Rules for Determining the Country of Origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement; Rules of Origin Applicable to Imported Merchandise

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10, 12, 102, 134 and 177

[RIN 1515-AB19; RIN 1515-AB34]

Rules for Determining the Country of Origin of a Good for

Purposes of Annex 311 of the North American Free Trade Agreement; Rules

of Origin Applicable to Imported Merchandise

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the interim Customs

Regulations, published in the Federal Register on January 3, 1994, as

T.D. 94-4, which established the rules for determining when the country

of origin of a good is one of the parties to the North American Free

Trade Agreement for purposes of Annex 311 of that Agreement. This

document also republishes, with some modifications, proposed amendments

to the Customs Regulations to set forth uniform rules governing the

determination of the country of origin of imported merchandise, which

were also published in the Federal Register on January 3, 1994. The

purpose of the proposals set forth in this document is to clarify the

intent, or otherwise facilitate understanding of, the previously-

published interim and proposed regulatory amendments. In addition, this

document solicits public comments on the appropriate effective date for

a final rule action regarding the interim and proposed regulatory

amendments.

DATES: Comments must be received on or before June 19, 1995.

ADDRESSES: Written comments (preferably in triplicate) may be addressed

to the Regulations Branch, U.S. Customs Service, Franklin Court, 1301

Constitution Avenue, NW., Washington, DC 20229. Comments submitted may

be inspected at the Regulations Branch, Office of Regulations and

Rulings, Franklin Court, 1099 14th Street, N.W., Suite 4000,

Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Sandra Gethers, Office of Regulations

and Rulings (202-482-6980).

SUPPLEMENTARY INFORMATION:

Background

On January 3, 1994, Customs published T.D. 94-4 in the Federal

Register (59 FR 110) setting forth interim regulations to establish

rules for determining the country of origin of a good for purposes of

Annex 311 of the North American Free Trade Agreement (NAFTA). The

United States, Canada and Mexico entered into the NAFTA on December 17,

1992, and the provisions of the NAFTA were adopted by the United States

with the enactment of the North American Free Trade Agreement

Implementation Act, Public Law 103-182, 107 Stat. 2057. T.D. 94-4

stated that the interim regulations were effective on January 1, 1994,

and also provided for a 90-day public comment period which was

subsequently extended to July 5, 1994, by a notice published in the

Federal Register on March 11, 1994 (59 FR 11547). On February 3, 1994,

a notice was published in the Federal Register (59 FR 5082) setting

forth corrections to the interim regulations contained in T.D. 94-4.

On January 3, 1994, Customs also published a document in the

Federal Register (59 FR 141) which proposed to amend the Customs

Regulations to set forth uniform rules governing the determination of

the country of origin of imported merchandise; this notice of proposed

rulemaking represented a refinement and replacement of an earlier

proposal published in the Federal Register on September 25, 1991 (56 FR

48448). This January 3, 1994, document proposed: (1) To amend

Sec. 102.0 of the interim regulations published as T.D. 94-4 so that

those interim regulations would apply not only for the purposes stated

in Annex 311 of the NAFTA but would also apply in the broader context

of country of origin determinations ``for purposes of the Customs and

related laws and the navigation laws of the United States''; and (2) to

amend various provisions within Parts 4, 10, 12, 134 and 177 of the

Customs Regulations (19 CFR Parts 4, 10, 12, 134 and 177) to ensure

that the rules contained in interim Part 102 would control wherever

language requiring a country of origin determination appears in those

other regulatory provisions. Thus, under this notice of proposed

rulemaking the interim rules set forth in T.D. 94-4 would apply

wherever a provision of the Customs and related laws or the

[[Page 22313]] navigation laws or a regulation thereunder uses language

such as ``new and different article of commerce'', ``wholly the growth,

product, or manufacture'', ``product of'', or ``substantial

transformation'' for purposes of establishing the criteria for country

of origin of a good. The notice of proposed rulemaking provided for a

90-day public comment period which was subsequently extended to July 5,

1994, by a notice published in the Federal Register on March 10, 1994

(59 FR 11225).

In view of the fact that the January 3, 1994, notice of proposed

rulemaking presented the same regulatory scheme as the rules contained

in T.D. 94-4, each document referred to the other and stated that

public comments submitted in response to either document would be

considered in connection with the review of both documents. The notice

of proposed rulemaking further indicated that the background section

and interim Part 102 regulatory texts set forth in T.D. 94-4 were

applicable to it. Thus, it was intended that the two documents be read

together so that, following public notice and comment procedures, one

final rule document could be derived from the interim and proposed rule

documents, consistent with the overall goal of promulgating uniform

rules of origin for Customs and related purposes.

The publication of the interim regulations set forth in T.D. 94-4

was specifically intended to fulfill the United States obligation under

paragraph 1 of NAFTA Annex 311 which provides that the parties to the

NAFTA shall establish, by January 1, 1994, rules (referred to as

``Marking Rules'') for determining whether a good is a good of a party

(that is, whether the country of origin of a good is either the United

States, Canada or Mexico) for purposes of the following NAFTA Annexes:

(1) Annex 311 (Country of Origin Marking); (2) Annex 300-B (Textile and

Apparel Goods); and (3) Annex 302.2 (Tariff Elimination). T.D. 94-4 set

forth these interim ``Marking Rules'' as a new Part 102 of the Customs

Regulations (19 CFR Part 102), entitled ``Rules of Origin'', and also

set forth consequential conforming interim amendments to existing

sections within Parts 12 and 134 of the Customs Regulations (19 CFR

Parts 12 and 134).

Interim Part 102 consists of Secs. 102.0-102.20 and, following

Sec. 102.0 (Scope), is divided into two subparts. Subpart A is entitled

``General'' and consists of Sec. 102.1 (Definitions), and Subpart B is

entitled ``Rules of Origin'' and consists of Secs. 102.11 through

102.20. Section 102.11 sets forth the general rules for determining the

country of origin of a good and consists of paragraphs (a) through (d)

which are applied in a hierarchical and sequential manner. Thus,

reference must be had first to paragraph (a) which provides that the

country of origin of a good is: under subparagraph (1), the country in

which the good is wholly obtained or produced; under subparagraph (2),

the country in which the good is produced exclusively from domestic

materials; or, under subparagraph (3), the country in which each

foreign material incorporated in the good undergoes an applicable

change in tariff classification set out in Sec. 102.20 and/or satisfies

any other applicable requirements contained in that section or

elsewhere in Part 102. If the country of origin cannot be determined

under paragraph (a) because the good does not meet the terms of

subparagraph (1), (2) or (3), then resort must be had to paragraph (b)

and, if that fails, then to paragraph (c) and, if that fails, finally

to paragraph (d). Sections 102.12-102.19 set forth additional rules

that serve to interpret, clarify, limit or otherwise control the

application of the general rules contained in Sec. 102.11 as well as

the specific rules contained in Sec. 102.20. Section 102.20 contains

the specific change in tariff classification rules and/or related

requirements referred to in the country of origin rule set forth in

Sec. 102.11(a)(3); the rules in Sec. 102.20 are set forth for each

Harmonized Tariff Schedule of the United States (HTSUS) chapter, and

the applicable rule is determined by the HTSUS tariff classification

that is applicable to the finished good at the time the country of

origin determination is being made.

Based on a review of the comments received in response to the

interim and proposed rule documents published in the Federal Register

on January 3, 1994, and as a result of independent review of the

interim and proposed texts within Customs, it has been determined (1)

that some clarification and further explanation of the intent behind

the proposed uniform rule concept should be provided and (2) that some

changes should be made to the interim and proposed texts and that those

changes should be the subject of public notice and comment procedures

before proceeding to the final rule stage in this matter; the interim

texts as published in T.D. 94-4 (and as subsequently corrected) remain

in effect pending completion of such final rule action. In addition,

Customs believes, for the reasons set forth below, that public comments

should be solicited at this time regarding the appropriate use of a

delayed effective date for any final rule that results from the interim

and proposed rules, including any changes thereto as proposed in this

document.

Accordingly, this document (1) provides supplemental background

information regarding the proposed uniform rule concept, (2) sets forth

proposals, as discussed in detail below, to amend the interim

regulatory texts contained in T.D. 94-4 published at 59 FR 110 and

corrected at 59 FR 5082, (3) republishes all of the proposed regulatory

amendments published at 59 FR 141 on January 3, 1994, with certain

changes thereto as discussed in detail below, and (4) invites public

comments on the appropriate effective date for a final rule on this

matter. It is the intention of Customs to address in this document only

those comments submitted in response to the January 3, 1994, notices

that involve substantive changes to the interim or proposed texts

requiring further public comment procedures; other such previously

submitted comments will be addressed in an appropriate final rule or

other document to be published at a later date. Comments will be

accepted and considered in response to this document only in regard to

the following: (1) The proposed changes to the interim regulatory texts

as discussed and set forth below; (2) all other proposed regulatory

amendments as discussed and set forth below which represent a

substantive change to the proposals published on January 3, 1994; and

(3) the final rule delayed effective date issue. Accordingly, comments

which concern other issues involved in the January 3, 1994, documents,

or which do not otherwise relate to the new proposals set forth in this

document, will not be accepted and considered by Customs. For purposes

of this document, the background sections of the January 3, 1994,

interim and proposed rule documents are applicable except where

otherwise required by a change set forth in this document.

Supplemental Background Information

Based on an apparent misunderstanding reflected in some of the

comments received in response to the January 3, 1994, notice of

proposed rulemaking, Customs believes that further clarification of the

purpose of the development of these rules for all non-preference

country of origin purposes is needed. This misunderstanding most

probably stemmed from the following statement made in the Background

portion of that document: ``The change in tariff classification

standard was specifically developed as an alternative to the

traditional substantial transformation [[Page 22314]] rule in order to

obviate the problems described above.'' This statement referred only to

the distinction in format between the proposed rulemaking, which

defines substantial transformation on the basis of published rules, and

the traditional application of the substantial transformation

principle. Customs was not proposing that the criteria for origin

determination be based on a new standard; quite to the contrary,

Customs intended that the same standard, substantial transformation, be

applicable. As stated in the Discussion of Proposals portion of the

January 3, 1994, notice of proposed rulemaking, the new Part 102 rules,

which are proposed to be used for all non-preference country of origin

determinations, are specifically intended to ``codify'', rather than

constitute an alternative to the substantial transformation rule, i.e.,

``the criteria for determining whether a good has become a `new and

different article of commerce' as a result of a manufacturing process

in a given country,'' and to ``provide the results that would be

reached under the case-by-case application of the substantial

transformation rule.''

The interim Part 102 rules, which Customs proposes to use for all

non-preference country of origin determinations, are in fact

specifically designed to implement the principles of the substantial

transformation standard. In this regard, it should be noted that

Customs views as relevant all court decisions involving substantial

transformation for purposes of country of origin determination,

regardless of the purpose for which the origin determination is being

made. As favorably noted by the Court of International Trade in Target

Sportswear, Inc. v. United States, Slip Op. 95-7 (January 23, 1995),

the purpose of these rules is ``to add more certainty and uniformity to

the substantial transformation test.'' A summary of court decisions

involving substantial transformation for country of origin purposes and

their relationship to the interim Part 102 rules is set forth below in

order to demonstrate the approach which Customs took in drafting the

interim and proposed rules at issue, including the further proposals

set forth in this document.

1. Country of Origin Marking Cases

With regard to country of origin marking, the area in which the

substantial transformation principle is employed most often, the Part

102 rules will implement this principle consistent with court decisions

in this area.

U.S. v. Gibson-Thomsen Co., Inc., 27 CCPA 267 (1970). The court

held that the manufacturer of hair and tooth brushes from imported wood

blocks and toothbrush handles was the ``ultimate purchaser'' by having

manufactured the imported articles into new articles having a new name,

character, and use. In this case, wooden toothbrush handles and brush

blocks were imported for use in the manufacture of tooth and hair

brushes. In the manufacture of the brushes, holes were bored into the

handles and blocks; bristles were inserted and imbedded; the bristles

were trimmed; and the handles were polished and stamped. In the opinion

of the court, the imported wood blocks and handles lost their

identities in a tariff sense as a result of the assembly process and

became an integral part of a new article. Therefore, the court held

that the imported articles were substantially transformed in the United

States so that country of origin marking of the hair and tooth brushes

was not required. The Part 102 rules are consistent with this case

since the Sec. 102.20 specific tariff shift rule for hairbrushes and

toothbrushes allows a change to heading 9603 from any other heading,

and the components which make up the finished toothbrushes and

hairbrushes (handles, brush blocks, bristles) are all classified

outside heading 9603.

National Juice Products Assn. v. U.S., 628 F.Supp. 978 (CIT 1986).

In this case the court upheld Customs' determination that production of

frozen concentrated and reconstituted orange juice from manufacturing

concentrate is not a substantial transformation. The court also upheld

Customs' determination that the manufacturing concentrate imparts the

essential character to the juice and makes it orange juice. The court

noted that the addition of water, orange essences, and oils to the

concentrate, while making it suitable for retail sale, does not change

the fundamental character of the product, which is still essentially

the product of juices. The court concluded that the orange juice

processors in the United States are not the ultimate purchasers of the

imported product because consumers are the last purchasers to receive

the product in essentially the form in which it is imported. Thus, in

accordance with 19 U.S.C. 1304, the court held that the retail

packaging must indicate the country of origin of the manufacturing

concentrate. The Part 102 rule which covers reconstituted orange juice

(and which specifies a change to subheading 2009.11 through 2009.30

from any other chapter) is consistent with National Juice. Thus, just

as the court in National Juice found that the process of mixing various

ingredients with foreign manufacturing concentrate to create

reconstituted orange juice did not result in a substantial

transformation, the applicable Part 102 rule likewise does not allow

origin to be conferred by a change from manufacturing concentrate to

reconstituted orange juice.

Uniroyal, Inc. v. U.S., 542 F.Supp. 1026 (CIT 1983). In Indonesia,

an upper was manufactured from sheets of leather into a substantially

complete shoe, that is, it was ``lasted'' or permanently molded so that

it was in its ultimate shape, form, and size when exported. The uppers

were shipped to the United States where pre-shaped, pre-sized outsoles

were attached to the uppers. The court held that despite the name

change (upper to shoe) there was no substantial transformation because

the attachment of the outsole to the upper was a minor manufacturing or

combining process which left the identity of the upper intact. The

upper when imported was readily recognizable as a distinct item apart

from the outsole to which it was attached. The court found that the

imported upper was the very ``essence'' of the finished shoe.

Therefore, the court held that the operations performed in the United

States did not constitute a substantial transformation and therefore

the uppers were required to be marked with the country of origin. The

Part 102 standard is consistent with the court's holding in Uniroyal

because the specific tariff shift rule for shoes (headings 6401-6405)

provides for a change to heading 6401 through 6405 from any tariff item

outside that group except from formed uppers.

Koru North America v. U.S., 701 F.Supp. 229 (CIT 1988). In this

case, Hoki fish caught off the coast of New Zealand were beheaded, de-

tailed, eviscerated, and frozen aboard the ships in New Zealand. The

fish were then sent to Korea for further processing which included

thawing, skinning, boning, trimming, glazing, refreezing, and packaging

the fish for shipment to the United States. The court held that the

processing in Korea constitutes a substantial transformation. The court

based this finding on a change in name and character, noting that there

was a name change from ``headed and gutted Hoki'' to ``individually

quick-frozen fillets'' as a result of the processing performed in

Korea. The court also noted that the two types of fish are classified

in separate tariff provisions. The court also found that the processing

in Korea resulted in a change in the fundamental nature and character

of the [[Page 22315]] fresh fish. The court noted that the fillets are

considered discrete commercial goods and are sold in separate areas and

markets different from the headed and gutted fish. Therefore, the court

held that the Hoki should be properly marked as products of Korea. The

Part 102 rules are consistent with this court decision since the rule

for frozen fish fillets (heading 0304) allows a change to frozen fish

fillets of heading 0304 from any other heading, and frozen, beheaded,

de-tailed, eviscerated fish are classified in heading 0303 rather than

in heading 0304.

MBI Merchandise Industries Inc. v. United States, 16 CIT 495

(1992). The court held that any Korean magnetic pages of a photo album

were substantially transformed in Taiwan and in the People's Republic

of China when they were incorporated into the finished photo album. The

court noted that the character of the pages was transformed from

refills into a fully salable photo album (classifiable in heading

4820). The court also stated that the use of the pages was also

transformed from loose refill pages to completed albums suitable for

display on a customer's bookshelf, the primary purpose of a photo

album. Finally, the court found that the combination of the various

parts (cover, pages, binder, and label) results in an item having a new

identity. Distinguishing the Uniroyal case discussed above, the court

found that the pages in this case were not the ``essence'' of the photo

albums. The court also considered the value added as a result of making

the photo albums as support for the conclusion that the photo album

pages were substantially transformed. The permitted changes under the

applicable Part 102 tariff shift rule include a change to heading 4820

from any other heading, and the loose filler paper is classified

outside of heading 4820. Thus, under the Part 102 rules the magnetic

pages will be transformed into products of the country in which the

albums were produced, consistent with the conclusion reached by the

court in M.B.I.

Carlson Furniture Industries v. United States, 65 Cust.Ct. 474

(1970). In the United States, wooden chair parts imported from Japan

were assembled and fitted together, glued, the joints steel-pinned, the

legs cut to length and leveled, and, in some instances, the chairs

upholstered and the legs fitted with glides and casters. The court held

that the work performed on the imported articles by the importer was

substantial in nature and more than the mere assembly of parts

together. The court further stated that the result of the assembly of

the chair parts was the transformation of the parts into a ``functional

whole''--which resulted in a new and different article of commerce. The

court concluded that the importer was the ``ultimate purchaser'' of the

imported articles, so that the marking of the country of origin on the

containers in which such articles were imported was deemed sufficient

to meet the statutory marking requirements. The Part 102 rules are

consistent with this court decision. In this case, the goods for which

country of origin had to be determined were ``chairs'', which are

classified under subheadings 9401.10 through 9401.80 for which the

following Sec. 102.20 tariff shift rule is prescribed: A change to

subheading 9401.10 through 9401.80 from any subheading outside that

group, except from subheading 9403.10 through 9403.80, and except a

change from subheading 9401.90 or 9403.90 when that change is pursuant

to GRI 2(a). The Court in Carlson Furniture also found that the

imported articles were ``not chairs in unassembled or knocked-down

condition'', but were ``at best the wooden parts which go into the

making of chairs''. Since the chair parts were assembled into finished

chairs by the U.S. importer, the change in classification from the

imported chair parts to finished chairs did not occur pursuant to GRI

(2)(a). Consequently, the assembly and other processing of the chair

parts, classifiable under 9401.90, would be treated as a substantial

transformation under the Part 102 rules.

Midwood Industries, Inc. v. United States, 313 F.Supp. 951

(Cust.Ct. 1970). In this case, steel forgings manufactured in West

Germany, England, or Italy were imported into the United States where

they were manufactured into flanges and fittings. The purpose of the

fittings was to connect pipes of matching sizes. To that end, the

forgings were faced, bored, threaded or bevelled, drilled, or spot-

faced, or they were heated and one end was reduced in size and diameter

by compression, excess steel was removed, and the ends were aligned,

trimmed, and bevelled for welding purposes. In finding that the steel

forgings were substantially transformed in the United States, the court

drew a distinction between consumer and producer goods, stating that

the imported articles are ``not in fact used by the consumer in such

state of manufacture and are not capable of use by the consumer in that

state.'' The Part 102 rules do not stipulate that all forgings

manufactured into flanges and fittings undergo a substantial

transformation. The Court of International Trade has not employed the

consumer-good-versus-producer-good analysis used by the Customs Court

in Midwood. Nor does Customs believe that the court is bound to follow

that reasoning. Cf. Algoma Steel Corp., Ltd. v. U.S., 865 F.2d 240, 243

(Fed.Cir. 1989). In Midwood, the Customs Court based its decision on an

analysis of the facts presented regarding the manufacturing processes

employed by a single pipe fittings company circa 1970 as well as the

legal arguments presented in that case. The court noted that it did not

need ``to determine whether or not the processes employed'' at the

plaintiff's plant were ``generally prevalent throughout any segment of

the industry in the United States.'' Midwood, 313 F.Supp. at 956.

Customs believes that the Midwood result would have been consistent

with the proposed rules set forth in this document had it been

presented as such. Consequently, Customs is confident that the Court of

International Trade will sustain the uniform rules of general

applicability contained herein, which are relevant to current industry

practices and are entirely consistent with the general principles

enunciated by the court.

National Hand Tool Corp. v. United States, 16 CIT 308 (1992). The

articles involved in this case were nine kinds of components of hand

tools which were further processed and assembled in the United States.

The components were either cold-formed or hot-forged in Taiwan into

their final shape before importation. Some of the tools underwent a

heat treatment, were reshaped by bending, or were further machined by

knurling in the United States, and other articles were electroplated in

the United States. The various components were then assembled in the

United States to produce the finished tools. The court found that there

was no name change and that the character of the imported articles

remained unchanged after heat treatment, electroplating, and assembly.

The court stated that although there may be changes in the

characteristics of the material, they did not change the character of

the articles. The court also found no change in use as a result of the

processing in United States. Finally, the court found that there was no

reason to find a substantial transformation on the basis of the value-

added in the United States. Accordingly, since the operations performed

in the United States did not result in a substantial transformation,

the court held that the imported articles must be marked to indicate

the country of origin pursuant to 19 U.S.C. 1304. The Part 102 rules

are [[Page 22316]] totally consistent with the application of the

substantial transformation principle in this case, not only in the case

of hand tools but also as applied to other products involving similar

processing operations.

2. Subheading 9802.00.80 and Products of the United States

This document sets forth, without change, the proposal contained in

the January 3, 1994, notice of proposed rulemaking to amend Sec. 10.14

of the Customs Regulations to provide for application of the Part 102

rules for purposes of determining when imported foreign materials are

substantially transformed in the United States so as to be considered

products of the United States and thus not subject to duty under

subheading 9802.00.80, HTSUS, when exported for assembly abroad and

then returned to the United States. The Part 102 rules are totally

consistent with the following court decision which involved substantial

transformation for purposes of determining country of origin in

connection with item 807.00, TSUS (the predecessor to subheading

9802.00.80, HTSUS).

Data General Corporation v. United States, 4 CIT 182 (1982). The

court considered the question of whether programming a programmable

read only memory (PROM) imported into the United States constitutes a

substantial transformation. The court analyzed the processing in terms

of the name, character, and use test. The court found that there was a

change in name in that a PROM when programmed is no longer a PROM and

is sometimes referred to as a read only memory (ROM). The court found

that there was also a change in character as a result of the

programming which changed the pattern of interconnections with the

PROM. According to the court, a distinct physical change was effected

in the PROM by the opening or closing of the fuses. Citing Uniroyal,

the court stated that the ``essence'' of the article, its pattern of

interconnections or stored memory, was established by the programming.

The court also noted that there was a change in use in that the PROM

had no function or use except for programming. The court analogized

programming a PROM to assembling the components on a printed circuit

board, which is cited in 19 CFR 10.14(b) as an example of substantial

transformation. Therefore, the court held that programming the PROM

resulted in a substantial transformation into a ``fabricated

component'' which was a product of the United States for purposes of

item 807.00, TSUS. The result reached in this case is reflected in the

Part 102 rules since the applicable tariff shift rule (subheadings

8541-8542) allows a change to any programmed chips from any

unprogrammed.

3. Application of Most-Favored-Nation Duty Rates

The Part 102 rules are consistent with the court's application of

the substantial transformation principle in the following case which

involved the question of whether the most favored-nation duty rate (as

opposed to the higher column 2 duty rate) should be applied to the

imported merchandise at issue.

Coastal States Marketing, Inc. v. United States, 646 F. Supp. 255

(CIT 1986). The court held that mixing gas oil from the Soviet Union

and fuel oil from Italy in Italy does not result in a new and different

article of commerce so that the mixture becomes a product of Italy. The

court concluded that there was no change in the appearance, character,

identity, or use of the Russian oil to warrant the conclusion that the

imported blend was solely a product of Italy. Furthermore, the court

stated that the essential character of the Russian component as a fuel

oil used primarily for heating remained unchanged. The court found that

``although a change in tariff classification is certainly not

controlling * * * the same classification treatment of the products * *

* is some indication that the imported blend was not a new and

different product.'' Accordingly, the Part 102 rules do not allow a

change of origin when fuel oil and gas oil, both of which are

classified in heading 2710, are simply blended together.

4. Voluntary Restraint Arrangement Cases

On balance, and as explained below, the Part 102 rules are

consistent with the following cases involving substantial

transformation for purposes of determining origin in the trade policy

area. These cases involved voluntary restraint arrangements that the

United States had with various countries regarding the exportation of

steel products to the United States.

Ferrostaal Metals Corporation v. U.S., 664 F.Supp. 535 (CIT 1987).

In New Zealand, full hard cold rolled steel sheet imported from Japan

was annealed and galvanized by a process known as ``continuous hot-dip

galvanizing'' to produce galvanized steel sheet. The court held that

the hot-dipped galvanized steel sheet was a new and different article

of commerce when compared to the full hard cold rolled steel sheet. In

making this determination, the court found that the processing of the

hard cold rolled steel sheet into hot-dipped galvanized steel sheet

results in a change in name, character, and use. The court noted the

change in name, that is, from full hard cold rolled steel sheet to

continuous hot-dip galvanized steel sheet. The court also stated that

the annealing and galvanizing process resulted in a change in character

by significantly altering the mechanical properties and chemical

composition of the steel. In addition, the court noted that cold-rolled

steel cannot be used for the same purposes as steel that has undergone

the hot-dip galvanizing process. The Ferrostaal opinion represents a

trial court's resolution of a single, particular dispute involving a

specific product and process. The case was not appealed. While the

Court of International Trade's substantial transformation analysis in

Ferrostaal remains relevant, Customs has not codified the specific

result of Ferrostaal and does not propose it as a uniform rule of

general applicability based on a comprehensive review of industry

practices. Again, Customs believes that the Ferrostaal court would have

reached the result contained in those rules had they been presented as

such to the court. Moreover, Customs is confident that the Court of

International Trade will sustain those rules based on an industry-wide

analysis, notwithstanding the result that was reached based on the

particular facts of a single case. Cf. Algoma Steel Corp., Ltd. v.

U.S., 865 F.2d 240, 243 (Fed.Cir. 1989).

Superior Wire v. United States, 867 F.2d 1409 (CAFC 1989). The

Court of Appeals for the Federal Circuit affirmed the Court of

International Trade decision that the process of drawing wire in Canada

from wire rod produced in Spain is not a substantial transformation.

The lower court had employed the traditional name, character, and use

test, finding that, although there is a name change from wire rod to

wire, there is no change in character or use when wire rod is drawn

into wire. Therefore, the court held that wire drawn in Canada from

Spanish wire rod was not substantially transformed for purposes of

determining the country of origin under the voluntary restraint

arrangement between the United States and Spain, thus resulting in

Spain remaining the country of origin of the imported steel. The Part

102 rules are consistent with the court's application of the

substantial transformation principle in this case: the specific

Sec. 102.20 tariff shift rule applicable to such goods provides for a

change to heading 7223 (wire) from any [[Page 22317]] other heading,

except from heading 7221 through 7222 (wire rod).

5. Generalized System of Preferences Cases

Although the Generalized System of Preferences (GSP) statute

currently requires that the imported article must be product of a

designated beneficiary developing country (BDC) in order to be eligible

for GSP duty-free treatment, all of the court decisions to date

involved Customs entries pre-dating that statutory provision and thus

focused only on the GSP statutory preference standard that 35 percent

of the value consist of materials the product of a BDC plus direct

costs of processing performed in the BDC. These cases remain relevant

as examples of substantial transformation analysis to the extent that

the question addressed by the court did not involve the origin of the

final product exported from the BDC but rather involved whether a

material imported into the BDC was substantially transformed into a new

and different intermediate article of commerce in the BDC before being

used to make the good exported from the BDC, so that its value could be

counted toward the 35 percent requirement. Although the court in each

of the cases discussed below did not specifically address the issue of

the origin of the final article exported to the United States, it

appears both that all of the involved goods as exported to the United

States were products of the BDC and that the same conclusion would be

reached under the Part 102 rules.

Texas Instruments v. U.S., 681 F.2d 778 (CCPA 1982). The court held

that silicon chips, wire and lead strips, which were imported into a

BDC where they were assembled into integrated circuits and photodiodes,

and where the chips had first to be severed from silicon slices prior

to the assembly process, were substantially transformed into

``materials produced in the BDC'' which were then used in the

production of electronic camera parts exported to the United States.

Azteca Milling Co. v. U.S., 703 F.Supp. 949 (CIT 1988), and F.F.

Zuniga Refractarios Monterrey, 996 F.2d 1203 (CAFC 1992). These GSP

cases involved the issue of whether there existed a new and different

article of commerce versus ``materials in process advancing toward the

finished product''. In Azteca Milling which involved corn flour

imported into the United States, the court found that the production of

corn flour nixtamal and masa from imported corn did not result in a

substantial transformation into new and different articles of commerce,

since the nixtamal and masa were ``clearly recognizable as processed

corn.'' Similarly, the court in Zuniga found that the production of a

casting slip for kiln furniture from imported dry materials did not

result in a substantial transformation into new and different articles

of commerce since the casting slip was only a ``transitional stage of a

material in process, advancing toward the finished product'', the kiln

furniture. The casting slip, like the nixtamal and masa in Azteca, was

not found by the court to be ``readily susceptible of trade''.

Torrington v. United States, 764 F.2d 1563 (CAFC 1985). The court

held that the production of swage needle blanks from imported wire and

the further production of sewing machine needles from swage blanks

represented a double substantial transformation of the imported wire.

The Part 102 rules support the trial court's first finding of a

substantial transformation--the transformation of wire into unfinished

sewing machine needles--but not the second finding regarding the

transformation from unfinished to finished needles. The appellate

court's decision upholding the second substantial transformation found

by the trial court was based on a rare citation of the producer good-

consumer good standard of Midwood, which the courts have not favored.

Moreover, the court's decision appears to have been influenced heavily

by its desire to effectuate what it believed to be the intent of

Congress. In sustaining the trial court's finding of double substantial

transformation, the court noted the Congressional intent behind the GSP

statute, which was to foster industrialization of BDCs, and focused on

the ``actual manufacturing process by which the intermediate article

becomes the final product''. In this regard, the court concluded that

in light of the significant manufacturing process, there was not a

``mere pass-through'' operation in the BDC.

6. Textile Cases

The court decisions involving substantial transformation of

textiles and textile products were superseded by the rules of origin

established under Sec. 12.130 of the Customs Regulations (19 CFR

12.130) for textiles and textile products subject to the U.S. textile

import program. The authority to promulgate these rules was upheld by

the court in Mast Industries v. Regan, 596 F.Supp. 1597 (CIT 1984). In

that case, the court found that the promulgation of Sec. 12.130, which

was at the direction of the President and which set forth rules for the

determination of country of origin for textiles and textile products

subject to import quotas, was fully in accordance with law. See also

Target Sportswear, Inc. v. United States, supra. This document

republishes the January 3, 1994, proposals to delete paragraphs (d) and

(e) from Sec. 12.130 and to amend paragraph (b) thereof to cross-refer

to the Part 102 rules as Customs in T.D. 90-17 made those Sec. 12.130

rules generally applicable for textiles and textile products. Thus, the

Part 102 rules track the principles of, as well as the origin results

that would be reached under, Sec. 12.130 in the case of textiles and

textile products.

Proposed Changes to the Interim and Proposed Texts and Proposed Delayed

Effective Date

A. Proposed Amendments to the Interim Rules

1. Part 102 General Origin Criteria

Section 102.11--General Rules

It is proposed to revise paragraph (d) of interim Sec. 102.11 in

part to simplify the text but principally in order to ensure that

paragraph (d) will provide for an origin determination in all cases in

which origin cannot be determined under paragraph (a), (b) or (c).

Customs notes that the interim paragraph (d) text in some cases will

not effectuate an origin determination when the good in question last

undergoes production in a country where only minor processing was

performed with respect to that good. For example, various furniture

parts classifiable under subheading 9403.90, HTSUS, enter Country A

from various countries; in Country A, the parts are collected and

packaged into unassembled boxes of desks and tables classifiable under

subheading 9403.30, HTSUS, pursuant to GRI 2(a) which are then shipped

to Country B. The interim Sec. 102.20 tariff shift rule for goods

classified in subheading 9403.30 provides for ``a change to subheading

9403.10 thorugh 9403.80 from any subheading outside that group, except

from subheading 9401.10 through 9401.80, and except a change from

subheading 9401.90 or 9403.90 when that change is pursuant to GRI

2(a).'' In the stated example this tariff shift rule will not be met

because the change in classification indeed does occur as a result of

classification of the collection of furniture parts as the unassembled

desks and tables pursuant to GRI 2(a); thus, origin cannot be

determined under interim Sec. 102.11(a)(3). If no single component can

be found to impart the essential character to the desks and tables,

then origin of the goods also cannot be determined under interim

Sec. 102.11 (b). Moreover, since the desks [[Page 22318]] and tables

are not classified as sets, mixtures or composite goods under the

HTSUS, origin cannot be determined under interim Sec. 102.11(c).

Finally, since the parts came into Country A from various countries and

only minor processing (packaging) was performed in Country A to make

the goods, the origin of the goods cannot be determined under interim

Sec. 102.11(d)(1) or (2). Thus, no determination of origin can be

achieved under the interim texts with regard to the good described in

this example.

In order to address the problem outlined above, the proposed

revision of paragraph (d) as set forth below incorporates the following

three subparagraphs: subparagraph (1) covers a good produced only as a

result of minor processing and provides in such a case that the country

of origin of the good is the country or countries of origin of each

single material that merits equal consideration for determining the

essential character of the good; subparagraph (2) covers a good

produced by simple assembly, where the assembled parts that merit equal

consideration for determining the essential character of the good are

from the same country, and provides in such a case that the country of

origin of the good is the country of origin of those parts; and

subparagraph (3) covers cases in which the country of origin of a good

cannot be determined under paragraph (d)(1) or (d)(2) and provides that

in such cases the country of origin of the good is the last country in

which the good underwent production.

Removal of Sec. 102.14--Goods Returned

Based on comments received and as a result of further internal

review, Customs has reconsidered the position stated in T.D. 94-4 that

U.S. Note 2(a), Subchapter II, Chapter 98, HTSUS, has application for

general country of origin purposes. In light of this change in

position, it is proposed to remove this section (see also the proposed

revision of interim Sec. 102.19 discussed below).

Removal of Sec. 102.16--Good and its Parts; Parts of Parts

It is proposed to remove interim Sec. 102.16 which sets forth

special origin rules where, for any of several specified reasons, a

part of a good or a part of a part does not undergo an applicable

change in tariff classification provided for in Sec. 102.20. The

experience of Customs in administering the interim NAFTA Marking Rules

has shown that the hierarchical application of Secs. 102.11 (b) through

(d), coupled with the proposed change to Sec. 102.11(d) discussed

above, yield an appropriate origin result that codifies the substantial

transformation principle. Accordingly, Customs no longer believes that

Sec. 102.16 is necessary.

Section 102.17--Non-qualifying Operations

It is proposed to revise the introductory text of interim

Sec. 102.17 to clarify the intent that the section applies whenever the

change in tariff classification or other condition specified in

Sec. 102.20 was met only as a result of one or more of the listed non-

qualifying operations having been performed with respect to the good.

In addition, it is proposed to revise paragraph (e) of interim

Sec. 102.17 which specifies, as a ``non-qualifying operation'' for

purposes of section 102.20, any process or work the sole object of

which is demonstrated by a preponderance of evidence to be the

circumvention of the Part 102 rules. Upon reconsideration of this

provision, it is Customs view that this provision is not administrable

since the text does not make clear how it is possible for a person to

``circumvent'' these rules. First, if the Sec. 102.20 rule or any other

Part 102 rule does not preclude a specific operation from being the

means by which a foreign material satisfies a Sec. 102.20 rule, any

operation is deemed allowable under Part 102. Second, if a Part 102

rule specifically precludes a type of operation (for example, ``simple

assembly'' or ``dismantling or disassembly'') and it was only as a

result of such an operation that the change in tariff classification

requirement or other conditions specified for the foreign material

under the Sec. 102.20 rule were met, the Sec. 102.20 rule is simply not

deemed to have been satisfied. In either case, there could not have

been a ``circumvention'' of the rules as a result of the operation,

since either the Part 102 rules permitted the operation or, as a result

of the operation, the Part 102 rules were not satisfied.

Nevertheless, to further protect against circumstances which may

appear to be a ``circumvention'' of the spirit or intent of the Part

102 rules, Customs proposes to redraft paragraph (e) of Sec. 102.17 to

specify, as an additional ``non-qualifying operation'', collecting

parts that, as such, are classifiable in the same tariff provision as

an assembled good pursuant to General Rule of Interpretation (GRI)

2(a), without any additional operation other than minor processing.

Thus, no specified change in tariff classification will be deemed to

have occurred if such change resulted solely from the act of collecting

parts which are then classified under the tariff provision applicable

to the assembled good. If, on the other hand, in addition to the

collecting of parts, processing constituting more than minor processing

also occurred in the country in question, this rule would be

inapplicable.

Section 102.18--Rules of Interpretation

It is proposed to revise paragraph (a) of interim Sec. 102.18 in

order to: (1) Simplify, and thus clarify the application of, the

introductory text; (2) remove subparagraph (a)(1)(i) which refers to

the collection of parts classified as an assembled good and thus would

become redundant because it would be encompassed within the broader

terms of proposed new Sec. 102.17(e) as discussed above (which would

apply to all tariff shift rules rather than to only those rules that

specifically cite classification under GRI 2(a) as a basis for not

allowing a specified change in tariff classification); (3) remove

paragraph (a)(2) which would no longer be needed in view of the

proposed removal of paragraph (a)(1)(i) from this section; and (4)

simplify the remaining portion of paragraph (a) (subparagraph

(a)(1)(ii) in the interim text) and remove therefrom the unnecessary

reference to ``a subassembly''.

In addition, it is proposed to revise paragraph (b) of interim

Sec. 102.18 in order to effect the following changes: (1) The removal

of the undefined parenthetical reference to ``self-produced materials''

in interim subparagraph (b)(2); (2) the reversal of the order of

interim subparagraphs (b)(1) and (b)(2); (3) in newly designated

subparagraph (b)(1), the addition of new subparagraphs (b)(1)(i) and

(b)(1)(ii) to clarify and illustrate, by way of a statement and an

example in each case, the intended operation of the subparagraph (b)(1)

rule; and (4) the simplification, and thus clarification, of the

paragraph (b) text.

Section 102.19--NAFTA Preference Override

It is proposed to make some editorial modifications to the text of

interim Sec. 102.19, to designate that text as paragraph (a), and to

add a new paragraph (b). New paragraph (b) is intended to facilitate

the application of the appropriate NAFTA preferential duty rate under

General Note 12(a), HTSUS, in the case of originating goods the origin

of which is determined to be the United States under the Part 102

provisions. It should be noted that the term ``Customs duty'' used in

this new paragraph (b) is intended to include merchandise processing

fees which are treated as Customs duties under

[[Page 22319]] Sec. 24.23(e) of the Customs Regulations (19 CFR

24.23(e)).

2. Section 102.20 Specific Rules

Customs proposes to make a number of amendments to the tariff shift

rules and other requirements set forth in interim Sec. 102.20. These

proposed amendments, and the reasons therefor, are summarized below

with reference to the HTSUS provisions and general types of goods

involved.

Elimination of the Specific Rules Referring to ``Substantial

Transformation''

Customs proposes to amend the tariff shift rules for headings/

subheadings 1901.90, 2103.90, 4823.20 through 4823.59, 4823.70 through

4823.90, 6811.90, 6812.90, 6814.90, 7010 through 7018, 7019.90, 7020,

8708.99, 9110, 9401.90, 9403.90, and 9606.21 through 9606.29, by

eliminating in each case the rule which permits a specified change ``if

that change results in a substantial transformation.'' In administering

the interim Part 102 rules Customs has determined that these specific

statements in the rules are redundant and do not need to be included in

Sec. 102.20 in order to codify the substantial transformation

principle. As a result of this proposal and the proposed removal of

Sec. 102.16 discussed above, the term ``substantial transformation''

would no longer appear in the Part 102 texts; accordingly, it is also

proposed to remove the definition of ``substantial transformation'' in

interim Sec. 102.1(p).

Section II Note

It is proposed to amend the Note under Section II by adding the

words ``or from whole plants,'' after the words ``slips or other live

parts of plants,''. This proposed change is intended to clarify,

consistent with the definition of ``a good wholly obtained or

produced'' in interim Sec. 102.1(g), that when an agricultural product

is grown and harvested from a plant that was transplanted from another

country, the product has its origin in the country in which the product

was harvested.

Headings 0904-0910 (Spices)

It is proposed to delete the second tariff shift rule for headings

0904-0910, which provides for a change to crushed, ground, or powdered

products of heading 0904 through 0910 (principally spice products) from

within Chapter 9, if put up for retail sale. Customs is of the opinion

that processing raw spices to create crushed, ground or powdered

spices, whether or not accompanied by cleaning, merely changes the form

of the spice and does not result in any significant change in the name,

character or use of the product. This view is consistent with previous

Customs rulings which have held that the processing of raw cheese into

grated cheese packed for retail sale does not constitute a substantial

transformation.

Subheading 1517.90 (Vegetable Oils Consisting of Preparations and

Mixtures)

The interim rule requires a change from any other chapter. It is

proposed to amend this rule by adding a second tariff shift rule which

would allow a change from any other heading so long as the resulting

product contains no more than 60 percent by volume of a single oil

ingredient from a single country. This change would make the rule for

mixtures of different types of oils consistent with the rule for a

similar type of product, mixtures of different types of fruit juices

(heading 2009.90), and would incorporate the results reached under the

traditional application of the substantial transformation rule with

respect to such types of products.

Headings 4104-4107 (Leather)

Based both on a comment and on further review by Customs, it is

proposed to delete the second tariff shift rule which allows a change

to finished leather of heading 4104 through 4107 from wet blue hides or

leather. This proposed change reflects the following considerations:

(1) There is no established definition of the term ``finished leather''

and, in fact, the meaning of the term can vary according to the end use

of the goods; and (2) the processes necessary to change wet blues to

finished leather can vary and may not, in all cases, result in a change

in the country of origin, as reflected in rulings issued by Customs.

New Chapter 42 Note

It is proposed to add a Note to the Chapter 42 rules to ensure that

a single country of origin always will be identifiable in the case of

textile goods. This new Note is modeled on Note 3 to the Section XI

rules and thus also reflects the proposed amendment to that Note as

discussed below.

Headings 4810-4814 (Coated Paper)

Customs proposes to revise this interim tariff shift rule by

dividing it into separate rules for heading 4810, subheading 4811.10

through 4811.31, subheading 4811.39, subheading 4811.40 through

4811.90, and headings 4812 through 4814. Of these five proposed new

rules, only the proposed rule for subheading 4811.39 would constitute a

substantive change from the current interim rule for headings 4810

through 4814. The proposed rule for subheading 4811.39 would disallow a

change from paper of heading 4804 to paper that is only ``coated,

impregnated or covered with plastics''. This is consistent with Customs

rulings which generally have held that laminating, coating or

encapsulating does not result in a substantial transformation.

Subheadings 4823.70-4823.90 (Other Paper, Paperboard, etc. Products)

It is proposed to amend the tariff shift rule which would remain

(if the ``substantial transformation'' rule is eliminated as proposed

above) to specify a change ``from any other subheading, including

another subheading within that group'' rather than a change ``from any

other chapter''. This amendment would result in a more liberal rule

which reflects the conclusions reached by Customs under the traditional

approach.

Section XI (Textiles)

The proposed amendments to the interim Sec. 102.20 specific rules

applicable to textiles as discussed below are intended to conform the

rules in question to the practice of, and positions taken by, Customs

in the case-by-case administration of Sec. 12.130 of the Customs

Regulations (19 CFR 12.130):

a. Note (1)d

In response to a comment, it is proposed to replace the word

``body'' by the words ``major parts'' and to delete the words

``together with its sleeves and/or legs'', in order to preclude

interpretation of this Note as not applying to garments that have

padding in the body and linings in the sleeves.

b. New Note (1)f

It is proposed to add a new Note (1)f to clarify the meaning of

``minor embellishments'' (see the proposed amendment to the specific

rules applicable to goods of headings 6302 and 6304 as discussed

below).

c. Note 3

It is proposed to amend Note 3 by adding a sentence at the end to

cover a case where more than one component determines classification or

where the component that determines classification is attributable to

more than one country. This new sentence provides that in such cases

the country of origin shall be the last country in which the good

underwent production other than minor processing. Customs believes that

this amendment is [[Page 22320]] necessary for purposes of

administration of the U.S. textile import program which makes no

provision for multiple countries of origin.

d. Heading 5105 (Wool Tops)

It is proposed to add a second tariff shift rule for headings 5101-

5105 in order to reflect the Customs position that the processing of

greasy wool into combed wool is a substantial transformation.

e. Heading 5609 (Articles of Yarn)

It is proposed to amend the tariff shift rule for heading 5609 to

include, in the exception language, a reference covering headings 5604

and 5605 which include different types of yarns. This proposed change

would reflect the Customs view that the assembly or other processing of

such yarns into articles classifiable in heading 5609 does not

constitute a substantial transformation.

f. Heading 5804 (Net Fabrics)

Customs has determined that, under certain circumstances, it is

commercially feasible to convert made up nets of heading 5608 to

netting of subheading 5804.10 by simple cutting, and Customs does not

believe that such a tariff shift should confer origin. Accordingly, it

is proposed to divide the interim heading 5804 tariff shift rules into

two sets of rules, one for subheading 5804.10 and the other for the

remainder of the heading, in order to add in the case of subheading

5804.10 an exception involving a change to that subheading from heading

5608.

g. Subheadings 5806.10-5806.39 (Narrow Fabrics)

It is proposed to amend the first tariff shift rule for subheadings

5806.10-5806.39 by adding heading 5801 to the listed exceptions.

Heading 5801 provides for woven pile and chenille fabrics, and it is

the position of Customs that the processing of those fabrics into goods

classifiable in subheadings 5806.10-5806.39 does not constitute a

substantial transformation.

h. Heading 5810 (Embroidered Fabric)

In response to several similar comments, it is proposed to

rearrange, and revise the wording of, the two tariff shift rules for

goods of this heading in order to conform to prior rulings regarding

the weight and effect of the embroidery.

i. Heading 5903 (Coated Fabrics)

It is proposed to amend the first tariff shift rule for this

heading by replacing the exclusion reference to subheadings ``5806.31

through 5806.39'' by a reference to heading ``5806''. This will have

the principal effect of widening the reference to include woven pile

fabrics which were inadvertently omitted from the exclusion language in

this tariff shift rule.

j. Headings 6101, 6102, 6201 and 6202 (Assembled Garments)

In response to a comment, it is proposed to amend the third tariff

shift rule for each of these headings in order to conform the wording

to that used in other Sec. 102.20 rules which specify a change ``to

assembled garments from unassembled parts''.

k. Subheadings 6103.21-6103.29, 6104.21-6104.29, 6203.21-6203.29 and

6204-21-6204.29 (Ensembles)

In response to a comment, it is proposed to add to each of these

subheadings two new tariff shift rules in order to make the rules for

suits (see, for example, the interim rules for subheadings 6103.11-

6103.19) applicable to sets of garments (ensembles) that are

essentially the same as suits.

l. Headings 6115-6117 and 6213-6214 (Shawls, Scarves, and the Like and

Handkerchiefs)

In response to a comment, it is proposed to divide the interim

tariff shift rule for headings 6115-6117 in order to set forth a

separate rule for subheading 6117.10 which would allow a change from

greige fabric to shawls, scarves, etc. by means of dyeing, printing,

cutting and stitching. The proposed separate rules set forth in this

document for headings 6115-6116 and for subheadings 6117.20-6117.90

reflect the terms of the interim rule.

In response to the same commenter, it is proposed to amend the

interim rule for headings 6213-6214: (1) to remove the knit-to-shape

proviso which does not appear to be appropriate for the type of goods

covered; and (2) to add a second tariff shift rule for the same reason

stated above for subheading 6117.10.

m. Heading 6205 (Shirts)

In response to a comment, it is proposed to delete the word

``shoulder'' before ``yokes'' in the second and third tariff shift

rules because (1) yokes on shirts by definition are only in the

shoulder area and (2) this would conform the wording to the terminology

used in the rules under headings 6105, 6106 and 6206.

n. Headings 6302 and 6304 (Bed Linen and Other Furnishings)

In response to a comment, it is proposed for each of these headings

to add a second tariff shift rule to the interim paragraph (1) rule to

reflect current Customs rulings. The proviso in each new rule, which

requires at least cutting ``finished fabric'' on all sides and hemming

``all cut edges'' and ``at least one other subsequent process'',

clarifies the fact that fabric finishing operations are not considered

and eliminates any uncertainty regarding the minimum amount of hemming

that must be performed. The present view of Customs is that such minor

embellishments should not be considered.

o. Heading 6303 (Curtains, Blinds and Valences)

In the second tariff shift rule, it is proposed to amend the

proviso as follows: (1) to require ``more than'' (rather than ``at

least'') cutting on all sides ``and'' hemming the cut edges; (2) by

removing the requirement for ``a significant sewing or assembly

operation''; and (3) by adding at the end the words ``and with no

consideration being given to minor processing''. Customs believes that

the ``minor processing'' standard, which is defined in Sec. 102.1(m),

is preferable to the undefined ``significant'' standard; thus,

processing which is other than ``minor'' should, by definition, be

considered significant.

In addition, it is proposed to amend the third tariff shift rule by

adding a reference to heading 5811 so as to include quilted fabrics in

the listed exceptions since a good may contain a small amount of

quilted fabric without being considered a ``quilted article''.

p. Subheadings 6306.91-6306.99 (Awnings, Sunblinds and Camping Goods)

It is proposed to amend this tariff shift rule by adding language

at the end of the proviso to clarify that minor processing may not be

considered in determining whether the proviso conditions have been met.

q. Subheading 6307.90 (Made up Articles)

Customs believes that the interim tariff shift rule should be

amended to prescribe that the sewing or assembly operation be

``substantial'' in amount rather than simply ``significant''. While

this proposed amendment appears to be minor and does not materially

alleviate the subjectivity of the rule, Customs notes that it: (1)

effectively changes the test for manufacturing or processing

[[Page 22321]] operations from a qualitative standard to a quantitative

standard, which is how Customs has been applying Sec. 12.130; and (2)

conforms the terminology used in the rule to the wording of

Sec. 12.130.

New Chapter 65 Note

It is proposed to add a Note to the Chapter 65 rules to ensure that

a single country of origin always will be identifiable in the case of

textile goods. As in the case of the new Note proposed for the Chapter

42 rules as discussed above, this new Note is modeled on Note 3 to the

Section XI rules and thus reflects the proposed amendment to that

Section XI Note as discussed above.

Headings 7010-7018 (Glass Articles)

With particular regard to lead crystal stemware of heading 7013, a

commenter argued that the interim rules for headings 7010-7018

represent an abandonment of existing principles used for determining

country of origin and such action would significantly harm its client's

business. This commenter cited, as an example of an existing principle,

Headquarters Ruling Letter (HRL) 734387 dated June 8, 1992, in which

Customs held that the processing in Ireland of uncut lead crystal

stemware ``blanks'' originating in various continental European

countries ``substantially transformed'' the ``blanks'' into ``formal

crystal stemware'', thus making Ireland the country of origin of the

finished product.

Customs on a number of occasions has previously ruled on the

question of whether extensive and intricate cutting of crystal

constituted a substantial transformation. In HRL 734387 mentioned by

the commenter, Customs ruled that crystal glassware ``blanks'' were

substantially transformed into formal, elegant stemware suitable for

indoor decoration by the extensive hand-cutting operations performed in

Ireland. Customs based this determination on the fact that the hand-

cutting operation was a substantial and intricate processing operation

performed by highly skilled craftsmen which significantly changed the

appearance and the shape of the stemware, imparting a decorative use to

the glassware. Customs also noted that the glassware lost its identity

as mere glassware and became a new article bought primarily for its

appearance rather than for its utilitarian use. Similarly, in HRL

734283 dated June 16, 1992, Customs found that a crystal blank bowl,

vase and basket were substantially transformed as a result of extensive

and intricate hand-cutting done in Ireland. In another ruling, HRL

734653 dated October 22, 1992, Customs found that crystal blank bowls,

which were hand-cut in the United States, were substantially

transformed by the extensive operations performed there.

Most recently, Customs held in HRL 735310 dated April 6, 1994, that

hand-cutting and acid polishing crystal stemware blanks in the United

States resulted in a substantial transformation of the blanks. Customs

found in this case that the hand-cutting and polishing operations were

extensive and intricate and were performed entirely in a single

country, the United States.

The foregoing cases are to be distinguished from HRL 731617 dated

September 1, 1989, in which Customs held that the grinding and

polishing of aluminum trays and bowls in Mexico did not substantially

transform the articles. Customs held that neither the grinding nor the

polishing changed the fundamental character or use of the articles.

Rather, Customs concluded that it was the constituent material,

aluminum alloy, coupled with the shape and design of the articles

created by the U.S. sandcasting process, that imparted the essential

character to the finished articles and determined their ultimate use.

Customs, however, also concluded that in certain cases the

operation of cutting stemware did not result in a substantial

transformation. One such case was HRL 733036 dated April 9, 1990, in

which Customs found that there was no change in name, character or use

caused by the simple hand cuts made to the glass in East Germany which,

although attractive, did not increase the value of the stemware.

The case-by-case application of the substantial transformation

standard in this area has been very controversial over the years.

Therefore, in order to allow the results that would be achieved under

the case-by-case approach while promoting objectivity and

predictability of origin determinations involving these articles,

Customs is proposing in this document to amend the interim rules

prescribed for headings 7010-7018 to include a new rule that specifies

a change from uncut and unpolished glassware blanks of heading 7013 to

cut and polished glassware of that heading, provided that there has

been a substantial amount of both cutting and polishing operations in a

single country. As an example, Customs would consider the goods covered

by HRL 735310, discussed above, as meeting this proposed new standard.

Also, upon further review of these rules, Customs has discovered

that the specific rule applicable to goods classified in heading 7011,

which covers glass envelopes and parts thereof for electrical lamps,

cathode-ray tubes or similar items, does not reflect Customs position

regarding substantial transformation. This rule allows changes from

glass profiles, classified in subheading 7003.30. In HRL 557387 dated

October 1, 1993, Customs ruled that glass face plates for cathode ray

tubes, classified in subheading 7011.20, which were produced in Mexico

from Korean-origin glass profiles classified in subheading 7003.30, had

not been substantially transformed into a product of Mexico. Customs

concluded that ``the essential form, shape and character of the glass

product [the face plates] were determined by the manufacturing

operation in Korea'' for the production of the profiles. Since Customs

continues to maintain the position stated in HRL 557387, it is proposed

to modify the interim Sec. 102.20 specific rules to disallow a change

to heading 7011 from subheading 7003.30.

Finally, Customs has reconsidered the necessity for that provision

contained in the interim rules for headings 7010 through 7018 which

precludes a tariff shift from heading 7020. Customs believes that in

order for such a change in tariff classification to occur, there would

have to be either (1) a genuine creation of a new and different article

having a new name, character or use, or (2) a tariff classification

change resulting solely from a non-qualifying operation, such as a

``change in end use'' or ``dismantling or disassembly'', which pursuant

to Sec. 102.17 would not confer origin. Since the Part 102 rules

already accomplish the purpose behind the limitation regarding a shift

from heading 7020, it is proposed to remove that limitation. In

addition, it is proposed to modify the interim rules to specifically

allow a change from another heading within the group, because the same

principles would apply in such a case.

Accordingly, in order to reflect the above considerations, it is

proposed to replace the interim rules for headings 7010-7018 with a new

structure involving one rule for heading 7010, one rule for heading

7011, and two rules for headings 7012-7018.

Subheadings 8301.10-8301.50 (Padlocks, Locks, Clasps and Frames)

It is proposed to amend the tariff shift rule for these subheadings

in order to rectify the incorrect reference ``8301.40'' which should

read ``8301.50'' so as to correspond to the subheadings covered in the

``HTSUS'' column. [[Page 22322]]

Section XVI--Note

This note, which disallows tariff changes within Chapters 84 and 85

occurring only as a result of the application of GRI 2(a), would no

longer appear necessary since the proposed amendment to interim

Sec. 102.17(e), as discussed above, would accomplish the same purpose.

Accordingly, it is proposed to delete this note.

Subheading 8401.20 (Machinery and Apparatus for Isotopic Separation)

It is proposed to modify the text of the interim tariff shift rule,

and to add a second tariff shift rule, in order to clarify that no

change is allowed from parts of subheading 8401.20 to parts of the same

subheading. Thus, under the proposed new standard for subheading

8401.20, a change from parts of subheading 8401.20 is allowed only if

the change is to completed machinery and apparatus of that subheading.

Subheading 8415.90 (Parts of Air Conditioning Machines)

The interim rule allows a change to this subheading ``from any

other heading, except a change resulting from a simple assembly.'' It

is proposed to revise this rule to allow a change to this subheading

``from any other subheading, except when the change is from heading

7411, 7608, 8414, 8501, and 8535 through 8537 as a result of merely a

simple assembly.'' Under this proposed change, the simple assembly

limitation is specified only with reference to headings from which a

tariff shift could possibly result merely from a simple assembly as

defined in Sec. 102.1(o).

Subheadings 8470.10-8471.91 (Calculating, Accounting and ADP Machines)

The interim rule allows a change to these subheadings ``from any

other subheading, except when resulting from a simple assembly.'' It is

proposed to revise this rule to allow a change to these subheadings

either ``from any subheading outside that group, except from heading

8473'' or ``from any subheading within that group or from heading 8473,

provided the change is not the result of merely a simple assembly.''

Under this proposed change, the simple assembly limitation is specified

only with reference to that heading from which a tariff shift could

possibly result merely from a simple assembly as defined in

Sec. 102.1(o). Thus, under the proposed rule, changes would be allowed

to subheading 8470.10 through 8471.91 from any subheading outside that

group, except heading 8473.

Subheadings 8471.92-8472.90 (Other Machines for Transcribing or

Processing Coded Data and Other Office Machines)

The interim rule allows a change to these subheadings ``from any

other subheading, except when resulting from a simple assembly.'' It is

proposed to revise this rule in the same manner, and for the same

reasons, as stated above for subheadings 8470.10-8471.91.

Heading 8473 (Parts and Accessories of Machines of Headings 8469-8472)

The interim tariff shift rule provides for a change to this heading

``from any other heading, except heading 8501, when resulting from a

simple assembly.'' Upon a further review, Customs has identified other

provisions from which a change to heading 8473 could possibly result

merely from a simple assembly as defined in Sec. 102.1(o). Therefore,

it is proposed to revise this rule to allow a change to this heading

``from any other heading, except when the change is from heading 8414,

8501, 8504, 8534, 8541, or 8542 as a result of merely a simple

assembly.''

Subheadings 8474.10-8474.80 (Machinery for Sorting, Grinding, etc.)

The interim rule allows a change to these subheadings ``from any

other subheading, except when resulting from a simple assembly.'' It is

proposed to revise this rule to allow a change to these subheadings

either ``from any subheading outside that group, except heading 8501''

or ``from a subheading within that group or heading 8501, provided the

change is not the result of a simple assembly.'' Under this proposed

change the simple assembly limitation is specified only with reference

to those tariff provisions from which a tariff shift could possibly

result merely from a simple assembly as defined in Sec. 102.1(o), in

consideration of the fact that the machinery in this group is very

similar and frequently consists of little more than a motor with some

form of attachment.

Subheadings 8482.10-8482.80 (Bearings)

A commenter cited HRL 083455 dated September 6, 1989, which held

that the assembly of a tapered roller bearing was a simple assembly

that did not result in a substantial transformation; therefore, the

country of origin was held to be Romania where the cup and cone were

manufactured. This commenter noted that although the second tariff

shift rule under subheadings 8482.10-8482.80 is not a total departure

from this ruling since the rule provides for bearings with domestic

inner and outer races, nevertheless, this tariff shift rule is

inconsistent with the ruling insofar as it allows for assemblies of

parts which incorporate only domestic balls/rollers. Another commenter

asserted that the rollers or balls represent a small percentage of the

value (5 to 10 percent of the cost of production) and cited a finding

by the Commission of the European Communities that the process or

operations which result in the manufacture of balls or rollers or

needle bearings and cages are of minor importance compared with the

manufacture of the inner and outer rings and may be disregarded for the

purposes of defining the origin of roller bearings.

In light of both the imputed minimal value of the balls/rollers and

the fact that the above-cited ruling held that the cup and cone provide

the essential character of the bearing, it is proposed to amend the

second tariff shift rule for goods of subheadings 8482.10-8482.80 to

not allow origin to be based upon the country where the balls and

rollers are made.

Subheading 8512.40 (Windshield Wipers, Defrosters and Demisters)

The interim rule allows a change to this subheading ``from any

other subheading, except when resulting from a simple assembly.'' It is

proposed to revise this rule to allow a change to this subheading

``from any other subheading, except when the change is from subheading

8512.90 or heading 8501 as a result of a simple assembly.'' Under this

proposed change, the simple assembly limitation is specified only with

reference to those tariff provisions from which a tariff shift could

possibly result merely from a simple assembly as defined in

Sec. 102.1(o).

Subheadings 8517.10-8517.82 (Telephone and Telegraph Apparatus)

The interim rule allows a change to these subheadings ``from any

other subheading, including another subheading within that group,

except when resulting from a simple assembly.'' It is proposed to

revise this rule to allow a change to these subheadings either ``from

any subheading outside that group, except from subheading 8517.90'' or

``from subheading 8517.90, provided the change is not the result of a

simple assembly.'' Under this proposed change, the simple assembly

limitation is specified only with reference to that subheading from

which a tariff shift could possibly result merely from a simple

assembly as defined in Sec. 102.1(o). [[Page 22323]]

Subheadings 8528.10-8528.20 (Television Receivers)

The interim rule allows a change to these subheadings ``from any

other subheading, including another subheading within that group.''

Thus, the interim rule allows a change from television tubes. Customs

believes that the television tube may determine origin for some

television sets. Accordingly, it is proposed to add an exclusion for

television tubes (subheadings 8540.11 through 8540.12).

Subheadings 8531.10-8531.80 (Other Electric Sound or Visual Signaling

Apparatus)

The interim rule allows a change to these subheadings ``from any

other subheading, including another subheading within that group,

except when resulting from a simple assembly.'' It is proposed to

revise this rule to allow a change to these subheadings ``from any

other subheading, including another subheading within that group,

except when the change is from subheading 8531.90 as a result of a

simple assembly.'' Under this proposed change, the simple assembly

limitation is specified only with reference to that subheading from

which a tariff shift could possibly result merely from a simple

assembly as defined in Sec. 102.1(o).

Headings 8541-8542 (Semiconductor Devices and Integrated Circuits)

It is proposed to modify the second and third interim tariff shift

rules for these headings. The proposed change to the second rule would

clarify that, under this rule, a change from an unmounted chip, die or

wafer of heading 8541 or 8542 is allowed only if the change is to a

mounted chip, die or wafer of heading 8541 or 8542. With regard to the

third tariff shift rule, which refers to a change ``to any programmed

chips from any unprogrammed chips'', the proposed change is intended to

align the rule more closely with the court decision upon which the rule

was based (Data General Corporation v. United States, 4 CIT 182 (1982),

discussed above, in which the court specifically held that the

programming of PROMs is a substantial transformation).

Headings 9101-9107 (Clocks and Watches) and Headings 9108-9109

(Finished Clock and Watch Movements)

Under the interim Sec. 102.20 rule applicable to headings 9101-

9107, a change in classification to that group from any other heading,

except headings 9108-9110, will result in a country of origin change.

Headings 9108-9110 encompass complete and incomplete watch and clock

movements, assembled and unassembled. Under the interim Sec. 102.20

rule applicable to headings 9108-9109 (complete and assembled watch and

clock movements), a change to either of these headings from any other

heading, with the exception of heading 9110, will effect a country of

origin change. Heading 9110 includes: complete watch and clock

movements, unassembled or partly assembled (movement sets); incomplete

watch or clock or watch movements, assembled; and ``rough'' watch or

clock movements (sets of unassembled parts of the type described in

Additional U.S. Note 1(g)).

A commenter stated that since, under current international

practice, the movement will often originate in one country or in

several countries while assembly of the watch or clock may take place

in another country, country of origin will not be determined on the

basis of the interim Sec. 102.20 tariff shift rule applicable to

watches and clocks of headings 9101-9107. With respect to finished

movements of headings 9108-9109, this commenter was similarly of the

opinion that the specified interim Sec. 102.20 tariff shift rule will

frequently be inapplicable since parts of movements classified under

heading 9110 often originate in one country while the movement may be

assembled in a second country. This commenter argued that the interim

rules do not reflect commercial reality because substantial assembly

operations may take place in the country where the movement is

assembled.

It has been the longstanding position of Customs that the country

of origin of a watch or clock is the country of manufacture of the

watch or clock movement. The addition of the hands, dial, case, or

watchband add definition to the watch but do not change the character

or use of the watch or clock movement which is the ``guts'' of the time

piece. See, for example, HRL 735197 dated January 4, 1994. This Customs

position is based on the determination that the last substantial

transformation of a finished watch or clock is the assembly of the

movement. The interim Sec. 102.20 rule applicable to watches and clocks

(the rule for headings 9101-9107) was intended to track current

practice, and does so, with the exception noted below. The interim

Sec. 102.20 rule applicable to complete movements (the rule for

headings 9108-9109) also essentially followed present practice, with

the exception noted below, since incomplete or partial movements

encompassed by heading 9110 are the ``guts'' of the complete movement.

Customs notes, however, that heading 9110 also includes ``complete

watch or clock movements, unassembled'' and ``rough'' watch or clock

movements. Since under current practice Customs has repeatedly held

that the assembly of individual parts to create a movement (or other

similar good of heading 9110) results in a substantial transformation

(see, for example, HRL 733533 dated August 3, 1990), it is apparent

that the exception language in the interim Sec. 102.20 rules for

watches and clocks of headings 9101-9107 and for complete and assembled

movements of headings 9108-9109 does not reflect this practice.

Accordingly, it is proposed to amend the Sec. 102.20 rules for

clocks and watches and for complete and assembled movements by adding

in each case a second rule to allow changes from complete movements,

unassembled (movement sets), of subheadings 9110.11 or 9110.90, or from

rough movements of subheading 9110.19 or 9110.90.

Subheadings 9404.10-9404.30 and 9404.90 (Bedding and Similar

Furnishings)

It is proposed to replace the Sec. 102.20 listings for subheadings

9404.10-9404.30 and 9404.90 by the following: (1) subheadings 9404.10-

9404.29, the tariff shift rule for which would be in substance the same

as the interim rule prescribed for subheadings 9404.10-9404.30; and (2)

subheadings 9404.30-9404.90, the tariff shift rule for which would, in

the case of sleeping bags, comforters, pillows, and similar filled

articles, allow a change in the country of origin as a result of the

insertion of down and/or feathers but not as a result of the insertion

of other materials. In addition, it is proposed to add a Note to the

Chapter 94 rules which would set forth a country of origin rule for

goods of subheadings 9404.30 through 9404.90 which do not meet the

appropriate tariff shift rule specified for those subheadings.

3. Part 134

Section 134.32

In Sec. 134.32 of the Customs Regulations (19 CFR 134.32), it is

proposed to remove paragraph (r) (which was adopted in T.D. 94-4 in

order to add an exception to marking requirements in the case of non-

textile U.S. goods that are exported and returned after repairs or

alterations performed abroad). In light of the proposed removal of

interim Sec. 102.14 as discussed above, Customs believes that

[[Page 22324]] this paragraph would no longer be appropriate or

necessary.

Section 134.43

T.D. 94-4 amended Sec. 134.43 of the Customs Regulations (19 CFR

134.43) by adding a new paragraph (e) which prescribed specific methods

of marking goods covered by interim Sec. 102.14. In light of the

proposed removal of interim Sec. 102.14 as discussed above, Customs

proposes to remove this paragraph (e) which would no longer appear

necessary or appropriate.

B. Proposed Changes to the Proposed Regulatory Amendments

As stated above, the purpose of this document is also to republish

all of the proposed regulatory amendments contained in the January 3,

1994, notice of proposed rulemaking in order that certain changes

thereto may be proposed with opportunity for public comment thereon.

The changes to the January 3, 1994, proposals reflected in this

document are discussed below.

Elimination of Proposed Amendment to Sec. 4.80b

The January 3, 1994, notice of proposed rulemaking included a

proposal to amend Sec. 4.80b of the Customs Regulations (19 CFR 4.80b)

by adding at the end of paragraph (a) a sentence stating that the Part

102 rules apply for purposes of determining whether merchandise is

manufactured or processed into a new and different product. On further

review, Customs has determined that this proposed amendment should not

be made.

The Jones Act (46 U.S.C. App. 883), pursuant to which Sec. 4.80b is

promulgated, is designed to reserve the coastwise trade for qualified

U.S. vessels, a purpose which is not necessarily related to the origin

of the goods involved in such trade. Thus, the term ``new and different

product'' as used in Sec. 4.80b relates only to the criteria for

deeming merchandise not to have been ``transported coastwise'' for

purposes of the Jones Act. Customs has not interpreted the Sec. 4.80b

language to be synonymous with the term ``substantial transformation'',

that is, the requirement that an article be subjected to a processing

that results in a ``new and different article of commerce, having a new

name, character and/or use'' different from that which it originally

possessed. For example, pursuant to T.D. 91-32 and several rulings

issued in accordance with this T.D., Customs has established a practice

under Sec. 4.80b to determine, solely on the basis of whether there has

been a change in ASTM grade, whether a ``new and different product''

results from a fuel oil blending operation. Such a minimal change has

not been ruled sufficient in itself to effect a ``substantial

transformation''.

Accordingly, the proposed amendments set forth in this document do

not include a proposal to amend Sec. 4.80b.

Removal of Sec. 10.22

Section 10.22 of the Customs Regulations (19 CFR 10.22) provides

that for all assembled goods which are ``entitled to'' (whether or not

they are in fact the subject of a claim for) a duty allowance under

subheading 9802.00.80, HTSUS, the country of assembly is the country of

origin of such goods for marking purposes. Thus, Sec. 10.22 operates in

practice as an exception to the country of origin marking requirements

of Part 134 of the Customs Regulations.

Subheading 9802.00.80 duty treatment can be properly applied to

assembled goods having only a few U.S. components, with most of the

other components originating in countries other than either the United

States or the country of assembly. In such a case, the true country of

origin as determined under the Part 102 rules may be one of those other

foreign countries, whereas by application of Sec. 10.22 the country of

origin for marking purposes would be the country of assembly. Thus, if

the regulatory amendments set forth in the January 3, 1994, notice of

proposed rulemaking and republished in this document (the basic intent

of which is to result in uniform application of the rules of origin

contained in Part 102) are adopted as a final rule, retention of

Sec. 10.22 could lead to incorrect or inconsistent country of origin

determinations and country of origin marking. Accordingly, Customs

proposes in this document to remove Sec. 10.22.

Additional Amendment to Sec. 177.22(a)

The January 3, 1994, notice of proposed rulemaking included a

proposed amendment to Sec. 177.22(a) of the Customs Regulations (19 CFR

177.22(a)) which defines ``country of origin'' for purposes of

government procurement country of origin determinations. This proposed

amendment consisted of adding at the end thereof a sentence stating

that the expression ``wholly the growth, product, or manufacture''

refers to articles wholly obtained or produced within the meaning of

interim Sec. 102.1(g).

In response to a comment from the Office of General Counsel,

General Services Administration (GSA), Customs is proposing to revise

Sec. 177.22(a) in order to also make reference to use of the Part 102

rules for determining when there is a ``new and different article'' for

purposes of that section. This provision would be similar to the

proposals to amend Secs. 10.176 and 10.195 of the Customs Regulations

(19 CFR 10.176 and 10.195) as contained in the January 3, 1994, notice

of proposed rulemaking and as set forth below. Customs also notes that,

as stated to Customs by the GSA, this additional amendment will be

consistent with Article 1004 of the NAFTA which requires that, if the

parties apply the marking rules established pursuant to NAFTA Annex 311

in their normal course of trade (as Customs is proposing in this

document to apply the Part 102 rules), such rules will be applicable

for NAFTA government procurement purposes.

C. Final Rule Delayed Effective Date

In consideration of the fact that the regulatory amendments set

forth in the January 3, 1994, notice of proposed rulemaking, as

republished in this document with the changes discussed above, would

have the effect of making the Part 102 interim rules applicable for all

country of origin determinations under the Customs and related laws,

including for purposes of country of origin marking, Customs believes

that, in keeping with the principle enunciated in National Juice

Products Association v. United States, 10 CIT 48, 628 F.Supp. 978 (CIT

1986), it would be an appropriate exercise of administrative discretion

in this particular case to solicit comments from the public regarding a

proposed delayed effective date.

Although National Juice Products involved a change of Customs

position effected through an interpretive ruling rather than through

amendments to the Customs Regulations, and notwithstanding the fact

that the Part 102 rules merely codify Customs' existing position

regarding substantial transformation, Customs believes that the

circumstances cited by the Court to justify a delayed effective date in

that case would be no less applicable here.

Accordingly, it is proposed that, if Customs determines that the

proposed amendments set forth in the January 3, 1994, notice of

proposed rulemaking as republished in this document with the changes

discussed above, together with the interim regulations published as

T.D. 94-4 and the proposed changes thereto as set forth in this

document, should be adopted as a final rule with whatever changes as

may be necessary to address comments submitted by the

[[Page 22325]] public, the regulatory changes incorporated in the final

rule would become effective 90 days after the date of publication of

that final rule document in the Federal Register. Comments from the

public are invited on this proposal for a delayed effective date.

Comments

Before adopting the proposed amendments as a final rule,

consideration will be given to any written comments (preferably in

triplicate) timely submitted to Customs. Comments submitted will be

available for public inspection in accordance with the Freedom of

Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Department

Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs Regulations (19

CFR 103.11(b)), on regular business days between the hours of 9:00 a.m.

and 4:30 p.m. at the Regulations Branch, Office of Regulations and

Rulings, Franklin Court, 1099 14th Street, NW., Suite 4000, Washington,

DC.

Executive Order 12866

This document does not meet the criteria for a ``significant

regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that, if adopted, the proposed

amendments will not have a significant economic impact on a substantial

number of small entities. Accordingly, the proposed amendments are not

subject to the regulatory analysis or other requirements of 5 U.S.C.

603 and 604.

Drafting Information

The principal author of this document was Francis W. Foote, Office

of Regulations and Rulings, U.S. Customs Service. However, personnel

from other offices participated in its development.

List of Subjects

19 CFR Part 10

Customs duties and inspection, Imports, Reporting and recordkeeping

requirements.

19 CFR Part 12

Customs duties and inspection, Labeling, Marking, Reporting and

recordkeeping requirements, Textiles and textile products.

19 CFR Part 102

Customs duties and inspections, Imports, Reporting and

recordkeeping requirements, Rules of origin, Trade agreements.

19 CFR Part 134

Country of origin, Customs duties and inspections, Imports,

Labeling, Marking, Packaging and containers.

19 CFR Part 177

Administrative practice and procedures, Customs duties and

inspection, Imports, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

For the reasons stated above, it is proposed to amend Chapter I of

Title 19, Code of Federal Regulations (19 CFR Chapter I), as set forth

below.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,

ETC.

1. The general authority citation for part 10 and the specific

authority citations for Secs. 10.171-10.178 and Secs. 10.191-10.198

continue to read as follows, and the specific authority citation for

Sec. 10.22 is removed:

Authority: 19 U.S.C. 66, 1202 (General Note 17, Harmonized

Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508,

1623, 1624;

* * * * *

Sections 10.171-10.178 also issued under 19 U.S.C. 2461 et seq.;

Sections 10.191-10.198 also issued under 19 U.S.C. 2701 et seq.;

* * * * *

2. Section 10.12 is amended by revising the last sentence of

paragraph (e) to read as follows:

Sec. 10.12 Definitions.

* * * * *

(e) * * * If the article consists wholly or partially of foreign

components or materials, the manufacturing process must be such that

the foreign components or materials have been substantially transformed

as provided in Sec. 10.14(b).

3. Section 10.14 is amended by revising the text in paragraph (b)

preceding the examples to read as follows:

Sec. 10.14 Fabricated components subject to the exemption.

* * * * *

(b) Substantial transformation of foreign-made articles or

materials. Foreign-made articles or materials will become products of

the United States if they undergo a process of manufacture in the

United States which results in their substantial transformation.

Substantial transformation occurs when under part 102 of this chapter,

the country of origin of a good which is produced in the United States

from foreign materials is determined to be the United States.

* * * * *

4. Section 10.22 is removed.

5. Section 10.171 is amended by adding a new paragraph (c) to read

as follows:

Sec. 10.171 General.

* * * * *

(c) Wholly the growth, product, or manufacture defined. For

purposes of Secs. 10.171 through 10.178, the expression ``wholly the

growth, product, or manufacture'' refers to articles and materials

wholly obtained or produced within the meaning of Sec. 102.1(g) of this

chapter.

6. Section 10.176(a) is revised to read as follows:

Sec. 10.176 Country of origin criteria.

(a) Merchandise produced in a beneficiary developing country or any

two or more countries which are members of the same association of

countries. Any article which is wholly the growth, product, or

manufacture of a beneficiary developing country or of any two or more

countries that are members of the same association of countries or

which is a new or different article of commerce that has been grown,

produced, or manufactured in a beneficiary developing country, and

which is imported directly from such beneficiary developing country or

member countries, may qualify for duty-free entry under the Generalized

System of Preferences (GSP). However, duty-free entry under GSP may be

accorded only if the sum of the cost or value of the materials produced

in the beneficiary developing country or any two or more countries

which are members of the same association of countries that is treated

as one country under section 502(a)(3), Trade Act of 1974, as amended

(19 U.S.C. 2462(a)(3)), plus the direct costs of processing operations

performed in such beneficiary developing country or member countries,

is not less than 35 percent of the appraised value of the article at

the time of its entry into the customs territory of the United States.

For purposes of this section, a ``new and different article of

commerce'' exists when under part 102 of this chapter, the country of

origin of a good, which is produced in a beneficiary developing country

from foreign materials, is determined to be that beneficiary developing

country.

* * * * *

7. Section 10.191(b)(3) is revised to read as follows:

[[Page 22326]]

Sec. 10.191 General.

* * * * *

(b) Definitions.

* * * * *

(3) Wholly the growth, product, or manufacture. For purposes of

Sec. 10.191 through Sec. 10.198, the expression ``wholly the growth,

product, or manufacture'' refers to articles and materials wholly

obtained or produced within the meaning of Sec. 102.1(g) of this

chapter.

* * * * *

8. Section 10.195(a)(1) is amended by adding a sentence at the end

to read as follows:

Sec. 10.195 Country of origin criteria.

(a) Articles produced in a beneficiary country. (1) * * * For

purposes of this section, a ``new and different article of commerce''

exists when under part 102 of this chapter, the country of origin of a

good, which is produced in a beneficiary country from foreign

materials, is determined to be that beneficiary country.

* * * * *

PART 12--SPECIAL CLASSES OF MERCHANDISE

1. The authority citation for part 12 continues to read in part as

follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,

Harmonized Tariff Schedule of the United States (HTSUS)), 1624;

* * * * *

Sections 12.130 and 12.131 also issued under 7 U.S.C. 1854;

* * * * *

2. Section 12.130 is amended by removing paragraphs (d) and (e) and

redesignating paragraphs (f) through (i) as paragraphs (d) through (g),

and by revising paragraph (b) to read as follows:

Sec. 12.130 Textiles and textile products country of origin.

* * * * *

(b) Country of origin. For the purpose of this section and except

as provided in paragraph (c) of this section, a textile or textile

product, subject to section 204, Agricultural Act of 1956, as amended,

imported into the customs territory of the United States shall be a

product of a particular foreign territory or country, or insular

possession of the U.S., if it is wholly obtained or produced (as

defined in Sec. 102.1(g) of this chapter) in that foreign territory or

country, or insular possession. However, except as provided in

paragraph (c) of this section, a textile or textile product, subject to

section 204 of the Agricultural Act of 1956, as amended, which consists

of materials produced or derived from, or processed in, more than one

foreign territory or country, or insular possession of the U.S., shall

be a product of that foreign territory or country, or insular

possession, where it last underwent a substantial transformation. A

textile or textile product will be considered to have undergone a

substantial transformation when under part 102 of this chapter, the

country of origin of a good, which is produced in a country from

foreign materials, is determined to be that country.

* * * * *

PART 102--RULES OF ORIGIN

1. The authority citation for part 102 is revised to read as

follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1624, and the North American

Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat.

2057.

2. Section 102.0 is revised to read as follows:

Sec. 102.0 Scope.

This part sets forth rules for determining the country of origin of

imported goods for purposes of the Customs and related laws and the

navigation laws of the United States. The rules in this part regarding

goods wholly obtained or produced in a country are intended to apply

for all such purposes. The rules in this part which determine when a

good becomes a new and different article of commerce as a result of

manufacturing processes in a given country, also are intended to apply

for all purposes where this requirement exists for ``country of

origin'' or ``product of'' determinations under the Customs laws. The

rules in this part also will be applied by the United States for

determining when a good is a good of a North American Free-Trade

Agreement (NAFTA) country for the purposes specified under Annex 311 of

the NAFTA.

Sec. 102.1 [Amended]

3. In section 102.1, paragraph (p) is removed and paragraph (q) is

redesignated as paragraph (p).

4. Section 102.11(d) is revised to read as follows:

Sec. 102.11 General rules.

* * * * *

(d) Where the country of origin of a good cannot be determined

under paragraph (a), (b) or (c) of this section, the country of origin

of the good shall be determined as follows:

(1) If the good was produced only as a result of minor processing,

the country of origin of the good is the country or countries of origin

of each material that merits equal consideration for determining the

essential character of the good;

(2) If the good was produced by simple assembly and the assembled

parts that merit equal consideration for determining the essential

character of the good are from the same country, the country of origin

of the good is the country of origin of those parts; or

(3) If the country of origin of the good cannot be determined under

paragraph (d)(1) or (d)(2) of this section, the country of origin of

the good is the last country in which the good underwent production.

Sec. 102.14 [Removed]

5. Section 102.14 is removed and reserved.

Sec. 102.16 [Removed]

6. Section 102.16 is removed and reserved.

7. Section 102.17 is amended by revising the introductory text and

paragraph (e) to read as follows:

Sec. 102.17 Non-qualifying operations.

A foreign material shall not be considered to have undergone an

applicable change in tariff classification specified in Sec. 102.20 or

to have met any other applicable requirements of that section merely by

reason of one or more of the following:

* * * * *

(e) Collecting parts that, as collected, are classifiable in the

same tariff provision as an assembled good pursuant to General Rule of

Interpretation 2(a), without any additional operation other than minor

processing.

8. Section 102.18 is revised to read as follows:

Sec. 102.18 Rules of interpretation.

(a) When General Rule of Interpretation (GRI) 2(a) is referred to

in Sec. 102.20 as an exception to an allowed change in tariff

classification, this means that such change will not be acceptable for

purposes of that section if the change results from the assembly of

parts into an incomplete or unfinished good which is classifiable in

the same manner as a complete or finished good pursuant to GRI 2(a).

(b)(1) For purposes of identifying the material or materials that

impart the essential character of a good under Sec. 102.11, the only

materials that shall be taken into consideration are those domestic or

foreign materials that are classified in a tariff provision from which

a change in tariff classification is [[Page 22327]] not allowed under

the Sec. 102.20 specific rule or other requirements applicable to the

good. For purposes of this paragraph (b)(1):

(i) The materials that may be considered must be classified in a

tariff provision from which a change in tariff classification is not

allowed under the specific rule or other requirements applicable to the

good under consideration. For example, in the case of a good classified

in HTSUS subheading 8607.11 (the rule for which specifies a change to

subheading 8607.11 from any other subheading, except from subheading

8607.12, and except from subheading 8607.19 when that change is

pursuant to GRI 2(a)), the only materials that may be considered for

purposes of identifying the materials that impart the essential

character of the good are those that are classified in subheadings

8607.11, 8607.12 and, if the tariff shift is pursuant to GRI 2(a),

8607.19; and

(ii) Materials that may be considered include materials produced by

the producer of the good and incorporated in the good. For example, if

a producer of a good purchases raw materials and converts those raw

materials into a component that is incorporated in the good, that

component is a material that may be considered for purposes of

identifying the materials that impart the essential character of the

good, provided that the component is classified in a tariff provision

from which a change in tariff classification is not allowed under the

specific rule or other requirements applicable to the good.

(2) For purposes of determining which material or materials impart

the essential character of a good under Sec. 102.11, various factors

may be examined depending upon the type of good involved. These factors

include, but are not limited to, the following:

(i) The nature of each material, such as its bulk, quantity, weight

or value; and

(ii) The role of each material in relation to the use of the good.

9. Section 102.19 is revised to read as follows:

Sec. 102.19 NAFTA preference override.

(a) Except in the case of goods covered by paragraph (b) of this

section, if a good which is originating within the meaning of

Sec. 181.1(q) of this chapter is not determined under Sec. 102.11 (a)

or (b) to be a good of a single NAFTA country, the country of origin of

such good is the last NAFTA country in which that good underwent

production other than minor processing, provided that a Certificate of

Origin (see Sec. 181.11 of this chapter) has been completed and signed

for the good.

(b) If, under any other provision of this part, the country of

origin of a good which is originating within the meaning of

Sec. 181.1(q) of this chapter is determined to be the United States and

that good has been exported from, and returned to, the United States

after having been advanced in value or improved in condition in another

NAFTA country, the country of origin of such good for Customs duty

purposes is the last NAFTA country in which that good was advanced in

value or improved in condition before its return to the United States.

10. In Sec. 102.20, the table is amended by revising the Note and

removing the entry for HTSUS 09.04-09.10 under Section II, by adding a

Chapter 42 Note under Section VIII, by removing the entry for HTSUS

4810-4814 under Section X, by revising Note (1)d and adding a new Note

(1)f and revising Note (3) and removing the entry for HTSUS 5804 and

removing the entry for HTSUS 6115-6117 under Section XI, by adding a

Chapter 65 Note under Section XII, by removing the entry for HTSUS

7010-7018 under Section XIII, by removing the Note to Section XVI, by

adding a Chapter 94 Note and removing the entry for HTSUS 9404.10-

9404.30 and removing the entry for HTSUS 9404.90 under Section XX, and

by adding and revising the following HTSUS entries in numerical order

to read as follows:

Sec. 102.20 Specific rules by tariff classification.

* * * * *

HTSUS--Tariff Shift and/or Other Requirements

* * * * *

(b) Section II: Chapters 6 through 14.

Note: Notwithstanding the specific rules of this section, an

agricultural or horticultural good grown in the territory of a

country shall be treated as a good of that country even if grown

from seed or bulbs, root stock, cuttings, slips or other live parts

of plants, or from whole plants, imported from a foreign country.

* * * * *

0904-0910 A change to heading 0904 through 0910 from any other

chapter; or A change to subheading 0910.91 from any other subheading,

provided that a single spice ingredient of foreign origin constitutes

no more than 60 percent by weight of the good.

* * * * *

1517.90 A change to subheading 1517.90 from any other chapter; or A

change to subheading 1517.90 from any other heading provided that no

single oil ingredient of foreign origin constitutes more than 60

percent by volume of the good.

* * * * *

1901.90 A change to subheading 1901.90 from any other heading.

* * * * *

2103.90 A change to subheading 2103.90 from any other subheading.

* * * * *

4104-4107 A change to headings 4104 through 4107 from any other

heading, including another heading within that group.

* * * * *

Chapter 42 Note: For the purposes of Sec. 102.11(b) of the

General Rules, except for sets, where a textile good classifiable in

Chapter 42 does not meet the tariff shift and/or other requirements

of the heading or subheading under which it is classifiable, the

country of origin of that good shall be the country of origin of the

component which determines the classification of that good. However,

if more than one component determines classification or the

component that determines classification has its origin in more than

one country, the country of origin of the good shall be the last

country in which the good underwent production other than minor

processing.

* * * * *

4810 A change to heading 4810 from any other heading.

4811.10-4811.31 A change to subheading 4811.10 through 4811.31 from

any other heading.

4811.39 A change to subheading 4811.39 from any other heading, except

from heading 4804.

4811.40-4811.90 A change to subheading 4811.40 through 4811.90 from

any other heading.

4812-4814 A change to heading 4812 through 4814 from any other

heading, including a heading within that group.

* * * * *

4823.20-4823.59 A change to subheading 4823.20 through 4823.59 from

any other chapter.

* * * * *

4823.70-4823.90 A change to subheading 4823.70 through 4823.90 from

any other subheading, including another subheading within that group.

* * * * *

(k) Section XI: Chapters 50 through 63.

Notes: (1) * * *

d. The phrase ``fully lined, fully padded, or fully insulated'',

as used in chapters 61 and 62, means that the major parts of the

garment are entirely lined, padded, or insulated, but this does not

include waistbands less than fifteen centimeters wide, cuffs less

than ten centimeters wide, plackets, collars, shoulder straps, and

the like.

* * * * * [[Page 22328]]

f. The phrase ``minor embellishments'', as used in headings 6302

and 6304, refers to relatively insignificant methods used to enhance

the visual appeal of a good, e.g., piping, capping, small amounts of

embroidery.

* * * * *

(3) For the purposes of Sec. 102.11(b) of the General Rules,

except for sets, where a good classifiable in Chapter 61 through 63

does not meet the tariff shift and/or other requirements of the

heading or subheading under which it is classifiable, the country of

origin of that good shall be the single country where the component

which determines the classification of that good was cut or formed

(e.g. knit to shape). However, if more than one component determines

classification or the component that determines classification has

its origin in more than one country, the country of origin of the

good shall be the last country in which the good underwent

production other than minor processing.

* * * * *

5101-5105 A change to heading 5101 through 5105 from any other

chapter; or A change to combed wool of heading 5105 from greasy wool of

heading 5101.

* * * * *

5609 A change to heading 5609 from any other heading except from

heading 5004 through 5007, 5106 through 5113, 5204 through 5212, 5306

through 5311, 5401 through 5408, 5508 through 5516, and 5604 through

5607.

* * * * *

5804.10 A change to subheading 5804.10 from any other heading except

from heading 5608; or

A change from greige fabric of subheading 5804.10 to finished

fabric of that same subheading by dyeing and printing, plus two or more

of the following finishing operations--bleaching, shrinking, fulling,

napping, decating, permanent stiffening, weighting, permanent

embossing, or moireing.

5804.21-5804.30 A change to subheadings 5804.21 through 5804.30 from

any subheading outside that group; or

A change from greige fabric of subheadings 5804.21 through 5804.30

to finished fabric of those same subheadings by dyeing and printing,

plus two or more of the following finishing operations--bleaching,

shrinking, fulling, napping, decating, permanent stiffening, weighting,

permanent embossing, or moireing.

* * * * *

5806.10-5806.39 A change to subheading 5806.10 through 5806.39 from

any heading except from heading 5007, 5111 through 5113, 5208 through

5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, and

5801; or

A change from greige fabric of subheading 5806.10 through 5806.39

to finished fabric of those same subheadings by dyeing and printing,

plus two or more of the following finishing operations--bleaching,

shrinking, fulling, napping, decating, permanent stiffening, weighting,

permanent embossing, or moireing.

* * * * *

5810 A change of the ground fabric to heading 5810 from any other

chapter except heading 5007, 5111 through 5113, 5208 through 5212, 5309

through 5311, 5407 through 5408, 5512 through 5516, 5602, 5603, 5608,

5903, 5907, 6001, and 6002; or

Where the weight of the embroidery comprises seven percent or more

of the weight of the foreign fabric and the embroidery changes the

commercial character of the base fabric, a change to heading 5810 from

any other heading.

* * * * *

5903 A change to heading 5903 from any other heading except from

heading 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311,

5407 through 5408, 5512 through 5516, 5803, 5806, 5808, and 6002; or

(1) For woven fabric, a change to heading 5903 from any other

heading, provided that the impregnation, coating, covering, or

lamination accounts for at least 15 percent of the total weight of the

fabric; or

(2) For knit fabric, a change to heading 5903 from any other

heading, provided that the impregnation, coating, covering, or

lamination accounts for at least 20 percent of the total weight of the

fabric.

* * * * *

6101 A change to heading 6101 from any other chapter; or

A change to assembled garments of heading 6101, except (1) anoraks,

windbreakers, and similar articles, not fully lined, fully padded, or

fully insulated, and (2) capes, cloaks, and similar articles, from

either subheading 6117.90 or subheading 6217.90, provided that no major

part has been knit to shape; or

A change to assembled garments from unassembled parts classified in

heading 6101 as a result of the application of GRI 2(a), except (1)

anoraks, windbreakers, and similar articles, not fully lined, fully

padded, or fully insulated, and (2) capes, cloaks, and similar

articles, provided that no major part has been knit to shape.

6102 A change to heading 6102 from any other chapter; or

A change to assembled garments of heading 6102, except (1) anoraks,

windbreakers, and similar articles, not fully lined, fully padded, or

fully insulated, and (2) capes, cloaks, and similar articles, from

either subheading 6117.90 or subheading 6217.90, provided that no major

part has been knit to shape; or

A change to assembled garments from unassembled parts classified in

heading 6102 as a result of the application of GRI 2(a), except (1)

anoraks, windbreakers, and similar articles, not fully lined, fully

padded, or fully insulated, and (2) capes, cloaks, and similar

articles, provided that no major part has been knit to shape.

* * * * *

6103.21-6103.29 Each garment in an ensemble shall be treated

separately and the marking rule applicable to each garment is the rule

that would apply if the garment were separately entered; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments of subheading 6103.21 through 6103.29 from either

subheading 6117.90 or subheading 6217.90; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments from unassembled parts classified in subheading

6103.21 through 6103.29 as a result of the application of GRI 2(a),

provided that no major part has been knit to shape.

* * * * *

6104.21-6104.29 Each garment in an ensemble shall be treated

separately and the marking rule applicable to each garment is the rule

that would apply if the garment were separately entered; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments of subheading 6104.21 through 6104.29 from either

subheading 6117.90 or subheading 6217.90; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments from unassembled parts classified in subheading

6104.21 through 6104.29 as a result of the [[Page 22329]] application

of GRI 2(a), provided that no major part has been knit to shape.

* * * * *

6115-6116 A change to heading 6115 through 6116 from any other

chapter.

6117.10 A change to subheading 6117.10 from any other chapter except

chapter 60; or A change to subheading 6117.10 from greige fabric of

chapter 60 by bleaching, dyeing, printing, cutting on all sides, and

stitching.

6117.20-6117.90 A change to subheading 6117.20 through 6117.90 from

any other chapter.

6201 A change to heading 6201 from any other chapter, provided that no

major part has been knit to shape; or

A change to assembled garments of heading 6201, except (1) anoraks,

windbreakers, and similar articles, not fully lined, fully padded, or

fully insulated, and (2) capes, cloaks, and similar articles, from

either subheading 6217.90 or subheading 6117.90, provided that no major

part has been knit to shape; or

A change to assembled garments from unassembled parts classified in

heading 6201 as a result of the application of GRI 2(a), except (1)

anoraks, windbreakers, and similar articles, not fully lined, fully

padded, or fully insulated, and (2) capes, cloaks, and similar

articles, provided that no major part has been knit to shape.

6202 A change to heading 6202 from any other chapter; or

A change to assembled garments of heading 6202, except (1) anoraks,

windbreakers, and similar articles, not fully lined, fully padded, or

fully insulated, and (2) capes, cloaks, and similar articles, from

either subheading 6217.90 or subheading 6117.90, provided that no major

part has been knit to shape; or

A change to assembled garments from unassembled parts classified in

heading 6202 as a result of the application of GRI 2(a), except (1)

anoraks, windbreakers, and similar articles, not fully lined, fully

padded, or fully insulated, and (2) capes, cloaks, and similar

articles, provided that no major part has been knit to shape.

* * * * *

6203.21-6203.29 Each garment in an ensemble shall be treated

separately and the marking rule applicable to each garment is the rule

that would apply if the garment were separately entered; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments of subheading 6203.21 through 6203.29 from either

subheading 6217.90 or subheading 6117.90; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments from unassembled parts classified in subheading

6203.21 through 6203.29 as a result of the application of GRI 2(a),

provided that no major part has been knit to shape.

* * * * *

6204.21-6204.29 Each garment in an ensemble shall be treated

separately and the marking rule applicable to each garment is the rule

that would apply if the garment were separately entered; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments of subheading 6204.21 through 6204.29 from either

subheading 6217.90 or subheading 6117.90; or

If the ensemble contains a suit-like jacket or blazer, a change to

assembled garments from unassembled parts classified in subheading

6204.21 through 6204.29 as a result of the application of GRI 2(a),

provided that no major part has been knit to shape.

* * * * *

6205 A change to heading 6205 from any other chapter, provided that no

major part has been knit to shape; or

A change to assembled tailored long sleeve shirts with collars,

cuffs, full-front openings with plackets, and yokes, or to assembled

fully lined, fully padded, or fully insulated shirts, of heading 6205,

from either subheading 6217.90 or subheading 6117.90, provided that no

major part has been knit to shape; or

A change to assembled tailored long sleeve shirts with collars,

cuffs, full-front openings with plackets, and yokes, or to assembled

fully lined, fully padded, or fully insulated shirts, from unassembled

parts classified in heading 6205 as a result of the application of GRI

2(a), provided that no major part has been knit to shape.

* * * * *

6213-6214 A change to heading 6213 through 6214 from any other chapter

except from heading 5007, 5111 through 5113, 5208 through 5212, 5309

through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603,

5801 through 5806, 5808 through 5811, 5901, 5903, and 5906 through

5907; or

A change to heading 6213 through 6214 from greige fabric of heading

5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407

through 5408, 5512 through 5516, 5602 through 5603, 5801 through 5806,

5808 through 5811, by bleaching, dyeing, printing, cutting on all

sides, and stitching.

* * * * *

6302 (1) Except for quilted goods provided for in (2) below, a change

to heading 6302 from any other heading except from heading 5007, 5111

through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408,

5512 through 5516, 5602 through 5603, 5801 through 5804, 5806, 5809

through 5810, 5901, 5903, 5906 through 5907, and 6001 through 6002; or

Except for quilted goods provided for in (2) below, a change to

heading 6302 from heading 5007, 5111 through 5113, 5208 through 5212,

5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 through

5603, 5801 through 5804, 5806, 5809 through 5810, 5901, 5903, 5906

through 5907, and 6001 through 6002, provided that the change is the

result of cutting finished fabric on all sides and hemming all cut

edges plus at least one other subsequent process, with no consideration

being given to the addition of minor embellishments.

(2) For quilted goods, either (a) a change to heading 6302 from any

other heading except from subheading 6307.90, provided that both the

cutting of the top and bottom fabrics, and the entire assembly of the

quilted goods, are done in one country; or (b) If (a) is not satisfied,

then the country of origin shall be the country which produced the

fabric, or fabrics, which impart the essential character to the goods.

6303 (1) For quilted goods, a change to heading 6303 from any other

heading except from subheading 6307.90, provided that both the cutting

of the top and bottom fabrics, and the entire assembly of the quilted

goods, are done in one country. If this rule is not satisfied, then the

country of origin shall be the country which produced the fabric, or

fabrics, which impart the essential character to the goods; or

(2) For curtains, drapes, or valances, [[Page 22330]] except for

goods provided for in (1) above, a change to heading 6303 from any

other heading, provided that the change is the result of more than

cutting on all sides and hemming the cut edges and with no

consideration being given to minor processing.

(3) For goods not meeting paragraphs (1) or (2) above, and all

other goods, a change to heading 6303 from any other heading except

from heading 5007, 5111 through 5113, 5208 through 5212, 5309 through

5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 5801

through 5804, 5806, 5809 through 5810, 5811, 5901, 5903, 5906 through

5907, and 6001 through 6002.

6304 (1) Except for quilted goods, pillow covers, and pillow shams

provided for in (2) and (3) below, a change to heading 6304 from any

other heading except from heading 5007, 5111 through 5113, 5208 through

5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5602

through 5603, 5801 through 5804, 5806, 5809 through 5810, 5901, 5903

through 5904, 5906 through 5907, and 6001 through 6002; or

Except for quilted goods, pillow covers, and pillow shams provided

for in (2) and (3) below, a change to heading 6304 from any other

heading except heading 5007, 5111 through 5113, 5208 through 5212, 5309

through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603,

5801 through 5804, 5806, 5809 through 5810, 5901, 5903, 5906 through

5907, and 6001 through 6002, provided that the change is the result of

cutting finished fabric on all sides and hemming all cut edges plus at

least one other subsequent process, with no consideration being given

to the addition of minor embellishments.

(2) For quilted goods, a change to heading 6304 from any other

heading except from subheading 6307.90, provided that both the cutting

of the top and bottom fabrics, and the entire assembly of the quilted

goods, are done in one country. If this rule is not satisfied, then the

country of origin shall be the country which produced the fabric, or

fabrics, which impart the essential character to the goods;

(3) For pillow covers and pillow shams, a change to heading 6304

from any other heading.

* * * * *

6306.91-6306.99 A change to subheading 6306.91 through 6306.99 from

any other heading except from subheading 6307.90, provided that the

change is the result of more than cutting and hemming processes and

with no consideration being given to minor processing.

* * * * *

6307.90 A change to subheading 6307.90 from any other heading,

provided that the change is the result of at least cutting and a

substantial amount of either sewing or assembly operations.

* * * * *

Chapter 65 Note: For the purposes of Sec. 102.11(b) of the

General Rules, except for sets, where a textile good classifiable in

Chapter 65 does not meet the tariff shift and/or other requirements

of the heading or subheading under which it is classifiable, the

country of origin of that good shall be the country of origin of the

component which determines the classification of that good. However,

if more than one component determines classification or the

component that determines classification has its origin in more than

one country, the country of origin of the good shall be the last

country in which the good underwent production other than minor

processing.

* * * * *

6811.90 A change to subheading 6811.90 from any other heading.

* * * * *

6812.90 A change to subheading 6812.90 from any other heading.

* * * * *

6814.90 A change to subheading 6814.90 from any other heading.

* * * * *

7010 A change to heading 7010 from any other heading.

7011 change to heading 7011 from any other heading, except from

subheading 7003.30.

7012-7018 A change to heading 7012 through 7018 from any other

heading, including another heading within that group; or

A change from uncut and unpolished glassware blanks of heading 7013

to cut and polished glassware of heading 7013, provided that there has

been a substantial amount of both cutting and polishing operations in a

single country.

* * * * *

7019.90 A change to subheading 7019.90 from any other heading.

7020 A change to heading 7020 from any other heading, except from

heading 7010 through 7018.

* * * * *

8301.10-8301.50 A change to subheading 8301.10 through 8301.50 from

any other subheading, including any subheading within that group,

except a change from subheading 8301.60 when that change is pursuant to

GRI 2(a).

* * * * *

8401.20 A change to subheading 8401.20 from any other subheading; or

A change to completed machinery and apparatus of subheading 8401.20

from parts of that same subheading.

* * * * *

8415.90 A change to subheading 8415.90 from any other subheading,

except when the change is from heading 7411, 7608, 8414, 8501, and 8535

through 8537 as a result of a simple assembly.

* * * * *

8470.10-8471.91 A change to subheading 8470.10 through 8471.91 from

any subheading outside that group, except from heading 8473; or

A change to subheading 8470.10 through 8471.91 from any subheading

within that group or from heading 8473, provided the change is not the

result of a simple assembly.

8471.92-8472.90 A change to subheading 8471.92 through 8472.90 from

any subheading outside that group, except heading 8473; or

A change to subheading 8471.92 through 8472.90 from any subheading

within that group or from heading 8473, provided the change is not the

result of a simple assembly.

8473 A change to heading 8473 from any other heading, except when the

change is from heading 8414, 8501, 8504, 8534, 8541, or 8542 as a

result of a simple assembly.

8474.10-8474.80 A change to subheading 8474.10 through 8474.80 from

any subheading outside that group, except heading 8501; or

A change to subheading 8474.10 through 8474.80 from any subheading

within that group or heading 8501, provided the change is not the

result of a simple assembly.

* * * * *

8482.10-8482.80 A change to subheading 8482.10 through 8482.80 from

any other heading; or

A change to subheading 8482.10 through 8482.80 from any other

subheading, including another subheading within that group, except from

inner or outer races or rings of subheading 8482.99.

* * * * * [[Page 22331]]

8512.40 A change to subheading 8512.40 from any other subheading,

except when the change is from subheading 8512.90 or heading 8501 as a

result of a simple assembly.

* * * * *

8517.10-8517.82 A change to subheading 8517.10 through 8517.82 from

any subheading outside that group, except from subheading 8517.90; or

A change to subheading 8517.10 through 8517.82 from subheading

8517.90, provided the change is not the result of a simple assembly.

* * * * *

8528.10-8528.20 A change to subheading 8528.10 through 8528.20 from

any other subheading, including another subheading within that group,

except from subheading 8540.11 through 8540.12.

* * * * *

8531.10-8531.80 A change to subheading 8531.10 through 8531.80 from

any other subheading, including another subheading within that group,

except when the change is from subheading 8531.90 as a result of a

simple assembly.

* * * * *

8541-8542 A change to heading 8541 through 8542 from any other

subheading, including another subheading within that group; or

A change to a mounted chip, die or wafer of heading 8541 or 8542

from an unmounted chip, die or wafer of heading 8541 or 8542; or

A change to a programmed ``read only memory'' (ROM) chip from an

unprogrammed ``programmable read only memory'' (PROM) chip.

* * * * *

8708.99 A change to subheading 8708.99 from any other subheading.

* * * * *

9101-9107 A change to heading 9101 through 9107 from any heading

outside that group, except heading 9108 through 9110; or

A change to heading 9101 through 9107 from complete movements,

unassembled, of subheading 9110.11 or 9110.90, or from rough movements

of subheading 9110.19 or 9110.90.

9108-9109 A change to heading 9108 through 9109 from any heading

outside that group, except heading 9110; or

A change to heading 9108 through 9109 from complete movements,

unassembled, of subheading 9110.11 or 9110.90, or from rough movements

of subheading 9110.19 or 9110.90.

9110 A change to heading 9110 from any other heading, except from

subheading 9114.90.

* * * * *

Chapter 94 Note: For a good classifiable in subheadings 9404.30

through 9404.90 which does not meet the appropriate tariff shift

rule specified for those subheadings, the country of origin is the

country where all cutting and sewing operations required to form the

outer shell were performed. If all cutting and sewing operations

required to form the outer shell were not performed in a single

country, the country of origin will be the single country where the

component of the outer shell which determines the classification of

that good was produced. If a single country did not produce a

component of the outer shell which determines the classification of

that good, then the country of origin will be the country in which

the good last underwent a substantial assembly process.

* * * * *

9401.90 A change to subheading 9401.90 from any other heading, except

from subheading 9403.90.

* * * * *

9403.90 A change to subheading 9403.90 from any other heading, except

from subheading 9401.90.

9404.10-9404.29 A change to subheading 9404.10 through 9404.29 from

any other heading.

9404.30-9404.90 A change to down and/or feather filled goods of

subheading 9404.30 through 9404.90 from any other heading; or

For all other goods of subheading 9404.30 through 9404.90, a change

from any other heading except from heading 5007, 5111 through 5113,

5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through

5516, 5602 through 5603, 5801 through 5804, 5806, 5809 through 5810,

5901, 5903 through 5904, 5906 through 5907, 6001 through 6002, and

6307.90.

* * * * *

9606.21-9606.29 A change to subheading 9606.21 through 9606.29 from

any other heading.

* * * * *

PART 134--COUNTRY OF ORIGIN MARKING

1. The authority citation for part 134 is revised to read as

follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,

Harmonized Tariff Schedule of the United States), 1304, 1624.

2. Section 134.1 is amended by revising paragraph (b),

redesignating paragraphs (d) through (j) as (e) through (k), adding a

new paragraph (d), and revising newly designated paragraphs (e) (1) and

(2) to read as follows:

Sec. 134.1 Definitions.

* * * * *

(b) Country of origin. ``Country of origin'', when used with

reference to any article of foreign origin imported into the United

States, means the country in which the article was wholly obtained or

produced within the meaning of Sec. 102.1(e) of this chapter, or, in

the case of an article not wholly obtained or produced in one country,

the country where the article last underwent a substantial

transformation prior to its importation into the United States.

* * * * *

(d) Substantial transformation. ``Substantial transformation''

occurs when, under part 102 of this chapter, the country of origin of a

good, which is produced in a country from foreign materials, is

determined to be that country.

(e) Ultimate purchaser. * * *

(1) If an imported article will be used in further processing, the

processor will be the ``ultimate purchaser'' if he subjects the

imported article to a process which results in a substantial

transformation of the article.

(2) If the process does not result in a substantial transformation

of the imported article, the consumer or user of the article, who

obtains the article after the processing, will be regarded as the

``ultimate purchaser''.

* * * * *

Sec. 134.32 [Amended]

3. In Sec. 134.32, paragraph (r) is removed.

4. Section 134.35 is revised to read as follows:

Sec. 134.35 Articles substantially transformed after importation.

If an imported article will be used in further processing in the

United States, the processor will be considered the ultimate purchaser

if such article is determined to be a good of the United States under

part 102 of this chapter. In such a case, the imported article is

excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D)

and Sec. 134.32(d), provided the container in which it is imported will

reasonably indicate the country of origin of the article to the

ultimate purchaser.

Sec. 134.43 [Amended]

5. In Sec. 134.43, paragraph (e) is removed.

PART 177--ADMINISTRATIVE RULINGS

1. The general authority citation for part 177 is revised to read

as follows:

[[Page 22332]] Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202

(General Note 20, Harmonized Tariff Schedule of the United States),

1624;

* * * * *

2. In Sec. 177.22, paragraph (a) is revised to read as follows:

Sec. 177.22 Definitions.

(a) Country of origin. For the purpose of this subpart, an article

is a product of a country or instrumentality only if it is wholly the

growth, product, or manufacture of that country or instrumentality or,

in the case of an article which consists in whole or in part of

materials from another country or instrumentality, it has been

substantially transformed into a new and different article of commerce.

The term ``instrumentality'' shall not be construed to include any

agency or division of the government of a country, but may be construed

to include such arrangements as the European Economic Community. For

purposes of this section, an article is ``wholly the growth, product,

or manufacture'' of a country or instrumentality if it is wholly

obtained or produced (as defined in Sec. 102.1(g) of this chapter) in

that country or instrumentality, and a ``new and different article of

commerce'' exists when under part 102 of this chapter, the country of

origin of a good, which is produced in a country or instrumentality

from foreign materials, is determined to be that country or

instrumentality.

* * * * *

George J. Weise,

Commissioner of Customs.

Approved: April 19, 1995.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 95-10856 Filed 5-4-95; 8:45 am]

BILLING CODE 4820-02-P