CLA-2 CO:R:C:S 557708 WAS
Steven S. Weiser, Esq.
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
1515 Broadway
New York, N.Y. 10036
RE: Applicability of United States-Israel Free Trade Agreement;
substantial transformation; women's skirts; assembly; imported directly; entry into the commerce; 19 CFR 12.130
Dear Mssrs. Weiser & Bodek:
This is in reference to your letters dated November 24,
1993, and January 10, 1994, requesting a ruling as to the
eligibility of certain women's skirts imported from Israel for
duty-free treatment 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).
FACTS:
Your client, Liz Claiborne, Inc. (LCI), is contemplating the
importation of two full length 100 percent cotton woven skirts
from Israel, style nos. 2610054 and 2636311. Each style features
a full-front opening with placket secured by means of a seven
(style no. 2610054) or eight (style no. 2636311) external button
closure. Each skirt has hemmed edges and two inserted pockets at
the waist. Style no. 2610054 also features a partially
elasticized waistband, belt loops and a partial rear slit,
characteristics which are not present in style no. 2636311. Each
of the skirt styles may be constructed of either a cotton twill
or denim fabric.
The components of each of the above garments (exclusive of
trim) will be produced from greige fabric which is 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 components of each garment. You state that at least
twelve distinct components for style no. 2610054 will be produced
in Israel and at least twenty-two distinct components will be
produced in Israel for style no. 2636311.
The various garment components cut to size and shape in
Israel, from the fabric woven and dyed in Israel, will then 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 operation such as joining and setting the
front, back and side components, fusing the waistband, etc.
Specifically, all trimming, fitting and tailoring will be
accomplished during the cutting stage in Israel. Each of the
Israeli-cut components will feature notches which need only be
matched-up by the Chinese assembler and sewn together in a
straight line simple machine-sewing process. Moreover, certain
Chinese-origin trim articles and packing materials will be used
in connection with the assembly and packing of the subject
garments. Such items consist primarily of pocket linings,
buttons, thread, labels, hangtags, hangers and polybags.
After the garments have been assembled, they will be washed
(e.g., conventional-wash, stone-wash, sand-wash and/or bleached)
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 cutting facility) which is
neither a bonded location, nor otherwise under the control of the
local Customs authorities. At such facility, each shipment of
the subject garments will be inspected in accordance with U.S.
Military Standard 105-D, which you state is 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 (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.
The contemplated contract between LCI and the Israeli cutter
will require that each shipment of style nos. 2636311 and 2610054
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
U.S.
You state that 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.
After the goods are inspected in Israel, they will then be
exported therefrom directly to the United States.
ISSUES:
(1) Whether the imported articles will be classifiable under
an Israel 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.
LAW AND ANALYSIS:
Under the Israel FTA, eligible articles the growth, product,
or manufacture of Israel which are imported directly to the U.S.
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 8(c)(vi), HTSUS.
1. Classification
Based on the information presented, it appears that the
women's skirts are properly classifiable under subheading
6204.52.20, HTSUS, which provides for "Women's other cotton woven
skirts," an Israel FTA-eligible provision.
2. "Product of" Israel
Section 12.130, Customs Regulations (19 CFR 12.130) concerns
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. Pursuant to the regulations, a
textile or textile product will be considered to have undergone a
substantial transformation if it has been transformed by means of
substantial manufacturing or processing operations into a new and
different article of commerce. See 19 CFR 12.130(b). According
to section 12.130(d)(2), 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; and (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). According to 19 CFR
12.130(e)(iv), the cutting of fabric into parts and the assembly
of those parts into a completed article in a foreign country or
insular possession will usually result in a substantial
transformation of the fabric so as to confer country of origin.
Another example of a substantial transformation is 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 of attaching otherwise knit-to-shape components 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).
There is no question that the fabric which is woven from
Israeli-origin yarn and cut to size and shape in Israel is the
"product of" Israel. Subsection 12.130(e)(1)(iii) provides that
"weaving, knitting or otherwise forming fabric" is a
manufacturing or processing operation which results in a
substantial transformation. See also Headquarters Ruling Letter
(HRL) 555730 dated February 19, 1991 (forming of fabric in Israel
from imported yarn constitutes a substantial transformation).
In addition, Customs has consistently held that cutting of
fabric (which contains no indication where that fabric is to be
cut) into garments parts, constitutes a substantial
transformation of the fabric and the parts become a "product of"
the country where the fabric is cut. See HRL 556647 dated August
10, 1992; and HRL 555693 dated April 15, 1991.
The only issue is whether the subsequent assembly of the
component parts in China constitutes a further substantial
transformation of the fabric. In a case similar to the facts
presented, t-shirts manufactured from greige fabric knit in
Israel from Israeli yarn or third country yarn was dyed, cut to
size and shape, and subjected to a shrinkage process in Israel.
The components were then sent to Egypt for sewing operations,
such as joining the front and back panels at the shoulders,
closing and setting sleeves, side sleeves, collar, tape and
label, hemming the sleeves and bottom and sewing the pocket. The
assembled t-shirts were then returned to Israel where they were
inspected and packaged for shipment to the U.S. In that case, we
held that the t-shirts were "products of" Israel as the sewing
operations in Egypt did not substantially transform the t-shirts
into "products of" that country. See HRL 555730 dated February
19, 1991.
In another case virtually indistinguishable from the instant
case, women's trousers and shorts manufactured from greige fabric
woven in Israel from Israeli-origin yarn were dyed and cut to
size and shape in Israel. The components were then sent to China
for assembly by means of machine-sewing operations such as
joining and setting the leg components, setting the belt loops,
sewing the crotch, etc. In China, certain trim articles and
packing materials (i.e., pocket linings, waistband, interlinings,
zippers, buttons, labels, polybags and hangtags) of Chinese or
Hong Kong-origin were attached to the garments. The assembled
trousers and shorts were then washed, pressed, inspected and
packaged for shipment back to Israel. In Israel, the garments
were subjected to a final inspection before being exported
therefrom directly to the U.S. In that case, we found that the
constituent components which were manufactured in Israel from
greige fabric woven in Israel from Israeli-origin yarns clearly
constituted "products of" Israel. Furthermore, we found that the
sewing operation performed in China or Hong Kong (e.g., machine-sewing operations such as joining and setting the leg components,
setting the belt loops, sewing the crotch, and attaching the
pocket linings, waistband, interlinings zippers, buttons and
labels), did not substantially transform the components into
"products of" these countries. See HRL 557094 dated May 14,
1993.
Based on the cited regulations and the prior rulings, we
find that the assembly of the component garment parts in China
does not transform the pre-cut components into a "product of"
China, 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).
See, for example, HRL 732623 dated November 6, 1989 (holding that
the country of origin of cotton industrial work glove pieces
which were cut in country A, and sewn together in country B, was
country A); HRL 086229 dated April 11, 1990 (fabric for
industrial work gloves, which is cut in country A and sewn
together in country B, has been substantially transformed in
country A). The sewing together of the women's skirts at issue
does not appear to require any tailoring. Rather, the facts
indicate that the joining of the cut parts is a simple assembly
operation which does not involve a high degree of skill and
workmanship. The skirts at issue are designed, patterned, sized
and cut in Israel, and these operations together with the cost of
the Israeli-origin fabric constitute a large percentage of the
value of the finished articles, while sewing, finishing and
packing in China comprise a small percentage of the articles'
value. Thus, a significant percentage of the value-added to the
article occurs as a result of work performed or material sourced
in Israel. We also find that the presence of the trim items of
Chinese-origin does not preclude treatment of the imported skirts
as a "product of" Israel, assuming all other legal requirements
are satisfied.
Accordingly, since there is nothing to suggest that the
assembly of the cut parts is in any degree a complex operation,
or that the assembly requires anything more than a simple joining
of the cut parts by stitching, it is our position that the skirts
have not undergone a substantial transformation in China, and
therefore, the skirts are a "product of" Israel, the country
where the fabric is woven and cut to shape.
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 virtually identical to
that under the FTA. See section 10.175, Customs Regulations (19
CFR 10.175).
We have recently issued a ruling dealing with substantially
similar facts. See HRL 557149 dated November 22, 1993. In HRL
557149, denim jeans were produced from greige fabric woven in
Israel from Israeli-origin yarns. In Israel, the fabric was dyed
and precisely cut to size and shape to form each of the
components of each garment. The various components cut to size
and shape in Israel, were sent to China for assembly. In China,
the various garment components were joined together by means of
simple machine-sewing operations such as joining and setting the
leg components, setting the belt loops, sewing the crotch, etc.
After the garments were assembled, they were stone-washed,
pressed, inspected and packaged for shipment back to Israel. In
Israel, the shipment was removed from the vessel and brought to
the manufacturer's facility, where cartons were opened and sample
garments inspected, pursuant to contractual arrangement and
commercial practice, in accordance with Military Standard 105-D,
described therein. In HRL 557149, we held that under the facts
described above, there was a manipulation of the merchandise and
therefore an entry into the commerce of Israel of all the goods
in each shipment. Therefore, we found that the denim jeans were
considered to have been "imported directly" from Israel into the
U.S.
Accordingly, in order to be considered "imported directly"
from Israel, the finished garments upon their return from China
(the country from which this shipment originated) must enter into
the commerce of Israel, i.e., it must be manipulated in Israel.
You have advised that after assembly of the skirts in China, the
shipment will be returned to Israel where it will be unladen from
the vessel and brought to the manufacturer's facility where they
will undergo a full quality assurance inspection, after which
they will be exported directly from Israel to the U.S. without
passing through the territory of any intermediate country. In
addition, you have also advised that LCI will submit, in
connection with each entry of merchandise covered by the 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." Consistent with our holding in HRL 557094, we
are of the opinion that based on these facts, the goods will have
entered into the commerce of Israel and 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 classified under subheading 6204.52.20,
HTSUS, an Israel FTA eligible provision; (2) upon importation
into the U.S., the imported garments will be considered "products
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;" and (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 merchandise at the time of
entry. Whether the 35 percent value-content requirement has been
met must await actual entry of the merchandise.
Sincerely,
John Durant, Director
Commercial Rulings Division