[Federal Register Volume 65, Number 133 (Tuesday, July 11, 2000)]
[Rules and Regulations]
[Pages 42634-42637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17461]
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DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Ch. I
[T.D. 00-44]
Country of Origin Marking Rules for Textiles and Textile Products
Advanced in Value, Improved in Condition, or Assembled Abroad
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: Final interpretive rule.
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SUMMARY: This notice advises the public that Customs will no longer
apply 19 CFR 12.130(c) for purposes of country of origin marking of
textiles and textile products, and that Chapter 98, Subchapter II, U.S.
Note 2(a), Harmonized Tariff Schedule of the United States (HTSUS),
does not apply for country of origin marking purposes.
EFFECTIVE DATE: October 10, 2000.
FOR FURTHER INFORMATION CONTACT: Monika Brenner, Attorney, Special
Classification and Marking Branch, Office of Regulations and Rulings
(202-927-1254).
SUPPLEMENTARY INFORMATION:
Background
In T.D. 85-38, 50 FR 8710 (March 5, 1985), Customs adopted as a
final rule an interim amendment to the Customs Regulations, consisting
of the addition of a new section 12.130 (19 CFR 12.130) to establish
criteria to be used in determining the country of origin of imported
textiles and textile products for purposes of multilateral and
bilateral textile agreements entered into by the United States pursuant
to section 204, Agricultural Act of 1956, as amended. In T.D. 85-38,
Customs stated that section 12.130 is applicable to merchandise for all
purposes, including duty and marking. A similar statement was made in
T.D. 90-17, 55 FR 7303 (March 1, 1990).
Paragraph (c)(1) of section 12.130 provides in part as follows:
* * * In order to have * * * a single country of origin for a
textile or textile product, notwithstanding paragraph (b),
merchandise which falls within the purview of Chapter 98, Subchapter
II, Note 2, Harmonized Tariff Schedule of the United States, may
not, upon its return to the U.S., be considered a product of the
U.S.
Paragraph (c)(2) of section 12.130 accords essentially the same
treatment to products of insular possessions.
Chapter 98, Subchapter II, U.S. Note 2(a), HTSUS, (Note 2(a)),
provides in pertinent part as follows:
* * * Any product of the United States which is returned after
having been advanced in value or improved in condition abroad by any
process of manufacture or other means, or any imported article which
has been assembled abroad in whole or in part of products of the
United States, shall be treated for the purposes of this Act as a
foreign article.
Subsequently, in connection with the development of the final NAFTA
Marking Rules, Customs concluded that Note 2(a) should not apply for
general country of origin purposes, including marking. 60 FR 22312,
22318 (May 5, 1995). Accordingly, in order to clarify the applicability
of this position for marking purposes, on June 15, 1998, Customs
published a notice of proposed interpretation (hereinafter ``proposed
interpretation'') in the Federal Register (63 FR 32697) to the effect
that section 12.130(c) of the Customs Regulations should not control
for purposes of determining the country of origin marking of textile
and textile products, and that Note 2(a) does not apply for country of
origin marking purposes. The notice solicited public comments on the
proposal, and the public comment period was extended to December 18,
1998.
Discussion of Comments
A total of 7 entities submitted comments in response to the notice.
Although all of the commenters were generally supportive of the
proposed interpretation, two were opposed to the proposal as it
pertains to textiles whose origin is determined by where the fabric is
formed. The specific points made by the commenters are discussed below.
Comment: Several comments were received on particular operations
that should or should not be allowed abroad in order for a U.S.-origin
textile or textile product to remain of U.S. origin. One commenter
strongly supports the proposed interpretation since minor operations
performed on U.S. garments abroad should not force a change in origin
solely because of 19 CFR 12.130(c). This commenter stated that imported
articles that undergo a similar process in the United States do not
undergo a change in origin in the United States. Another commenter
supports the proposed interpretation as it would permit apparel
produced in the United States that is exported for minor finishing
operations such as silk screening, embroidery, stone washing, etc., to
better compete against foreign competition.
Another commenter states that textiles and textile products made in
the United States and sent abroad to be advanced in value or improved
in condition should be considered products of the United States for
marking purposes provided they: (a) ``Do not undergo a change of tariff
heading (sic) at the eight digit level; (b) do not otherwise undergo a
substantial transformation; and (c) undergo no assembly operation while
abroad.'' The commenter states that if decorative components such as
epaulets, patches, flaps, etc. are added to a U.S.-origin article while
abroad, the article should still be able to be marked as a product of
the United States. Other foreign operations that should be allowed
without the U.S.-made article losing its origin are suggested to be
washing, printing, painting, garment dyeing, and embroidery. The
commenter also states that value-added criteria should not be
considered in determining how articles shall be marked.
Customs Response: The textile rules of origin of section 334 of the
Uruguay Round Agreements Act (URAA) (codified at 19 U.S.C. 3592), as
implemented by section 102.21 of the Customs Regulations, are in most
cases determinative regarding the country of origin marking of a U.S.
textile or textile product that is processed abroad. Therefore, the
origin rules provided for
[[Page 42635]]
in 19 CFR 102.21 must be referred to in order to determine whether a
U.S. textile product becomes a foreign product under those rules by
virtue of the processing performed abroad. In response to the
commenter's statement that U.S. textiles and textile products should
not be considered U.S. products for marking purposes if they undergo a
tariff change at the eight digit level, Customs presumes the commenter
means from one eight digit classification to another eight digit
classification. In examining 19 CFR 102.21, Customs notes that there
are limited instances where a change is allowed at the eight digit
level. However, these rules reflect section 334 of the URAA, as amended
by the ``Trade and Development Act of 2000'', Public Law 106-200, 114
Stat. 251 (May 18, 2000).
In reference to the commenter's statement that U.S. textiles and
textile products should not be considered U.S. products if they undergo
a substantial transformation abroad, Customs simply notes that section
334 of the URAA, as amended, represents the view of Congress on how the
substantial transformation principle should be applied. See T.D. 95-69,
60 FR at 46195. Therefore, to the extent that a U.S. textile product
undergoes a change in origin abroad as set forth in 19 CFR 102.21, it
would be considered a foreign product for marking purposes.
Additionally, Customs notes that, in general, the textile rules of
origin at 19 CFR 102.21 provide that the complete assembly of two or
more integral components in a single country will result in a change in
origin, thereby requiring most U.S. textile products that are assembled
abroad to be marked as foreign articles.
Furthermore, under the 19 CFR 102.21 rules, the attachment of minor
decorative components to a U.S. textile product while abroad would not
result in a change in origin. For example, affixing an emblem
classified in heading 5810, HTSUS, to a U.S. T-shirt classified in
heading 6109, HTSUS, in a foreign country would not result in a change
in the T-shirt's origin. 19 CFR 102.21(e) tariff shift rules for HTSUS
headings 6101-6117. Therefore, the U.S. T-shirt may be returned as a
product of the United States, and would not be required to be marked as
a foreign article for purposes of 19 U.S.C. 1304 as previously required
by 19 CFR 12.130(c). However, the T-shirt would be required to be
labeled in accordance with the Textile Fiber Products Identification
Act which is within the jurisdiction of the Federal Trade Commission
(see further discussion below). Customs also notes that a U.S. T-shirt
sent abroad for silk-screening, painting, or printing would also not
change origin by virtue of these processes occurring, and the returned
T-shirt would not be required to be marked as a foreign article. A
similar result would apply to U.S. jeans which are washed, stone-
washed, dyed, or embroidered abroad. However, U.S. T-shirt components
or jean components sent abroad for assembly into T-shirts or jeans
would change origin as a result of the assembly and would require
marking as a foreign article pursuant to 19 CFR 102.21.
The tariff shift rules at 19 CFR 102.21 also do not include value-
added criteria. To the extent that origin may not be determined under
the applicable tariff shift rule of 19 CFR 102.21(e), the origin is
determined by referring to the country in which the ``most important
assembly or manufacturing process occurred''.
Comment: Two comments were received concerning the application of
the proposed interpretation as it would pertain to textiles whose
origin is determined by where the fabric is formed. One commenter
opposes the proposed interpretation as it would apply to articles such
as scarves, handkerchiefs, and bandannas. The other commenter opposes
the proposed interpretation as it would apply to household linens and
apparel accessories made overseas with domestic fabric. The commenters
claim that the proposed interpretation would allow U.S.-made woven
fabric made into scarves, etc. abroad to be labeled with a qualified
``Made in U.S.A.'' statement, while scarves, etc. made in the United
States using foreign-made woven fabric would have to be labeled as
being of foreign origin pursuant to 19 CFR 102.21(e) tariff shift rules
for HTSUS headings 6215-6217(2). It is stated that domestic
manufacturers of scarves, etc. use both domestic and imported fabric.
The fabric may be imported in a finished or greige condition, and may
be bleached, dyed and/or printed in the United States. The finished
fabric is also cut and sewn to manufacture scarves, etc. It is claimed
that this would place domestic manufacturers at a significant
competitive disadvantage, because if imported finished fabric or greige
fabric is used and made into scarves in the United States, for example,
the article is required to be marked as a foreign article. The
commenters state that the purpose of the marking statute, 19 U.S.C.
1304, is to let the consumer know when they are purchasing foreign-made
products, and that the proposed interpretation ignores this purpose. It
is claimed that the fact the Federal Trade Commission will require some
form of qualification does not really eliminate the potential of
consumer deception. Therefore, these commenters suggest a modification
to the proposed interpretation to exclude household linens and apparel
accessories.
However, a third comment from a domestic manufacturer of bedding
and bath products supports the proposed interpretation and believes
that its adoption is necessary to ensure the uniform application of the
country of origin rules for textile products promulgated pursuant to 19
U.S.C. 3592. The commenter claims that 19 CFR 12.130(c) contradicts the
intent of Congress as set forth in 19 U.S.C. 3592 which provides that
the textile rules of origin shall govern for the purposes of the
Customs laws and the administration of quantitative restrictions, and
19 U.S.C. 3592(b)(2)(A) provides that the origin of certain products,
such as sheets, shall be the country in which the fabric was formed.
The commenter submits that the proposed interpretation should extend to
all textile products, not merely those classifiable in Chapter 98, and
that the country of origin rules governing textile products should be
uniformly applied for country of origin marking purposes. This
commenter states that it has invested in state-of-the art equipment for
weaving fabric from raw cotton and man-made fibers and that these
investments have allowed them to compete in the world marketplace. The
commenter claims that with the enactment of 19 U.S.C. 3592, it is
appropriate to re-examine T.D. 85-38 and T.D. 90-17 to assess what
statutory policies are being furthered by the application of 19 CFR
12.130(c) to textile products such as sheets that are produced abroad
from U.S.-origin fabric.
Customs Response: Customs is of the opinion that 19 CFR 12.130(c)
should no longer be applied for country of origin marking purposes.
Section 12.130(c) states that merchandise which falls within the
``purview of Chapter 98, Subchapter II, Note 2, HTSUS,'' may not, upon
its return to the U.S., be considered a product of the United States.
As suggested by the supporting commenter that the proposed
interpretation should extend to all textile products, not merely those
classifiable in Chapter 98, Customs notes that the returned article
need not necessarily be classifiable in Chapter 98, but must only be
within the purview of Note 2. For example, U.S. greige fabric dyed
abroad would not be classifiable in Chapter 98, but rather would be
fully dutiable. See Dolliff & Company, Inc. v. United States, 455 F.
Supp. 618 (CIT
[[Page 42636]]
1978), aff'd, 599 F.2d 1015 (Fed. Cir. 1979). However, the returned
dyed fabric would be within the purview of Note 2 as it is a U.S.
product sent abroad and advanced in value. Therefore, under the
position stated in T.D. 85-38 and in T.D. 90-17, the returned fabric
would be required to be marked as a foreign article. Because Customs
applied section 12.130(c) for marking purposes due to the statements
made in T.D. 85-38 and T.D. 90-17, 19 CFR 12.130(c) should no longer
apply for country of origin marking purposes in light of the comments
supporting the proposed interpretation, and in light of Customs
previous statements made in connection with the NAFTA Marking Rules. 60
FR 22312, 22318 (May 5, 1995).
In regard to the marking of scarves, handkerchiefs, bandannas,
household linens, etc., since 19 U.S.C. 3592 sets forth the rules of
origin for textile and apparel products for purposes of the customs
laws, Customs lacks authority to carve out any exception for these
articles. However, Customs notes that with the passage of the ``Trade
and Development Act of 2000'', in particular section 405, some of the
concerns raised by the commenter appear to have been alleviated as
certain fabrics and articles will no longer be considered to originate
where the fabric is made.
Comment: One commenter submits that 19 CFR 12.130(c) should no
longer apply for country of origin marking purposes and for quota
purposes. The commenter states that T.D. 85-38 was promulgated to
prevent the circumvention of visa or export license requirements
contained in multilateral and bilateral textile restraint agreements.
The commenter notes that the Tariff Act of 1930 never addressed issues
concerning country of origin determinations for quota purposes.
Nonetheless, this rule was applied for marking and quota purposes
because Customs believed that Congress did not intend Customs to apply
one rule of origin for duty and marking purposes and a different rule
for quota purposes.
This commenter states that it is unaware of any bilateral agreement
that requires the imposition of quota restraints on products that are
deemed to be of U.S. origin pursuant to the rules set forth in 19 CFR
102.21(e). As an example, the bilateral textile agreement negotiated
between the United States and Fiji is presented, which requires Fiji to
limit exports to the United States of cotton and man-made fiber textile
and textile products of Fiji. The commenter notes that if a sheet is
produced in Fiji using Australian fabric, Fiji would not possess
authority to limit the exports of such sheets to the United States;
however, it presently would if U.S. fabric were used, thus placing U.S.
fabric manufacturers at a competitive disadvantage to fabric producers
in nonquota countries such as Australia.
Another commenter questions whether Customs would still require a
textile visa for textiles and textile products under the new proposed
position.
Customs Response: With regard to the comments received regarding
the applicability of 19 CFR 12.130(c) for quota purposes, we note that
this would be more appropriately addressed to the Committee for the
Implementation of Textile Agreements which issues instructions
concerning these issues.
Comment: The Federal Trade Commission (FTC) notes that with respect
to marking, the ordinary textile rules of origin, prescribed in 19
U.S.C. 102.21, as interpreted by Customs, would apply, but that the
Textile Fiber Products Identification Act (TFPIA), set forth at 15
U.S.C. 70 et seq., and the FTC rules implementing the TFPIA, set forth
at 16 CFR Part 303, would also still apply.
The FTC states that the TFPIA requires that textile products be
labeled to show the country of origin, whether domestic or foreign. 15
U.S.C. 70b(b)(4)&(5). The FTC rules implement the statutory
requirement; explain how it applies to products made, in part, in the
U.S. and, in part, in another country; and provide examples of proper
labeling. 16 CFR 303.33. Therefore, under the TFPIA, imported textile
products must name the country where they were manufactured or
processed. Textile products made in the United States of materials also
made in the United States should be labeled as ``made in USA'', or
words to that effect. Products made in the United States of imported
materials should disclose both the U.S. manufacturing and the imported
component--for example, ``Made in USA of imported fabric'' or ``Knitted
in USA of imported yarn.'' Similarly, textile products partially
manufactured in a foreign country and partially manufactured in the
United States should be labeled to show the manufacturing process both
in the foreign country and in the United States--for example,
``Imported cloth, finished in USA,'' ``Sewn in USA of imported
components,'' or ``Made in (foreign country), finished in USA.'' The
rules state further that for purposes of determining how a particular
product should be labeled, a manufacturer needs to consider the origin
of only those materials that are covered under the TFPIA (i.e., those
made of textile fibers) and that are one step removed from that
manufacturing process (i.e., a fabric manufacturer must identify
imported yarn; a garment manufacturer must identify imported fabric).
The FTC also provides several examples of how it would view the
labeling requirements of textile products made in the United States
which are sent abroad for some additional finishing process, where
there is no change in origin under 19 CFR 102.21. When there is no
change in origin, some returned U.S. articles may simply be labeled
``Made in USA,'' but some additional foreign processes may have to be
disclosed on the label. The FTC states that in many cases if the
foreign processing is sufficiently minimal, disclosure would not be
necessary for compliance with the TFPIA and the rules. Such processes
would include: various kinds of washing or wet processing (stone
washing, enzyme washing, acid washing, sizing, starching, etc.); dyeing
or bleaching; application of ink designs (heat transfer or screen
printing); pressing (including permapressing and similar processes to
make apparel wrinkle free); repairs or alterations; tagging or
labeling; closure of single-component knit products (such as hosiery);
adding or changing buttons; and boarding (adding cardboard to give the
garment shape). These processes, although they enhance the value of the
goods, do not alter the basic identity or character of the product.
The FTC states that the addition of ornamentation or decorative
trim that involves adding textile fibers to a textile product (by
embroidery, for example) is addressed in 16 CFR 303.12 and 303.26. If
such trim or ornamentation either (a) does not exceed 15 percent of the
surface area of the item, or (b) does not exceed 5 percent of the
product's fiber weight, it is exempt from the rules' fiber content
disclosure requirement. If exempt from fiber content disclosure, it is
also exempt from origin disclosure if added in another country. If the
decorative trim or ornamentation is more than 15 percent of the surface
area and more than 5 percent of the product's fiber weight, and is
applied in another country, the foreign processing would have to be
disclosed (for example, ``Made in USA, embroidered in Mexico'').
In those situations where the foreign processing is more than
minimal finishing of an already finished article, disclosure of the
foreign processing would be required. 16 CFR 303.33(a)(4). For example,
if components of a garment are manufactured in the U.S., but the
garment is assembled elsewhere, both aspects of the origin would have
to
[[Page 42637]]
be disclosed (e.g., ``Assembled in Mexico of U.S. Components'').
Customs Response: Customs appreciates the FTC's comments which
clarify the marking requirements under the TFPIA. Further clarification
of the rules administered by the FTC may be obtained by writing to:
Textile Program, Division of Enforcement, Bureau of Consumer
Protection, Federal Trade Commission, 600 Pennsylvania Ave., NW,
Washington, DC 20580.
Conclusion
After analyzing the comments received and further consideration of
the matter, Customs has decided to adopt the proposed interpretation
that 19 CFR 12.130(c) does not apply for purposes of country of origin
marking. As noted above, the textile rules of origin of 19 U.S.C. 3592,
as amended, and as implemented by 19 CFR 102.21, will be determinative
regarding the country of origin marking of a U.S. textile or textile
product that is processed abroad and that is described in those
statutory and regulatory provisions. Therefore, the origin rules
provided by statute and in 19 CFR 102.21 must be referred to in order
to determine whether a U.S. textile product becomes a foreign product
by virtue of the processing performed abroad. Moreover, it should be
noted that even if the U.S. textile product does not require labeling
as a foreign product under those provisions, the interpretation adopted
in this document does not exempt textile and apparel products imported
into the United States from the labeling requirements of the Textile
Fiber Products Identification Act, 15 U.S.C. 70, enforced by the
Federal Trade Commission.
Approved: April 14, 2000.
Raymond W. Kelly,
Commissioner of Customs.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 00-17461 Filed 7-10-00; 8:45 am]
BILLING CODE 4820-02-P