Eligibility of cotton knit shirts for NAFTA preferential treatment; Article 509

HQ 561511 September 29, 1999 MAR-05 RR:CR:SM 561511 BLS CATEGORY: Classification Ms. LeeAnne Haworth IDS International Development Systems, Inc. 733 Fifteenth Street, N.W. Washington, D.C. 20005 RE: Eligibility of cotton knit shirts for NAFTA preferential treatment; Article 509 Dear Ms. Haworth: This is in reference to your letter dated September 15, 1999, requesting a ruling concerning the eligibility for NAFTA preferential treatment of certain 100% cotton knit shirts imported from Mexico. FACTS: You state that the following operations will take place in the United States, Costa Rica and Mexico as follows: 1) United States - U.S.-origin cotton will be spun into yarn and the yarn knit into fabric. 2) Costa Rica - The fabric will be dyed and finished. 3) Mexico - The dyed fabric will be cut and sewn into the completed garments. ISSUE: Whether the cotton shirts will be eligible for NAFTA preference upon importation. LAW AND ANALYSIS:  Paragraph (b) of General Note 12 of the Harmonized Tariff Schedule of the United States (HTSUS) establishes the criteria under which goods imported into the customs territory of the United States qualify as originating goods for NAFTA purposes. General Note 12(l), HTSUS, provides that a good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of the note if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the NAFTA parties, other than unloading, - 2 - reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of Canada, Mexico and/or the United States. General Note 12(l) is interpreted by section 16 of the NAFTA Rules of Origin Regulations, Appendix to Part 181, Customs Regulations (19 CFR Part 181, App., sec. 16 ). Part VI, section 16, provides in pertinent part that: (1) A good is not an originating good by reason of having undergone production that occurs entirely in the territory of one or more of the NAFTA countries that would enable the good to qualify as an originating good if subsequent to that production (a) the good is withdrawn from customs control outside the territories of the NAFTA countries; or (b) the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading or any other operation necessary to preserve the good in good condition, such as inspection, removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing salt, sulphur dioxide or other aqueous solutions, replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units of the good, or to transport the good to the territory of a NAFTA country. (2) A good that is a nonoriginating good by application of subsection (1) is considered to be entirely nonoriginating for purposes of this appendix. "Production" is defined by General Note 12(p), HTSUS, as "growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good." As the U.S.-origin fabric undergoes further production (dyeing) outside the territories of the NAFTA parties (Costa Rica) before being further processed in Mexico, pursuant to General Note 12 (l), HTSUS, and 19 CFR Part 181, App., sec. 16, the dyed fabric will not be considered originating when imported into Mexico.  General Note 12(b), HTSUS, provides in pertinent part: [f]or the purposes of this note, goods imported into the customs territory of the United States are eligible for - 3 - the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if * * * * (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 nonoriginating 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, ... Therefore, the imported good willl qualify as an originating good only if the cutting and sewing operations performed in Mexico on the non-originating fabric result in the requisite change in tariff classification provided under General Note 12(t). The dyed fabric imported into Mexico is classifiable under heading 6002, HTSUS, and the imported good under headings 6105 or 6106. The rule applicable to goods of headings 6105 and 6106 is provided for in General Note 12(t)/61.25, HTSUS, which provides the following: A change to headings 6105 through 6106 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, chapter 54, or headings 5508 through 5516 or 6001 through 6002, provided that the good is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the NAFTA parties. Accordingly, as the dyed fabric will not undergo a change in tariff classification in Mexico under this rule, the imported cotton shirts are not considered "goods originating in the territory of a NAFTA party" and thus will not be eligible for NAFTA preference upon importation. HOLDING: U.S.-origin fabric undergoes further production outside the territories of the NAFTA parties before being further processed in Mexico. Therefore, pursuant to General Note - 4 - 12 (l), HTSUS, and 19 CFR Part 181, App., sec. 16, the fabric will not be considered originating when imported into Mexico from Costa Rica. As the fabric will not undergo the requisite change in tariff classification in Mexico, the imported cotton shirts are not considered "goods originating in the territory of a NAFTA party" pursuant to General Note 12(b)(ii)(A), HTSUS, and thus will not be eligible for NAFTA preference upon importation. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction. Sincerely, John Durant, Director Commercial Rulings Division