CLA-2 CO:R:C:S 556356 SER
Stephen M. Zelman, Esq.
271 Madison Avenue
New York, NY 10016
RE: "Product of the U.S." requirement under U.S. Note 2(b),
subchapter II, Chapter 98, HTSUSA; substantial
transformation; processing of certain plastics material in
the U.S.
Dear Mr. Zelman:
This is in reference to your letter of October 25, 1991, on
behalf of Carter Footwear, Inc. (Carter), requesting a ruling on
the "product of the U.S." requirement under U.S. Note 2(b),
subchapter II, Chapter 98 of the Harmonized Tariff Schedule of
the United States Annotated (HTSUSA), relating to certain
plastics material known as "dry blend".
FACTS:
Carter produces dry blend, which is used in the manufacture
of the soles of shoes, in the U.S. The process involves the
blending of 10 different ingredients (e.g. synthetic rubbers,
plastics, anti-oxidants, pigments, and chemical compounds), and
requires precise quantity and temperature controls. Nine of the
ingredients, comprising approximately 84% by weight of the dry
blend, are of U.S. origin. The remaining ingredient, known as
411X, comprises approximately 16% of the dry blend and is of
foreign origin. It is also used in the manufacture of adhesives,
caulking compounds, and as an asphalt modifier.
After the dry blend is produced in the U.S., it is shipped
to the Dominican Republic where it is extruded into a mold to
create soles for footwear.
ISSUE:
Whether the operations performed in the U.S. in the
production of the dry blend from U.S. and foreign-origin
materials are sufficient to transform the foreign materials into
a "product of the U.S." for purposes of U.S. Note 2(b),
subchapter II, Chapter 98, HTSUSA.n-2-
LAW AND ANALYSIS:
Section 222 of the Customs and Trade Act of 1990 (P.L. 101-
382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA,
("Note 2(b)") to provide for duty-free treatment of articles
other than certain specified products, which are assembled or
processed in a Caribbean Basin Initiative beneficiary country
(BC) wholly of fabricated components or ingredients (except
water) of U.S. origin.
Specifically, Note 2(b) provides as follows:
(b) No article (except a textile article, apparel article,
or petroleum, or any product derived from petroleum,
provided for in heading 2709 or 2710) may be treated as a
foreign article, or as subject to duty, if-
(i) the article is--
(A) assembled or processed in whole of fabricated
components that are a product of the United
States, or
(B) processed in whole of ingredients (other than
water) that are a product of the United
States, in a beneficiary country; and
(ii) neither the fabricated components, materials or
ingredients, after exportation from the United
States, nor the article itself, before importation
in the United States, enters the commerce of any
foreign country other than a beneficiary country.
As used in this paragraph, the term "beneficiary country"
means a country listed in General Note 3(c)(v)(A), HTSUSA.
To qualify for Note 2(b) duty-free treatment, an eligible
article must be assembled or processed in a BC entirely of
components or ingredients that are a "product of the U.S." An
article manufactured within the Customs Territory of the U.S. is
considered a product of the U.S. Foreign-origin articles or
materials may become products of the U.S. if they undergo a
process of manufacture in the U.S. which results in a substantial
transformation. See sections 10.12(e) and 10.14(b), Customs
Regulations (19 CFR 10.12(e) and 10.14(b)). The test for
determining whether a substantial transformation occurs is
whether an article emerges from a process with a new name,
character, or use different from that possessed by the article
prior to processing. Texas Instruments, Inc. v. U.S., 69 CCPA
152, 681 F.2d 778, 782 (1982).
n -3-
Based on the information provided, it is our opinion that
the blending of the various materials in the U.S. through the
operations of controlled heating and mixing, substantially
transforms the materials into an article (the dry blend) which
emerges with a new name, character and use.
In determining if an article emerges with a new character or
use, Customs and the courts have examined several factors. In
Headquarters Ruling Letter (HRL) 555247 dated January 11, 1990,
Customs examined whether processing changed an article which was
capable of multiple uses to one with a more limited use. In the
instant case, the foreign ingredient, upon importation into the
U.S., is stated to be capable of use in the production of
caulking compounds, adhesives, asphalt, as well as for use in the
production of the dry blend. After the blending operation, the
foreign ingredient's only use as part of the dry blend is
ultimately in the manufacture of soles for shoes. Another factor
which indicates a substantial transformation is whether the
materials, in the process of manufacture, lose their identity and
become an integral part of a new article. Belcrest Linens v.
U.S., 573 F.Supp. 1149 (CIT 1983), 741 F.2d 1368, 1373 (Fed.Cir.
1984). The foreign material, 411X, clearly loses its individual
identity when combined with the other ingredients and it clearly
becomes an integral part of the dry blend.
HOlDING:
The foreign ingredient, 411X, is substantially transformed
during the blending process in the U.S., and, therefore, the dry
blend is considered to be a "product of the U.S." for purposes on
U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA.
Sincerely,
John Durant, Director