CLA-2 CO:R:C:S 557149 BLS
Steven S. Weiser, Esq.
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
1515 Broadway
New York, New York 10036
RE: United States-Israel FTA; substantial transformation;
denim jeans; textile articles; assembly; imported
directly; entry into the commerce; manipulation;
19 CFR 10.214, 12.130; HRL 556104, 555489, 555398, 071575
Dear Mssrs. Weiser & Bodek:
This is in reference to your letter dated February 10, 1993,
and subsequent correspondence, requesting a ruling as to the
eligibility of certain women's denim jeans imported from Israel for
duty-free treatment under the United States-Israel Free Trade
Implementation Act of 1985 ("Israel FTA"). See, General Note
3(c)(vi), Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
Your client, Liz Claiborne, Inc. ("LCI"), is contemplating the
importation of two women's 100% cotton woven denim jeans from
Israel, style nos. 261001 and 9035402. Each garment features a fly
front with zipper closure, a button closure at the waistband, two
rear patch pockets, two scoop front pockets and a coin pocket
within the right scoop pocket; each front pocket is reinforced by
means of a single metal rivet. As noted above, each garment is
identical in every material respect other than fabric weight.
Style no. 2610001 is constructed of a 12 ounce denim fabric while
Style no. 9035402 is constructed of a 14 ounce denim fabric.
The components of each of the garments (exclusive of trim)
will be manufactured from greige fabric woven in Israel from
Israeli origin yarns. The Israeli origin fabric will be dyed and
precisely cut to size and shape in Israel to form each of the
numerous components of each garment. At least fourteen distinct
components for each style will be produced in Israel.
The various components cut to size and shape in Israel, from
fabric woven and dyed in Israel, will be sent to China for
assembly. In China, the various garment components produced in
Israel will be joined together by means of simple machine-sewing
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operations such as joining and setting the leg components, setting
the belt loops, sewing the crotch, etc. Moreover, certain trim
articles and packing materials, of Chinese or Hong Kong origin,
will also be attached to (or used to pack) the subject garments.
Such articles are limited to pocket linings, buttons, zippers,
rivets, leather patches, labels, hangtags, polybags and cartons.
With the exception of the pocket linings, all of the trim articles
and packing materials will be acquired by the Chinese assembler of
the subject garments in a finished condition ready to be affixed
to the garments. It is understood that the pocket linings are to
be cut in China from Chinese or Hong Kong origin fabric.
After the finished garments have been assembled from the
numerous components cut to size and shape in Israel (and the
foreign origin trim articles), they will be stone-washed, pressed,
inspected and packaged for shipment back to Israel. Upon arrival
in Israel, the shipment will be unladen from the vessel and cleared
through Israeli Customs. The complete shipments will then be
transported (not in bond) to the premises of the Israeli
manufacturer (i.e.), the Israeli cutting facility), a distance in
excess of fifty miles, which is neither a bonded location nor
otherwise under the control of the local Customs authorities. The
contemplated contract between LCI and the Israeli cutter will
require that each shipment of Style nos. 2610001 and 9035402 be
subjected to a commercial inspection, and that inspection
certificates be issued in connection therewith (i.e., a separate
inspection certificate will be issued for each shipment). Such
inspections are to be performed by employees of the Israeli
manufacturer prior to direct shipment of the merchandise to the
United States.
The inspection to be performed will be consistent with common
commercial practice (and with the contract between LCI and the
Israeli manufacturer). With respect thereto, each shipment will
be examined in accordance with Military Standard 105-D, which you
believe to be perhaps the most widely accepted statistical sampling
plan in the world today. Such standard provides for the physical
examination of a given number of units for each lot size in order
to effect a commercial inspection of the entire lot. The precise
number of units which will be examined will be primarily dependent
upon two factors: 1) the size of the shipment; and 2) the results
observed of the garments initially examined. For example, if the
lot size is between 501 and 1,200 garments, 50 units will be
examined. If the defects number two or less, the shipment will be
accepted. If three or four defective units are found, then an
additional 50 units must be physically examined. If, after
examining the second 50 units, a total of 6 or fewer units (of the
100 units) are found to be defective, the entire shipment is to be
accepted. Conversely, if 7 or more units are found to be
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defective, then the entire shipment is subject to rejection.
The inspection itself will be a full quality assurance
inspection. Specifically, each garment examined will be removed
from its shipping container, separated from its individual
packaging, unfolded and laid out on a table. Each such garment
will then be physically examined for size specifications, color,
quality workmanship, fabric shading, etc. The inspection (both in
terms of number of units examined as well as degree of examination)
will be the same as that utilized by LCI in connection with its own
purchases of apparel articles. In addition, you advise that it is
LCI's intention to submit, in connection with each entry of the
merchandise covered by the ruling application, a written
certification that such goods have been inspected in Israel
pursuant to Military Standard 105-D prior to their direct shipment
from Israel to the United States. Such certification will appear
in substantially the following format:
This is to certify that all goods
covered by this invoice have been
inspected in Israel pursuant to
Military Standard 105-D.
The Israeli manufacturer will be contractually liable to LCI
for any defective goods it delivers. While LCI is not privy to any
contractual arrangements between the Israeli menufacturer and the
Chinese assembler, in accordance with normal commercial
transactions, it is contemplated that claims would be made by the
Israeli manufacturer against the Chinese assembler with respect to
any unacceptable merchandise.
ISSUES:
1) Whether the imported articles will be classifiable under
an Israeli FTA-eligible provision.
2) Whether the imported garments will be considered a product
of Israel.
3) Whether the articles will be "imported directly" to the
U.S. from Israel.
4) Whether the imported articles will satisfy the value-
content requirements of the statute.
LAW AND ANALYSIS:
Under the Israel FTA, eligible articles the growth, product,
or manufacture of Israel which are imported directly to the U.S.
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from Israel qualify for duty-free treatment, provided the sum of
1) the cost or value of materials produced in Israel, plus 2) the
direct costs of processing operations performed in Israel is not
less than 35 percent of the appraised value of the article at
the time it is entered. See, General Note 3(c)(vi), HTSUSA.
1) Classification
In our opinion, the garments are properly classifiable under
subheading 6204.62.40, HTSUS, "Women's other cotton woven trousers
bib and brace overalls, breeches and shorts", an Israel FTA-
eligible provision.
2) Product of Israel
Section 12.130, Customs Regulations (19 CFR 12.130) is
concerned with the country of origin of textiles and textile
products. Pursuant to 19 CFR 12.130(b), a textile or textile
product is considered to be a product of the country where it last
underwent a substantial transformation ("S.T."). A textile or
textile product is considered to have undergone an S.T. if it has
been transformed by means of substantial manufacturing or
processing operations into a new or different article of commerce.
The following will be considered in determining whether
merchandise has been subjected to substantial manufacturing or
processing operations: 1) the physical change in the material or
article; 2) the time involved; 3) the complexity of the operations;
4) the level or degree of skill and/or technology required; 5) the
value added to the article in each country or territory. Any one
or a combination of these factors may be determinative and other
factors may also be considered. 19 CFR 12.130(d).
Examples of processes which generally will result in an S.T.
and those which usually will not are set forth in 19 CFR 12.130(e).
Thus, the cutting of fabric into parts and the assembly of those
parts into the completed article in a foreign country will usually
result in an S.T. of the fabric so as to confer country of origin
status. Also considered to be an S.T. would be a substantial
assembly by sewing and/or tailoring of all cut pieces of apparel
articles which have been cut from fabric in another foreign
territory or country, or insular possession into a completed
garment (e.g., the complete assembly and tailoring of all cut
pieces of suit-type jackets, suits, and shirts.) (19 CFR
12.130(e)(1).)
However, operations which ordinarily will not transform an
article into a product of a foreign country include (1) trimming
and/or joining together by sewing, looping, linking, or other means
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of attaching otherwise knit-to-shape component parts produced in
a single country, even when accompanied by other processes (e.g.,
washing, drying, mending, etc.) normally incident to the assembly
process; and (2) one or more finishing operations on yarns,
fabrics, or other textile articles, such as showerproofing,
superwashing, bleaching, decating, fulling, shrinking, mercerizing,
or similar operations. (19 CFR 12.130(e)(2)(iii) and (iv)).
In HRL 556104, dated September 10, 1991, cotton fabric was cut
into panels and then sewn together to form men's trousers. The
sewing operation included hemming, lock stitching, fashioning
pockets, and applying buttons and zippers. The issue was whether
the trousers should be accorded duty-free treatment under General
Note 3(a)(iv), HTSUS. We found that 19 CFR 12.130(e)(1)(v) was not
applicable to the assembly operation involved, as the sewing, etc.
was not as substantial, complex or meaningful as the assembly of
suit-type jackets, suits, or shirts. (However, we held in that
case that the overall processing operation, which included cutting
the foreign fabric into components, and assembly of the trouser
panels, resulted in an S.T. of the foreign fabric.) (See, also, HRL
555489, dated May 14, 1990, sewing together of foreign glove parts
is insufficient to substantially transform the glove components
into a product of the Philippines.)
There is no question as to whether the pre-cut component parts
of the denim jeans are the product of Israel upon exportation to
China; the components themselves are cut from Israeli fabric woven
from Israeli yarn. Furthermore, based on the cited regulations and
prior rulings, we find that the further processing in China does
not transform the pre-cut components into a product of that
country, as such operations are not substantial, complex, or
meaningful, but are the type of simple assembly and finishing
operations encompassed by 19 CFR 12.130(e)(2)(iii) and (iv).
Neither will the presence of the trim items of Hong Kong or Chinese
origin preclude treatment of the imported jeans as a product of
Israel assuming all other legal requirements are satisfied.
Accordingly, we find that the imported articles are considered
products of Israel for purposes of determining their eligibility
for duty-free treatment under the Israel FTA.
3) "Imported Directly"
Annex 3, paragraph 8, of the Israel FTA defines the words
"imported directly," as follows:
(a) Direct shipment from Israel to the U.S. without passing
through the territory of any intermediate country;
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(b) If shipment is through the territory of an intermediate
country, the articles in the shipment do not enter into the
commerce of any intermediate country while enroute to the
U.S., and the invoices, bills of lading, and other shipping
documents, show the United States as the final destination;
(c) If shipment is through an intermediate country and the
invoices and other documentation do not show the U.S. as the
final destination, then the articles in the shipment, upon
arrival in the U.S., are imported directly only if they:
(i) remain under control of the customs
authority in an intermediate country;
(ii) do not enter into the commerce of an
intermediate country except for the purpose
of a sale other than at retail, provided that
the articles are imported as a result of the
original commercial transaction between the
importer and the producer or the latter's
sales agent;
(iii) have not been subjected to operations
other than loading and unloading, and other
activities necessary to preserve the article
in good condition.
* * * *
We have held for purposes of the Generalized System of
Preferences (GSP) that merchandise is deemed to have entered the
commerce of an intermediate country if manipulated (other than
loading or unloading), offered for sale (whether or not a sale
actually takes place), or subjected to a title change in the
country. See HRL 071575, dated November 20, 1984. The definition
of "imported directly" under the GSP is very similar to that under
the FTA. See section 10.175, Customs Regulations (19 CFR 10.175).
In the instant case, the fabric components will be sent to
China from Israel for assembly by machine-sewing, attachment of
certain trim articles, and for stone-washing, pressing, inspection
and packaging. It is apparent that these operations constitute a
manipulation of the merchandise, and accordingly, the merchandise
is deemed to have entered the commerce of China. Therefore, the
merchandise will be considered to be "imported directly" from
Israel only if, upon its return from China, it re-enters the
commerce of, and then is directly shipped from, Israel to the U.S.
In HRL 555398, dated December 12, 1989, a certain spice grown
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in India was sent to Singapore for processing. The processed
shipment was placed on board a vessel which then proceeded to
India, en route to the U.S. The shipment did not leave the vessel
while it was docked in India. We held in that case that the
shipment was considered to have been "imported directly" from
Singapore, not India. In this regard, we noted that the word
"from," as commonly used, indicates a starting point, a point or
place of where an actual physical movement has its beginning, or
the place of origin. See Webster's Third International Dictionary
(Unabridged), 913 (1971). We pointed out that since the
merchandise did not leave the vessel in India, and had no
connection with that country, other than being aboard a vessel that
transited its port, the shipment was considered to have been
"imported directly" from Singapore, and not India. We also stated
the following:
"We believe that this result is consistent
with the statute and Customs Regulations.
To accept your claim would render the statutory
direct shipment requirement meaningless, for it
would allow merchandise to be "imported directly"
from the last foreign port at which the trans-
porting vessel stops before reaching the U.S.
* * * *
Customs Regulations clearly contemplate that if
an article is merely transshipped through a country,
it is not "imported directly" from that country, but
from the country from which the shipment originates.
.... To find that the merchandise is "imported
directly" from the country through which the
merchandise is merely transshipped would be, at
best, inconsistent with the Customs Regulations
defining the term."
Accordingly, in order to be "imported directly" from Israel,
the shipment upon its return from China (the country from which
this shipment originated) must enter the commerce of Israel, i.e.,
it must be manipulated in Israel. As noted, above, you have
advised that after assembly of the jeans in China, the shipment
will be returned to Israel, removed from the vessel and brought to
the manufacturer's facility, where cartons will be opened and
sample garments inspected, pursuant to contractual arrangement and
commercial practice, as described. If the shipment passes the
inspection, the samples will be repacked, the cartons sealed, and
the shipment returned to the dock to be loaded aboard a vessel for
shipment to the U.S. You have also advised that LCI will
submit, in connection with each entry of merchandise covered by the
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ruling request a written certification on each invoice that all
goods covered by the invoice have been inspected pursuant to the
commercially accepted statistical sampling procedure, "Military
Standard 105-D."
Under these facts, we find that there will be a manipulation
of the merchandise and therefore an entry into the commerce of
Israel of all the goods in each shipment. Therefore, these
articles will be considered to have been "imported directly" from
Israel into the U.S.
HOLDING:
Based on the information provided, we find that:
1) The imported articles will be classifiable under
subheading 6204.62.40, HTSUS, an Israel FTA eligible
classification.
2) Upon importation into the U.S., the imported garments
will be considered a product of Israel.
3) The imported articles will be considered to be "imported
directly" from Israel into the U.S. on condition that upon return
to Israel from China a) the goods are inspected in accordance with
the statistical sampling procedure known as Military Standard 105-
D, and b) a statement is included on each invoice that the
merchandise covered by the invoice has been inspected pursuant to
Military Standard 105-D.
4) The imported articles will qualify for duty-free treatment
under the Israel FTA, provided the sum of a) the cost or value of
the materials produced in Israel, plus b) the direct costs of
processing operations performed in Israel is not less than 35
percent of the appraised value of the articles at the time of
entry. Whether the 35 percent test is met must await actual entry
of the merchandise.
Sincerely,
John Durant, Director
Commercial Rulings Division