CLA-2 CO;R;C;S 557647 BLS
Steven S. Weiser, Esq.
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
1515 Broadway
New York, New York 10036
RE: Eligibility of women's pullovers for United States-Israel
FTA; substantial transformation; assembly; imported directly
Dear Mssrs. Weiser and Bodek:
This is in reference to your letter dated October 21, 1993,
requesting a ruling as to the applicability of women's pullovers
imported from Israel for duty preference under the United States-
Israel Free Trade Implementation Act of 1985 ("Israel FTA"). See,
General Note 8, Harmonized Tariff Schedule of the United States
(HTSUS). An addendum to the request has also been submitted by fax
dated June 3, 1994.
FACTS:
Your client is contemplating the importation of two 100%
cotton knitted women's pullover garments from Israel, style nos.
30037 and 40351. Style no. 30037 is a long-sleeved garment
constructed of a ribbed fabric measuring approximately nine
stitches per two linear centimeters and features a V-neck (with no
opening in the neckline). Style no. 40351 is a short-sleeved
garment constructed from a knitted fabric measuring approximately
eleven stitches per two centimeters and features a rounded neck
(with no opening in the neckline) and a ribbed waistband and cuffs.
All of the components of each of the above garments (exclusive of
trim) will be knit-to-shape in Israel from Indian-origin yarns
which will be dyed in Israel.
1) Style No. 30037
The knit-to-shape components of this style, consisting of a
front, a back, two sleeves and a neck border, will be produced in
Israel in the form of vertical strips. Such strips will then be
separated in Israel (by removing a marker thread joining the
components) resulting in the individual garment components. Each
of the components knitted-to-shape and separated in Israel will
then be matched with its corresponding counterparts required to
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form a finished garment. Once the components have been so
segregated, they will be packaged for shipment to China.
In China, the knit-to-shape components produced in Israel will
be assembled by means of a simple looping operation. In addition,
certain Chinese origin trim items (i.e., shoulder pads, labels and
hang tags) will be affixed to the assembled garments. The finished
pullovers will then be washed and packaged for shipment back to
Israel.
In Israel, each entire shipment of assembled garments 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 knitting
facility), which is understood to be approximately two hours away
by truck, for inspection. This facility is neither a bonded
location nor otherwise under the control of the local Customs
authorities. You state that a full quality-assurance inspection
in accordance with Military Standard 105-D, a commercially
recognized statistical sampling procedure, will be conducted at
this facility. Such standard provides for the physical examination
of a given number of units (randomly selected) 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. Your client
also intends to include a statement on each applicable commercial
invoice certifying that goods have been inspected in Israel
pursuant to Military Standard 105-D. After the goods are thus
inspected in Israel, they will then be repacked and exported
directly to the U.S.
2) Style No. 40351
As with style 30037, the components of style no. 40351,
consisting of a front, a back, two sleeves and a collar, will
likewise will be knitted-to-shape in Israel from Indian-origin yarn
dyed in Israel. However, unlike style no. 30037, such yarn will
be knitted in Israel into connected strips of "patterned" fabric
already containing distinct lines of demarcation for each shaped
component. Each strip will bear cutting lines for a series of
repeating components pre-knit into the fabric. The strips are to
be separated vertically in Israel by removing a marker thread
inserted during the knitting process.
The individual strips of patterned fabric produced in Israel
will then be sent to China where the specific components will be
separated therefrom by means of running the pre-existing cutting
lines knit into the fabric in Israel over a blade. Once the
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components have been so separated, the remaining operations will
be identical to those described in connection with style no. 30037
(i.e., looping, affixing trim items, washing and packing in China,
inspection in Israel followed by direct exportation to the U.S.)
ISSUES:
1) What is the tariff classification of the imported garments?
2) Whether the imported garments will be considered a "product
of" Israel for purposes of the Israel FTA.
3) Whether the articles will be "imported directly" to the
U.S. from Israel for purposes of the Israel FTA.
LAW AND ANALYSIS:
Under the Israel FTA, eligible articles which are the growth,
product, or manufacture of Israel and are imported directly to the
U.S. from Israel qualify for duty-free treatment or a duty
preference, 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 8, HTSUS.
1) Classification
In our opinion, the garments are properly classifiable under
subheading 6110.20.20, HTSUS, which provides for "Sweaters,
pullovers..., and similar articles, knitted or crocheted: Of
cotton...Other". Articles classified under this provision which
satisfy the requirements of the Israel FTA are subject to a duty
rate of 1.3% ad valorem.
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 a country where it last underwent a
substantial transformation. A textile or textile product is
considered to have undergone a substantial transformation 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
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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 a
substantial transformation and those which usually will not are set
forth in 19 CFR 12.130(e). Material usually will be considered a
product of a foreign territory or country, or insular possession,
as the result of knitting, weaving, or otherwise forming fabric.
(19 CFR 12.130(e)(iii)).
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
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 Headquarters Ruling Letter (HRL) 089068 dated July 1, 1991,
in connection with a country of origin determination, we held that
sweater components produced from yarn made in Taiwan were products
of Hong Kong as the result of knitting-to-shape in that country.
We have also held that operations such as looping, hemming, lock
stitching, and affixing pockets, zippers, and buttons (findings),
are simple assembly operations which do not result in a substantial
transformation. (See, e.g., HRLs 088069 dated January 25, 1990,
and 556104 dated September 10, 1991.) Further, demarcating fabric
into readily identifiable shapes, in connection with the knit-to-
shape process, results in a similar finding of a substantial
transformation in the country where these operations occur,
although cutting along the pre-existing lines (and assembly) which
takes place in a second country does not. (See HRL 088069.)
As applied to the instant case, we find that the knitting-
to-shape in Israel of the Indian yarn into the garment components,
in connection with style nos. 30037 and 40351, results in a
substantial transformation of the yarn into a product of Israel.
The subsequent operations in China, which include looping, affixing
trim items, cutting along pre-existing lines (style no. 40351), and
washing and packing, are considered simple assembly and finishing
operations, and do not constitute a substantial transformation.
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Therefore, the imported articles are considered products of
Israel for purposes of determining their entitlement to a duty
preference 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;
(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).
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In the instant case, the fabric components will be sent to
China from Israel for assembly by looping, attachment of certain
trim articles, and for washing and packing. 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 imported from, Israel
to the U.S.
In HRL 557149 dated November 22, 1993, also involving the
"imported directly" issue, Israeli-origin garments were assembled
in China and shipped back to Israel for sampling and inspection.
In that case, we held that the imported articles subject to this
inspection and sampling procedure would be considered to be
"imported directly" from Israel into the U.S. on condition a
statement was also included on each invoice that the merchandise
covered by the invoice was inspected pursuant to Militery Standard
105-D. See also HRL 557708 dated February 17, 1994.
You state that the inspection and sampling procedures to be
undertaken under the present scenario are materially
indistinguishable from the procedures performed in HRLs 557149 and
557708. You also state that your client will submit in connection
with each entry of merchandise covered by the invoice a statement
(on each invoice) that such merchandise has been inspected pursuant
to 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
6110.20.20, HTSUS, which provides for "Sweaters, pullovers... and
similar articles, knitted or crocheted: Of cotton: ...Other".
2) Upon importation into the U.S., the imported garments will
be considered a "product of" Israel for purposes of the Israel FTA.
3) The imported articles will be considered "imported
directly" from Israel into the U.S. for purposes of the Israel FTA
on condition that upon return to Israel from China a) the goods are
inspected in accordance with the statistical sampling procedure
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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 the duty preference
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