HQ 958069: Country of origin of area rugs; 19 CFR 12.130; 19 CFR 10.14; subheading 9802.00.80

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                         HQ 958069

                         September 26, 1995

CLA-2 CO:R:C:T 958069 NLP

CATEGORY: Classification

Mr. Tyler Lee
All Floor Co., Inc.
1919 Alameda De Las Pulgas #55
San Mateo, CA 94403

RE:  Country of origin of area rugs; 19 CFR 12.130; 19 CFR 10.14; subheading 9802.00.80

Dear  Mr. Lee:

     This is in response to your letter of May 18, 1995, in which you requested a country of
origin determination for area rugs and inquired as to the applicability of a textile visa exemption
based on the U.S. material used in constructing the rugs.   You provided us with a sample of the
carpet used to make the area rugs, as well as photographs of the finished area rugs.

FACTS:

     100% nylon carpet made in the U.S. is sent to China where it is cut into a pre-designed
pattern.  The cut pieces are then pasted and glued together.  An adhesive backed cloth is applied
and the edges of the rug are banded.  These rugs are then shipped back to the U. S.  You state
that all the materials used in constructing the area rugs, including the carpet, backing cloth, glue,
banding tape and thread for sewing the edges, are made in the U.S.

ISSUE:

     What is the country of origin of the area rugs?

     Whether the operations performed on the U.S. carpet in China will entitle the merchandise
to the partial duty exemption under subheading 9802.00.50, Harmonized Tariff Schedule of the
United States (HTSUS), when returned to the U.S.?

LAW AND ANALYSIS:

     Country of origin determinations for textile products are subject to Section 12.130 of the
Customs Regulations (19 CFR 12.130).  Section 12.130(b) provides that a textile product that is
processed in more than one country or territory shall be a product of that country or territory 

                              -2-

where it last underwent a substantial transformation.  A textile or textile product will be
considered to have undergone a substantial transformation if it has been transformed by means of
substantial manufacturing or processing operations into a new and different article of commerce. 

     Section 12.130(d) of the Customs Regulations sets forth criteria for determining whether a
substantial transformation of a textile product has taken place.  This regulation states that these
criteria are not exhaustive; one or any combination of criteria may be determinative, and
additional factors may be considered.

     Section 12.130(d)(1) of the Customs Regulations states that a new and different article of
commerce will usually result from a manufacturing or processing operation if there is a change in:

          (I)   Commercial designation or identity. 
          (ii)  Fundamental character or 
          (iii) Commercial use.

     Section 12.130(d)(2) of the Customs Regulations states that in determining whether
merchandise has been subjected to substantial manufacturing or processing operations, the
following will be considered:

          (I)   The physical change in the material or article as a result of the                   manufacturing or processing operations in each foreign territory or country,
          or insular possession of the U.S. 

          (ii)  The time involved in the manufacturing or processing operations in 
          each foreign territory or country, or insular possession of the U.S. 

          (iii) The complexity of the manufacturing or processing operations in 
          each foreign territory or country, or insular possession of the U.S.

          (iv)  The level or degree of skill and/or technology required in the                 manufacturing or processing operations in each foreign territory or country, 
          or insular possession of the U.S.

          (v)   The value added to the article or material in each foreign territory or             country, or insular possession of the U.S., compared to its value when               imported into the U.S.







                              -3-

     Under 19 CFR 12.130(c), U.S. textile articles that are advanced in value or improved in
condition, or assembled in a foreign country are considered to be products of that foreign country.
In this case, the U.S. nylon carpet is cut into a pre-designed pattern and pasted and glued together
to make the finished area rug.  The processing done in China clearly advances in value and
improves the condition of the U.S. nylon carpet.  Therefore, the country of origin of the carpet is
China. 

ISSUE #2

     The next issue that must be determined is whether the area rugs are eligible for the partial
duty exemption available under subheading 9802.00.80, HTSUS when they are returned to the
U.S.

     Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

     Articles a ssembled abroad in whole or in part of fabricated comp onents, the          product of the United States, which (a) were exported in condition re ady for assembly     without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by  being assembled and except by operations incidental to the assembly process such as cleaning, lubricating, and painting.

     All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a
component may receive a duty allowance.  An article entered under this tariff provision is subject
to duty upon the full value of the imported assembled article, less the cost or value of such U.S.
components, upon compliance with the documentary requirements of section 10.24, Customs
Regulations (19 CFR 10.24).

     Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:

          (a) Fabricated components, the product of the United States.

          Except as provided in [section] 10.15, the exemption provi ded under  subheading  9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)( 19 U.S.C.    1202), applies to fabricated components, the product of the United States.  The                        components must be in condition ready for assembly without further fabrication at the time of exportation from the United States to qualify for the exemption.  Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.  Materials undefined in final dimensions and shapes, which are cut into specific shapes or patterns abroad are not considered fabricated components.

     

                              -4-

     Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly
operation performed abroad may consist of any method used to join or fit together solid
components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the
use of fasteners.  

     Operations incidental to the assembly process are not considered further fabrication
operations, as they are of a minor nature and cannot always be provided for in advance of the
assembly operations.  Examples of operations incidental to the assembly process includes:
trimming, filing, cutting off small amounts of excess materials; and cutting to length of wire,
thread, tape, foil and similar products exported in continuous length.   However, any significant
process, operation or treatment whose primary purpose is the fabrication, completion, physical or
chemical improvement of a component precludes the application of the exemption under
subheading 9802.00.80, HTSUS, to the component.  See, 19 CFR 10.16(c).

     We have previously held that subheading 9802.00.80, HTSUS, does apply to materials
exported in continuous lengths that are merely cut to individual lengths abroad prior to assembly.
However, it does not apply to materials which are cut into specific shapes or patterns abroad prior
to the assembly process.  Cutting parts to pattern shape from exported material is a further
fabrication and would not be considered incidental to the assembly operation under subheading
9802.00.80, HTSUS.  See, Headquarters Ruling Letter (HRL) 555146, dated January 4, 1989 and
HRL 555012, August 22, 1988. See also, section 10.16, Customs Regulations (19 CFR 10.16).

     In the instant case, once the nylon carpet is imported into China it is cut according to a
pre-designed pattern.  This cutting constitutes further fabrication and based on section 10.14(a),
the carpet is not considered a fabricated component for purposes of subheading 9802.00.80,
HTSUS.  Therefore, no allowances in duty may be made under this subheading  for the cost or
value of the U.S. nylon carpet exported to China for assembly.

HOLDING:

     The U.S. made carpet is advanced in value and improved in condition when it is cut,
pasted and glued together and placed on the backing material in China to make a finished area
rug.  Under 19 CFR 12.130(c), the county of origin of the carpet is China.

     The area rugs  do not qualify for the partial duty exemption available under subheading
9802.00.80, HTSUS, when returned to the U.S.

                              Sincerely,


                              
                              John Durant, Director
                              Commercial Rulings Division