Ruling Request on Bed Sheets and Pillowcases from Bahrain; US-Bahrain FTA; General Note 30(b)(iii)(A)

HQ H189075 May 25, 2012 CLA-2 OT:RR.CTF:VS H189075 CK CATEGORY: CLASSIFICATION Margaret Polito Attorney At Law 222 Riverside Drive, Suite 14E New York, NY 10025 RE: Ruling Request on Bed Sheets and Pillowcases from Bahrain; US-Bahrain FTA; General Note 30(b)(iii)(A) Dear Ms. Polito: This is in response to your letter dated September 7, 2011, on behalf of WestPoint Home, Inc. to the New York Commodity Specialist Division, which was forwarded to this office for reply on October 12, 2011. Your letter concerns a request on the eligibility of bed sheets and pillow cases imported from Bahrain for preferential tariff treatment under the US-Bahrain Free Trade Agreement (UBFTA). This reply addresses your original submission, two additional submissions made November 30, 2011 and January 10, 2012; and a conference call on January 6, 2012. FACTS: WestPoint is a US manufacturer and importer of bed linen. WestPoint has a wholly owned facility located in Bahrain that is dedicated to the production of bed linen, consisting of 100% cotton sheets and pillow cases (hereinafter “bed linen”). The following fact pattern, where intermediate processing would take place in a third country, is proposed in order to fulfill US orders taking advantage of the UBFTA preferential tariff rates: Non-originating cotton fibers are imported to Bahrain. Cotton yarns are spun in Bahrain from non-originating fibers. Cotton yarns are woven in Bahrain into greige fabric. Greige fabric is exported to a third country (for example, Pakistan or Italy) where it is subjected to any or all of the following: bleaching, dyeing, printing and possibly another “finishing operation.” The fabric is returned to Bahrain where it is cut and sewn into finished sheets and pillow cases. The finished bed linen is inspected and packaged, and then exported to the United States. ISSUE: Whether the bed linen qualifies for preferential tariff treatment under the Bahrain Free Trade Agreement. LAW AND ANALYSIS: The requirements for eligibility for preferential tariff treatment under the US-Bahrain Free Trade Agreement (“UBFTA”) are set forth in Note 30 to the General Notes to the Harmonized Tariff System (“HTSUS”) (19 U.S.C. §1202). This note provides in pertinent part: (b) For the purposes of this note, subject to the provisions of subdivisions (c), (d), (e), (g) and (h) thereof, a good imported into the United States is eligible for treatment as an originating good of a UBFTA country under the terms of this note only if – . . . .; . . . . ; or the good falls in a heading or subheading covered by a provision set forth subdivision (h) of this note and – each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in such subdivision (h) as a result of production occurring entirely in the territory of Bahrain or of the United States, or both; or the good otherwise satisfies the requirements specified in such subdivision (h); and is imported directly into the territory of the United States from the territory of Bahrain and meets all other applicable requirements of this note. For purposes of this note, the term “good” means any merchandise, product, article or material. (Emphasis added) (d) . . . . . . . . . . . . . . . . (v) A good shall not be considered to be imported directly into the territory of the United States from the territory of Bahrain for purposes of this note if, after exportation from the territory of Bahrain or of the United States, the good undergoes production, manufacturing or any other operation outside the territory of Bahrain or of the United States, other than unloading, reloading or any other operation necessary to preserve the good in good condition or to transport the good to the territory of Bahrain or of the United States. General Note 30 sets forth three methods of qualifying for duty-free treatment: (1) the product is wholly produced in Bahrain or the United States, or both; (2) the product is not specified in subdivision (h) and the “product of” and 35% value added requirements are satisfied; or (3), pertinent in this case, the product specific rule is set forth in subdivision (h) and those requirements are met. The bed linen exported to the United States is classifiable in heading 6302, HTSUS. Subdivision (h) of General Note 30 to the HTSUS contains a product specific rule of origin for bed linen. The rule states: A change to headings 6301 through 6302 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, 5801 through 5802 or 6001 through 6006, provided that the good is cut or knit to shape, or both, and sewn or otherwise assembled in the territory of Bahrain or of the United States, or both. Counsel for WestPoint argues that the bed linens meet the product specific rule of origin of heading 6302 and are eligible for the preferential rate of duty under the UBFTA. WestPoint states that it spins the yarn (heading 5205) used in the bed linen in Bahrain from non-originating fibers. The yarn is woven into the greige fabric (heading 5208 or 5209, depending upon weight) in Bahrain, and the fabric is cut and sewn in the territory of Bahrain into the bed linens. Counsel claims that the bed linen is “imported directly” into the territory of the United States. Thus, it is claimed that the yarn and/or the fabric (in heading 5205 or 5208 (or 5209, depending)), meet the tariff shift of heading 6302 because these processes, plus the cutting and sewing are all done in Bahrain. In regard to the intermediate dyeing, printing and finishing operations in the third country, counsel notes that the processing would not be sufficient to shift the origin of the fabric from Bahrain to the third country under the Textile Rules of Origin (19 U.S.C. §3592). WestPoint states that while the term non-originating materials is not defined in General Note 30 to the HTSUS, an originating good means a good qualifying under the rules of origin set out in Chapter Four (Rules of Origin) or Chapter three (Textiles and Apparel) of the text of the BFTA. In this case, we are faced with the question of whether the language in General Note 30(b)(iii)(A) allows the proposed intermediate processing in a third country; or whether such third country intermediate processing disqualifies the final good, the bed linen, from preferential tariff treatment. While CBP has addressed the BFTA in a request also by WestPoint in New York (NY) Ruling N006776, dated February 28, 2007, the determinative facts and analysis are not persuasive in the subject case. In N006776, CBP concluded that certain pillowcases and a flat sheet qualified for preferential tariff treatment under the BFTA. In that case, after non-originating fibers were spun into yarn and the yarn was woven into fabric and bleached and dyed in Bahrain, certain rolls of such fabric were shipped to Pakistan where it was embroidered with Pakistani yarns and cut into strips less than 30 cm in width, and those spools of 100-yard lengths embroidered strips were sent back to Bahrain. Once in Bahrain the embroidered strips were cut to length and sewn into sheets and pillowcases. These strips were classifiable in either heading 5806 or 5810, both of which were not excluded from the tariff shift rule for heading 6302. CBP concluded that the sheets and pillowcases exported to the U.S. would qualify under General note 30(b)(iii)(A) because the non-originating embroidered strips imported into Bahrain from Pakistan were not excluded from the tariff shift rule of heading 6302. Thus, the non-originating embroidered strips satisfied the tariff shift from either heading 5806 to 5810 to heading 6302, as a result of processing carried out entirely in Bahrain. Further, although not specifically set forth in the facts, it was implied that the strips may constitute less than seven percent of the total weight of the good; thus, not requiring the application of the tariff shift rule. Therefore, N006776 is not on point, as the facts dealt with non-originating embroidered strips imported to Bahrain that underwent a tariff shift by processing occurring entirely in Bahrain. The fact that the fabric was an originating fabric under heading 5206 or 5208 before it left Bahrain is irrelevant to the analysis. The determinative fact is that the non-originating embroidered strip was processed and underwent the tariff shift in Bahrain, not the condition, nor the status of the fabric when it left Bahrain the first time. Additionally, in N101036, dated April 26, 2010, CBP held that certain embroidered sheets and sheet sets qualified for preferential tariff treatment under the BFTA when non-originating fibers were spun, and fabric was woven, dyed and then cut and sewn in Bahrain. The other non-originating components in that case involved Sri Lankan yarn to embroider the sheets, and bags for the sheets made from the Bahraini fabric but sewn into bags in China and imported into Bahrain where the sheets were packaged. In that case, the non-originating embroidery yarn met the applicable tariff shift in Bahrain, and the packaging of the final good was specifically disregarded pursuant to General Note 30(d)(iii). Accordingly, the facts in N101036 are not dispositive in the case at issue. WestPoint draws attention to the Israeli-US FTA in support of their position that intermediate processing, not affecting the classification of the good does not make goods ineligible for FTA preference. In HRL 560250, dated April 10, 1997, CBP was asked to rule on the eligibility of certain brassieres produced in Israel for preferential treatment under the U.S.-Israel Free Trade Agreement. In that case, different cut parts from the originating fabric were sent to Egypt where they were sewn into brassieres and returned to Israel for final inspection and packing. However, the language of the Israel-US FTA differs in two notable ways. First, the Israel-US FTA states that a good may be a “product of Israel” wherever its last substantial transformation occurred, thus remaining silent as to what effect any further third country or subsequent processing that does not affect the tariff classification may have on a preference claim. Second, the language of the Israel-US FTA, unlike the BFTA, merely states that the “article is imported directly from Israel,” there is no additional language as in the BFTA which states that “the good is ‘imported directly’” and for purposes of this Note, the term ‘good’ means any merchandise products, article, or material.” In HRL H157455, dated August 2, 2011, CBP addressed whether wine making kits qualified for preferential tariff treatment under NAFTA. In that case, Canadian-origin yeast, a component of the wine making kits along with a few other minor pre-packaged components were shipped from Canada to the United Kingdom to be packaged together into a kit component package and returned to Canada where they were further packaged into the wine making kit. CBP found that the wine making kits were not entitled to NAFTA preference because General Note 12(I) has a similar requirement as the BFTA General Note 30(d)(v) prohibiting production, manufacturing, or any other operation outside the territory of a Member to the Agreement. General Note 12(I) of the HTSUS states that “[a] good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of this 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, 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.” See also 19 U.S.C. 3332(k). Counsel in HRL H157455, argued that the language in General Note 12(I) only pertained to “goods” and not to “materials” or intermediate components used in making other products. CBP rejected that argument noting the language in NAFTA, that a “material” means a good that is used in the production of a good and includes a part or ingredient. Thus, for purposes of interpreting NAFTA, a “material” is considered a good. As stated earlier, the BFTA as NAFTA, specifically states that a “good” means any merchandise, product, article or material. See also, HRL 563274, dated August 3, 2005, where CBP held that subsequent production to originating transmissions outside customs custody in a non-NAFTA country meant the transmissions had lost their NAFTA originating status when they were subsequently re-imported into a NAFTA country; and HRL 563191, dated May 4, 2005, where US-origin fabric was sent in greige form to a EU member country where certain finishing operations took place. After finishing operations were completed, the fabric was re-imported to the US. CBP indicated that since the fabrics were withdrawn from customs control outside the territories of NAFTA countries for finishing operations and re-imported into the US, the fabric was no longer a NAFTA originating good. Cf., HRL 560950, dated September 22, 1999; and HRL H183724, dated January 6, 2012. In this case, the greige fabric will be exported from Bahrain to a third country, where it will be subjected to any or all of the following: bleaching, dyeing, printing and possibly another “finishing operation” before it is re-imported into Bahrain for cutting and sewing into the finished bed linen. The third country activities are not operations solely considered unloading, reloading, or operations necessary to preserve the greige fabric in good condition. Rather, third country intermediate processes are precluded by the language in General Note 30(d)(v). The greige fabric cannot be considered an originating good under the BFTA after the processing in the third country and does not subsequently satisfy the rule for goods of heading 6302, HTSUS. See, General Note 30(b) and (d)(v). HOLDING: The bed linen at issue is not eligible for preferential tariff treatment under the BFTA because the greige fabric loses its BFTA originating statues as a result of the intermediate processing of the fabric in a third country, not a party to the BFTA. The operations in the third party are not permissible operations including unloading, reloading or necessary to preserve the greige fabric in good condition; thus, the greige fabric is not “imported directly” as required by General Note 30(d)(v). Sincerely, Monika R. Brenner, Chief Special Classification and Value Branch