Date: Wed, 31 Dec 1997 20:53:27 GMT Server: WebSitePro/1.1g (S/N WPO-2024) Accept-ranges: bytes Content-type: text/html Last-modified: Mon, 13 Jan 1997 22:30:30 GMT Content-length: 12157
NEW COUNTRY OF ORIGIN RULES FOR TEXTILES AND APPAREL EFFECTIVE JULY 1, 1996.
The new rules of origin will change the current rules which provide that the country of origin of a textile or apparel article is the country where all of the components are cut and not the country where the article is assembled. After July 1, 1996, the converse will be true. Simply stated, after July 1, 1996, the country of origin where the article is assembled will be considered the country of origin of the completed article, not the country where the components are cut.
The evaluation which importers will need to make in order to determine the country of origin of their imported goods for classification, duty and quota purposes is as follows:
I. GOODS SUBJECT TO TARIFF SHIFTSFor textile or apparel goods which are wholly obtained or produced in a single country, the country of origin will be that country. For example, a handbag constructed of cut to shape textile components, cut locally and made from local fabric. However, if the textile or apparel goods are not wholly obtained or produced in a single country, then the importer must:
1. determine the correct tariff classification of any components or material obtained from outside the country of manufacture of the finished item;For example, an importer enters men's demin pants into the U.S. from Malaysia. The demin material is made in China and shipped to Malaysia where it is cut into the necessary pieces or component parts (e.g., front and back leg panels, pocket patches, etc.), which are then sewn together to form the finished pants.2. determine the correct tariff classification for the finished item as imported into the U.S.; and
3. determine whether any specific tariff shift rules apply for the particular classification, i.e., a specified tariff shift in the classification of the components or material to the finished item.
First, the importer must determine the correct classification for the denim. In this case is under subheading 5209.42.0020, HTSUS. Next, the importer must determine the correct classification of the finished pants. In this case, subheading 6203.42.4010, HTSUS.
Then, the importer must examine the relevant tariff shift rule covering the classification of the imported article in question as set forth in the Final Rules of Origin for Textile and Apparel Products, published in the Federal Register on September 5, 1995 (see, 60 Fed.Reg. 46188 - 46204, dated September 5, 1995) and codified in the Code of Federal Regulations (19 C.F.R. 102.21), to determine the correct country of origin. In this instance, Rule 1 of the tariff shift rules governing subheadings 6201 through 6208 of the HTSUS provides:
(1) If the good consists of two or more component parts, a change to an assembled good of heading 6201 through 6208 from unassembled components, provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession.Thus, in this instance, there is "a change to an assembled good of Heading 6201 through 6208", because the Chinese fabric classified in Chapter 52 has been cut into component pieces which are then assembled into finished pants classified in subheading 6203, HTSUS, in Malaysia. Since all of the component pieces were sewn together in Malaysia and the required tariff shift has taken place there, the country of origin of the imported finished pants would be Malaysia and, consequently, Malaysian quota would be required. II. GOODS NOT SUBJECT TO TARIFF SHIFTSIn certain situations, the processing performed on foreign components does not result in a specified tariff shift for the finished article. In those instances, the new origin rules provide that the country of the finished article is the country in which the good was wholly assembled.
For example, travel, sports and similar bags and handbags are classified in Heading 4202, HTSUS. An examination of the relevant tariff shift rules for that Heading indicates:
A change to subheading 4202.12.40 through 4202.12.80; 4202.22.40 through 4202.22.80; 4202.32.40 through 4202.32.95; 4202.92.15 through 4202.92.30; 4202.92.60 through 4202.92.90 from any other heading, provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession. [emphasis added]If Taiwanese fabric was cut into luggage components (e.g., front, back and side panels, etc.) in Taiwan, and then these components were wholly assembled in Malaysia into finished luggage, no tariff shift will have occurred because component pieces of travel, sports and similar bags and handbags are classified under the same tariff provisions as the finished articles, if imported together, pursuant to General Rule of Interpretation 2(a) which provides:Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled. [emphasis added]The specific tariff shift rules covering Heading 4202, HTSUS, as stated above, require a change, " . . . from any other heading, . . . ", which would not be the case here, since the components would be classified in the same heading as the assembled article. Accordingly, further application of the rules of origin is required. As stated, the rules provide that if there is no applicable tariff shift as a result of the processing (in this example, taking component parts and assembling these parts into a finished piece of luggage), then the country of origin is the single country where the goods have been wholly assembled. Therefore, since the components are wholly assembled in a single country, Malaysia, the country of origin in this case of the imported finished luggage would be Malaysia, and Malaysian quota would be required.In addition, U.S. Customs has recently stated that minor assembly operations performed in one country, such as the sewing of buttons, and minor subassemblies such as the pockets, collar, cuffs, and plackets, will not change the fact that the components are wholly assembled in another country.
III. MULTICOUNTRY ASSEMBLY OPERATIONS
While the specific rules governing tariff shifts and classification of goods assembled in a single country from fabric produced in another country appear to be established, if somewhat confusing, there has yet to be received from Customs authoritative word on how to definitively establish the country of origin of articles produced as a result of multicountry assembly operations.
The new rules provide that if the country of origin cannot be determined through the specific rules governing tariff shifts and the goods have not been wholly assembled in a single country, then the country of origin will either be the country where the most important assembly or manufacturing process has occurred or, if a determination as to where the most important assembly cannot be made, the last country in which an important assembly or manufacturing process has occurred.
Although Customs and the Committee for the Implementation of Textile Agreements ("CITA") have attempted to determine which assembly processes are "most important" or "important" for purposes of implementing the new rules of origin for apparel, a fixed formula has yet to be adopted.
However, several possible methods for the "most important" criteria are presently being considered.
1. Use of a standardized or uniform minutes approach under which the operations requiring the most time would be deemed the most important. This approach assigns "uniform minutes" to each type of assembly operation. To determine where the most important assembly occurs, all the uniform minutes would be added up;Accordingly, modifying our luggage example, if the Chinese fabric is formed and cut into component pieces in Malaysia and then partially assembled in Taiwan (e.g., the front, back and side are sewn together) and further assembled in Vietnam (e.g., the top and bottom are sewn on) the determination of in which country the "most important" or "last important" assembly took place would be debatable, unless Customs defines these terms. However, recent rulings indicate that the country where the most complex and/or most extensive assembly which contributes more to the final finished article has occurred, will be considered the country of origin of the finished article.2. Location where the main panels are manufactured would be the country of origin; or
3. Use of a "benchmark" theory, whereby points are given for certain seams, so that the country in which the most points are accumulated would be the country of origin.
Clearly, Customs will need to soon formally adopt one of the above criteria or some other method for determining country of origin for multicountry assembly operations.
As you can see, these rules are quite complex and not easily understandable. These rules are also a marked departure from prior rules. Accordingly, long term production methods (and sites of production) must be reevaluated and in some instances altered or abandoned. It is also advisable for importers to seek the advice of Customs experts and binding rulings from the Customs Service before making entry pursuant to these new rules.
(The foregoing is not, nor is it intended to be construed as, legal advice, which can only be provided to clients of the firm on a case by case basis.)Copyright: Serko & Simon, 1996
by: David Serko