CLA-2 RR:TC:SM 560250 DEC
Mr. Sal LoBello
Logistics Services, Incorporated
600 Bayview Avenue
Inwood, New York 11096
RE: Eligibility of brassieres for duty-free treatment under the
U.S.-Israel Free
Trade Agreement; 19 U.S.C. 3592; 19 CFR 12.130; HRL 952531;
HRL 089539;
HRL 950887; HRL 082787; HRL 082747; HRL 071575; HRL 071575
Dear Mr. LoBello:
This is in response to your letter dated November 12, 1996,
on behalf of Gibor Sabrina Textile Enterprises Ltd, (Gibor
Sabrina), concerning the eligibility of brassieres produced in
Israel for duty-free treatment under the U.S.-Israel Free Trade
Implementation Act (FTA).
FACTS:
In your ruling request, you state that Gibor Sabrina intends
to produce brassieres in Israel pursuant to the following steps.
1. The brassieres will be either 100% cotton or 90%
to 95% cotton
and 5% to 10% Lycra. You note that these
percentages refer only
to the body of the brassieres and does not include
trimmings such
as lace and does not include plastic and/or metal
hooks.
2. The yarns will be either of Israeli origin or of
an unspecified origin
from the Far East.
3. All knitting will be done in Israel.
4. All dyeing, printing, and finishing will be done
in Israel.
5. All cutting will be done in Israel.
6. The cut parts, varying from 5-9 parts depending on
the design, will
be sent to Egypt for sewing under the supervision
and quality
control of Gibor Sabrina.
7. The sewn brassieres will be sent back to Gibor
Sabrina in Israel for final inspection and packing.
8. The brassieres will then be sent from Israel
directly to the U.S.
9. All product design and development will be done in
Israel.
The brassieres will be entered through John F. Kennedy Airport.
ISSUES:
Are the brassieres eligible for duty-free treatment under
the U.S.-Israel Free Trade Agreement when imported into the U.S.?
LAW AND ANALYSIS:
Under the U.S.-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, Harmonized Tariff Schedule of the
United States (HTSUS).
Classification
In our opinion, the subject brassieres are properly
classified under heading 6212, HTSUS, which provides for
"brassieres." Articles classified under this heading which
otherwise satisfy the requirements of the U.S.-Israel FTA will
not be subject to duty upon importation into the U.S.
"Product of" Israel
Articles are considered the "product of" Israel if they are
made entirely of materials originating there or, if made from
materials imported into Israel, as in the case where the yarns
used to knit the material for the brassieres are from the Far
East, they are "substantially transformed into a new and
different article of commerce, having a new name, character or
use, distinct from the article or material from which it was so
transformed." Annex 3 of the Agreement on the Establishment of a
Free Trade Area Between the Government of the United States of
America and the Government of Israel. The Agreement was approved
by Congress in the United States-Israel Free Trade Area
Implementation Act of 1985, Public Law 99-47. The basic rules of
origin set forth in Annex 3 of the U.S.-Israel FTA (which are
derived from section 402 of the Trade and Tariff Act of 1984) are
based on section 213(a) of the Caribbean Basin Economic Recovery
Act, as amended (CBERA) (19 U.S.C. 2703(a)), which contains the
origin rules governing duty-free treatment under the Caribbean
Basin Initiative (CBI).
On December 8, 1994, the President signed into law the
Uruguay Round Agreements Act. Section 334 of that Act (codified
at 19 U.S.C. 3592) provides new rules of origin for textiles and
apparel entered, or withdrawn from warehouse, for consumption, on
and after July 1, 1996. On September 5, 1995, Customs published
section 102.21, Customs Regulations, in the Federal Register,
implementing section 334 (60 FR 46188). Thus, effective July 1,
1996, the country of origin of a textile or apparel product shall
be determined by sequential application of the general rules set
forth in paragraphs (c)(1) through (5) of Section 102.21.
Section 334(b)(5) provides that:
This section shall not affect, for purposes
of the customs laws and administration of
quantitative restrictions, the status of
goods that, under rulings and administrative
practices in effect immediately before the
enactment of this Act, would have originated
in, or been the growth, product, or
manufacture of, a country that is a party to
an agreement with the United States
establishing a free trade area, which entered
into force before January 1, 1987. For such
purposes, such rulings and administrative
practices that were applied, immediately
before the enactment of this Act, to
determine the origin of textile and apparel
products covered by such agreement shall
continue to apply after the enactment of this
Act, and on and after the effective date
described in subsection (c), unless such
rulings and practices are modified by the
mutual consent of the parties to the
agreement.
Israel is the only country which qualifies under the terms of
section 334(b)(5). As the section 334 rules of origin for
textiles and apparel products do not apply to Israel, we refer to
the 19 CFR 12.130 rules of origin, the rules of origin applicable
to textiles and textile products before the enactment of section
334. Section 334(b)(5) makes clear that if, by application of 19
CFR 12.130, Israel was determined to be the country of origin of
a product prior to enactment of section 334, the same treatment
will be accorded after enactment of section 334. This
interpretation of section 334(b)(5) was confirmed in a Notice of
a general statement of policy, Treasury Decision (T.D.) 96-58,
appearing in the Federal Register, Vol. 61, No. 148, dated July
31, 1996.
Accordingly, applying section 12.130(b), the standard of
substantial transformation governs the country of origin
determination where textiles and textile products are processed
in more than one country. The country of origin of textile
products is deemed to be that foreign territory or country where
the article last underwent a substantial transformation.
Substantial transformation is said to occur when the article has
been transformed into a new and different article of commerce by
means of substantial manufacturing or processing.
The factors to be applied in determining whether or not a
manufacturing operation is substantial are set forth in 19 CFR
12.130(d)(2). The following are considered:
(i) The physical change in the material or article;
(ii) The time involved in the manufacturing or
processing;
(iii) The complexity of the manufacturing or
processing;
(iv) The level or degree of skill and/or technology
required in the manufacturing or processing
operations;
(v) The value added to the article or material;
Pursuant to 19 CFR 12.130(e)(iii), the origin of a material
that is knit into fabric will be the particular foreign country
where the material has been knit. Furthermore, Customs has
consistently determined that cutting fabric into specific or
defined shapes suitable for use as components in an assembly
operation of garment pieces constitutes a substantial
transformation of the fabric and the clothing pieces become
products of the country where the fabric is cut. Headquarters
Ruling Letter (HRL) 952531, dated November 25, 1992, and HRL
089539, dated April 22, 1992.
In HRL 950887, dated March 2, 1992, Customs concluded that
the country of origin of brassieres made from fabric sourced from
various countries which was cut in the Philippines and assembled
in Indonesia or Pakistan was the Philippines because Customs
concluded that the mere assembly process entailing simple
combining operations, trimming, or joining together by sewing was
not enough to substantially transform the brassiere components
into a new and different article of commerce. The cutting
process of the fabric into component parts suitable for use in
the production of brassieres resulted in a substantial
transformation of the fabric into a new and different article of
commerce. Customs concluded that the cutting materially altered
the fabric into designated garment pieces, which constituted new
and different articles of commerce. Similarly, in this case, we
find that the brassieres are a product of Israel, the country
where the fabric will not only be knit, but where it will be cut
into garment pieces.
With respect to whether the subsequent assembly process in
Egypt results in a substantial transformation, T.D. 85-38 (19
Cust. Bull. 58 (1985)), the final rule document establishing 19
CFR 12.130, stated that:
The assembly of all the cut pieces of a
garment usually is a substantial
manufacturing process that results in an
article with a different name, character, or
use than the cut pieces. It should be noted
that not all assembly operations of cut
garment pieces will amount to a substantial
transformation of those pieces. Where either
less than a complete assembly of all the cut
pieces of a garment is performed in one
country, or the assembly is a relatively
simple one, then Customs will rule on the
particular factual situation as they arise,
utilizing the criteria in Section 12.130(d).
Customs has also long held that the mere assembly of goods
entailing simple combining operations, trimming or joining
together by sewing is not enough to substantially transform the
components of an article into a new and different article of
commerce. HRL 950887, dated March 2, 1992, HRL 082787, dated
March 9, 1989, and HRL 082747, dated February 23, 1989.
In this instance, the sewing operations that will be
performed in Egypt involve the simple assembly of various garment
pieces. The sewing of the components of the brassieres does not
amount to the complex sewing operation required in section
12.130(e)(1)(v), and therefore, the brassieres remain products of
Israel.
"Imported Directly" from Israel
Annex 3, paragraph 8, of the U.S.-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 en route 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. HRL 071575, dated November 20, 1984. The definition of
"imported directly" under the GSP is very similar to that under
the U.S.-Israel FTA. See 19 CFR 10.175.
In HRL 557149, dated November 22, 1993, 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 brassieres upon their return from Egypt
must enter into the commerce of Israel, i.e., it must be
manipulated in Israel. You have advised that after assembly of
the brassieres in Egypt, they will be returned to Gibor Sabrina's
facilities in Israel where they will undergo a final inspection
and packaging, after which they will be exported directly from
Israel to the U.S. without passing through the territory of any
intermediate country. Consistent with our holding in HRL 557194,
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.
35% Requirement
If an article is produced or assembled from materials which
are imported into Israel, the cost or value of those materials
may be counted toward the 35% value-content minimum as "materials
produced in Israel" only if they are subjected to a double
substantial transformation in Israel. This is consistent with
Customs and the courts' interpretation of "materials produced"
under the Generalized System of Preferences (GSP) (19 U.S.C.
2461-2466) and the Caribbean Basin Economic Recovery Act (CBERA)
(19 U.S.C. 2701-2706). See Torrington Co., v. United States, 8
CIT 150, 596 F. Supp. 1083 (CIT 1984), aff'd, 3 CAFC 158, 764
F.2d 1563 (Fed. Cir. 1985).
In determining whether the 35% value-content requirement is
satisfied, the cost or value of the cut component pieces in
Israel may be included in the 35% computation only if the yarn
undergoes the requisite double substantial transformation.
Foreign material that does not originate in Israel may be
considered as part of the value of material produced in Israel
for purposes of the 35% value-content requirement, provided the
foreign material is substantially transformed in Israel and this
different product is then transformed into yet another new and
different product which is exported to the United States.
You stated that the yarn that will be imported into Israel
from the Far East will be knitted into fabric, dyed, printed, and
cut-to-shape in Israel. Pursuant to 19 CFR 12.130 (e)(1)(iii),
knitting is a process which will substantially transform the yarn
from the Far East into a new and different article of commerce
which will be a product of Israel. This fabric will be
considered an intermediate article of commerce which is ready to
be put into the stream of commerce where it can be bought and
sold. In addition, the cutting in Israel of the fabric into
component parts of the brassiere results in a second substantial
transformation. See HRL 952531 and HRL 089539, supra.
Therefore, applying the principles of substantial transformation
contained in 19 CFR 12.130 to the processing performed in Israel,
we believe that the double substantial transformation requirement
is satisfied with respect to the fabric used for the production
of the brassieres. The value of the cut fabric components made
from the yarn from the Far East therefore will be eligible to be
included in determining whether the brassieres will meet the 35%
value-content requirement. The fabric that is knit from Israeli-origin yarn and cut in Israel will also be eligible to be
included in determining whether the brassieres will meet the 35%
value-content requirement.
We are unable to state definitively that the brassieres will
or will not satisfy the 35% value content requirement. Whether
the requirement is satisfied can only be ascertained when the
"appraised value" of the brassieres is determined at the time of
entry into the United States.
HOLDING:
Based on the information provided, we find that (1) the
imported brassieres will be classified under heading 6212, HTSUS,
a U.S.-Israel FTA eligible provision; (2) upon importation into
the U.S., the imported brassieres will be considered "products
of" Israel; (3) the imported brassieres will be considered to be
"imported directly" from Israel into the U.S. on condition that
upon return to Israel from Egypt the brassieres are inspected and
packaged at Gibor Sabrina's facilities; and (4) the imported
brassieres will qualify for duty-free treatment under the U.S.-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 brassieres at the time of
entry. Whether the 35 percent value-content requirement has been
met must await actual entry of the merchandise.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division