HQ H045155

August 09, 2010


CLA-2 OT:RR:CTF:TCM H045155 CkG

CATEGORY: Classification, Marking

TARIFF NO: 6308.00.00

Port Director
Customs and Border Protection
726 Exchange Street Suite 400 Buffalo, NY 14210

RE:     Request for Internal Advice # 08/25 on the NAFTA Eligibility and Country of Origin Marking of Certain Needlecraft Kits

Dear Port Director,

This letter is in reply to request for internal advice #08/25, dated October 27, 2008, pertaining to the classification, country of origin marking and NAFTA eligibility of needlecraft kits imported from Canada by Kustoms Kraft, Inc. of Ontario, Canada. The importer claims that the goods are of Canadian origin and thus eligible for NAFTA preferential treatment.

FACTS:

The subject merchandise consists of woven cotton fabrics from the U.S., cotton yarns from France, England and the U.S., and needles from the U.S. and Japan. The fabrics are woven in the U.S. and cut to shape and size in Canada. The patterns are heat-set in Canada. All yarns are cut-to-length in Canada and tied to a hole-punched card. The patterns and instructions are printed in Canada. Each set is packaged in a plastic bag and put up for retail sale in Canada.

ISSUE:
Whether the non-originating yarns of the subject needlecraft kits preclude designation of qualifying goods under NAFTA.


LAW AND ANALYSIS:

Classification:

Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the remaining GRIs 2 through 6.

The subject needlecraft kits consist of woven cotton fabrics from the U.S., cotton
yarns from France, England and the U.S., needles from the U.S. and Japan, and an instruction booklet printed in Canada, put up together for retail sale. The stated tariff classification for the components of the set is as follows: heading 6217, HTSUS, for the woven fabric; heading 5204, HTSUS, for the cotton yarn; heading 4901, HTSUS, for the booklet; and heading 8452, HTSUS, for the needles. The set as a whole is classified at GRI 1 in heading 6308, HTSUS, which provides for: “Needlecraft sets consisting of woven fabric and yarn, whether or not with accessories, for making up into rugs, tapestries, embroidered tablecloths or napkins, or similar textile articles, put up in packings for retail sale.” The woven fabric and yarn are both specified in the text of the heading; both thus determine the tariff classification of the good, whereas the presence of accessories such as the needles and booklet do not affect eligibility for classification in heading 6308, HTSUS.

NAFTA Eligibility

To be eligible for tariff preferences under the NAFTA, goods must be "originating
goods" within the rules of origin in General Note 12(b), HTSUS. General Note 12(b), HTSUS, sets forth the means by which goods may be considered "goods originating in the territory of a NAFTA party" as follows:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if –
(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that --
(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or


General Note 12(b)(ii)(A) specifies in part that merchandise will qualify as originating goods if each of the non-originating materials undergo a change in tariff classification described in subdivision (t). General Note 12(t), Chapter 63, Rule 1 governs products of heading 6308, HTSUS, with regard to tariff-shift requirements for NAFTA country of origin determinations. Rule 1 states, as a general rule, that:

For purposes of determining the origin of a good of this chapter, the rule applicable to that good shall only apply to the component that determines the tariff classification of the good and such component must satisfy the tariff change requirements set out in the rule for that good.

The importer contends that because the woven fabric component of the instant needlecraft sets satisfy the tariff shift requirement, the sets are originating pursuant to GN12(b) and 12(t). Heading 6308, HTSUS, provides for needlecraft sets consisting of woven fabric and yarn. Both of these components make up a needlecraft set classified in heading 6308, HTSUS, and both thus determine the tariff classification of the good. The importer states that the cotton yarns are sourced from France, England and the U.S. Those kits with yarn sourced from the U.S. are eligible for NAFTA under General Note 12(t), Chapter 63, Rule 1. However, those kits with the non-originating yarn are not exempted from, and therefore must satisfy, the tariff shift requirement set out in the rule for goods of heading 6308, HTSUS. See also NY N068557, dated July 21, 2009, in which CBP held that where more than one component determines the classification of a good, both must satisfy the tariff shift requirement pursuant to Rule 1 of General Note 12(t), Chapter 63.

Rule 1(4) of General Note 12(t), Chapter 63, sets out the specific tariff shift requirement for goods of heading 6308, HTSUS. This rule states that a non-originating material will undergo a qualifying tariff shift if, when assembled into the final product, such non-originating material undergoes a change in tariff classification to headings 6304 through 6310 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, chapters 54 through 55, or headings 5801 through 5802 or 6001 through 6006.

Pursuant to rule 1(4), the needles, classified in heading 8427, HTSUS, and the booklet, classified in heading 4901, HTSUS, undergo a qualifying tariff shift. However, rule 1(4) provides that goods of heading 6308, HTSUS, in order to qualify as originating, cannot be made from foreign yarn of headings 5204 to 5212. The yarn component of the instant needlecraft kits is classifiable in heading 5204. The kits with yarn sourced from France or England thus cannot be deemed originating in the U.S. under the NAFTA Rules of Origin because one or more of the non-originating materials used in the production of the goods will not undergo the change in tariff classification required by General Note 12(t)/Chapter 48, HTSUS.


Country of Origin Marking:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. The term "country of origin" is defined in § 134.1(b), Customs Regulations (19 CFR 134.1(b)), as the "country of manufacture, production, or growth of any article of foreign origin entering the U.S." The country of origin marking requirements for a "good of a NAFTA country" are determined in accordance with Annex 311 of the North American Free Trade Agreement ("NAFTA"), as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) (December 8, 1993).

19 CFR § 102.21 applies for the purpose of considering the country of origin
marking of textile and apparel products. 19 CFR § 102.21 provides, in pertinent part, as follows:

    § 102.21 Textile and apparel products (General Rules of Origin)
    …
(c) General rules. Subject to paragraph (d) of this section, the country of origin of a textile or apparel product will be determined by sequential application of paragraphs (c)(1) through (5) of this section and, in each case where appropriate to the specific context, by application of the additional requirements or conditions of §§ 102.12 through 102.19 of this part.
…
(2) Where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1) of this section, the country of origin of the good is the single country, territory or insular possession in which each foreign material incorporated in that good underwent an applicable change in tariff classification, and/or met any other requirement, specified for the good in paragraph (e) of this section.
    …
(e) Specific rules by tariff classification. (1) The following rules will apply for purposes of determining the country of origin of a textile or apparel product under paragraph (c)(2) of this section:
…
6308:    The country of origin of a good classifiable under heading 6308 is the country, territory or insular possession in which the woven fabric component of the good was formed by a fabric-making process.

Pursuant to 19 C.F.R. § 102.21(e), the country of origin for marking purposes of a needlecraft kit of heading 6308, HTSUS, is the country where the woven fabric component was formed. Because the woven fabric of the instant needlecraft kit was formed in the U.S., the country of origin for marking purposes is the U.S.


NAFTA Preference Override

The importer further argues that the subject needlecraft kits are of Canadian
origin for the purpose of NAFTA eligibility, pursuant to the General Rules of Origin. The importer points specifically to 19 CFR 102.21, which provides specific rules for country of origin of products of heading 6308, HTSUS. See discussion on country of origin marking, supra.


The importer contends that because the woven fabric component of the
subject needlecraft kits are of U.S. origin, the kit should be deemed originating in the U.S. pursuant to 19 CFR 101.21(e). The importer further points to 19 CFR 102.19 (NAFTA preference override), which holds that U.S. goods which have undergone further processing in another NAFTA country and have been returned to the U.S. may be deemed originating in the NAFTA country where the goods underwent such processing. Applying both 19 CFR 102.19 and 102.21, the importer contends that the instant merchandise is of U.S. origin and was last advanced in value in another NAFTA country—i.e., Canada—before its return to the United States. Therefore, the importer argues that pursuant to 19 CFR 102.19, the instant merchandise is of Canadian origin for NAFTA eligibility purposes.

Having determined that the needlecraft kits are not of U.S. origin pursuant to General Note 12(t), the goods cannot be considered of Canadian origin pursuant to 19 CFR 102.19 (NAFTA preference override). 19 CFR 102.19 holds as follows:

If, under any other provision of this part, the country of origin of a good which is originating within the meaning of § 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.

19 CFR 181(q) defines “originating” as follows:

Originating, when used with regard to a good or material, means a good or material which qualifies as originating in the United States, Canada and/or Mexico under the rules set forth in General Note 12, HTSUS, and in the appendix to this part.
Because the instant merchandise is not of U.S. origin pursuant to General Note 12, HTSUS, 19 CFR 102.19 does not apply. The country of origin for the instant merchandise cannot be Canada under the NAFTA Rules of Origin.

The importer further brings to our attention prior CBP rulings on the country of origin marking of similar merchandise. NY R01399, dated February 15, 2005, involved an embroidery kit containing fabric made in Germany, a needle, colored threads and printing instructions. CBP found Germany to be the country of origin in this case, stating that “the country of origin for goods classified in heading 6308, HTS, is usually determined by the origin of the fabric.” Also mentioned was NY I87190, dated October 11, 2002, which considered the country of origin of a needlecraft kit consisting of cotton yarn made in France, a piece of cotton woven fabric (made in Brazil), a needle (also made in Brazil) and instructions and label cards made in Venezuela. CBP held that Brazil was the country of origin in this instance. Neither of the above cases, however, involved NAFTA eligibility, but rather country of origin marking, which means that only the General Rules of Origin were applied to those transactions. The General Rules of Origin for Textile and Apparel Products (19 CFR § 102.21) state that the country of origin of a needlecraft kit of heading 6308, HTSUS, is the country where the woven fabric portion was formed. However, the NAFTA Rules of Origin, which govern the determination of NAFTA eligibility, are not identical to the General Rules of Origin. The NAFTA Rules of Origin require that both the fabric and the yarn of a needlecraft kit of heading 6308, HTSUS, originate in a NAFTA country for the kit to be eligible for NAFTA treatment. Hence, a good may be of U.S. origin pursuant to the General Rules of Origin of 19 CFR §102.21 while not qualifying for NAFTA eligibility under the NAFTA Rules of Origin, as is the case with the Kustoms Kraft needlecraft kits with yarn sourced from outside of the U.S.

HOLDING:

    By application of GRI 1, the instant merchandise is classified in heading 6308, HTSUS, as “Needlecraft sets consisting of woven fabric and yarn, whether or not with accessories, for making up into rugs, tapestries, embroidered tablecloths or napkins, or similar textile articles, put up in packings for retail sale.” The 2009, column one, general rate of duty is 11.4% ad valorem.

The needlecraft kits imported with cotton yarn sourced from France or England are not eligible for preferential treatment under NAFTA pursuant to GN 12(t), Chapter 63, Rule 1(4).

The needlecraft kits with U.S.-origin cotton yarns are eligible for preferential treatment under NAFTA.

For marking purposes only, the country of origin of the subject needlecraft kits, is the United States, pursuant to 19 CFR §102.21. As such, the subject merchandise is exempt from the marking requirements of 19 U.S.C. §1304. However, whether an article may be marked with the phrase "Made in the USA" or similar words denoting U.S. origin, is an issue under the authority of the Federal Trade Commission (FTC). We suggest that you contact the FTC Division of Enforcement, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580 on the propriety of proposed markings indicating that an article is made in the U.S.


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


Sincerely,


Myles B. Harmon, Director
Commercial and Trade Facilitation Division