UNITED STATES v. OXFORD INDUSTRIES, INC., 668 F.2d 507 (C.C.P.A. 1981)

THE UNITED STATES, APPELLANT, v. OXFORD INDUSTRIES, INC., APPELLEE.

Appeal No. 81-21.United States Court of Customs and Patent Appeals.
December 30, 1981.

Stuart E. Schiffer, Acting Asst. Atty. Gen., Washington, D.C., David M. Cohen, Director, Joseph I. Liebman, Attorney-in-Charge, and Saul Davis, New York City, for appellant.

George R. Tuttle and Stephen S. Spraitzar, San Francisco, Cal., for appellee.

Appeal from the United States Court of International Trade.

Before MARKEY, Chief Judge, and RICH, BALDWIN, MILLER and NIES, Judges.

MILLER, Judge.

[1] This is an appeal from the judgment of the United States Court of International Trade in Oxford Industries, Inc. v. United

Page 508

States, 1 CIT ___, 517 F. Supp. 694 (1981), which sustained appellee’s claim that the imported merchandise was entitled to a duty allowance for long and short sleeved shirt collar band components and long sleeved shirt cuff components under item 807.00, Tariff Schedules of the United States (“TSUS”). We affirm.

[2] BACKGROUND
[3] The imported merchandise consists of men’s long and short sleeved shirts. The shirt components were produced in the United States and shipped to Mexico for assembly. The present controversy centers on buttonholing operations performed on the cuff and collar band components in Mexico[1] by a wholly owned subsidiary of appellant. The collar band components are a front, a back, and a lining. The components of each cuff are a front, a back, and a lining. After assembling the collar band and cuffs, one buttonhole was added to the collar band and two buttonholes were added to each cuff.[2]

[4] The buttonholing operation was performed in the sewing area of the factory by a machine which stitched and slit the cloth to form the buttonhole in one continuous operation; no fabric was removed by this process. Testimony established that the “standard allowed hours” factor (“SAH”)[3] attributable to sewing five buttonholes (one on the collar band and two on each cuff) was 2.89% of the total SAH of sewing the shirt. The SAH attributable to the buttonholing operation on the collar band was 8% of the SAH attributable to the stitching time required for the collar band. The SAH attributable to the buttonholing operation on the cuffs was 10% of the SAH attributable to the stitching time required for the cuffs.

[5] The parties entered into the following stipulation during the hearing before the Court of International Trade:

For the short sleeve shirts and long sleeve shirts in Exhibits 1-A and 1-B, the cost of adding the buttonholes is approximately equal to the cost of cutting the collar band components. That is part one. Two, for the long sleeve shirts, the cost of the four buttonholes in the two cuffs is slightly more than the cost of cutting six cuff components. [Each cuff consists of three components: a front, back, and lining.] Three, for the short sleeve shirts and long sleeve shirts, the cost of adding the buttonholes to the sewn collar band is approximately 8 per cent of the cost of the collar band component. Four, on the

Page 509

long sleeve shirts, the cost of adding the four buttonholes to the two cuffs is approximately 11 per cent of the cost of the six cuff components.

[6] The Customs Service classified the merchandise under item 380.84, TSUS,[4] and disallowed duty free treatment of the long and short sleeved shirt collar band components and long sleeved shirt cuff components under item 807.00, TSUS,[5] because these components were subjected to the buttonholing operations in Mexico.

[7] The Court of International Trade agreed with appellee that the components in issue were exempt from duty under the provisions of item 807.00, TSUS, and stated that Miles v. United States, 65 CCPA 32, C.A.D. 1202, 567 F.2d 979 (1978), and Mast Industries, Inc. v. United States, 1 CIT ___, 515 F. Supp. 43 (1981), “are dispositive of issues at bar,” adding that “What the court said in Mast applies equally to the facts at bar, namely, `Said operations were not such substantial changes as to constitute further fabrication. No new portion of the [shirts] was made, and the cost of performing these operations, in terms of both labor and expense was a small portion of the total cost of assembly.'”

[8] The government argues that the buttonholing operations were further fabrications required before the components could be considered complete, contrary to item 807.00(a), TSUS, and wer not incidental to the assembly process, contrary to item 807.00(c), TSUS.[6] According to the government, 807.00(a) and (c) are separate and distinct requirements and must be separately considered; further, time and cost production comparisons apply only to an 807.00(c) determination. Item 807.00(a) was not satisfied, the government argues, because buttonholing was required to complete the garments prior to sale and, therefore, in order to possess commercial utility, the merchandise must be subjected to further fabrication.[7]

Page 510

Regarding 807.00(c), the government asserts that if a new “function or utility” results from the buttonholing operation which does not facilitate the assembly process, then “it is a fabrication and it cannot be incidental to the assembly process.” Further, the government proposes that “if the cost and time analyses of the process in issue, when compared to the value of the component, discloses that it is substantial, e.g., it equals or exceeds the value of the component, then it is no longer `incidental to the assembly process,’ and it becomes a prohibitory advancement in value or improvement in condition.” (Footnote omitted.)

[9] Appellee stresses that the government has failed to defer to the language of the statute by arguing for a construction that is inconsistent with the express statutory language. It points out that there is no commercial utility requirement or “function and utility” test under item 807.00, TSUS; further, that here there was no preparatory processing of raw material before beginning the assembly process and, as such, the components were “ready for assembly without further fabrication” as required by 807.00(a). Alternatively, appellee argues that 807.00(a) has been complied with because buttonholing is considered by the trade to be an assembly process. Regarding 807.00(c), appellee argues that the evidence establishes that buttonholing is a minor operation which is incidental to the assembly process and is one of the cheapest, fastest, and most automatic operations concomitant with the assembly process.

[10] OPINION
[11] In support of its point that the buttonholing operation here was “further fabrication” for purposes of item 807.00(a), the government contends that fabrication “must mean a manufacturing or production operation, other than assembly, which creates
something new that must be done before assembly can be completed,” citing Zwicker Knitting Mills v. United States, 67 CCPA 37, C.A.D. 1240, 613 F.2d 295 (1980), where the out-of-country finger tipping operation completed the glove components in issue. However, we are persuaded that the buttonholing operation here, unlike the tipping operation i Zwicker, was not necessary to enable the components to enter the assembly process. Indeed, as related above, the components of the collars and cuffs were sewn together before the buttonholing operation.[8]

[12] As to item 807.00(c), we are further persuaded that the buttonholing operation was incidental to assembly of the collar and cuff components. Legislative history demonstrates the Congressional intent to permit duty-free treatment of a component manufactured in the United States if subjected to an operation “of a minor nature” occurring before, during, or after
assembly.[9]

Page 511

Here the buttonholing operation, which, with the buttons already in place, completed a closure device of the assembly, occurre after the collars and sleeves (with their buttons) had entered the assembly process, because it was necessary for the buttonholes to be lined up with the buttons to enable the assembled components to provide a proper fit.[10] We regard the buttonholing operation as “of a minor nature” considering both the cost and SAH factors relative to the collar and cuff components.[11]

[13] In view of the foregoing, we hold that, for the purposes of item 807.00, TSUS, the collar band components and cuff components of the involved merchandise were exported in condition ready for assembly without further fabrication and were not advanced in value or improved in condition abroad except by operations incidental to their assembly.

[14] The judgment of the Court of International Trade is affirmed.

Page 1211