[WPRT 106-9]
[From the U.S. Government Publishing Office]
106th Congress WMCP:
1st Session COMMITTEE PRINT 106-9
_______________________________________________________________________
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
__________
WRITTEN COMMENTS
ON
H.R. 3066, A BILL TO CHANGE CUSTOMS RULES-OF-ORIGIN FOR CERTAIN TEXTILE
PRODUCTS
[GRAPHIC] [TIFF OMITTED] CONGRESS.#13
DECEMBER 22, 1999
Printed for the use of the Committee on Ways and Means by its staff
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
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C O N T E N T S
__________
Page
Advisory of October 18, 1999, announcing request for written
comments on H.R. 3066, a Bill to Change Customs Rules-of-Origin
for Certain Textile Products................................... 1
______
American Textile Manufacturers Institute, Carlos Moore, letter... 3
British-American Business Council, New York, NY, Barry New,
letter......................................................... 3
Hedaya Home Fashions, Inc., New York, NY, and Neville, Peterson &
Williams, New York, NY, John M. Peterson, letter............... 4
Hillcrest International, Inc., New York, NY, and Neville,
Peterson & Williams, New York, NY, John M. Peterson, letter.... 7
Neckwear Association of America, Inc., New York, NY, statement... 10
Pac-Fung Feather Company of Hong Kong, Natural Feather &
Textiles, Inc., Eden Prairie, MN, and Neville, Peterson &
Williams, New York, NY, John M. Peterson, letter............... 11
WestPoint Stevens, Inc., West Point, GA, and Neville, Peterson &
Williams, New York, NY, Margaret R. Polito, letter and
attachment..................................................... 14
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
October 18, 1999
No. TR-17
Crane Announces Request for
Written Comments on
H.R. 3066, a Bill to Change Customs
Rules-of-Origin for Certain Textile Products
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on
Trade of the Committee on Ways and Means, today announced that the
Subcommittee is requesting written public comments for the record from
all parties interested in H.R. 3066, a bill to amend the Uruguay Round
Agreements Act with respect to the rules-of-origin for certain textile
and apparel products.
BACKGROUND:
Section 334 of the Uruguay Round Agreements Act (URAA) (P.L. 103-
465 ), the so-called ``Breaux-Cardin'' amendment, directed the U.S.
Department of the Treasury to prescribe new regulations for determining
the country-of-origin of textile and apparel products. In the new
regulations, Treasury provided that certain fabrics, silk handkerchiefs
and scarves are considered to originate where the base fabric is knit
and woven, notwithstanding any further processing.
H.R. 3066, introduced at the Administration's request by Rep.
Benjamin L. Cardin (D-MD) on October 13, 1999, would revert the rule-
of-origin for these products to the rule that existed prior to
enactment of URAA. The original rule permitted the processes of dyeing
and printing to confer origin when accompanied by two or more finishing
operations.
In May 1997, the European Union (EU) requested consultations in the
World Trade Organization with the United States, charging that the
changes to the rules of origin made by URAA violate United States
obligations under a number of agreements: the Agreement on Textiles and
Clothing, the Agreement on Rules of Origin, the Agreement on Technical
Barriers to Trade, and the General Agreement on Tariffs and Trade. A
number of countries requested third-party participation in the dispute.
A ``process-verbal'' was concluded between the two countries in July
1997, which was later amended. Formal consultations were held in
January 1999.
In August 1999, the United States and the EU agreed to settle the
dispute. A second ``process-verbal'' concluded between the two
countries obligates the U.S. Administration to submit legislation
which, as described above, amends the rule-of-origin requirements in
section 334 of the URAA in order to allow dyeing, printing, and two or
more finishing operations to confer origin on certain fabrics and
goods. In particular, this dyeing and printing rule would apply to
fabrics classified under the Harmonized Tariff Schedule (HTS) as silk,
cotton, man-made, and vegetable fibers. It would also apply to the
various products classified in 18 specific subheadings of the HTS
listed in the bill, except for goods made from cotton, wool, or fiber
blends containing 16 percent or more of cotton. H.R 3066 is intended to
implement part of the agreement between the United States and the
European Union.
As an additional element of the settlement, the United States
agreed to a special Customs administrative procedure that allows
European textile exporters to ship multiple shipments of these products
with a single visa accompanying the initial shipment.
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American Textile Manufacturers Institute
Washington, DC 20036
November 1, 1999
The Honorable Phil Crane
Chairman
House Ways & Means Subcommittee on Trade
1102 Longworth Building
Washington, DC 20515
Re: Rules of Origin Bill (H.R. 3066)
Dear Mr. Chairman:
Pursuant to the Trade Subcommittee's October 17 press release (TR-
17), I would like to share the views of the American Textile
Manufacturers Institute (ATMI) on H.R. 3066, a bill to change Customs
rules of origin for certain textile products. ATMI is the national
trade association for the domestic textile industry. Our member
companies operate in more than 30 states and account for over 75
percent of all fibers consumed by plants in the U.S.
H.R. 3066 would amend the current rules of origin for imported
textile products (embodied in Section 334 of the Uruguay Round
Agreements Act) with respect to fabrics which were both dyed and
printed and subject to two additional defined finishing processes, and
certain apparel accessories and home furnishings products made from
such fabrics. For all such goods, origin would be determined by
application of 19 CFR e (i), the rule which was in effect prior to July
1, 1996.
The changes effected by H.R. 3066 would apply to a small portion of
textile goods entering the United States annually. Furthermore, it
would resolve a long-standing dispute between the United States and the
European Union (EU) regarding the application of the Section 334 rules
to the referenced merchandise. Finally, under the pre-7/1/96 origin
rules, a relatively small volume of EU imports entered the U.S. in the
product areas impacted by H.R. 3066.
Therefore, ATMI does not object to H.R. 3066. Its passage would
resolve differences between the EU and the U.S. on this issue and both
parties may be better able to address common concerns regarding
textiles in the upcoming WTO negotiations: namely, gaining effective
access to the markets of developing countries, such as India, for U.S.
and EU textile products.
Sincerely,
Carlos Moore
Executive Vice President
British-American Business Council
November 1, 1999
Mr. A. L. Singleton,
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Re: H.R. 3066--Rules of Origin for Certain Textile Products
Dear Mr. Singleton:
I am writing on behalf of the Board of Directors and the members of
the British-American Business Council (BABC) in response to
Representative Philip M. Crane's October 18, 1999 request for comments
on H.R. 3066. This would amend Section 334 of the Uruguay Round
Agreements Act with respect to rules of origin for certain textile and
apparel products.
The BABC is the largest trans-Atlantic business organization
consisting of 32 British-American business associations and more than
4,000 companies in major cities throughout the United States and the
United Kingdom, with affiliates in Canada and Mexico. The BABC seeks to
promote and support business between the United States and the United
Kingdom and to foster a positive environment for trans-Atlantic trade
and investment.
When the Uruguay Round Agreements Act was enacted, Section 334
directed the Treasury Department to issue regulations requiring certain
fabrics, silk handkerchiefs and scarves to be labeled as originating in
the country where the base fabric was knit and woven rather than the
country where the fabric underwent substantial further processing.
Thus, for example, an imported scarf dyed, printed and finished in a
European country would be required to bear a label from the country
where the raw silk was originally produced. The regulations worked
against the marketability of bona fide EU products.
The EU challenged this requirement and requested consultations
before the World Trade Organization. Following these consultations, the
US and EU agreed to settle the dispute by amending Section 334 to allow
dyeing, printing and two or more finishing operations to confer origin.
H.R. 3066 resolves this dispute in a reasonable way. It allows
these products to benefit from the country of origin marking rules that
apply generally to other products. It conforms to the consumer's
perception that these products in fact originate in the EU. It promotes
positive trade relations between the US and it's trading partners. At a
time when recent news reports have stressed the sometimes acrimonious
disagreements between the US and EU over products such as bananas and
beef hormones, the resolution of this issue in such a constructive
manner is especially commendable.
Sincerely,
Barry New
President
cc: The Honorable Philip Lader
Sir Christopher Meyer, KCMG
Neville, Peterson & Williams
New York, New York 10004
October 29, 1999
Our File: 2700-01
A.L. Singleton
Chief of Staff
Committee on Ways and Means
United States House of Representatives
1102 Longworth Office Building
Washington, D.C. 20515
Re: H.R. 3066: Comments of Hedaya Home Fashions, Inc.
Dear Sirs,
These comments are submitted on behalf of Hedaya Home Fashions,
Inc..of New York City and Elizabeth, New Jersey, in response to the
request of the Subcommittee on Trade for comments regarding H.R. 3066,
a bill to amend Customs rules of origin for certain textile and apparel
products. Although the Trade Subcommittee's solicitation of comments
suggested that H.R. 3066 would restore the rule of origin for certain
textile products ``to the rule that existed prior to enactment of the
URAA'' [Uruguay Round Agreements Act], the bill as drafted will not
accomplish this goal, at least with respect to home textile products
and non-apparel ``made up'' textile articles.
Hedaya Home Fashions recommends that H.R. 3066 be amended to
restore the pre-URAA rules of origin for to home textiles and other
non-apparel textile goods. By restoring these origin rules, Congress
can undo the trade-distorting effects of the current rules of origin,
which have led the country's trading partners to challenge the rules
before the World Trade Organization (WTO).
Interest of Commenter
Hedaya Home Fashions, Inc. with facilities in New York City
and Elizabeth, New Jersey, is an importer and distributor of
home textile articles, such as quilts, comforters, wall
hangings and a wide array of bed linens.
The Current Rules of Origin: Section 334 of the URAA
Section 334 of the Uruguay Round Agreements Act (URAA), 19
U.S.C. Section 3592, directed the Secretary of the Treasury to
issue regulations establishing rules for determining the
country of origin, ``for purposes of the Customs laws and the
administration of quantitative restrictions,'' of textile and
apparel articles imported into the United States. These new
rules, which became effective with respect to goods imported on
or after July 1, 1996, represented a significant departure from
the rules of origin which had previously been in effect.
Thus, for example, Section 334(b)(1)(A) of the URAA
provides that textile products wholly obtained or produced in a
single country will be considered a product of that country.\1\
Section 334(b)(2) provides that yarns will be considered to
originate in the country where they are spun or extruded.
Section 334(b)(1)(C) provides that fabrics will be considered
to originate in the country where they are formed (e.g.,
knitted or woven) in the ``greige'' state. Section 334 also
provides that garments will originate in the country where they
are ``wholly assembled'' by sewing.
---------------------------------------------------------------------------
\1\ This rule, obviously, is non-controversial.
---------------------------------------------------------------------------
Congress, in enacting Section 334, did not appear to devote
much attention to the origin rules for home textile products
and non-apparel textile goods.\2\ Section 334(b)(2) of the URAA
provides that the origin of these goods is to be determined
according to the rules set forth in Section 334(b)(1)(A), (B),
or (C), ``as appropriate.'' The Secretary of the Treasury's
implementing regulations [19 C.F.R. Section 102.21] treated
virtually all home textile articles as ``fabrics,'' fixing
their origin according to the country where their constituent
fabric was formed in the ``greige'' state. No account was taken
of further manufacturing operations, such as the dyeing or
printing of fabric, cutting, sewing, finishing, embroidering,
or other value-added processing steps. In Pac-Fung Feather
Company v. United States, 111 F.3d 114 (Fed. Cir. 1997), the
United States Court of Appeals for the Federal Circuit
sustained the Secretary's regulations as a proper
interpretation of Section 334. Shortly thereafter, many of the
United States' trading partners lodged complaints against the
origin rules before the World Trade Organization, or sought
consultations with the United States concerning their trade-
distorting effect.
---------------------------------------------------------------------------
\2\ Indeed, Congress' primary focus was on adopting a change to the
country of origin rules for garments, switching from a regulatory
regime under which origin was conferred by the cutting of fabric into
garment parts, to a statutory one in which origin is confered by the
assembly of cut parts to make garments.
---------------------------------------------------------------------------
The adoption of a ``fabric forward'' rule of origin had a
devastating effect on manufacturers, exporters and importers of
home textile products worldwide. By recognizing these products
as originating only in countries where their constituent
fabrics were formed, Section 334 effectively wiped out quota
allocations granted to countries which did not have indigenous
fabric weaving or knitting industries, but which had
historically manufactured these products through substantial
transformation manufacturing operations, which included fabric
processing, cutting and sewing assembly; such countries
included Hong Kong, the Philippines, Macau and many others.
Demand for quota allocations in fabric manufacturing countries
soared, although (contrary to promises made when Section 334
was enacted), the United States did not increase quota
allocations granted to fabric manufacturing countries to offset
the trade-distorting effect of Section 334.
The result was reduced supply of home textile products for
United States consumers, and increased prices. Furthermore, the
Section 334 rules of origin distorted textile trade and
investment patterns worldwide. Companies in the home textiles
industry were forced to shift production operations from
countries which had traditionally performed ``value added''
manufacturing operations on fabric, to countries with
indigenous fabric-weaving industries. The overall effect of the
Section 334 rules was to cut sharply the amount of home textile
products and fabrics which could actually be shipped to the
United States by countries with which the United States had
signed bilateral textile agreements. United States trading
partners have validly asserted that the Section 334 origin
rules violated the country's obligations under multilateral
trade agreements, including the Uruguay Round Agreement on
Textiles and Clothing (ACT), the Uruguay Round Agreement on
Rules of Origin, and many others. Indeed, H.R. 3066 is intended
to address one of these WTO complaints against the United
States.
Discussion
1. H.R. 3066 Will Not Restore the Pre-URAA Rules of Origin for
Home Textiles and Non-Apparel Textile Articles
H.R. 3066, in its present form, will not accomplish the
Subcommittee's goal of restoring the pre-URAA rule of origin
for the products mentioned therein. At most, it will restore
the pre-URAA rule of origin for certain fabrics. Home textile
products, and non-apparel textile products will not be
affected. In addition, H.R. 3066 arbitrarily excludes various
types of made-up textile articles, and goods made from certain
fabrics from its coverage.
Prior to enactment of the URAA, the Customs Regulations
provided that the dyeing and printing of fabrics, combined with
two or more named subsidiary operations, would be considered
sufficient to effect a change in the fabric's origin. 19 C.F.R.
Section 12.130. Section 1(a)(3)(B) of H.R. 3066 would restore
this rule, and properly so.
However, this rule of origin never applied to home textile
products and other ``made-up'' textile articles. Rather, these
goods were considered to originate in the country where they
underwent a ``substantial transformation,'' in which fabric or
cut components were transformed into a new and different
article of commerce, having a name, character or use different
than its components. Thus, for example, bed sheets were
considered to originate in the country where their constituent
fabrics were cut to length and width, hemmed, and otherwise
processed to create a new article of commerce. See, e.g.,
Customs Headquarters 956204 of July 26, 1994. The ``substantial
transformation'' rule of origin recognized the commercial
reality that fabrics are but a material used to produce new and
different articles of commerce; at the same time, it precluded
insubstantial or ``pass through'' operations from conferring
origin. H.R. 3066, however, does not restore this ``substantial
transformation'' rule.
In any event, home textile products would derive no benefit
from H.R. 3066's change in the origin rules for fabrics, since
fabrics used to make such products are typically dyed or
printed, but are virtually never subjected to both of these
operations.
Thus, H.R. 3066, would not restore the pre-URAA origin rule
for home textile and other made-up textile articles. These
goods would, remain subject to the URAA's trade-distorting
``fabric forward'' origin rule, which has drawn attack from the
United States' trading partners.
Hedaya Home Fashions urges the Subcommittee to consider
amending H.R. 3066 in order to truly restore the pre-URAA rule
of origin for home textile products.
2. H.R. 3066 Should Be Expanded to Cover All Home Textile and
Non-Apparel Textile Products
Furthermore, to the extent that Congress changes rules of
origin applicable to home textiles and other non-apparel
textile products, there is no reason why these changes should
not extend to all such products. H.R. 3066 does not attempt to
do this. Instead, it contains a selective and arbitrary list of
home textile and apparel products to which the new rules of
origin would apply. There is no reason why, for example,
kitchen linen made from terry fabrics should benefit from a
change in rules of origin, while kitchen linen made from other
types of fabrics should not. There is no reason why the rule
should apply to printed bed linens (which are not dyed), but
not to non-printed bed linens (which are dyed). There is no
reason why the rules should apply to pre-filled comforters and
quilts, but not to comforter or quilt shells.
If H.R. 3066 is to truly address the concerns posed by the
WTO complaints which have been lodged against the Section 334,
URAA, rules of origin, it must be expanded in scope to cover
all home textile products.
3. H.R. 3066 Improperly Discriminates Against Products Made
from Certain Types of Fabrics.
Finally, there is no basis why new rules of origin should
apply to home textile and made-up products produced from
certain fabrics, but not to substantially identical articles
made from different fabrics. H.R. 3066 would arbitrarily
withhold new rules of origin from home textile and non-apparel
articles made from wool fabrics, cotton fabrics, or cotton
blend fabrics containing 16% or more by weight of cotton. There
is absolutely no basis in fact for making such a distinction,
and neither Section 334 of the URAA, nor the pre-URAA rules of
origin, have ever drawn such a distinction. The process of
transforming cotton fabrics into home textile products, for
example, is precisely the same as the process for transforming
man-made fiber fabrics into such products. It would be
arbitrary and unreasonable for Congress to enact legislation
extending a rule of origin to goods made from some types of
fabrics, but not to others. This has never been done before. To
permit such distinctions in a rules-based approach to origin
would encourage the manipulation of such rules by groups
interested in the production of certain types of fabrics or
fabricated products, and would unfairly discriminate against
classes of foreign goods, in violation of WTO rules.
Conclusion
Hedaya Home Fashions, Inc. enthusiastically support the restoration
of pre-URAA rules of origin for home textile and non-apparel textile
products. However, H.R. 3066, as currently drafted, would not
accomplish this goal. While the bill may (or may not) resolve the
ongoing World Trade Organization complaint filed by the European Union,
it would leave the U.S. vulnerable to further challenges by other
trading partners.
The URAA's application of a ``fabric forward'' origin rule for home
textile products has had unintended trade-distorting effects, while
providing no real benefits to U.S. manufacturers. The rule has no basis
in prior practice, is not employed by any other country, and has no
basis in commercial reality. Restoration of the pre-URAA rules of
origin for these products is appropriate, but H.R. 3066 in its present
form would not accomplish this goal. The legislation should be expanded
and modified in order to authorize the Secretary of the Treasury to
promulgate regulations which would truly restore the pre-URAA origin
rules for these products.
Please contact the undersigned if we can furnish any additional
information or assistance concerning this legislation.
Very truly yours,
John M. Peterson
Counsel to Hedaya Home Fashions, Inc.
JMP/mh
cc: Mr. Nathan Hedaya
Neville, Peterson & Williams
New York, New York 10004
October 29, 1999
Our File: 830-01
A.L. Singleton
Chief of Staff
Committee on Ways and Means
United States House of Representatives
1102 Longworth Office Building
Washington, D.C. 20515
Re: H.R. 3066: Comments of Hillcrest International Inc.
Dear Sirs,
These comments are submitted on behalf of Hillcrest International,
Inc., of 260 Fifth Avenue, New York City, in response to the request of
the Subcommittee on Trade for comments regarding H.R. 3066, a bill to
amend Customs rules of origin for certain textile and apparel products.
Although the Trade Subcommittee's solicitation of comments suggested
that H.R. 3066 would restore the rule of origin for certain textile
products ``to the rule that existed prior to enactment of the URAA''
[Uruguay Round Agreements Act], the bill as drafted will not accomplish
this goal, at least with respect to home textile products and non-
apparel ``made up'' textile articles.
Hillcrest International recommends that H.R. 3066 be amended to
restore the pre-URAA rules of origin for to home textiles and other
non-apparel textile goods. By restoring these origin rules, Congress
can undo the trade-distorting effects of the current rules of origin,
which have led the country's trading partners to challenge the rules
before the World Trade Organization (WTO).
Interest of Commenter
Hillcrest International, based in New York City, is an
importer and distributor of home textile articles, such as flat
and fitted bedsheets, pillowcases, duvets, and bed valances.
The Current Rules of Origin: Section 334 of the URAA
Section 334 of the Uruguay Round Agreements Act (URAA), 19
U.S.C. Section 3592, directed the Secretary of the Treasury to
issue regulations establishing rules for determining the
country of origin, ``for purposes of the Customs laws and the
administration of quantitative restrictions,'' of textile and
apparel articles imported into the United States. These new
rules, which became effective with respect to goods imported on
or after July 1, 1996, represented a significant departure from
the rules of origin which had previously been in effect.
Thus, for example, Section 334(b)(1)(A) of the URAA
provides that textile products wholly obtained or produced in a
single country will be considered a product of that country.\1\
Section 334(b)(2) provides that yarns will be considered to
originate in the country where they are spun or extruded.
Section 334(b)(1)(C) provides that fabrics will be considered
to originate in the country where they are formed (e.g.,
knitted or woven) in the ``greige'' state. Section 334 also
provides that garments will originate in the country where they
are ``wholly assembled'' by sewing.
---------------------------------------------------------------------------
\1\ This rule, obviously, is non-controversial.
---------------------------------------------------------------------------
Congress, in enacting Section 334, did not appear to devote
much attention to the origin rules for home textile products
and non-apparel textile goods.\2\ Section 334(b)(2) of the URAA
provides that the origin of these goods is to be determined
according to the rules set forth in Section 334(b)(1)(A), (B),
or (C), ``as appropriate.'' The Secretary of the Treasury's
implementing regulations [19 C.F.R. Section 102.21] treated
virtually all home textile articles as ``fabrics,'' fixing
their origin according to the country where their constituent
fabric was formed in the ``greige'' state. No account was taken
of further manufacturing operations, such as the dyeing or
printing of fabric, cutting, sewing, finishing, embroidering,
or other value-added processing steps. In Pac-Fung Feather
Company v. United States, 111 F.3d 114 (Fed. Cir. 1997), the
United States Court of Appeals for the Federal Circuit
sustained the Secretary's regulations as a proper
interpretation of Section 334. Shortly thereafter, many of the
United States' trading partners lodged complaints against the
origin rules before the World Trade Organization, or sought
consultations with the United States concerning their trade-
distorting effect.
---------------------------------------------------------------------------
\2\ Indeed, Congress' primary focus was on adopting a change to the
country of origin rules for garments, switching from a regulatory
regime under which origin was conferred by the cutting of fabric into
garment parts, to a statutory one in which origin is confered by the
assembly of cut parts to make garments.
---------------------------------------------------------------------------
The adoption of a ``fabric forward'' rule of origin had a
devastating effect on manufacturers, exporters and importers of
home textile products worldwide. By recognizing these products
as originating only in countries where their constituent
fabrics were formed, Section 334 effectively wiped out quota
allocations granted to countries which did not have indigenous
fabric weaving or knitting industries, but which had
historically manufactured these products through substantial
transformation manufacturing operations, which included fabric
processing, cutting and sewing assembly; such countries
included Hong Kong, the Philippines, Macau and many others.
Demand for quota allocations in fabric manufacturing countries
soared, although (contrary to promises made when Section 334
was enacted), the United States did not increase quota
allocations granted to fabric manufacturing countries to offset
the trade-distorting effect of Section 334.
The result was reduced supply of home textile products for
United States consumers, and increased prices. Furthermore, the
Section 334 rules of origin distorted textile trade and
investment patterns worldwide. Companies in the home textiles
industry were forced to shift production operations from
countries which had traditionally performed ``value added''
manufacturing operations on fabric, to countries with
indigenous fabric-weaving industries. The overall effect of the
Section 334 rules was to cut sharply the amount of home textile
products and fabrics which could actually be shipped to the
United States by countries with which the United States had
signed bilateral textile agreements. United States trading
partners have validly asserted that the Section 334 origin
rules violated the country's obligations under multilateral
trade agreements, including the Uruguay Round Agreement on
Textiles and Clothing (ACT), the Uruguay Round Agreement on
Rules of Origin, and many others. Indeed, H.R. 3066 is intended
to address one of these WTO complaints against the United
States.
Discussion
1. H.R. 3066 Will Not Restore the Pre-URAA Rules of Origin for
Home Textiles and Non-Apparel Textile Articles
H.R. 3066, in its present form, will not accomplish the
Subcommittee's goal of restoring the pre-URAA rule of origin
for the products mentioned therein. At most, it will restore
the pre-URAA rule of origin for certain fabrics. Home textile
products, and non-apparel textile products will not be
affected. In addition, H.R. 3066 arbitrarily excludes various
types of made-up textile articles, and goods made from certain
fabrics from its coverage.
Prior to enactment of the URAA, the Customs Regulations
provided that the dyeing and printing of fabrics, combined with
two or more named subsidiary operations, would be considered
sufficient to effect a change in the fabric's origin. 19 C.F.R.
Section 12.130. Section 1(a)(3)(B) of H.R. 3066 would restore
this rule, and properly so.
However, this rule of origin never applied to home textile
products and other ``made-up'' textile articles. Rather, these
goods were considered to originate in the country where they
underwent a ``substantial transformation,'' in which fabric or
cut components were transformed into a new and different
article of commerce, having a name, character or use different
than its components. Thus, for example, bed sheets were
considered to originate in the country where their constituent
fabrics were cut to length and width, hemmed, and otherwise
processed to create a new article of commerce. See, e.g.,
Customs Headquarters 956204 of July 26, 1994. The ``substantial
transformation'' rule of origin recognized the commercial
reality that fabrics are but a material used to produce new and
different articles of commerce; at the same time, it precluded
insubstantial or ``pass through'' operations from conferring
origin. H.R. 3066, however, does not restore this ``substantial
transformation'' rule.
In any event, home textile products would derive no benefit
from H.R. 3066's change in the origin rules for fabrics, since
fabrics used to make such products are typically dyed or
printed, but are virtually never subjected to both of these
operations.
Thus, H.R. 3066, would not restore the pre-URAA origin rule
for home textile and other made-up textile articles. These
goods would, remain subject to the URAA's trade-distorting
``fabric forward'' origin rule, which has drawn attack from the
United States' trading partners.
Hillcrest International urges the Subcommittee to consider
amending H.R. 3066 in order to truly restore the pre-URAA rule
of origin for home textile products.
2. H.R. 3066 Should Be Expanded to Cover All Home Textile and
Non-Apparel Textile Products
Furthermore, to the extent that Congress changes rules of
origin applicable to home textiles and other non-apparel
textile products, there is no reason why these changes should
not extend to all such products. H.R. 3066 does not attempt to
do this. Instead, it contains a selective and arbitrary list of
home textile and apparel products to which the new rules of
origin would apply. There is no reason why, for example,
kitchen linen made from terry fabrics should benefit from a
change in rules of origin, while kitchen linen made from other
types of fabrics should not. There is no reason why the rule
should apply to printed bed linens (which are not dyed), but
not to non-printed bed linens (which are dyed). There is no
reason why the rules should apply to pre-filled comforters and
quilts, but not to comforter or quilt shells.
If H.R. 3066 is to truly address the concerns posed by the
WTO complaints which have been lodged against the Section 334,
URAA, rules of origin, it must be expanded in scope to cover
all home textile products.
3. H.R. 3066 Improperly Discriminates Against Products Made
from Certain Types of Fabrics.
Finally, there is no reason why new rules of origin should
apply to home textile and made-up products produced from
certain fabrics, but not to substantially identical articles
made from different fabrics. H.R. 3066 would arbitrarily
withhold new rules of origin from home textile and non-apparel
articles made from wool fabrics, cotton fabrics, or cotton
blend fabrics containing 16% or more by weight of cotton. There
is absolutely no basis in fact for making such a distinction,
and neither Section 334 of the URAA, nor the pre-URAA rules of
origin, have ever drawn such a distinction. The process of
transforming cotton fabrics into home textile products, for
example, is precisely the same as the process for transforming
man-made fiber fabrics into such products. It would be
arbitrary and unreasonable for Congress to enact legislation
extending a rule of origin to goods made from some types of
fabrics, but not to others. This has never been done before. To
permit such distinctions in a rules-based approach to origin
would encourage the manipulation of such rules by groups
interested in the production of certain types of fabrics or
fabricated products, and would unfairly discriminate against
classes of foreign goods, in violation of WTO rules.
Conclusion
Hillcrest International. enthusiastically support the restoration
of pre-URAA rules of origin for home textile and non-apparel textile
products. However, H.R. 3066, as currently drafted, would not
accomplish this goal. While the bill may (or may not) resolve the
ongoing World Trade Organization complaint filed by the European Union,
it would leave the U.S. vulnerable to further challenges by other
trading partners.
The URAA's application of a ``fabric forward'' origin rule for home
textile products has had unintended trade-distorting effects, while
providing no real benefits to U.S. manufacturers. The rule has no basis
in prior practice, is not employed by any other country, and has no
basis in commercial reality. Restoration of the pre-URAA rules of
origin for these products is appropriate, but H.R. 3066 in its present
form would not accomplish this goal. The legislation should be expanded
and modified in order to authorize the Secretary of the Treasury to
promulgate regulations which would truly restore the pre-URAA origin
rules for these products.
Please contact the undersigned if we can furnish any additional
information or assistance concerning this legislation.
Very truly yours,
John M. Peterson
Counsel to Hillcrest International Inc.
JMP/mh
cc: Mr. Jit Joshi
Statement of Neckwear Association of America, Inc., New York, New York
Introduction
The Neckwear Association of America (NAA) is a trade
association comprised of domestic necktie producers and their
suppliers. NAA member companies account for the vast majority
of neckties produced in the United States.
This statement is submitted by NAA in response to the Ways
and Means Trade Subcommittee's request for public comments on
H.R. 3066, introduced by Congressman Cardin, ``to amend the
Uruguay Round Agreements Act with respect to the rules of
origin for certain textile and apparel products.'' H.R. 3066
would revert the rule-of-origin of textile and apparel products
to the rule that existed prior to enactment of the URAA. The
original rule permitted the processes of dyeing and printing to
confer origin when accompanied by two or more finishing
operations. H.R. 3066 has NAA's strong support for the reasons
set out below.
Background
Under revised customs rules of origin, which took effect in
July 1996, silk fabric--formerly considered to be the product
of the country where the fabric was dyed, printed, and subject
to at least two other processes--changed to the country where
the fabric is woven. In the case of silk printed fabric, the
country where the fabric is woven is generally China.
U.S. Federal Trade Commission (FTC) rules guide the
labeling of textile and apparel products that are offered for
sale in the U.S. market. Pursuant to the Textile Fiber Products
Identification Act (Rule 33(a)(3), ``[e]ach textile fiber
product made in the United States, either in the whole or part,
of imported materials shall contain a label disclosing these
facts, for example:
``Made in USA of imported fabric'' ''
Therefore, U.S. necktie producers who had formerly
advertised these silk fabrics as Italian could no longer do so
without being in violation of U.S. marking rules.
Silk Printed Fabric: Chinese or Italian?
Italy is a leading supplier of printed silk fabrics to the
U.S. neckwear industry. Italy's reputation for top fashion and
design in this category is among the highest in the world.
While Italy does not actually weave the silk greige goods, its
printing and processing of them is quite substantial, and,
Italy adds the all important ``Italian'' designs that give
these fabrics their unique identity and great value. Therefore,
our industry, its customers, and, up until recently, the U.S.
Government have always considered these fabrics to be Italian;
and U.S. necktie-makers have traditionally utilized labeling
practices that portray them as Italian.
Impact on U.S. Tie Producers and Need to Revert to Old Rule of Origin
Two thirds of all neckties produced in the United States
are made of imported silk print fabric. Silk print fabric is
not made in the United States; a good portion of it is imported
from Italy. In short, there are no domestic alternatives.
The adoption of the new U.S. textile origin rules in July
1996 jeopardized the ability of U.S. necktie producers to
continue their previous marking practices for sales in the U.S.
market: Under the new origin rules, the marking could no longer
indicate that the silk tie fabric was of Italian origin. Such a
change threatened U.S. producers' ability to recover the costs
of the very expensive Italian piece goods in the U.S.
marketplace, and also placed them at a competitive disadvantage
with Italian finished silk necktie producers, who are able to
label their goods as being entirely the product of Italy, even
though the piece goods used in the U.S. and Italian ties are
the same.
To its credit, the FTC has provided some help to the
industry in the form of a letter ruling dated March 27, 1996,
which permits U.S. tie producers to show on the label that the
imported silk fabric was printed in Italy. Additionally, the
recent enactment into law of legislation that changes U.S.
marking rules with respect to these fabrics essentially
codifies the FTC ruling. The industry welcomes these important
steps, but it deems essential the return to the pre-existing
rule of origin for dyed and printed silk fabrics. H.R. 3066
will go a long way toward clearing up any confusion that
remains about how these fabrics should be marked when they are
used as a component in U.S.-made neckties. NAA is highly
supportive of this legislation as it would allow U.S. tie
manufacturers to return to unambiguous labeling practices with
respect to its products.
Neville, Peterson & Williams
New York, NY 10004
October 28, 1999
Our File: 1636-01
A.L. Singleton
Chief of Staff
Committee on Ways and Means
United States House of Representatives
1102 Longworth Office Building
Washington, D.C. 20515
Re: H.R. 3066: Comments of Pac-Fung Feather Company and Natural Feather
& Textiles, Inc.
Dear Sirs,
These comments are submitted on behalf of Pac-Fung Feather Company
of Hong Kong (``Pac Fung'') and Natural Feather & Textiles, Inc. of
Eden Prairie, Minnesota (``NFT''), in response to the request of the
Subcommittee on Trade for comments regarding H.R. 3066, a bill to amend
Customs rules of origin for certain textile and apparel products.
Although the Trade Subcommittee's solicitation of comments suggested
that H.R. 3066 would restore the rule of origin for certain textile
products ``to the rule that existed prior to enactment of the URAA''
[Uruguay Round Agreements Act], the bill as drafted will not accomplish
this goal, at least with respect to home textile products and non-
apparel ``made up'' textile articles.
Pac-Fung and NFT recommend that H.R. 3066 be amended to restore the
pre-URAA rules of origin for to home textiles and other non-apparel
textile goods. By restoring these origin rules, Congress can undo the
trade-distorting effects of the current rules of origin, which have led
the country's trading partners to challenge the rules before the World
Trade Organization (WTO).
Interest of Commenters
Pac-Fung is a Hong Kong-based manufacturer of home textile
products, including cotton comforter shells, down-filled
comforters, featherbeds, flat and fitted bedsheets,
pillowcases, duvets, and bed valances. NFT, headquartered in
Eden Prairie, Minnesota, imports, sells and distributes home
textile and furnishing products manufactured by Pac-Fung.
The Current Rules of Origin: Section 334 of the URAA
Section 334 of the Uruguay Round Agreements Act (URAA), 19
U.S.C. Section 3592, directed the Secretary of the Treasury to
issue regulations establishing rules for determining the
country of origin, ``for purposes of the Customs laws and the
administration of quantitative restrictions,'' of textile and
apparel articles imported into the United States. These new
rules, which became effective with respect to goods imported on
or after July 1, 1996, represented a significant departure from
the rules of origin which had previously been in effect.
Thus, for example, Section 334(b)(1)(A) of the URAA
provides that textile products wholly obtained or produced in a
single country will be considered a product of that country.
Section 334(b)(2) provides that yarns will be considered to
originate in the country where they are spun or extruded.
Section 334(b)(1)(C) provides that fabrics will be considered
to originate in the country where they are formed (e.g.,
knitted or woven) in the ``greige'' state. Section 334 also
provides that garments will originate in the country where they
are ``wholly assembled'' by sewing.
Congress did not appear to devote much attention to the
origin rules for home textile products and non-apparel textile
goods. Section 334(b)(2) of the URAA provides that the origin
of these goods is to be determined according to the rules set
forth in Section 334(b)(1)(A), (B), or (C), ``as appropriate.''
The Secretary of the Treasury's implementing regulations [19
C.F.R. Section 102.21] treated virtually all home textile
articles as ``fabrics,'' fixing their origin according to the
country where their constituent fabric was formed. No account
was taken of further manufacturing operations, such as the
dyeing or printing of fabric, cutting, sewing, finishing,
embroidering, or other value-added processing steps. In Pac-
Fung Feather Company v. United States, 111 F.3d 114 (Fed. Cir.
1997), the United States Court of Appeals for the Federal
Circuit sustained the Secretary's regulations as a proper
interpretation of Section 334.
The adoption of a ``fabric forward'' rule of origin had a
devastating effect on manufacturers, exporters and importers of
home textile products worldwide. By recognizing these products
as originating only in countries where their constituent
fabrics were formed, Section 334 effectively wiped out quota
allocations granted to countries which did not have indigenous
fabric weaving or knitting industries, but which had
historically manufactured these products through substantial
transformation manufacturing operations, which included fabric
processing, cutting and sewing assembly, such as Hong Kong, the
Philippines, Macau and many others. Demand for quota
allocations in fabric manufacturing countries soared, although
(contrary to promises made when Section 334 was enacted), the
United States did not increase quota allocations granted to
fabric manufacturing countries.
The result was reduced supply of home textile products for
United States consumers, and increased prices. Furthermore, the
Section 334 rules of origin distorted textile trade and
investment patterns worldwide. Unable to supply its United
States customers from its manufacturing plants in Hong Kong and
Macau, Pac-Fung shifted manufacturing operations to the
People's Republic of China, one of the few countries with the
capacity to weave the high-density ``downproof'' cotton fabrics
from which many of the company's products are made. United
States trading partners argued, with cause, that the Section
334 origin rules violated the country's obligations under
multilateral trade agreements, including the Uruguay Round
Agreement on Textiles and Clothing (ACT), the Uruguay Round
Agreement on Rules of Origin, and many others. Indeed, H.R.
3066 is intended to address one of these WTO complaints against
the United States.
Discussion
1. H.R. 3066 Will Not Restore the Pre-URAA Rules of Origin for
Home Textiles and Non-Apparel Textile Articles
H.R. 3066, in its present form, will not accomplish the
Subcommittee's goal of restoring the pre-URAA rule of origin
for the products mentioned therein. At most, it will restore
the pre-URAA rule of origin for certain fabrics. Home textile
products, and non-apparel textile products will not be
affected. In addition, H.R. 3066 arbitrarily excludes various
types of made-up textile articles, and goods made from certain
fabrics from its coverage.
Prior to enactment of the URAA, the Customs Regulations
provided that the dyeing and printing of fabrics, combined with
two or more named subsidiary operations, would be considered
sufficient to effect a change in the fabric's origin. 19 C.F.R.
Section 12.130. Section 1(a)(3)(B) of H.R. 3066 would restore
this rule, and properly so.
However, this rule of origin never applied to home textile
products and other ``made-up'' textile articles. Rather, these
goods were considered to originate in the country where they
underwent a ``substantial transformation,'' in which fabric or
cut components were transformed into a new and different
article of commerce, having a name, character or use different
than its components. Thus, for example, bed sheets were
considered to originate in the country where their constituent
fabrics were cut to length and width, hemmed, and otherwise
processed to create a new article of commerce. See, e.g.,
Customs Headquarters 956204 of July 26, 1994. The ``substantial
transformation'' rule of origin recognized the commercial
reality that fabrics are but a material used to produce new and
different articles of commerce; at the same time, it precluded
insubstantial or ``pass through'' operations from conferring
origin. H.R. 3066, however, does not restore this ``substantial
transformation'' rule.
In any event, home textile products would derive no benefit
from H.R. 3066's change in the origin rules for fabrics, since
fabrics used to make such products are typically dyed or
printed, but are virtually never subjected to both of these
operations.
Thus, H.R. 3066, would not restore the pre-URAA origin rule
for home textile and other made-up textile articles. These
goods would, remain subject to the URAA's trade-distorting
``fabric forward'' origin rule, which has drawn attack from the
United States' trading partners.
Pac Fung and Natural Feather urged the Subcommittee to
consider amending H.R. 3066 in order to truly restore the pre-
URAA rule of origin for home textile products.
2. H.R. 3066 Should Be Expanded to Cover All Home Textile and
Non-Apparel Textile Products
Furthermore, to the extent that Congress changes rules of
origin applicable to home textiles and other non-apparel
textile products, there is no reason why these changes should
not extend to all such products. H.R. 3066 does not attempt to
do this. Instead, it contains a selective and arbitrary list of
home textile and apparel products to which the new rules of
origin would apply. There is no reason why, for example,
kitchen linen made from terry fabrics should benefit from a
change in rules of origin, while kitchen linen made from other
types of fabrics should not. There is no reason why the rule
should apply to printed bed linens (which are not dyed), but
not to non-printed bed linens (which are dyed). There is no
reason why the rules should apply to pre-filled comforters and
quilts, but not to comforter or quilt shells.
If H.R. 3066 is to truly address the concerns posed by the
WTO complaints which have been lodged against the Section 334,
URAA, rules of origin, it must be expanded in scope to cover
all home textile products.
3. H.R. 3066 Improperly Discriminates Against Products Made
from Certain Types of Fabrics.
Finally, there is no basis why new rules of origin should
apply to home textile and made-up products produced from
certain fabrics, but not to substantially identical articles
made from different fabrics. H.R. 3066 would arbitrarily
withhold new rules of origin from home textile and non-apparel
articles made from wool fabrics, cotton fabrics, or cotton
blend fabrics containing 16% or more by weight of cotton. There
is absolutely no basis in fact for making such a distinction.
The process of transforming cotton fabrics into home textile
products, for example, is precisely the same as the process for
transforming man-made fiber fabrics into such products. It
would be arbitrary and unreasonable for Congress to enact
legislation extending a rule of origin to goods made from some
types of fabrics, but not to others. Indeed, we are aware of no
instance in which the pre-URAA rules of origin or Customs
administrative rulings made any distinction in the rules of
origin applied to products based on the composition of the
fabrics used therein.
Conclusion
Pac-Fung Feather Company and Natural Feather & Textiles,
Inc. enthusiastically support the restoration of pre-URAA rules
of origin for home textile and non-apparel textile products.
However, H.R. 3066, as currently drafted, would not accomplish
this goal. While the bill may (or may not) resolve the ongoing
World Trade Organization complaint filed by the European Union,
it would leave the U.S. vulnerable to further challenges by
other trading partners.
The URAA's application of a ``fabric forward'' origin rule
for home textile products has had unintended trade-distorting
effects, while providing no real benefits to U.S.
manufacturers. Restoration of the pre-URAA rules of origin for
these products is appropriate, but H.R. 3066 in its present
form would not accomplish this goal. The legislation should be
expanded and modified in order to authorize the Secretary of
the Treasury to promulgate regulations which would truly
restore the pre-URAA origin rules for these products.
Please contact the undersigned if we can furnish any additional
information or assistance concerning this legislation.
Very truly yours,
JOHN M. PETERSON
Counsel to Pac Fung Feather Company &
Natural Feather & Textiles, Inc.
JMP/mh
cc: Mr. Hamen Fan
Neville, Peterson & Williams
New York, NY 10004
October 29, 1999
Our File: 2324-01
VIA FEDERAL EXPRESS
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Attention: A.L. Singelton, Chief of Staff
Re: Comments Of WestPoint Stevens, Inc. Concerning H.R. 3066
Dear Esteemed Committee Members:
These comments are filed on behalf of WestPoint Stevens, Inc.
(``WestPoint'') of West Point, Georgia concerning H.R. 3066, a bill
proposed to amend the rules of origin for textile products set forth in
19 U.S.C. Sec. 3592. WestPoint is the largest U.S. manufacturer of
sheets and towels, and its business will be directly impacted by this
bill. Accordingly, WestPoint asks that the Committee consider its
comments in deciding whether to enact H.R. 3066 as currently drafted.
1. Executive Summary
A. The rules of origin for textile products should apply
equally to fabric woven in the United States that is exported
for processing abroad. Such is not the case under 19 U.S.C.
Sec. 3592. Congress should use this bill to clarify that U.S.
origin fabric is accorded equal treatment in origin
determinations.
B. The bill should clarify whether an importer can combine
operations in subparagraph 3(B)and 3(C) in making an origin
determination.
C. The exclusion of cotton rich sheets and towels from
subparagraph 3(C) is unreasonable.
2. WestPoint Stevens
WestPoint is the largest domestic manufacturer of sheets
and towels. It employs approximately 17,000 people in the
domestic textile industry, and produces approximately 5,000
miles of fabric each day in the United States. WestPoint has
manufacturing facilities in Alabama, Florida, Georgia, Maine,
North Carolina and South Carolina.
Despite its commitment to producing quality products in the
United States, WestPoint is a global company. It exports U.S.
origin fabric for purposes of printing abroad. Printing may be
performed outside of the United States due to the fact that
certain patterns require the use of equipment that is located
abroad, or domestic printing equipment is being utilized to
create other patterns. In addition to exporting U.S. origin
fabric for certain processing operations, WestPoint imports
sheets and towels that are produced abroad from foreign origin
and domestic origin fabric.
3. Overview of the Country of Origin Laws Affecting Sheets and Towels
Prior to 1985, the country of origin of sheets and towels
was determined by the substantial transformation test, which
applies to all imported products. Thus, if fabric was woven in
Country A, stenciled with cut marks and a design in Country A,
and embroidered in Country A, and then exported to Country B
for purposes of cutting and sewing into a completed pillow
case, the pillow case would be considered to be a product of
Country B, because the fabric was substantially transformed
into a new article of commerce (a pillow case) in that
country.\1\
---------------------------------------------------------------------------
\1\ Belcrest Linens v. United States, 741 F.2d 1368 (Fed. Cir.
1984).
---------------------------------------------------------------------------
In 1985, the United States Customs Service promulgated
regulations governing the origin of textile products. These
regulations, which are set forth in 19 C.F.R. Sec. 12.130,
contain an extensive list of factors to be considered in
determining the origin of textile products, and provide
examples of operations that would, and would not, effect a
change in origin. With respect to fabric, the regulations
required that, in order for fabric to undergo a change in
origin, the fabric must be both dyed and printed in the second
country of production, plus the fabric had to be subjected to
at least two designated finishing operations.
With respect to sheets, Customs required that the fabric be
cut to width and length in the second country of production,
and that an additional substantial sewing operation be
performed in that country, such as attaching a separate hem to
the body of the sheet.\2\
---------------------------------------------------------------------------
\2\ See, General Notice Modification of Customs Ruling Letters
Relating to the Country of Origin of Sheets, published in the Customs
Bulletin on April 5, 1995.
---------------------------------------------------------------------------
In December of 1994, the rules of origin were changed
again. Now, sheets and towels are considered to be products of
the country where the fabric was woven. 19 U.S.C. Sec. 3592.
The only exception to this ``fabric forward'' rule of
origin for sheets and towels is where fabric is woven in the
United States. When U.S. origin fabric is exported for purposes
of dyeing or printing, the returning fabric is considered to be
a product of the country of dyeing or printing. If this
returned fabric is then used in the production of a sheet in
the United States, the Customs Service requires that the
finished sheet be marked as a ``Product of'' the country where
the dyeing/printing operation occurs. Clearly, 19 U.S.C.
Sec. 3592 produces absurd and anomalous results. A sheet
manufactured in the United States, from fabric woven in the
United States from cotton grown in the United States, must
nonetheless be labeled as a foreign origin product, if the
fabric was dyed or printed abroad.
The Federal Trade Commission, the agency with general
authority over ``Made in U.S.A.'' claims and the labeling of
textile products pursuant to the Textile Fiber Products
Identification Act, has deferred to Customs' origin
determinations as they apply to textile products, including
those produced in the United States from foreign origin fabric,
or U.S. origin fabric that was exported for purposes of
processing. 63 Federal Register 7508 (February 13, 1998).
4. WestPoint's Comments
A. The Rules of Origin Should Equally Apply To U.S. Origin
Fabric
As indicated above, the Customs Service does not follow the
fabric forward rule of origin for sheets and towels when the
fabric is formed in the United States. The basis for Customs'
unequal treatment of fabric formed in the United States was
stated in Customs Headquarters Ruling 959501 (August 9, 1996).
In this administrative determination, Customs held that U.S.
origin fabric that was exported to Japan or South Korean for
finishing operations lost its status as a product of the United
States when it was returned to this country. Customs claimed
that this requirement was dictated by 19 C.F.R. Sec. 12.130
even though these regulations had been supplanted by 19 U.S.C.
Sec. 3592. A copy of this administrative ruling is attached as
Exhibit A. Similar rulings have been issued with respect to
U.S. origin fabric exported for use in the production of
bedding products abroad.\3\ In these rulings, the agency has
held that the fabric forward rule of origin for bedding
products does not apply when the fabric is formed in the United
States.
---------------------------------------------------------------------------
\3\ See, Customs Headquarters Ruling 959547 (August 22, 1996);
Customs Headquarters Ruling 959779 (October 24, 1996).
---------------------------------------------------------------------------
The language Congress chose in drafting 19 U.S.C. Sec. 3592
is clear. This statute commences by stating: ``Except as
otherwise provided by statute . . .'' In Customs'
interpretation of the textile country of origin rules as they
apply to U.S. origin fabric exported for purposes of processing
abroad, the agency has elevated a regulation to the same
stature as a Congressionally enacted statute. Although
WestPoint has filed comments with Customs addressing this
issue, the agency has failed to respond to WestPoint's
comments.
WestPoint urges Congress to take this opportunity to ensure
that all fabrics are equally treated under 19 U.S.C. Sec. 3592
in rendering origin determinations. There is no basis for
treating U.S. origin fabric differently than fabric woven in
any other country. Indeed, this discriminatory treatment has
placed U.S. fabric producers, such as WestPoint, at a distinct
disadvantage in the global marketplace. If a sheet manufacturer
in Country A (a quota country) has the option of purchasing
fabric woven in Country B or fabric woven in the United States,
and Country B is a non-quota country, the foreign manufacturer
will select fabric woven in Country B in order to avoid quota
requirements that would apply if U.S. origin fabric was
utilized.
By eliminating this discriminatory treatment of fabric
formed in the United States, Congress will open up export
opportunities for fabric woven in the United States. It will
also correct the absurd result that a sheet produced in the
United States from fabric woven in the United States must be
marked as foreign origin product simply because the fabric was
subjected to printing operations abroad.
B. The Bill Should Clarify Whether An Importer Can Combine
Subparagraph 3(B) and 3(C) In Rendering Origin Determinations
H.R. 3066 specifies that, with respect to fabric, a change
in origin occurs when the fabric is subjected to the following
operations in the second country of production: dyeing and
printing plus two or more of the following operations:
bleaching, shrinking, fulling, decating, permanent stiffening,
weighting, permanent embossing or moiring. Subparagraph 3(B).
Subparagraph 3(C) applies to a limited class of home
textile products. It is unclear from the existing language of
H.R. 3066 what will occur if fabric satisfies the requirements
of subparagraph 3(B) and the fabric is then used abroad to
produce a finished home textile product that is not classified
in one of the designated provision in subparagraph 3(C).
For example, assume WestPoint subjects Indonesian fabric to
dyeing and printing operations (plus two or more of the
designated finishing operations) in Italy, and then uses this
fabric in the production of a finished sheet in Italy. It
appears from the existing language that, although the fabric
may have undergone a change in origin, because the finished
sheet is not classified under one of the designated provisions
in subparagraph 3(C), the sheet would not be considered to have
undergone a change in origin. Thus, if WestPoint shipped the
dyed and printed fabric to the United States for use in the
production of a sheet, the sheet produced in the United States
would be marked ``Made in Italy,'' and if this same fabric were
used in the production of a sheet in Italy, the finished sheet
would be marked ``Made in Indonesia.''
WestPoint asks that the Committee clarify whether an
importer can combine the new rules of origin set forth in
subparagraphs 3(B) and 3(C) in origin determinations.
C. H.R. 3066 Unreasonably Discriminates Against Cotton Rich
Sheets and Towels.
Subparagraph 3(C) of H.R. 3066 carves out an exception from
the existing fabric forward rule of origin for sheets and
towels, provided that these products are in chief weight man-
made fibers. The majority of sheets sold in the United States
are in chief weight cotton. Thus, these products will not be
affected by subparagraph 3(C) of H.R. 3066.
If Congress is of the opinion that sheets and towels in
chief weight man-made fibers undergo a change in origin by
being subjected to dyeing and printing operations abroad, the
same rule should apply to sheets and towels in chief weight
cotton fibers. There is no basis for discriminating between
products based on fiber composition. The products are produced,
used and sold in the same manner. Yet, the proposed bill
creates two different results. Neither result conforms with the
stated purpose of the bill, which is to revert the rule of
origin for these products to those in effect prior to the
enactment of 19 U.S.C. Sec. 3592 (cutting and substantial
sewing).
When the United States signed the Uruguay Round Agreement,
it entered into the Agreement on Rules of Origin. Article 2 of
the Agreement requires that origin rules:
be administered in a consistent, uniform, impartial and
reasonable manner.
Subparagraph 3(C) of H.R. 3066 does not comport with the United
States' obligations under the Uruguay Agreement on Rules of
Origin. It establishes two different rules for the exact same
product, produced in the exact same manner. Such as result
cannot be considered uniform, impartial or reasonable.
WestPoint submits that a single rule of origin should
apply for determining the origin of sheets, and the rule of
origin should not be based on fiber composition. Production
methods alone should govern origin determinations, and Congress
should consider reverting to the old origin rules, which were
based on cutting and sewing. Such a rule should be adopted only
after consultation with the home textile industry.
5. Conclusion
The rules for determining the origin of home textile
products have changed three times within the last fifteen
years. Each change requires that WestPoint adopt new production
methods, and create new packaging materials and labels for the
exact same product.
The existing rules of origin, and their administration,
place U.S. origin fabric producers at a distinct disadvantage
in the global marketplace. Congress should amend this result.
The proposed rules of origin set forth in H.R. 3066 do not
revert the rules of origin for home textile products to those
in effect prior to the enactment of 19 U.S.C. <'3592. Rather,
H.R. 3066 creates disparate rules depending upon fibers used in
the production of sheets and towels. Such a rule is
inconsistent with the United States obligations under
international treaties, and is arbitrary and unreasonable.
While WestPoint agrees that changes to the rules of origin are
warranted and notes that the existing rules in effect in the United
States are inconsistent with those in effect in other industrialized
countries, it believes that the Committee should first consult with the
home textile industry before it enacts such legislation.
Respectfully submitted by:
Margaret R. Polito
Attorney For WestPoint Stevens Inc.
Exhibit A
HQ 959501
August 9, 1996
CLA-2 RR:TC:TE 959501 CAB
CATEGORY: Classification
Mr. Ryden Richardson, Jr.
Carmichael International Service
533 Glendale Boulevard
Los Angeles, CA 90026-5097
RE: Country of origin of woven cotton fabric; Section 102.21(c)(2),
Customs Regulations; Section 12.130(c)
Dear Mr. Richardson:
This is in response to your inquiry of March 4, 1996, requesting a
country of origin determination for woven cotton fabric pursuant to
Section 102.21, Customs Regulations. There were no samples provided for
examination.
FACTS:
Cotton fabric is woven in the United States and exported in
the greige state to Japan or South Korea. In either South Korea
or Japan, the greige fabric is subject to further processing in
twelve different combinations. These combinations are as
follows:
1. Scour and dye
2. Scour and print
3. Scour, dye and print
4. Scour, bleach and dye
5. Scour, bleach, dye and print
6. Scour, mercerize, sanforize and dye
7. Scour, bleach and print
8. Scour, bleach, mercerize, sanforize and print
9. Scour, mercerize, sanforize and print
10. Scour, mercerize, sanforize, dye and print
11. Scour, bleach, mercerize, sanforize and dye
12. Scour, bleach, mercerize, sanforize, dye and print
Following the above processing, the fabric will be returned
as piece goods to the United States.
ISSUE:
What is the country of origin of the subject fabric?
LAW AND ANALYSIS:
Pursuant to Section 334 of the Uruguay Round Agreements Act
(codified at 19 USC Section 3592), new rules of origin were
effective for textile products entered, or withdrawn from
warehouse, for consumption on or after July 1, 1996. These
rules were published in the Federal Register, 60 Fed. Reg.
46188 (September 5, 1995). Section 102.21, Customs Regulations
(19 CFR Section 102.21), sets forth the general rules to
determine country of origin. Thus, the country of origin of a
textile product will be determined by a hierarchy of rules set
forth in paragraphs (c)(1) through (c)(5) of Section 102.21.
Section 102.21(c)(1) sets forth the general rule for
determining the country of origin of a textile or apparel
product in which the good is wholly obtained or produced in a
single country, territory, or insular possession. As the
subject fabric is not wholly obtained or produced in a single
country, territory, or insular possession, Section 102.21(c)(1)
is inapplicable.
Section 102.21(c)(2) provides for instances where the
country of origin of a textile or apparel product cannot be
determined under paragraph (c)(1) of this section. Section
102.21(c)(2) states:
Where the country of origin of a textile or apparel product
cannot be determined under paragraph (c)(1) of this section,
the country of origin of the good is the single country,
territory, or insular possession in which each foreign material
incorporated in that good underwent an applicable change in
tariff classification, and/or met any other requirement,
specified for the good in paragraph (e) of this section.
Section 102.21(e) states ``The following rules shall apply
for purposes of determining the country of origin of a textile
or apparel product under paragraph (c)(2) of this section:''
5208-5212A change to heading 5208 through 5212 from any
heading outside that group provided the change is the result of
a fabric-making process.
As the fabric is not wholly obtained or produced in a
single country, we must apply Section 102.21(c)(2) and the
applicable requirement of Section 102.21(e) to the proposed
scenario to determine the country of origin of the subject
fabric. In this instance, the fabric is woven in the United
States and it is then transported to South Korea or Japan where
it is subject to various manufacturing operations in twelve
different combinations. The fabric is classifiable in Heading
5208, HTSUSA. Pursuant to the applicable provisions of Section
102.21(e), the country of origin of the fabric is the United
States, the country where the fabric was formed by a fabric-
making process.
However, there is an exception for products from the United
States that are sent abroad for processing. Section 12.130(c),
Customs Regulations, provides that any product of the United
States which is returned after having been advanced in value or
improved in condition abroad, or assembled abroad, shall be a
foreign article. In this case, fabric woven in the United
States is exported in its greige state to Japan or South Korea
where it is subject to multiple processing operations that
result in the fabric being improved in condition and advanced
in value.
Section 12.130 which remains in effect was originally
intended to be used to determine the country of origin of
textiles and textile products for quota/visa requirements. In
Treasury Decision (``T.D.'') 90-17, issued February 23, 1990,
Customs announced a change in practice and position. This
change resulted in Customs using Section 12.130 for quota,
duty, and marking purposes when making country of origin
determinations for textile goods. Therefore, in accordance with
T.D. 90-17 and Section 12.130(c), the country of origin of the
subject fabric for quota, marking, and duty purposes is Japan
or South Korea, the country where the additional processing
occurs.
With respect to your request as to advice on the country of
origin labeling requirements for the subject merchandise,
Customs recently ruled in Headquarters Ruling Letter (HRL)
559625, dated January 19, 1996, that the origin rules set forth
in 19 USC Section 3592 govern the labeling requirements of
textile and apparel products for purposes of the country of
origin marking requirements of 19 U.S.C. Sec. 1304. Also as
noted above, Section 12.130(c) is still considered to be
applicable for quota, marking, and duty purposes. As a result,
the country of origin for the subject fabric is Japan or South
Korea and it must be so marked pursuant to 19 U.S.C. Sec. 1304.
However, it is important to note that the holding in HRL 559625
is currently under review regarding the manner and specificity
of the marking requirements.
You also inquire about the documentation required at entry.
You ask the following:
1. Will entry require presentation in the entry summary of
a textile visa issued by the government of the country where
processing, as outlined in 1 through 12 above, has occurred?
Entry will require a textile visa from the country of
origin, in this instance, either, South Korea or Japan in the
entry summary.
2. What country of origin should be identified in the label
attached to the returning piece goods, U.S.A. or the country
wherein processing occurred?
As stated above, pursuant to 19 U.S.C. Sec. 1304, the
country of origin of the subject fabric is South Korea or Japan
and the fabric may be marked ``Made in South Korea'' or ``Made
in Japan.''
3. Other than a visa, will entry documents other than a
commercial invoice and packing list be required, e.g., a
country of origin declaration, as described in 19 C.F.R.
Sec. 12.130(f)?
In accordance with 19 C.F.R. Sec. 12.130(f), as the subject
fabric is an imported textile subject to section 204
Agricultural Act of 1956, as amended, it should be accompanied
by the appropriate declaration(s) set forth in paragraph (f)(1)
or (f)(2) of Section 12.130, including a country of origin
declaration.
HOLDING:
The country of origin of the subject fabric is Japan or
South Korea.
The holding set forth above applies only to the specific
factual situation and merchandise identified in the ruling
request. This position is clearly set forth in section 19
C.F.R. Sec. 177.9(b)(1). This section states that a ruling
letter is issued on the assumption that all of the information
furnished in the ruling letter, either directly, by reference,
or by implication, is accurate and complete in every material
respect.
Should it be subsequently determined that the information furnished
is not complete and does not comply with 19 C.F.R. Sec. 177.9(b)(1),
the ruling will be subject to modification or revocation. In the event
there is a change in the facts previously furnished, this may affect
the determination of country of origin. Accordingly, if there is any
change in the facts submitted to Customs, it is recommended that a new
ruling request be submitted in accordance with 19 C.F.R. Sec. 177.2.
Sincerely,
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