allows a change from television tubes. Customs 
believes that the television tube may determine origin for some 
television sets. Accordingly, it is proposed to add an exclusion for 
television tubes (subheadings 8540.11 through 8540.12).

Subheadings 8531.10-8531.80 (Other Electric Sound or Visual Signaling 
Apparatus)

    The interim rule allows a change to these subheadings ``from any 
other subheading, including another subheading within that group, 
except when resulting from a simple assembly.'' It is proposed to 
revise this rule to allow a change to these subheadings ``from any 
other subheading, including another subheading within that group, 
except when the change is from subheading 8531.90 as a result of a 
simple assembly.'' Under this proposed change, the simple assembly 
limitation is specified only with reference to that subheading from 
which a tariff shift could possibly result merely from a simple 
assembly as defined in Sec. 102.1(o).

Headings 8541-8542 (Semiconductor Devices and Integrated Circuits)

    It is proposed to modify the second and third interim tariff shift 
rules for these headings. The proposed change to the second rule would 
clarify that, under this rule, a change from an unmounted chip, die or 
wafer of heading 8541 or 8542 is allowed only if the change is to a 
mounted chip, die or wafer of heading 8541 or 8542. With regard to the 
third tariff shift rule, which refers to a change ``to any programmed 
chips from any unprogrammed chips'', the proposed change is intended to 
align the rule more closely with the court decision upon which the rule 
was based (Data General Corporation v. United States, 4 CIT 182 (1982), 
discussed above, in which the court specifically held that the 
programming of PROMs is a substantial transformation).

Headings 9101-9107 (Clocks and Watches) and Headings 9108-9109 
(Finished Clock and Watch Movements)

    Under the interim Sec. 102.20 rule applicable to headings 9101-
9107, a change in classification to that group from any other heading, 
except headings 9108-9110, will result in a country of origin change. 
Headings 9108-9110 encompass complete and incomplete watch and clock 
movements, assembled and unassembled. Under the interim Sec. 102.20 
rule applicable to headings 9108-9109 (complete and assembled watch and 
clock movements), a change to either of these headings from any other 
heading, with the exception of heading 9110, will effect a country of 
origin change. Heading 9110 includes: complete watch and clock 
movements, unassembled or partly assembled (movement sets); incomplete 
watch or clock or watch movements, assembled; and ``rough'' watch or 
clock movements (sets of unassembled parts of the type described in 
Additional U.S. Note 1(g)).
    A commenter stated that since, under current international 
practice, the movement will often originate in one country or in 
several countries while assembly of the watch or clock may take place 
in another country, country of origin will not be determined on the 
basis of the interim Sec. 102.20 tariff shift rule applicable to 
watches and clocks of headings 9101-9107. With respect to finished 
movements of headings 9108-9109, this commenter was similarly of the 
opinion that the specified interim Sec. 102.20 tariff shift rule will 
frequently be inapplicable since parts of movements classified under 
heading 9110 often originate in one country while the movement may be 
assembled in a second country. This commenter argued that the interim 
rules do not reflect commercial reality because substantial assembly 
operations may take place in the country where the movement is 
assembled.
    It has been the longstanding position of Customs that the country 
of origin of a watch or clock is the country of manufacture of the 
watch or clock movement. The addition of the hands, dial, case, or 
watchband add definition to the watch but do not change the character 
or use of the watch or clock movement which is the ``guts'' of the time 
piece. See, for example, HRL 735197 dated January 4, 1994. This Customs 
position is based on the determination that the last substantial 
transformation of a finished watch or clock is the assembly of the 
movement. The interim Sec. 102.20 rule applicable to watches and clocks 
(the rule for headings 9101-9107) was intended to track current 
practice, and does so, with the exception noted below. The interim 
Sec. 102.20 rule applicable to complete movements (the rule for 
headings 9108-9109) also essentially followed present practice, with 
the exception noted below, since incomplete or partial movements 
encompassed by heading 9110 are the ``guts'' of the complete movement.
    Customs notes, however, that heading 9110 also includes ``complete 
watch or clock movements, unassembled'' and ``rough'' watch or clock 
movements. Since under current practice Customs has repeatedly held 
that the assembly of individual parts to create a movement (or other 
similar good of heading 9110) results in a substantial transformation 
(see, for example, HRL 733533 dated August 3, 1990), it is apparent 
that the exception language in the interim Sec. 102.20 rules for 
watches and clocks of headings 9101-9107 and for complete and assembled 
movements of headings 9108-9109 does not reflect this practice.
    Accordingly, it is proposed to amend the Sec. 102.20 rules for 
clocks and watches and for complete and assembled movements by adding 
in each case a second rule to allow changes from complete movements, 
unassembled (movement sets), of subheadings 9110.11 or 9110.90, or from 
rough movements of subheading 9110.19 or 9110.90.

Subheadings 9404.10-9404.30 and 9404.90 (Bedding and Similar 
Furnishings)

    It is proposed to replace the Sec. 102.20 listings for subheadings 
9404.10-9404.30 and 9404.90 by the following: (1) subheadings 9404.10-
9404.29, the tariff shift rule for which would be in substance the same 
as the interim rule prescribed for subheadings 9404.10-9404.30; and (2) 
subheadings 9404.30-9404.90, the tariff shift rule for which would, in 
the case of sleeping bags, comforters, pillows, and similar filled 
articles, allow a change in the country of origin as a result of the 
insertion of down and/or feathers but not as a result of the insertion 
of other materials. In addition, it is proposed to add a Note to the 
Chapter 94 rules which would set forth a country of origin rule for 
goods of subheadings 9404.30 through 9404.90 which do not meet the 
appropriate tariff shift rule specified for those subheadings.
3. Part 134

Section 134.32

    In Sec. 134.32 of the Customs Regulations (19 CFR 134.32), it is 
proposed to remove paragraph (r) (which was adopted in T.D. 94-4 in 
order to add an exception to marking requirements in the case of non-
textile U.S. goods that are exported and returned after repairs or 
alterations performed abroad). In light of the proposed removal of 
interim Sec. 102.14 as discussed above, Customs believes that 
[[Page 22324]] this paragraph would no longer be appropriate or 
necessary.

Section 134.43

    T.D. 94-4 amended Sec. 134.43 of the Customs Regulations (19 CFR 
134.43) by adding a new paragraph (e) which prescribed specific methods 
of marking goods covered by interim Sec. 102.14. In light of the 
proposed removal of interim Sec. 102.14 as discussed above, Customs 
proposes to remove this paragraph (e) which would no longer appear 
necessary or appropriate.

B. Proposed Changes to the Proposed Regulatory Amendments

    As stated above, the purpose of this document is also to republish 
all of the proposed regulatory amendments contained in the January 3, 
1994, notice of proposed rulemaking in order that certain changes 
thereto may be proposed with opportunity for public comment thereon. 
The changes to the January 3, 1994, proposals reflected in this 
document are discussed below.

Elimination of Proposed Amendment to Sec. 4.80b

    The January 3, 1994, notice of proposed rulemaking included a 
proposal to amend Sec. 4.80b of the Customs Regulations (19 CFR 4.80b) 
by adding at the end of paragraph (a) a sentence stating that the Part 
102 rules apply for purposes of determining whether merchandise is 
manufactured or processed into a new and different product. On further 
review, Customs has determined that this proposed amendment should not 
be made.
    The Jones Act (46 U.S.C. App. 883), pursuant to which Sec. 4.80b is 
promulgated, is designed to reserve the coastwise trade for qualified 
U.S. vessels, a purpose which is not necessarily related to the origin 
of the goods involved in such trade. Thus, the term ``new and different 
product'' as used in Sec. 4.80b relates only to the criteria for 
deeming merchandise not to have been ``transported coastwise'' for 
purposes of the Jones Act. Customs has not interpreted the Sec. 4.80b 
language to be synonymous with the term ``substantial transformation'', 
that is, the requirement that an article be subjected to a processing 
that results in a ``new and different article of commerce, having a new 
name, character and/or use'' different from that which it originally 
possessed. For example, pursuant to T.D. 91-32 and several rulings 
issued in accordance with this T.D., Customs has established a practice 
under Sec. 4.80b to determine, solely on the basis of whether there has 
been a change in ASTM grade, whether a ``new and different product'' 
results from a fuel oil blending operation. Such a minimal change has 
not been ruled sufficient in itself to effect a ``substantial 
transformation''.
    Accordingly, the proposed amendments set forth in this document do 
not include a proposal to amend Sec. 4.80b.

Removal of Sec. 10.22

    Section 10.22 of the Customs Regulations (19 CFR 10.22) provides 
that for all assembled goods which are ``entitled to'' (whether or not 
they are in fact the subject of a claim for) a duty allowance under 
subheading 9802.00.80, HTSUS, the country of assembly is the country of 
origin of such goods for marking purposes. Thus, Sec. 10.22 operates in 
practice as an exception to the country of origin marking requirements 
of Part 134 of the Customs Regulations.
    Subheading 9802.00.80 duty treatment can be properly applied to 
assembled goods having only a few U.S. components, with most of the 
other components originating in countries other than either the United 
States or the country of assembly. In such a case, the true country of 
origin as determined under the Part 102 rules may be one of those other 
foreign countries, whereas by application of Sec. 10.22 the country of 
origin for marking purposes would be the country of assembly. Thus, if 
the regulatory amendments set forth in the January 3, 1994, notice of 
proposed rulemaking and republished in this document (the basic intent 
of which is to result in uniform application of the rules of origin 
contained in Part 102) are adopted as a final rule, retention of 
Sec. 10.22 could lead to incorrect or inconsistent country of origin 
determinations and country of origin marking. Accordingly, Customs 
proposes in this document to remove Sec. 10.22.

Additional Amendment to Sec. 177.22(a)

    The January 3, 1994, notice of proposed rulemaking included a 
proposed amendment to Sec. 177.22(a) of the Customs Regulations (19 CFR 
177.22(a)) which defines ``country of origin'' for purposes of 
government procurement country of origin determinations. This proposed 
amendment consisted of adding at the end thereof a sentence stating 
that the expression ``wholly the growth, product, or manufacture'' 
refers to articles wholly obtained or produced within the meaning of 
interim Sec. 102.1(g).
    In response to a comment from the Office of General Counsel, 
General Services Administration (GSA), Customs is proposing to revise 
Sec. 177.22(a) in order to also make reference to use of the Part 102 
rules for determining when there is a ``new and different article'' for 
purposes of that section. This provision would be similar to the 
proposals to amend Secs. 10.176 and 10.195 of the Customs Regulations 
(19 CFR 10.176 and 10.195) as contained in the January 3, 1994, notice 
of proposed rulemaking and as set forth below. Customs also notes that, 
as stated to Customs by the GSA, this additional amendment will be 
consistent with Article 1004 of the NAFTA which requires that, if the 
parties apply the marking rules established pursuant to NAFTA Annex 311 
in their normal course of trade (as Customs is proposing in this 
document to apply the Part 102 rules), such rules will be applicable 
for NAFTA government procurement purposes.

C. Final Rule Delayed Effective Date

    In consideration of the fact that the regulatory amendments set 
forth in the January 3, 1994, notice of proposed rulemaking, as 
republished in this document with the changes discussed above, would 
have the effect of making the Part 102 interim rules applicable for all 
country of origin determinations under the Customs and related laws, 
including for purposes of country of origin marking, Customs believes 
that, in keeping with the principle enunciated in National Juice 
Products Association v. United States, 10 CIT 48, 628 F.Supp. 978 (CIT 
1986), it would be an appropriate exercise of administrative discretion 
in this particular case to solicit comments from the public regarding a 
proposed delayed effective date.
    Although National Juice Products involved a change of Customs 
position effected through an interpretive ruling rather than through 
amendments to the Customs Regulations, and notwithstanding the fact 
that the Part 102 rules merely codify Customs' existing position 
regarding substantial transformation, Customs believes that the 
circumstances cited by the Court to justify a delayed effective date in 
that case would be no less applicable here.
    Accordingly, it is proposed that, if Customs determines that the 
proposed amendments set forth in the January 3, 1994, notice of 
proposed rulemaking as republished in this document with the changes 
discussed above, together with the interim regulations published as 
T.D. 94-4 and the proposed changes thereto as set forth in this 
document, should be adopted as a final rule with whatever changes as 
may be necessary to address comments submitted by the 
[[Page 22325]] public, the regulatory changes incorporated in the final 
rule would become effective 90 days after the date of publication of 
that final rule document in the Federal Register. Comments from the 
public are invited on this proposal for a delayed effective date.

Comments

    Before adopting the proposed amendments as a final rule, 
consideration will be given to any written comments (preferably in 
triplicate) timely submitted to Customs. Comments submitted will be 
available for public inspection in accordance with the Freedom of 
Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Department 
Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs Regulations (19 
CFR 103.11(b)), on regular business days between the hours of 9:00 a.m. 
and 4:30 p.m. at the Regulations Branch, Office of Regulations and 
Rulings, Franklin Court, 1099 14th Street, NW., Suite 4000, Washington, 
DC.

Executive Order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that, if adopted, the proposed 
amendments will not have a significant economic impact on a substantial 
number of small entities. Accordingly, the proposed amendments are not 
subject to the regulatory analysis or other requirements of 5 U.S.C. 
603 and 604.

Drafting Information

    The principal author of this document was Francis W. Foote, Office 
of Regulations and Rulings, U.S. Customs Service. However, personnel 
from other offices participated in its development.

List of Subjects

19 CFR Part 10

    Customs duties and inspection, Imports, Reporting and recordkeeping 
requirements.

19 CFR Part 12

    Customs duties and inspection, Labeling, Marking, Reporting and 
recordkeeping requirements, Textiles and textile products.

19 CFR Part 102

    Customs duties and inspections, Imports, Reporting and 
recordkeeping requirements, Rules of origin, Trade agreements.

19 CFR Part 134

    Country of origin, Customs duties and inspections, Imports, 
Labeling, Marking, Packaging and containers.

19 CFR Part 177

    Administrative practice and procedures, Customs duties and 
inspection, Imports, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    For the reasons stated above, it is proposed to amend Chapter I of 
Title 19, Code of Federal Regulations (19 CFR Chapter I), as set forth 
below.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, 
ETC.

    1. The general authority citation for part 10 and the specific 
authority citations for Secs. 10.171-10.178 and Secs. 10.191-10.198 
continue to read as follows, and the specific authority citation for 
Sec. 10.22 is removed:

    Authority: 19 U.S.C. 66, 1202 (General Note 17, Harmonized 
Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508, 
1623, 1624;

* * * * *
    Sections 10.171-10.178 also issued under 19 U.S.C. 2461 et seq.;
    Sections 10.191-10.198 also issued under 19 U.S.C. 2701 et seq.;
* * * * *
    2. Section 10.12 is amended by revising the last sentence of 
paragraph (e) to read as follows:


Sec. 10.12  Definitions.

* * * * *
    (e) * * * If the article consists wholly or partially of foreign 
components or materials, the manufacturing process must be such that 
the foreign components or materials have been substantially transformed 
as provided in Sec. 10.14(b).
    3. Section 10.14 is amended by revising the text in paragraph (b) 
preceding the examples to read as follows:


Sec. 10.14  Fabricated components subject to the exemption.

* * * * *
    (b) Substantial transformation of foreign-made articles or 
materials. Foreign-made articles or materials will become products of 
the United States if they undergo a process of manufacture in the 
United States which results in their substantial transformation. 
Substantial transformation occurs when under part 102 of this chapter, 
the country of origin of a good which is produced in the United States 
from foreign materials is determined to be the United States.
* * * * *
    4. Section 10.22 is removed.
    5. Section 10.171 is amended by adding a new paragraph (c) to read 
as follows:


Sec. 10.171  General.

* * * * *
    (c) Wholly the growth, product, or manufacture defined. For 
purposes of Secs. 10.171 through 10.178, the expression ``wholly the 
growth, product, or manufacture'' refers to articles and materials 
wholly obtained or produced within the meaning of Sec. 102.1(g) of this 
chapter.
    6. Section 10.176(a) is revised to read as follows:


Sec. 10.176  Country of origin criteria.

    (a) Merchandise produced in a beneficiary developing country or any 
two or more countries which are members of the same association of 
countries. Any article which is wholly the growth, product, or 
manufacture of a beneficiary developing country or of any two or more 
countries that are members of the same association of countries or 
which is a new or different article of commerce that has been grown, 
produced, or manufactured in a beneficiary developing country, and 
which is imported directly from such beneficiary developing country or 
member countries, may qualify for duty-free entry under the Generalized 
System of Preferences (GSP). However, duty-free entry under GSP may be 
accorded only if the sum of the cost or value of the materials produced 
in the beneficiary developing country or any two or more countries 
which are members of the same association of countries that is treated 
as one country under section 502(a)(3), Trade Act of 1974, as amended 
(19 U.S.C. 2462(a)(3)), plus the direct costs of processing operations 
performed in such beneficiary developing country or member countries, 
is not less than 35 percent of the appraised value of the article at 
the time of its entry into the customs territory of the United States. 
For purposes of this section, a ``new and different article of 
commerce'' exists when under part 102 of this chapter, the country of 
origin of a good, which is produced in a beneficiary developing country 
from foreign materials, is determined to be that beneficiary developing 
country.
* * * * *
    7. Section 10.191(b)(3) is revised to read as follows: 
[[Page 22326]] 


Sec. 10.191  General.

* * * * *
    (b) Definitions.
* * * * *
    (3) Wholly the growth, product, or manufacture. For purposes of 
Sec. 10.191 through Sec. 10.198, the expression ``wholly the growth, 
product, or manufacture'' refers to articles and materials wholly 
obtained or produced within the meaning of Sec. 102.1(g) of this 
chapter.
* * * * *
    8. Section 10.195(a)(1) is amended by adding a sentence at the end 
to read as follows:


Sec. 10.195  Country of origin criteria.

    (a) Articles produced in a beneficiary country. (1) * * * For 
purposes of this section, a ``new and different article of commerce'' 
exists when under part 102 of this chapter, the country of origin of a 
good, which is produced in a beneficiary country from foreign 
materials, is determined to be that beneficiary country.
* * * * *

PART 12--SPECIAL CLASSES OF MERCHANDISE

    1. The authority citation for part 12 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States (HTSUS)), 1624;
* * * * *
    Sections 12.130 and 12.131 also issued under 7 U.S.C. 1854;
* * * * *
    2. Section 12.130 is amended by removing paragraphs (d) and (e) and 
redesignating paragraphs (f) through (i) as paragraphs (d) through (g), 
and by revising paragraph (b) to read as follows:


Sec. 12.130  Textiles and textile products country of origin.

* * * * *
    (b) Country of origin. For the purpose of this section and except 
as provided in paragraph (c) of this section, a textile or textile 
product, subject to section 204, Agricultural Act of 1956, as amended, 
imported into the customs territory of the United States shall be a 
product of a particular foreign territory or country, or insular 
possession of the U.S., if it is wholly obtained or produced (as 
defined in Sec. 102.1(g) of this chapter) in that foreign territory or 
country, or insular possession. However, except as provided in 
paragraph (c) of this section, a textile or textile product, subject to 
section 204 of the Agricultural Act of 1956, as amended, which consists 
of materials produced or derived from, or processed in, more than one 
foreign territory or country, or insular possession of the U.S., shall 
be a product of that foreign territory or country, or insular 
possession, where it last underwent a substantial transformation. A 
textile or textile product will be considered to have undergone a 
substantial transformation when under part 102 of this chapter, the 
country of origin of a good, which is produced in a country from 
foreign materials, is determined to be that country.
* * * * *

PART 102--RULES OF ORIGIN

    1. The authority citation for part 102 is revised to read as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, and the North American 
Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 
2057.

    2. Section 102.0 is revised to read as follows:


Sec. 102.0  Scope.

    This part sets forth rules for determining the country of origin of 
imported goods for purposes of the Customs and related laws and the 
navigation laws of the United States. The rules in this part regarding 
goods wholly obtained or produced in a country are intended to apply 
for all such purposes. The rules in this part which determine when a 
good becomes a new and different article of commerce as a result of 
manufacturing processes in a given country, also are intended to apply 
for all purposes where this requirement exists for ``country of 
origin'' or ``product of'' determinations under the Customs laws. The 
rules in this part also will be applied by the United States for 
determining when a good is a good of a North American Free-Trade 
Agreement (NAFTA) country for the purposes specified under Annex 311 of 
the NAFTA.


Sec. 102.1  [Amended]

    3. In section 102.1, paragraph (p) is removed and paragraph (q) is 
redesignated as paragraph (p).
    4. Section 102.11(d) is revised to read as follows:


Sec. 102.11  General rules.

* * * * *
    (d) Where the country of origin of a good cannot be determined 
under paragraph (a), (b) or (c) of this section, the country of origin 
of the good shall be determined as follows:
    (1) If the good was produced only as a result of minor processing, 
the country of origin of the good is the country or countries of origin 
of each material that merits equal consideration for determining the 
essential character of the good;
    (2) If the good was produced by simple assembly and the assembled 
parts that merit equal consideration for determining the essential 
character of the good are from the same country, the country of origin 
of the good is the country of origin of those parts; or
    (3) If the country of origin of the good cannot be determined under 
paragraph (d)(1) or (d)(2) of this section, the country of origin of 
the good is the last country in which the good underwent production.


Sec. 102.14  [Removed]

    5. Section 102.14 is removed and reserved.


Sec. 102.16  [Removed]

    6. Section 102.16 is removed and reserved.
    7. Section 102.17 is amended by revising the introductory text and 
paragraph (e) to read as follows:


Sec. 102.17  Non-qualifying operations.

    A foreign material shall not be considered to have undergone an 
applicable change in tariff classification specified in Sec. 102.20 or 
to have met any other applicable requirements of that section merely by 
reason of one or more of the following:
* * * * *
    (e) Collecting parts that, as collected, are classifiable in the 
same tariff provision as an assembled good pursuant to General Rule of 
Interpretation 2(a), without any additional operation other than minor 
processing.
    8. Section 102.18 is revised to read as follows:


Sec. 102.18  Rules of interpretation.

    (a) When General Rule of Interpretation (GRI) 2(a) is referred to 
in Sec. 102.20 as an exception to an allowed change in tariff 
classification, this means that such change will not be acceptable for 
purposes of that section if the change results from the assembly of 
parts into an incomplete or unfinished good which is classifiable in 
the same manner as a complete or finished good pursuant to GRI 2(a).
    (b)(1) For purposes of identifying the material or materials that 
impart the essential character of a good under Sec. 102.11, the only 
materials that shall be taken into consideration are those domestic or 
foreign materials that are classified in a tariff provision from which 
a change in tariff classification is [[Page 22327]] not allowed under 
the Sec. 102.20 specific rule or other requirements applicable to the 
good. For purposes of this paragraph (b)(1):
    (i) The materials that may be considered must be classified in a 
tariff provision from which a change in tariff classification is not 
allowed under the specific rule or other requirements applicable to the 
good under consideration. For example, in the case of a good classified 
in HTSUS subheading 8607.11 (the rule for which specifies a change to 
subheading 8607.11 from any other subheading, except from subheading 
8607.12, and except from subheading 8607.19 when that change is 
pursuant to GRI 2(a)), the only materials that may be considered for 
purposes of identifying the materials that impart the essential 
character of the good are those that are classified in subheadings 
8607.11, 8607.12 and, if the tariff shift is pursuant to GRI 2(a), 
8607.19; and
    (ii) Materials that may be considered include materials produced by 
the producer of the good and incorporated in the good. For example, if 
a producer of a good purchases raw materials and converts those raw 
materials into a component that is incorporated in the good, that 
component is a material that may be considered for purposes of 
identifying the materials that impart the essential character of the 
good, provided that the component is classified in a tariff provision 
from which a change in tariff classification is not allowed under the 
specific rule or other requirements applicable to the good.
    (2) For purposes of determining which material or materials impart 
the essential character of a good under Sec. 102.11, various factors 
may be examined depending upon the type of good involved. These factors 
include, but are not limited to, the following:
    (i) The nature of each material, such as its bulk, quantity, weight 
or value; and
    (ii) The role of each material in relation to the use of the good.
    9. Section 102.19 is revised to read as follows:


Sec. 102.19  NAFTA preference override.

    (a) Except in the case of goods covered by paragraph (b) of this 
section, if a good which is originating within the meaning of 
Sec. 181.1(q) of this chapter is not determined under Sec. 102.11 (a) 
or (b) 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 Sec. 181.11 of this chapter) has been completed and signed 
for the good.
    (b) If, under any other provision of this part, the country of 
origin of a good which is originating within the meaning of 
Sec. 181.1(q) of this chapter is determined to be the United States and 
that good has been exported from, and returned to, the United States 
after having been advanced in value or improved in condition in another 
NAFTA country, the country of origin of such good for Customs duty 
purposes is the last NAFTA country in which that good was advanced in 
value or improved in condition before its return to the United States.
    10. In Sec. 102.20, the table is amended by revising the Note and 
removing the entry for HTSUS 09.04-09.10 under Section II, by adding a 
Chapter 42 Note under Section VIII, by removing the entry for HTSUS 
4810-4814 under Section X, by revising Note (1)d and adding a new Note 
(1)f and revising Note (3) and removing the entry for HTSUS 5804 and 
removing the entry for HTSUS 6115-6117 under Section XI, by adding a 
Chapter 65 Note under Section XII, by removing the entry for HTSUS 
7010-7018 under Section XIII, by removing the Note to Section XVI, by 
adding a Chapter 94 Note and removing the entry for HTSUS 9404.10-
9404.30 and removing the entry for HTSUS 9404.90 under Section XX, and 
by adding and revising the following HTSUS entries in numerical order 
to read as follows:


Sec. 102.20  Specific rules by tariff classification.

* * * * *

HTSUS--Tariff Shift and/or Other Requirements

* * * * *
    (b) Section II: Chapters 6 through 14.

    Note: Notwithstanding the specific rules of this section, an 
agricultural or horticultural good grown in the territory of a 
country shall be treated as a good of that country even if grown 
from seed or bulbs, root stock, cuttings, slips or other live parts 
of plants, or from whole plants, imported from a foreign country.
* * * * *
0904-0910  A change to heading 0904 through 0910 from any other 
chapter; or A change to subheading 0910.91 from any other subheading, 
provided that a single spice ingredient of foreign origin constitutes 
no more than 60 percent by weight of the good.
* * * * *
1517.90  A change to subheading 1517.90 from any other chapter; or A 
change to subheading 1517.90 from any other heading provided that no 
single oil ingredient of foreign origin constitutes more than 60 
percent by volume of the good.
* * * * *
1901.90  A change to subheading 1901.90 from any other heading.
* * * * *
2103.90  A change to subheading 2103.90 from any other subheading.
* * * * *
4104-4107  A change to headings 4104 through 4107 from any other 
heading, including another heading within that group.
* * * * *
    Chapter 42 Note: For the purposes of Sec. 102.11(b) of the 
General Rules, except for sets, where a textile good classifiable in 
Chapter 42 does not meet the tariff shift and/or other requirements 
of the heading or subheading under which it is classifiable, the 
country of origin of that good shall be the country of origin of the 
component which determines the classification of that good. However, 
if more than one component determines classification or the 
component that determines classification has its origin in more than 
one country, the country of origin of the good shall be the last 
country in which the good underwent production other than minor 
processing.
* * * * *
4810  A change to heading 4810 from any other heading.
4811.10-4811.31  A change to subheading 4811.10 through 4811.31 from 
any other heading.
4811.39  A change to subheading 4811.39 from any other heading, except 
from heading 4804.
4811.40-4811.90  A change to subheading 4811.40 through 4811.90 from 
any other heading.
4812-4814  A change to heading 4812 through 4814 from any other 
heading, including a heading within that group.
* * * * *
4823.20-4823.59  A change to subheading 4823.20 through 4823.59 from 
any other chapter.
* * * * *
4823.70-4823.90  A change to subheading 4823.70 through 4823.90 from 
any other subheading, including another subheading within that group.
* * * * *
    (k) Section XI: Chapters 50 through 63.

    Notes: (1) * * *

    d. The phrase ``fully lined, fully padded, or fully insulated'', 
as used in chapters 61 and 62, means that the major parts of the 
garment are entirely lined, padded, or insulated, but this does not 
include waistbands less than fifteen centimeters wide, cuffs less 
than ten centimeters wide, plackets, collars, shoulder straps, and 
the like.
* * * * * [[Page 22328]] 
    f. The phrase ``minor embellishments'', as used in headings 6302 
and 6304, refers to relatively insignificant methods used to enhance 
the visual appeal of a good, e.g., piping, capping, small amounts of 
embroidery.
* * * * *
    (3) For the purposes of Sec. 102.11(b) of the General Rules, 
except for sets, where a good classifiable in Chapter 61 through 63 
does not meet the tariff shift and/or other requirements of the 
heading or subheading under which it is classifiable, the country of 
origin of that good shall be the single country where the component 
which determines the classification of that good was cut or formed 
(e.g. knit to shape). However, if more than one component determines 
classification or the component that determines classification has 
its origin in more than one country, the country of origin of the 
good shall be the last country in which the good underwent 
production other than minor processing.
* * * * *
5101-5105  A change to heading 5101 through 5105 from any other 
chapter; or A change to combed wool of heading 5105 from greasy wool of 
heading 5101.
* * * * *
5609  A change to heading 5609 from any other heading except from 
heading 5004 through 5007, 5106 through 5113, 5204 through 5212, 5306 
through 5311, 5401 through 5408, 5508 through 5516, and 5604 through 
5607.
* * * * *
5804.10  A change to subheading 5804.10 from any other heading except 
from heading 5608; or
    A change from greige fabric of subheading 5804.10 to finished 
fabric of that same subheading by dyeing and printing, plus two or more 
of the following finishing operations--bleaching, shrinking, fulling, 
napping, decating, permanent stiffening, weighting, permanent 
embossing, or moireing.
5804.21-5804.30  A change to subheadings 5804.21 through 5804.30 from 
any subheading outside that group; or
    A change from greige fabric of subheadings 5804.21 through 5804.30 
to finished fabric of those same subheadings by dyeing and printing, 
plus two or more of the following finishing operations--bleaching, 
shrinking, fulling, napping, decating, permanent stiffening, weighting, 
permanent embossing, or moireing.
* * * * *
5806.10-5806.39  A change to subheading 5806.10 through 5806.39 from 
any heading except from heading 5007, 5111 through 5113, 5208 through 
5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, and 
5801; or
    A change from greige fabric of subheading 5806.10 through 5806.39 
to finished fabric of those same subheadings by dyeing and printing, 
plus two or more of the following finishing operations--bleaching, 
shrinking, fulling, napping, decating, permanent stiffening, weighting, 
permanent embossing, or moireing.
* * * * *
5810  A change of the ground fabric to heading 5810 from any other 
chapter except heading 5007, 5111 through 5113, 5208 through 5212, 5309 
through 5311, 5407 through 5408, 5512 through 5516, 5602, 5603, 5608, 
5903, 5907, 6001, and 6002; or
    Where the weight of the embroidery comprises seven percent or more 
of the weight of the foreign fabric and the embroidery changes the 
commercial character of the base fabric, a change to heading 5810 from 
any other heading.
* * * * *
5903  A change to heading 5903 from any other heading except from 
heading 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 
5407 through 5408, 5512 through 5516, 5803, 5806, 5808, and 6002; or
    (1) For woven fabric, a change to heading 5903 from any other 
heading, provided that the impregnation, coating, covering, or 
lamination accounts for at least 15 percent of the total weight of the 
fabric; or
    (2) For knit fabric, a change to heading 5903 from any other 
heading, provided that the impregnation, coating, covering, or 
lamination accounts for at least 20 percent of the total weight of the 
fabric.
* * * * *
6101  A change to heading 6101 from any other chapter; or
    A change to assembled garments of heading 6101, except (1) anoraks, 
windbreakers, and similar articles, not fully lined, fully padded, or 
fully insulated, and (2) capes, cloaks, and similar articles, from 
either subheading 6117.90 or subheading 6217.90, provided that no major 
part has been knit to shape; or
    A change to assembled garments from unassembled parts classified in 
heading 6101 as a result of the application of GRI 2(a), except (1) 
anoraks, windbreakers, and similar articles, not fully lined, fully 
padded, or fully insulated, and (2) capes, cloaks, and similar 
articles, provided that no major part has been knit to shape.
6102  A change to heading 6102 from any other chapter; or
    A change to assembled garments of heading 6102, except (1) anoraks, 
windbreakers, and similar articles, not fully lined, fully padded, or 
fully insulated, and (2) capes, cloaks, and similar articles, from 
either subheading 6117.90 or subheading 6217.90, provided that no major 
part has been knit to shape; or
    A change to assembled garments from unassembled parts classified in 
heading 6102 as a result of the application of GRI 2(a), except (1) 
anoraks, windbreakers, and similar articles, not fully lined, fully 
padded, or fully insulated, and (2) capes, cloaks, and similar 
articles, provided that no major part has been knit to shape.
* * * * *
6103.21-6103.29  Each garment in an ensemble shall be treated 
separately and the marking rule applicable to each garment is the rule 
that would apply if the garment were separately entered; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments of subheading 6103.21 through 6103.29 from either 
subheading 6117.90 or subheading 6217.90; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments from unassembled parts classified in subheading 
6103.21 through 6103.29 as a result of the application of GRI 2(a), 
provided that no major part has been knit to shape.
* * * * *
6104.21-6104.29  Each garment in an ensemble shall be treated 
separately and the marking rule applicable to each garment is the rule 
that would apply if the garment were separately entered; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments of subheading 6104.21 through 6104.29 from either 
subheading 6117.90 or subheading 6217.90; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments from unassembled parts classified in subheading 
6104.21 through 6104.29 as a result of the [[Page 22329]] application 
of GRI 2(a), provided that no major part has been knit to shape.
* * * * *
6115-6116  A change to heading 6115 through 6116 from any other 
chapter.
6117.10  A change to subheading 6117.10 from any other chapter except 
chapter 60; or A change to subheading 6117.10 from greige fabric of 
chapter 60 by bleaching, dyeing, printing, cutting on all sides, and 
stitching.
6117.20-6117.90  A change to subheading 6117.20 through 6117.90 from 
any other chapter.
6201  A change to heading 6201 from any other chapter, provided that no 
major part has been knit to shape; or
    A change to assembled garments of heading 6201, except (1) anoraks, 
windbreakers, and similar articles, not fully lined, fully padded, or 
fully insulated, and (2) capes, cloaks, and similar articles, from 
either subheading 6217.90 or subheading 6117.90, provided that no major 
part has been knit to shape; or
    A change to assembled garments from unassembled parts classified in 
heading 6201 as a result of the application of GRI 2(a), except (1) 
anoraks, windbreakers, and similar articles, not fully lined, fully 
padded, or fully insulated, and (2) capes, cloaks, and similar 
articles, provided that no major part has been knit to shape.
6202  A change to heading 6202 from any other chapter; or
    A change to assembled garments of heading 6202, except (1) anoraks, 
windbreakers, and similar articles, not fully lined, fully padded, or 
fully insulated, and (2) capes, cloaks, and similar articles, from 
either subheading 6217.90 or subheading 6117.90, provided that no major 
part has been knit to shape; or
    A change to assembled garments from unassembled parts classified in 
heading 6202 as a result of the application of GRI 2(a), except (1) 
anoraks, windbreakers, and similar articles, not fully lined, fully 
padded, or fully insulated, and (2) capes, cloaks, and similar 
articles, provided that no major part has been knit to shape.
* * * * *
6203.21-6203.29  Each garment in an ensemble shall be treated 
separately and the marking rule applicable to each garment is the rule 
that would apply if the garment were separately entered; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments of subheading 6203.21 through 6203.29 from either 
subheading 6217.90 or subheading 6117.90; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments from unassembled parts classified in subheading 
6203.21 through 6203.29 as a result of the application of GRI 2(a), 
provided that no major part has been knit to shape.
* * * * *
6204.21-6204.29  Each garment in an ensemble shall be treated 
separately and the marking rule applicable to each garment is the rule 
that would apply if the garment were separately entered; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments of subheading 6204.21 through 6204.29 from either 
subheading 6217.90 or subheading 6117.90; or
    If the ensemble contains a suit-like jacket or blazer, a change to 
assembled garments from unassembled parts classified in subheading 
6204.21 through 6204.29 as a result of the application of GRI 2(a), 
provided that no major part has been knit to shape.
* * * * *
6205  A change to heading 6205 from any other chapter, provided that no 
major part has been knit to shape; or
    A change to assembled tailored long sleeve shirts with collars, 
cuffs, full-front openings with plackets, and yokes, or to assembled 
fully lined, fully padded, or fully insulated shirts, of heading 6205, 
from either subheading 6217.90 or subheading 6117.90, provided that no 
major part has been knit to shape; or
    A change to assembled tailored long sleeve shirts with collars, 
cuffs, full-front openings with plackets, and yokes, or to assembled 
fully lined, fully padded, or fully insulated shirts, from unassembled 
parts classified in heading 6205 as a result of the application of GRI 
2(a), provided that no major part has been knit to shape.
* * * * *
6213-6214  A change to heading 6213 through 6214 from any other chapter 
except from heading 5007, 5111 through 5113, 5208 through 5212, 5309 
through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 
5801 through 5806, 5808 through 5811, 5901, 5903, and 5906 through 
5907; or
    A change to heading 6213 through 6214 from greige fabric of heading 
5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 
through 5408, 5512 through 5516, 5602 through 5603, 5801 through 5806, 
5808 through 5811, by bleaching, dyeing, printing, cutting on all 
sides, and stitching.
* * * * *
6302  (1) Except for quilted goods provided for in (2) below, a change 
to heading 6302 from any other heading except from heading 5007, 5111 
through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408, 
5512 through 5516, 5602 through 5603, 5801 through 5804, 5806, 5809 
through 5810, 5901, 5903, 5906 through 5907, and 6001 through 6002; or
    Except for quilted goods provided for in (2) below, a change to 
heading 6302 from heading 5007, 5111 through 5113, 5208 through 5212, 
5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 through 
5603, 5801 through 5804, 5806, 5809 through 5810, 5901, 5903, 5906 
through 5907, and 6001 through 6002, provided that the change is the 
result of cutting finished fabric on all sides and hemming all cut 
edges plus at least one other subsequent process, with no consideration 
being given to the addition of minor embellishments.
    (2) For quilted goods, either (a) a change to heading 6302 from any 
other heading except from subheading 6307.90, provided that both the 
cutting of the top and bottom fabrics, and the entire assembly of the 
quilted goods, are done in one country; or (b) If (a) is not satisfied, 
then the country of origin shall be the country which produced the 
fabric, or fabrics, which impart the essential character to the goods.
6303  (1) For quilted goods, a change to heading 6303 from any other 
heading except from subheading 6307.90, provided that both the cutting 
of the top and bottom fabrics, and the entire assembly of the quilted 
goods, are done in one country. If this rule is not satisfied, then the 
country of origin shall be the country which produced the fabric, or 
fabrics, which impart the essential character to the goods; or
    (2) For curtains, drapes, or valances, [[Page 22330]] except for 
goods provided for in (1) above, a change to heading 6303 from any 
other heading, provided that the change is the result of more than 
cutting on all sides and hemming the cut edges and with no 
consideration being given to minor processing.
    (3) For goods not meeting paragraphs (1) or (2) above, and all 
other goods, a change to heading 6303 from any other heading except 
from heading 5007, 5111 through 5113, 5208 through 5212, 5309 through 
5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 5801 
through 5804, 5806, 5809 through 5810, 5811, 5901, 5903, 5906 through 
5907, and 6001 through 6002.
6304  (1) Except for quilted goods, pillow covers, and pillow shams 
provided for in (2) and (3) below, a change to heading 6304 from any 
other heading except from heading 5007, 5111 through 5113, 5208 through 
5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 
through 5603, 5801 through 5804, 5806, 5809 through 5810, 5901, 5903 
through 5904, 5906 through 5907, and 6001 through 6002; or
    Except for quilted goods, pillow covers, and pillow shams provided 
for in (2) and (3) below, a change to heading 6304 from any other 
heading except heading 5007, 5111 through 5113, 5208 through 5212, 5309 
through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 
5801 through 5804, 5806, 5809 through 5810, 5901, 5903, 5906 through 
5907, and 6001 through 6002, provided that the change is the result of 
cutting finished fabric on all sides and hemming all cut edges plus at 
least one other subsequent process, with no consideration being given 
to the addition of minor embellishments.
    (2) For quilted goods, a change to heading 6304 from any other 
heading except from subheading 6307.90, provided that both the cutting 
of the top and bottom fabrics, and the entire assembly of the quilted 
goods, are done in one country. If this rule is not satisfied, then the 
country of origin shall be the country which produced the fabric, or 
fabrics, which impart the essential character to the goods;
    (3) For pillow covers and pillow shams, a change to heading 6304 
from any other heading.
* * * * *
6306.91-6306.99  A change to subheading 6306.91 through 6306.99 from 
any other heading except from subheading 6307.90, provided that the 
change is the result of more than cutting and hemming processes and 
with no consideration being given to minor processing.
* * * * *
6307.90  A change to subheading 6307.90 from any other heading, 
provided that the change is the result of at least cutting and a 
substantial amount of either sewing or assembly operations.
* * * * *
    Chapter 65 Note: For the purposes of Sec. 102.11(b) of the 
General Rules, except for sets, where a textile good classifiable in 
Chapter 65 does not meet the tariff shift and/or other requirements 
of the heading or subheading under which it is classifiable, the 
country of origin of that good shall be the country of origin of the 
component which determines the classification of that good. However, 
if more than one component determines classification or the 
component that determines classification has its origin in more than 
one country, the country of origin of the good shall be the last 
country in which the good underwent production other than minor 
processing.
* * * * *
6811.90  A change to subheading 6811.90 from any other heading.
* * * * *
6812.90  A change to subheading 6812.90 from any other heading.
* * * * *
6814.90  A change to subheading 6814.90 from any other heading.
* * * * *
7010  A change to heading 7010 from any other heading.
7011 change to heading 7011 from any other heading, except from 
subheading 7003.30.
7012-7018  A change to heading 7012 through 7018 from any other 
heading, including another heading within that group; or
    A change from uncut and unpolished glassware blanks of heading 7013 
to cut and polished glassware of heading 7013, provided that there has 
been a substantial amount of both cutting and polishing operations in a 
single country.
* * * * *
7019.90  A change to subheading 7019.90 from any other heading.
7020  A change to heading 7020 from any other heading, except from 
heading 7010 through 7018.
* * * * *
8301.10-8301.50  A change to subheading 8301.10 through 8301.50 from 
any other subheading, including any subheading within that group, 
except a change from subheading 8301.60 when that change is pursuant to 
GRI 2(a).
* * * * *
8401.20  A change to subheading 8401.20 from any other subheading; or
    A change to completed machinery and apparatus of subheading 8401.20 
from parts of that same subheading.
* * * * *
8415.90  A change to subheading 8415.90 from any other subheading, 
except when the change is from heading 7411, 7608, 8414, 8501, and 8535 
through 8537 as a result of a simple assembly.
* * * * *
8470.10-8471.91  A change to subheading 8470.10 through 8471.91 from 
any subheading outside that group, except from heading 8473; or
    A change to subheading 8470.10 through 8471.91 from any subheading 
within that group or from heading 8473, provided the change is not the 
result of a simple assembly.
8471.92-8472.90  A change to subheading 8471.92 through 8472.90 from 
any subheading outside that group, except heading 8473; or
    A change to subheading 8471.92 through 8472.90 from any subheading 
within that group or from heading 8473, provided the change is not the 
result of a simple assembly.
8473  A change to heading 8473 from any other heading, except when the 
change is from heading 8414, 8501, 8504, 8534, 8541, or 8542 as a 
result of a simple assembly.
8474.10-8474.80  A change to subheading 8474.10 through 8474.80 from 
any subheading outside that group, except heading 8501; or
    A change to subheading 8474.10 through 8474.80 from any subheading 
within that group or heading 8501, provided the change is not the 
result of a simple assembly.
* * * * *
8482.10-8482.80  A change to subheading 8482.10 through 8482.80 from 
any other heading; or
    A change to subheading 8482.10 through 8482.80 from any other 
subheading, including another subheading within that group, except from 
inner or outer races or rings of subheading 8482.99.
* * * * * [[Page 22331]] 
8512.40  A change to subheading 8512.40 from any other subheading, 
except when the change is from subheading 8512.90 or heading 8501 as a 
result of a simple assembly.
* * * * *
8517.10-8517.82  A change to subheading 8517.10 through 8517.82 from 
any subheading outside that group, except from subheading 8517.90; or
    A change to subheading 8517.10 through 8517.82 from subheading 
8517.90, provided the change is not the result of a simple assembly.
* * * * *
8528.10-8528.20  A change to subheading 8528.10 through 8528.20 from 
any other subheading, including another subheading within that group, 
except from subheading 8540.11 through 8540.12.
* * * * *
8531.10-8531.80  A change to subheading 8531.10 through 8531.80 from 
any other subheading, including another subheading within that group, 
except when the change is from subheading 8531.90 as a result of a 
simple assembly.
* * * * *
8541-8542  A change to heading 8541 through 8542 from any other 
subheading, including another subheading within that group; or
    A change to a mounted chip, die or wafer of heading 8541 or 8542 
from an unmounted chip, die or wafer of heading 8541 or 8542; or
    A change to a programmed ``read only memory'' (ROM) chip from an 
unprogrammed ``programmable read only memory'' (PROM) chip.
* * * * *
8708.99  A change to subheading 8708.99 from any other subheading.
* * * * *
9101-9107  A change to heading 9101 through 9107 from any heading 
outside that group, except heading 9108 through 9110; or
    A change to heading 9101 through 9107 from complete movements, 
unassembled, of subheading 9110.11 or 9110.90, or from rough movements 
of subheading 9110.19 or 9110.90.
9108-9109  A change to heading 9108 through 9109 from any heading 
outside that group, except heading 9110; or
    A change to heading 9108 through 9109 from complete movements, 
unassembled, of subheading 9110.11 or 9110.90, or from rough movements 
of subheading 9110.19 or 9110.90.
9110  A change to heading 9110 from any other heading, except from 
subheading 9114.90.
* * * * *
    Chapter 94 Note: For a good classifiable in subheadings 9404.30 
through 9404.90 which does not meet the appropriate tariff shift 
rule specified for those subheadings, the country of origin is the 
country where all cutting and sewing operations required to form the 
outer shell were performed. If all cutting and sewing operations 
required to form the outer shell were not performed in a single 
country, the country of origin will be the single country where the 
component of the outer shell which determines the classification of 
that good was produced. If a single country did not produce a 
component of the outer shell which determines the classification of 
that good, then the country of origin will be the country in which 
the good last underwent a substantial assembly process.

* * * * *
9401.90  A change to subheading 9401.90 from any other heading, except 
from subheading 9403.90.
* * * * *
9403.90  A change to subheading 9403.90 from any other heading, except 
from subheading 9401.90.
9404.10-9404.29  A change to subheading 9404.10 through 9404.29 from 
any other heading.
9404.30-9404.90  A change to down and/or feather filled goods of 
subheading 9404.30 through 9404.90 from any other heading; or
    For all other goods of subheading 9404.30 through 9404.90, a change 
from any other heading except from heading 5007, 5111 through 5113, 
5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through 
5516, 5602 through 5603, 5801 through 5804, 5806, 5809 through 5810, 
5901, 5903 through 5904, 5906 through 5907, 6001 through 6002, and 
6307.90.
* * * * *
9606.21-9606.29  A change to subheading 9606.21 through 9606.29 from 
any other heading.
* * * * *

PART 134--COUNTRY OF ORIGIN MARKING

    1. The authority citation for part 134 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States), 1304, 1624.

    2. Section 134.1 is amended by revising paragraph (b), 
redesignating paragraphs (d) through (j) as (e) through (k), adding a 
new paragraph (d), and revising newly designated paragraphs (e) (1) and 
(2) to read as follows:


Sec. 134.1  Definitions.

* * * * *
    (b) Country of origin. ``Country of origin'', when used with 
reference to any article of foreign origin imported into the United 
States, means the country in which the article was wholly obtained or 
produced within the meaning of Sec. 102.1(e) of this chapter, or, in 
the case of an article not wholly obtained or produced in one country, 
the country where the article last underwent a substantial 
transformation prior to its importation into the United States.
* * * * *
    (d) Substantial transformation. ``Substantial transformation'' 
occurs when, under part 102 of this chapter, the country of origin of a 
good, which is produced in a country from foreign materials, is 
determined to be that country.
    (e) Ultimate purchaser. * * *
    (1) If an imported article will be used in further processing, the 
processor will be the ``ultimate purchaser'' if he subjects the 
imported article to a process which results in a substantial 
transformation of the article.
    (2) If the process does not result in a substantial transformation 
of the imported article, the consumer or user of the article, who 
obtains the article after the processing, will be regarded as the 
``ultimate purchaser''.
* * * * *


Sec. 134.32  [Amended]

    3. In Sec. 134.32, paragraph (r) is removed.
    4. Section 134.35 is revised to read as follows:


Sec. 134.35  Articles substantially transformed after importation.

    If an imported article will be used in further processing in the 
United States, the processor will be considered the ultimate purchaser 
if such article is determined to be a good of the United States under 
part 102 of this chapter. In such a case, the imported article is 
excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D) 
and Sec. 134.32(d), provided the container in which it is imported will 
reasonably indicate the country of origin of the article to the 
ultimate purchaser.


Sec. 134.43  [Amended]

    5. In Sec. 134.43, paragraph (e) is removed.

PART 177--ADMINISTRATIVE RULINGS

    1. The general authority citation for part 177 is revised to read 
as follows:

    [[Page 22332]] Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 
(General Note 20, Harmonized Tariff Schedule of the United States), 
1624;
* * * * *
    2. In Sec. 177.22, paragraph (a) is revised to read as follows:


Sec. 177.22  Definitions.

    (a) Country of origin. For the purpose of this subpart, an article 
is a product of a country or instrumentality only if it is wholly the 
growth, product, or manufacture of that country or instrumentality or, 
in the case of an article which consists in whole or in part of 
materials from another country or instrumentality, it has been 
substantially transformed into a new and different article of commerce. 
The term ``instrumentality'' shall not be construed to include any 
agency or division of the government of a country, but may be construed 
to include such arrangements as the European Economic Community. For 
purposes of this section, an article is ``wholly the growth, product, 
or manufacture'' of a country or instrumentality if it is wholly 
obtained or produced (as defined in Sec. 102.1(g) of this chapter) in 
that country or instrumentality, and a ``new and different article of 
commerce'' exists when under part 102 of this chapter, the country of 
origin of a good, which is produced in a country or instrumentality 
from foreign materials, is determined to be that country or 
instrumentality.
* * * * *
George J. Weise,
Commissioner of Customs.
    Approved: April 19, 1995.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-10856 Filed 5-4-95; 8:45 am]
BILLING CODE 4820-02-P