CLA-02 RR:CR:SM 560882 RSD
Arthur Bodek, Esq.
Graham & James, LLP
885 Third Avenue
24th Floor
New York, New York 10022
RE: Eligibility of garments for preferential duty treatment
under the U.S.-Israel Free Trade Agreement (USIFTA); General
Note 8; 19 U.S.C. 3592; 19 C.F.R. 12.130; Duty-Free
treatment for products of the West Bank, Gaza Strip, or a
Qualifying Industrial Zone; Presidential Proclamation 6955; 61
Fed. Reg. 58761; General note 3(a)(v); Textile Rules of Origin;
19 CFR 102.21; Double substantial transformation; Imported
directly
Dear Mr. Bodek:
This is in response to your letter dated March 9, 1998,
requesting a ruling on behalf of BCTC Corporation (BCTC)
concerning the eligibility of certain garments imported from
Israel, West Bank or Gaza Strip for duty-free entry under the
U.S.-Israel Free Trade Area Agreement ("Israel FTA") or under
General Note 3(a)(v) of the Harmonized Tariff Schedule of the
United States (HTSUS). Samples of the garments were enclosed
with your letter. As you requested, the samples will be returned
to you under a separate cover.
FACTS:
BCTC is planning to import various garments from Israel, the
West Bank or Gaza Strip. The five sample garments are said to be
representative of the types of garments that BCTC is planning to
import into the United States. The first garment is a
traditional short-sleeved knitted polo-type shirt. It features a
two button partial placket, ribbed cuffs and collar, a patch
pocket on the left chest (with no means of closure) and a hemmed
bottom. The second garment is a short-sleeved knitted polo-type
shirt similar to the first garment. It features a four button
partial placket, pointed collar (not ribbed), a patch pocket on
the left chest (secured by means of a one-button closure), a
hemmed cuff and a hemmed bottom. The third garment is also a
short-sleeved knitted polo-type shirt of pieced construction
featuring a three button partial placket, ribbed cuffs, collar
and waistband and an inserted pocket on the left chest (with no
means of closure). The fourth garment is a woven long-sleeved
pullover shirt with a three button partial placket, a
pointed collar, an inserted pocket on the left chest (with no
means of closure) and ribbed cuffs and waistband. The fifth
garment is a knitted full-length pair of basic pull-on pants with
an elasticized waistband and right and left inserted side
pockets.
The garments will be produced through one of three possible
manufacturing scenarios. Under the first manufacturing scenario,
foreign origin yarn will be imported into Israel where it will be
formed into either knitted or woven greige fabric. The fabric
then will be shipped to a foreign country for dyeing and then
returned to Israel. In Israel, the fabric will be cut into the
component pieces of the garments. The Israeli-formed and cut
components will then be shipped from Israel to a foreign country
for complete assembly. After assembly, the garments will be
returned to Israel where they will be subjected to any necessary
finishing operations including tagging of each item (e.g., with a
hang tag, price ticket, or other tag). The finished garments
will then be shipped directly from Israel to the United States.
Under the second manufacturing scenario, foreign-origin
fabric will be imported into Israel where all further operations
necessary to produce the garments (i.e., cutting the fabric into
component pieces, assembling the components, and performing any
necessary finishing operations) will be performed. The finished
garments will then be shipped directly from Israel to the United
States.
In the third manufacturing scenario, foreign origin fabric
will be imported into the West Bank or the Gaza Strip where all
further operations necessary to produce the garments (i.e.,
cutting the fabric into components, assembling the components,
and performing any necessary finishing operations) will be
performed. The finished garments will then be shipped directly
to the U.S. from the West Bank, Gaza Strip, or Israel.
ISSUES:
Whether the subject garments in scenarios 1 and 2 are
eligible for preferential duty treatment under the U.S.-Israel
Free Trade Agreement (USIFTA) when imported into the United
States.
Whether the garments in scenario 3 are eligible for
preferential duty treatment under General Note 3(a)(v), HTSUS,
when imported into the United States.
LAW AND ANALYSIS:
U.S. -Israel Free Trade Agreement
Under the U.S.-Israel Free Trade Agreement (USIFTA),
eligible articles the growth, product, or manufacture of Israel
which are imported directly into 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, Harmonized
Tariff Schedule of the United States (HTSUS).
CLASSIFICATION
Based on the samples and the descriptive information you
have provided concerning the garments under consideration here,
it appears that garment style number 1, a knitted cotton polo
shirt would be classified under subheading 6105.10.00.10, HTSUS.
Garment style number 2, a short-sleeve knitted polo shirt,
appears to be classified under subheading 6105.20.20.10, HTSUS.
Garment style number 3, a short-sleeved knitted polo type shirt
construction, appears to be classified under subheading
6110.30.30.50, HTSUS. Garment style number 4, a woven long-sleeve pullover shirt, appears to be classified under subheading
6205.30.20.70, HTSUS. The final article, garment style number 5,
the pull on pants, appears to be classified under subheading
6104.63.20.11, HTSUS. Articles provided for in all five of these
provisions are eligible for duty-free treatment under the USIFTA,
provided that they are a "product of" Israel, meet the
value-content requirement, and are "imported directly" to the
U.S.
First Scenario--Yarn Imported into Israel
A) Country of origin ("Product of") requirement
Articles are considered "products of" Israel if they are
made entirely of materials originating there or, if made from
materials imported into Israel, those materials 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." See 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, Pub. L. No. 99-47, 99 Stat. 82.
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
a final rule in the Federal Register, (60 FR 46188) implementing
section 334 by creating a new section 102.21, Customs Regulations
(19 CFR 102.21). 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. However,
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, which were 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 or
determined not 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.
Section 12.130(b), Customs Regulations (19 CFR 12.130(b)),
states that 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.
Section 12.130(e)(1), Customs Regulations (19 CFR
12.130(e)(1)), which sets forth various processes that, if
performed in a foreign territory, country or insular possession,
are usually sufficient to effect a substantial transformation,
specifically includes the cutting of fabric into parts and the
assembly of those parts into the completed article. See 19 CFR
12.130(e)(1)(iv).
In the first scenario, foreign yarn will be imported into
Israel and formed into fabric. After the fabric is dyed in a
second country, it is returned to Israel, where it is cut into
the component parts of the garments and shipped to another
country for the assembly. The garments are then sent back to
Israel for finishing before they are shipped to the United
States.
Customs has consistently determined that cutting fabric
into specific or defined shapes suitable for use as components in
an assembly operation of the garment pieces constitutes a
substantial transformation of the fabric and that the clothing
pieces became products of the country where the fabric is cut.
See, Headquarters Ruling Letter (HRL) 731036, dated July 18,
1989, where the country of origin was found to be Country A where
fabric was cut into twelve separate pattern pieces in Country A
and then transported to Country B for assembly into the finished
polo shirt. Therefore, pursuant to Section 12.130, the last
substantial transformation in scenario one occurs in the country
where the fabric is cut--Israel.
With respect to whether in the first scenario, the
subsequent assembly process in a second country results in a
second substantial transformation, which would change the country
of origin of the finished garments, 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. However,
note 19 CFR 12.130(e)(1)(v) which specifies the following
processing as usually effecting a substantial transformation:
Substantial assembly by sewing and/or
tailoring of all cut pieces of apparel
article 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)
In this instance, when the Israeli cut components are
assembled together in a second country, we believe that the
sewing the of the cut pieces appears to involve a simple assembly
of garment pieces to make the 4 types of shirts and the pair of
pants. The sewing of the components of the garments does not
amount to the complex sewing operation required in section
12.130(e)(1)(v) because a limited number of parts are sewn
together and there is no individual tailoring of the garments.
Therefore, after the assembly in a second country, the shirts and
pants would remain products of Israel.
B) "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 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. We held that under the facts described, 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. In HRL 560250,
dated April 10, 1997, we determined that goods were considered to
have entered the commerce of Israel and be imported directly from
Israel to the United States after they were returned to Israel
from Egypt for a final inspection and packaging.
Accordingly, in order to be considered "imported directly"
from Israel, the finished garments, upon their return from a
second country, must enter into the commerce of Israel, i.e.,
they must be manipulated in Israel. You have advised that after
assembly, the garments will be returned to Israel where they will
undergo finishing operations, such as tagging. Consistent with
our holding in HRL 557194, we are of the opinion that based on
these facts, the goods will enter into the commerce of Israel and
will be considered to be "imported directly" from Israel into the
U.S., assuming they are transported from Israel to the U.S.
without passing through the territory of any intermediate
country.
C) Value Content Requirement
In addition to the "imported directly" and "product of"
requirements, to be eligible for duty-free treatment under the
USIFTA, merchandise must also satisfy the 35% value-content
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).
Thus, in the case before us, in order to achieve a "double
substantial transformation," any materials imported into Israel
must be substantially transformed into a new and different
intermediate article of commerce, which is then used in Israel in
the production of the final imported articles--the shirts and
pants. The intermediate article itself must be an article of
commerce, which must be "readily susceptible of trade, and be an
item that persons might well wish to buy and acquire for their
own purposes of consumption or production." Torrington, supra,
at 1570.
As previously described, the foreign origin yarn will be
imported into Israel, where it will be knitted or woven into
fabric, which will be cut into the component pieces used to make
the garments. 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.
Pursuant to 19 CFR 12.130 (e)(1)(iii), knitting and weaving
will substantially transform the yarn into a new and different
article of commerce resulting in a product of Israel. In
addition, the cutting in Israel of the fabric into component
parts of the garments results in a second substantial
transformation. See HRL 560250, dated April 10, 1997 and HRL
555730 dated February 19, 1991. Therefore, we believe that the
double substantial transformation requirement will be satisfied
with respect to the yarn used for the production of the shirts or
pants. Therefore, the value of the yarn may be included in
determining whether the garments meet the 35% value-content
requirement.
The USIFTA provides that the term "direct costs of
processing operations" means:
those costs either directly incurred in or
which can be reasonably allocated, the
growth, production, manufacture or assembly,
of the specific article under consideration.
Such costs include, but are not limited to
the following, to the extent that they are
includible in the appraised value of articles
imported into a party:
a) all actual labor costs involved
in the growth, production,
manufacture or assembly of the
specific merchandise, including
fringe benefits, on-the-job
training and the cost of
engineering, supervisory, quality
control and similar personnel; and
(b) dies, molds, tooling and
depreciation on machinery and
equipment which are allocable to
the specific merchandise.
(c) research, development, design,
engineering and blue print costs
insofar as they are allocable to
the specific article; and
(d) costs of inspecting and testing the specific
article.
Specifically excluded are costs which are not directly
attributable to the merchandise or are not costs of manufacturing
the product, such as, "(A) profit, and (B) general expenses of
doing business which are either not allocable to the specific
merchandise or are not related to the growth, production,
manufacture or assembly of the merchandise, such as
administrative salaries, casualty and liability insurance,
advertising and salesmen's salaries, commissions or expenses."
Therefore, the actual Israeli labor costs involved in
forming the fabric, cutting the garment parts and tagging the
garments may be counted toward the 35% requirement.
However, we are unable to state definitively that the
garments 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 garments is
determined at the time of entry into the United States.
Second Scenario--Fabric Imported into Israel
In the second scenario, formed fabric will be imported into
Israel, where it will be cut into component pieces and those
piece which will be assembled into the finished garments. For
the reasons mentioned in scenario one, if the fabric is cut into
the component parts of the garments in Israel, the imported
garments will be considered products of Israel under 19 CFR
12.130.
In regard to the 35% value content requirement, the question
that arises is whether the foreign fabric may be counted towards
satisfying the 35% value content requirement. As we previously
explained, the fabric imported into Israel may be counted as
"materials produced in Israel" only if it is substantially
transformed into a new and different intermediate article of
commerce, which is then used in Israel in the production of the
final imported articles--the shirts and pants.
In Texas Instruments, Inc. v. United States, 681 F.2d 778
(Fed. Cir. 1982), the court implicitly found that the assembly of
3 integrated circuits, photodiodes, one capacitor, one resistor,
and a jumper wire onto a flexible circuit board (PCBA)
constituted a second substantial transformation. Although it
appeared that this assembly procedure did not achieve a high
level of complexity, the court pointed out that in situations
where all the processing is accomplished in one GSP beneficiary
country, the likelihood that the processing constitutes little
more than a pass-through operation is greatly diminished.
Consequently, if the entire processing operation performed in the
single BDC is significant, and the intermediate and final
articles are distinct articles of commerce, then the double
substantial transformation requirement will be satisfied. Such
is the case even though the processing required to convert the
intermediate article into the final article is relatively simple
and, standing alone, probably would not be considered a
substantial transformation. See HRL 071620, dated December 24,
1984 (in view of the overall processing in the BDC, materials
were determined to have undergone a double substantial
transformation, although the second transformation was a
relatively simple assembly process which, if considered alone,
would not have conferred origin). In HRL 559137, dated September
7, 1995, we found that knitted and ribbed fabric imported into
the Commonwealth of the Northern Mariana Islands (CNMI) where it
was cut to shape and then assembled into T-shirts underwent a
double substantial transformation for purposes of receiving
duty-free treatment under General Note 3(a)(iv), HTSUS.
In HRL 559810, dated August 16, 1996, Customs considered
sweatshirts assembled in Israel from a variety of components.
The front panel of the sweatshirt was cut to shape and
embroidered in China and exported to Israel. The fabric used to
produce the sleeves and back of the shirt was exported from China
to Israel where it was cut to shape. The neck, cuffs and waist
were made of rib trim made in China and exported to Israel to be
cut to length and/or width. With regard to the fabric used for
the sleeves and back panel of the sweatshirts, Customs determined
that the cutting to shape of the imported Chinese fabric
substantially transformed the foreign fabric into a new and
different intermediate article, ready to be put into the stream
of commerce, where they can be bought and sold. While the
assembly operation of sewing the sleeves and back panel of the
sweatshirt into a finished sweatshirt was not complex enough to
constitute a substantial transformation by itself, Customs
ascertained that the overall processing operations (i.e., cutting
and sewing) performed in Israel were substantial. For this
reason, and in view of the production in Israel of distinct
articles of commerce in the form of a sweatshirt, Customs held
that the double substantial transformation requirement with
respect to the sleeves and the back panel was satisfied and the
fabric used for these items could be considered towards
satisfying the 35% value content requirement.
Consistent with the foregoing, we find that under the second
scenario, the foreign fabric which is cut into component pieces,
and assembled by sewing into the final garments undergo a double
substantial transformation and thus, may be considered as
"materials produced in Israel" for purposes of the 35% value
content requirement.
Third Scenario--Processing done in the West Bank or Gaza Strip
In the third proposed scenario, foreign origin fabric will
be imported into the West Bank or Gaza Strip where all further
operations necessary to produce the garments will be performed.
This includes cutting the fabric into components, assembling the
components, and performing any finishing operations.
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 Fed. Reg. 58761)), which modified the Harmonized
Tariff Schedule of the United States (HTSUS) (by creating a new
General Note 3(a)(v)) to provide duty-free treatment to articles
which are the product of the West Bank, Gaza Strip or a
qualifying industrial zone, provided certain
requirements are met. Such treatment was effective for products
of the West Bank, Gaza Strip or a qualifying industrial zone
entered or withdrawn from warehouse for consumption on or after
November 21, 1996.
Under General Note 3(a)(v), HTSUS, articles the products of
the West Bank, Gaza Strip or a qualifying industrial zone which
are imported directly to the U.S. from the West Bank, Gaza Strip,
a qualifying industrial zone 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 qualifying industrial
zone or Israel, plus 2) the direct costs of processing operations
performed in the West Bank, Gaza Strip, a qualifying industrial
zone or Israel, is not less than 35% of the appraised value of
such articles when imported into the U.S. An article is
considered to be a product of the West Bank, Gaza Strip or a
qualifying industrial zone if it is either wholly the growth,
product or manufacture of one of those areas or a new and
different article of commerce that has been grown, produced or
manufactured in one of those areas.
First, we must determine if the garments are products of the
West Bank or Gaza Strip. To determine whether a textile or
apparel article is considered to be a product of the West Bank,
Gaza Strip or a qualifying industrial zone, it is necessary to
refer to the rules of origin for textiles and apparel products
set forth in section 102.21, Customs Regulations (19 CFR 102.21).
Pursuant to section 334 of the Uruguay Round Agreements Act,
these new rules of origin (published in the Federal Register on
September 5, 1995 (60 Fed. Reg. 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, 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.
Based on the classifications cited previously, the
applicable rule in 19 CFR 102.21(e) for the knitted sample shirts
and pants would be:
6101-6117...............(1) If the good is not knit to
shape and consists of two or more component parts, a
change to an assembled good of heading 6101 through
6117 from unassembled components provided that the
change is the result of the good being wholly assembled
in a single country, territory, or insular possession.
With respect to the woven shirt, the applicable rule would be:
6201-6208.............(1) If the good consists of two
more component parts, a change to heading 6201 through
6208 from unassembled components, provided that the
change is the result of the good being wholly assembled
in a single country, territory, or insular possession.
Because you indicate that the garments in the third scenario
will be wholly assembled in the West Bank or Gaza Strip, under
the applicable rules of origin for textiles, they would be
considered products of the West Bank or Gaza Strip.
With respect to the requirement that the articles be
imported directly, General Note 3(a) (v)(B) (1) provides that:
Articles are "imported directly" for purposes of this
paragraph if--
(1) they are shipped directly from West, the
Gaza Strip, a qualifying industrial zone
or Israel into the United States with
out passing through the territory of any
intermediate country;
Based upon the facts presented, it appears that the garments
in the third scenario will satisfy this requirement.
In regard to 35% value content requirement, you are correct
in assuming that Customs would apply the double substantial
transformation test to determine whether the cost or value of
materials imported into the West Bank or Gaza Strip may be
counted toward the 35% requirement. Accordingly, for reasons
explained in scenario two, if foreign fabric is brought into the
West Bank or Gaza Strip where it is cut into components which are
sewn together to make the garments, a double substantial
transformation would result. Therefore, the value of the fabric
may be counted towards satisfying the 35% value content
requirement.
You also inquire about whether the cost of transporting the
fabric may be counted towards satisfying the 35% value content
requirement. General Note 3(a)(v)(D)(1)(II), HTSUS, indicates
that "when not included in the manufacturer's actual cost for the
materials, the freight, insurance, packing, and all other costs
incurred in transporting the materials to the manufacturer's
plant" may be included in the cost or value of the materials
produced in the West Bank or Gaza Strip. Accordingly, the cost
of transporting the fabric to the factory in the West Bank or
Gaza Strip, if not already included in the value of the fabric,
may be counted toward the 35% requirement. In addition, as
provided for in General Note 3(a)(v)(E)(1), HTSUS, any direct
labor costs attributable to cutting the garment components and
assembling and tagging the garments in the West Bank or Gaza
Strip may be counted toward satisfying the 35% value content
requirement.
However, again, we are unable to state definitively that the
garments 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 garments is
determined at the time of entry into the United States.
HOLDING:
Based on the information provided, the garments in scenarios
one and two will be considered products of Israel, and if they
are imported directly from Israel and meet the 35 % value content
requirement, they will qualify for the preferential duty
treatment under the USIFTA. Whether the 35% value content
requirement has been met must await actual entry of the
merchandise. In scenario three, the garments will be considered
products of the West Bank or Gaza Strip, and they will be
eligible for preferential duty treatment under General Note
3(a)(v),
HTSUS, assuming that they are imported directly from the West
Bank, Gaza Strip, or Israel, and the 35 percent value content
requirement is satisfied. Again, whether the 35% value content
requirement will be met must await actual entry of the
merchandise.
A copy of this ruling letter should be attached to the entry
document 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