CLA-02 RR:CR:SM 562028 BLS
Gail T. Cumins, Esq.
Sharretts, Paley, Carter & Blauvelt, P.C.
Seventy-five Broad Street
New York, N.Y. 10004
RE: Eligibility of expandable luggage for duty-free treatment under General
Note 3(a)(v), HTSUS; product of; QIZ; textile product; 19 CFR 102.21;
HRL 959016
Dear Ms. Cumins:
This is in response to your letters dated August 17 and December 4, 2000, on behalf of the Boscan Group (Boscan), requesting a ruling that certain luggage to be imported from the Irbid Qualifying Industrial Zone (QIZ) will be eligible for duty-free treatment under General Note 3(a)(v), Harmonized Tariff Schedule of the United States (HTSUS), upon importation. A meeting was held with counsel in this office on April 24, 2001. Samples have been submitted.
FACTS:
Boscan contemplates importing the “Atlantic trolley luggage sets”, which consist of four pieces of luggage in varying sizes (10”, 16”, 21”, and 42”). Two of the pieces will feature corner wheels that will be produced in the Jordanian portion of the Israeli-Jordanian Irbid QIZ. The outer surface of the luggage will be composed of 600-denier polyester.
In order to illustrate the operations leading to production of the luggage in the QIZ, you use the upright pullman as representative of the four items in the set. In this regard, you note that upon importation the pullman will have a rigid edge, corner reinforcements, a carrying handle, inner straps for retaining clothing, a zippered mesh interior compartment, a zipper around the outer edge, and a full width zippered external pocket. You further advise that the three pieces which constitute the body of the pullman – front panel, back panel and side panel, will be produced in China, Taiwan, or Dubai. These components, which are ready for assembly, will be imported into the QIZ, where the following operations will occur:
The telescopic handle and corner wheels, both of Israeli origin, are assembled.
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2. A steel strip of foreign origin is cut, shaped and covered with PVC
material, which is cut to shape, to create the steel frame suspension
system.
3. The front is joined to the side panel which is then joined to the back
panel to create the pullman. All sewing operations are performed with
Israeli-made thread.
Foreign plywood is cut to shape and covered with a PVC material, which is also cut to shape.
5. PE board of foreign origin is cut to shape.
The PVC covered steel frame is set inside the panel.
7. The PE board and PVC covered plywood are installed in the panel.
8. The inside bottom stand for the telescope handle set is installed.
9. The steel frame is riveted to the panel.
10. The upper grip handle is riveted.
11. The buckle is set.
12. The side grip handle is riveted.
13. The left and right corner wheel with their panels are riveted.
14. The outside foot stand is riveted.
15. The telescope handle tubes are inserted outside the panel.
16. The upper handle stand with the panel is riveted.
17. Cleaning.
18. Inspection.
19. Hang-tag, name card, keys and locks are placed on the luggage.
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20. The luggage is packed in Israeli-made cartons.
The luggage is exported directly from the QIZ or from Israel to the
United States.
ISSUE:
Whether luggage produced in the Irbid QIZ as described above will qualify for duty-free treatment under General Note 3(a)(v), HTSUS, when imported into the U.S.
LAW AND ANALYSIS:
Pursuant to the authority conferred by section 9 of the U.S.-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. §2112 note), the President issued Proclamation No. 6955 dated November 13, 1996 (published in the Federal Register on November 18, 1996 (61 FR 58761)), which modified General Note 3(a) of the HTSUS to provide duty-free treatment to articles which are the product of the West Bank, Gaza Strip or a QIZ, provided certain requirements are met. Such treatment was effective for products of the West Bank, Gaza Strip or a QIZ entered or withdrawn from warehouse for consumption on or after November 21, 1996.
Under General Note 3(a)(v), HTSUS, articles the product of the West Bank, Gaza Strip or a QIZ which are imported directly to the U.S. from the West Bank, Gaza Strip, a QIZ or Israel qualify for duty-free treatment, provided the sum of 1) the cost or value of materials produced in the West Bank, Gaza Strip, a QIZ or Israel, plus 2) the direct costs of processing operations performed in the West Bank, Gaza Strip, a QIZ or Israel, is not less than 35% of the appraised value of such articles when imported into the U.S. The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article’s appraised value. An article is considered to be a “product of” the West Bank, Gaza Strip or a QIZ if it is either wholly the growth, product or manufacture of one of those areas or a new or different article of commerce that has been grown, produced or manufactured in one of those areas.
By notice published in the Federal Register on March 13, 1998 (63 FR 12572), the Office of the United States Trade Representative designated the Irbid QIZ as a QIZ pursuant to section 9 of the U.S.-Israel Free Trade Area Implementation Act and General Note 3(a)(v)(G)(3), HTSUS. The QIZ encompasses certain areas under the customs control of the Governments of Israel and Jordan. Thus, effective on the date of publication of the above notice, goods produced in the Irbid QIZ which meet all the
conditions and requirements of General Note 3(a)(v), HTSUS, are entitled to duty-free treatment when imported into the U.S.
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“Product of” Requirement
The first issue to be addressed is whether the luggage is considered to be a “product of” the Irbid QIZ. To determine whether a textile or apparel article is considered to be a product of the West Bank, Gaza Strip or a QIZ, it is necessary to refer to the rules of origin for textiles and apparel products set forth in 19 U.S.C. §3592 as implemented by section 102.21, Customs Regulations (19 CFR §102.21). Pursuant to section 334 of the Uruguay Round Agreements Act, these rules of origin (published in the Federal Register on September 5, 1995 (60 FR 46188)) became effective for textile or apparel products entered, or withdrawn from warehouse, for consumption on or after July 1, 1996. Thus, except for the purpose of determining whether a good is a product of Israel (see 19 CFR §102.21(a)), the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of 19 CFR §102.21.
Under section 102.21(c)(1), which is the first of the sequential rules of origin to be applied, the country of origin of a textile or apparel product is the single country, territory, or insular possession in which the good was wholly obtained or produced. This provision is inapplicable in this case because the goods are not wholly obtained or produced in a single country, territory or insular possession. Therefore, we turn to section 102.21(c)(2) which provides that where the country of origin cannot be determined under paragraph (c)(1), the country of origin of the good is the single country in which each foreign material incorporated in that good underwent an applicable change in tariff classification and/or met any other requirement specified for the good in 19 CFR §102.21(e).
The large sample suitcase (Item 37792-26F) appears to be classifiable in subheading 4202.12.80, HTSUS, which provides for, among other articles, suitcases, with outer surface of textile materials. The applicable rule in 19 CFR §102.21(e) provides the following:
A change to subheading 4202.12.40 through 4202.12.80 from any other
heading, provided that the change is the result of the good being wholly
assembled in a single country, territory, or insular possession.
The other luggage pieces appear to be classifiable in subheading 4202.92.30, HTSUS, which provides for, in pertinent part, "Trunks, suitcases…..: Other, With outer surface… of textile materials: Travel, sports and similar bags: With outer surface of
textile materials: Other. “ The applicable rule in 19 CFR §102.21(e) is:
A change to subheading 4202.92.15 through 4202.92.30 from any other
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heading, provided that the change is the result of the good being wholly
assembled in a single country, territory, or insular possession.
Section 102.21(b)(6) provides as follows:
The term “wholly assembled” when used with reference to a good means that all components, of which there must be at least two, preexisted in essentially the same condition as found in the finished good and were combined to form the finished good in a single country, territory, or insular possession. Minor attachments and minor embellishments (for example, appliques, beads, spangles, embroidery, buttons) not appreciably affecting the identity of the good, and minor subassemblies (for example, collars, cuffs, plackets, pockets), will not affect the status of a good as “wholly assembled” in a single country, territory, or insular possession.
While the specific operations which take place in the country where the subassemblies are created are not described, these subassemblies exported to Jordan (front panel, back panel and side panel) appear to include pockets, zippers, handles and straps. It also appears from examination of the sample that the combination of the two laminated fabrics comprising the exterior of the main body subassembly requires a complicated and extensive cutting and sewing process. Accordingly, we find that the components of Item 37792-26F assembled in the QIZ are not “minor subassemblies,” and that this piece of luggage was not “wholly assembled” in a single country. As Item 37792-26F was submitted as representative of the luggage set, we assume that our finding with respect to this sample also applies to the other items of the set. Consequently, as the good is not “wholly assembled” in one country, 19 CFR 102.21(c)(2) is inapplicable.
Section 102.21(c)(3) provides for goods that have been wholly assembled (with certain enumerated exceptions) in a single country, insular possession, or territory or which are knit to shape. Section 102.21(c)(3) is therefore inapplicable to the subject merchandise as it has not been wholly assembled in a single country, insular possession, or territory, nor is it knit to shape.
Section 102.21(c)(4) provides that where the country of origin of a textile or apparel product cannot be determined under paragraph (c)(1), (2) or (3), the country of origin of the good is the single country, territory, or insular possession in which the most important assembly or manufacturing process occurred.
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At the meeting on April 24, 2001, your associate contended that 19 CFR 102.21(c)(4) is inapplicable, as the operations which occur in the QIZ, which include cutting and shaping of the superstructure and steel frame, assembly of the wheels and telescopic handle, and final assembly of the fabric panels are of equal importance to the processing in China, which includes production of the front, back and side panel subassemblies. Pursuant to a finding that the operations in the QIZ are of equal importance to the processing in China, the country of origin of the good would be the QIZ, “…the last country, territory or insular possession in which an important assembly or manufacturing process occurred”. See 19 CFR 102.21(c)(5).
In Headquarters Ruling Letter (HRL) 959016 dated August 19, 1996, Customs considered the country of origin of certain soft-sided textile luggage, which was produced in Taiwan and Vietnam. In Taiwan, polyester fabric with polyurethane backing and nylon fabric with polyurethane coating used for the luggage was woven, dyed, coated with polyurethane and finished. The fabric was then cut into components in Taiwan and then transported to Vietnam for further manufacturing. Also in Taiwan, the plastic or metal frame was riveted to a plywood base, which was then fitted and sewn into the sewn luggage panel. Where applicable, the wheels were joined to the base and the handles to the frame. The assembly in Vietnam consisted of preparing multiple fabric components for sewing by utilizing glue and heat-sealing machines. The assembly process also included sewing thle majority of the fabric pieces, attaching webbing, zippers, and other hardware pieces. In addition, the plastic or metal frame was bent to a c-shape in Vietnam.
In that case, Customs found that the assembly in Vietnam was more important than the assembly and manufacturing operations in Taiwan, as Vietnam was the country where the assembly process “…results in unattached cut fabric components being assembled into an identifiable, albeit unfinished, luggage piece.” Therefore, pursuant to Section 102.21(c)(4), Customs found that the country of origin of the luggage was Vietnam. See also HRL 959842 dated October 29, 1996 (country of origin of backpack is China, where panels which included pockets, suede pieces, organizer and buckles assembled); and HRL 960804 dated October 1, 1998 (most important assembly process in production of backpack Style SH-6615 is Taiwan, where front panel (including zippered pocket with embroidery and suede piece) is sewn together, back panel (with straps, webbing and buckle) is sewn together, and the bottom panel (with two suede pieces, gussets and zipper) is sewn together.)
In the instant case, it is our opinion that the most important assembly occurs in China, Taiwan or Dubai, where the subassemblies (front panel, back panel and side panel) which form the body of the finished product are produced. These panels are complex assemblies, which include numerous zippers to allow for the expandable
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design of the luggage. We believe that the expandable nature of the luggage is its primary feature and gives it its identity. We note in this regard that the luggage is identified by Atlantic as “Expandables II” and the expandable nature of the pieces is the first attribute to be described in the “Features” section of its brochure. We also find that as exported to the QIZ, the subassemblies are substantially complete luggage articles without such extra features as wheels and telescoping handles. Accordingly, we find that the most important assembly or manufacturing process occurs in the country where the subassemblies are produced, i.e., China, Taiwan or Dubai. Therefore, the luggage will be considered to be a “product of” China, Taiwan or Dubai.
We note that at the meeting on April 24, 2001, counsel advanced a new argument based on Customs response to a comment received during the drafting of the rules of origin found at 19 C.F.R. §102.21. See 60 Fed. Reg. 46190 (1995). The comment suggested that the definition of “wholly assembled” in §102.21(b)(6) should include a specific listing of minor subassemblies that would not affect the status of a good as “wholly assembled” in a single country. In the alternative, the comment suggested that the joining of all components of a good in one country would always be at least as important as the joining of components into a subassembly and, therefore, under the second multicountry rule (§102.21(c)(5), the last place where important processing occurs), the country of origin would be the place where the components of the good are assembled. Although Customs declined to include a specific list of minor subassemblies that would not affect the status of a good as “wholly assembled,” Customs stated that it agreed with the interpretation set forth in the alternative suggestion. Thus, counsel argues that the joining of all the components of the luggage in the instant case must be regarded as at least as important as the creation of the three panels. Counsel contends that the response to the comment precludes Customs from finding that the creation of the subassemblies is more important than the joining of all the components and that the country of origin is the QIZ pursuant to §102.21(c)(5).
In agreeing with the comment, it appears that Customs believed that the joining of all components of a good in one country would always be at least as important as the joining of components into a subassembly. This would not preclude a finding that the single joining of all components of a good was more important than the creation of a subassembly under §102.21(c)(4).
Upon review of the response to the comment after six years of applying the rules of origin, Customs believes the comment response may have been misunderstood. To the extent that the response was referring to one subassembly, Customs still generally agrees. The joining of all components of a good in one country is at least as important,
if not more important, than the joining of some components into a single subassembly. However, this determination depends on the complexity of the subassembly operation and the simplicity of the joining operation. Additionally, to the extent that the response may be read to refer to more than one subassembly, it is Customs belief that the response does not reflect the proper application of the rules of origin.
Under the rules of origin, §102.21(c)(4) must first be applied. Thus, the assembly operations must be compared to see if a most important assembly operation can be determined. Customs does not find that the creation of complex, substantial and extensive subassemblies can never be more important than a simple joining of all components of a good. To do so would make §102.21(c)(4) meaningless in this context. As exemplified by this case, the creation of complex subassemblies can form the basis for a finding that the most important assembly operation occurred where those subassemblies were created. Customs rulings have established that the joining of all components of a good is not always as important as the joining of components into subassemblies. See HRL 959016 and HRL 959842. Customs does not find that it is precluded from determining that the creation of the subassemblies is more important than the joining of all the components.
HOLDING:
As the “Atlantic trolley luggage set “ is not considered to be a “product of” the Irbid QIZ, it will not be eligible for duty-free treatment under General Note 3(a)(v), HTSUS, upon importation.
A copy of this ruling 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
Commercial Rulings Division