[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 
in electronic form. The printed record of written comments remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing/written comments 
record, the process of converting between various electronic formats 
may introduce unintentional errors or omissions. Such occurrences are 
inherent in the current publication process and should diminish as the 
process is further refined.



                            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.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record should submit six (6) single-spaced copies of 
their statement, along with an IBM compatible 3.5-inch diskette in 
WordPerfect 5.1 format, with their name, address, and comments date 
noted on label, by the close of business, Monday, November 1, 1999, to 
A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House 
of Representatives, 1102 Longworth House Office Building, Washington, 
D.C. 20515.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
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but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
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rely on electronic submissions for printing the official hearing 
record.
      
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be accepted for printing. Instead, exhibit material should be 
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these specifications will be maintained in the Committee files for 
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    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
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will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
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and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

                                


               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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