• HQ H050896
• Apr 11, 2013

• Type : Classification • HTSUS :
•  Related:   563303; 555609; 555032; 955476; 542035; 556956; 562743   

OT:RR:CTF:VS H050896 EE

Port Director
U.S. Customs and Border Protection
Port of Charleston, SC
200 East Bay Street
Charleston, SC 29401

RE: Application for Further Review of Protest Nos. 1601-08-100287, 4503-08-10021, 1703-08-100294, 1703-08-100312, and 1703-08-100378; Eligibility of Certain Thermoplastic Products under the U.S.-Israel Free Trade Agreement

Dear Port Director:

This is in response to an Application for Further Review (“AFR”) of Protest nos. 1601-08-100287, 4503-08-10021, 1703-08-100294, 1703-08-100312, 1703-08-100378, filed by counsel on behalf of Erez USA Inc. (hereinafter, the “protestant”) concerning the eligibility of the imported merchandise for preferential treatment under the U.S.-Israel Free Trade Agreement (“IFTA”).

FACTS:

The merchandise subject to the protests at issue, certain thermoplastic products, were entered by the protestant under subheadings 3921.90.19, 3921.90.40, 5903.10.25, and 5903.20.25, Harmonized Tariff Schedule of the United States (“HTSUS”), between October 12, 2006 and March 24, 2007, claiming duty-free treatment under the IFTA.

Based on the information submitted by the protestant and U.S. Customs and Border Protection (“CBP”) lab analysis of sample PVC coated polyester fabric (product E352) provided by the protestant, CBP liquidated the entries between November 9, 2007 and March 7, 2008 under subheading 5903.10.25, HTSUS, and determined that the merchandise does not qualify for the IFTA. Your office denied preferential treatment under the IFTA, finding that the chemical materials imported into Israel did not undergo a double substantial transformation. Between May 6, 2008 and August 21, 2008, the protestant filed the five captioned protests against CBP’s classification, liquidation and tariff treatment of the imported merchandise. We note that the protests were timely filed. Our response to the instant AFR will be limited to the following products (described below) that are the subject of the protests at issue: E 352, E 530, E 610, E 750, E 750-HT, E 955, E 1055, Rezproof 111-48, TPU 1001, TPU 1001-T, TPU 1001-S, TPU 1004, TPU 1004-H, TPU 2003, TPU 2003-M, TPU 2041, TPU 2058, TPU 2080, TPU 2084, TPU 3008, TPU 3010, TPU 3012, TPU 3031, TPU 3036, TPU 3043, TPU 3047, and TPU 3050.

The protestant is a U.S. subsidiary of Erez Thermoplastic Products Ltd. (“Erez”), a company located at Kibbutz Erez in Israel. Erez produces a wide range of advanced thermoplastic products for transportation, tarpaulins, collapsible tanks (e.g. for water, wine, liquid food products), architectural structures, air inflated domes, marine safety, marine leisure, marine ecology, water treatment (e.g. pond and reservoirs liners), storage of grains and food products, and other advanced applications that require application-specific, dedicated products. For example, Erez thermoplastic products are used in the manufacture of flexi-tanks, boats, tarps, life rafts, and life jackets.

Erez sources four groups of raw materials from foreign and Israeli suppliers for the production of thermoplastic products. These include fabrics (polyester or polyamide (nylon)), raw materials to produce the plastisol or organosol tie coats, and raw materials to produce the PVC, PVC-PU or Polyurethane top coats. The protestant claims that there are four discrete stages involved in the Erez production process that result in thermoplastic products, whether coated with a PVC compound, a PVC-PU alloy or with Polyurethane. The first stage is the manufacture of either a plastisol tie coat or an organosol tie coat, both of which are asserted to be intermediate products. The plastisol tie coat is manufactured by mixing, in a specific order and at specific temperatures, phthalate esters (liquid plasticizer), mixed metal organic complexes (heat stabilizers), microsuspension type PVC resin, emulsion type PVC resin, chalk (filler), aromatic polyisocyanurate (bonding agent), and pigments. The organosol tie coat is manufactured by mixing different types of polyurethane resins, certain solvents, and a polyisocyanurate bonding agent. The result of both processes is a viscous paste that is later applied to the fabric, and that serves as a tie layer for a top coat. In the second stage, one of these tie coats is applied to the fabric using the air knife spread coating technique. The third stage is the manufacture of a top coat, which may be a thermoplastic PVC compound, a PVC-PU alloy, or a Polyurethane compound. The PVC top coat is manufactured by mixing, in a specific order and at specific temperatures, suspension type PVC resin, mixed metal organic complexes (heat stabilizers), epoxidized soybean oil (stabilizer/plasticizer), phthalate esters (liquid plasticizer), phenolic antioxidant, benzophenone UV absorber, and chalk (filler). The PVC-PU top coat is manufactured in the same way as the PVC top coat, except that polymeric polyurethane plasticizers are added to the mixture. The Polyurethane top coat is manufactured by mixing different types of polyurethane resins, certain slipping and anti-block agents, and benzophenone UV absorber. The protestant asserts that these top coats are also intermediate products. In the fourth stage, the top coat is applied onto the tie coat using a calendar melt coating technique. Pigments are added to the top coat during this stage. It should be noted that the plastisol tie coat is used with both the PVC and PVC-PU alloy top coats, and that the organosol tie coat is used with the Polyurethane top coat.

The protestant provided samples of the products that are the subject of the protests at issue, copies of schematics and photographs illustrating the stages of the production process, a table that lists the tariff classification of the thermoplastic products at issue and respective weights of the plastics and fabric, an affidavit signed by the Managing Director of Erez concerning the accuracy of the information submitted to CBP, product data sheets for the thermoplastic products at issue, product specification information for the intermediate products, list of standards applicable to Erez products, investment cost information for the production of the intermediate products and the overall plant investment/capital costs, examples of companies that manufacture and sell the intermediate products similar to those developed by Erez, material and processing costs for the thermoplastic products and the intermediate products, commercial invoices and packing lists from Erez to the protestant for the thermoplastic products, and bills of lading which reflect the shipment of the merchandise from Israel to the U.S.

ISSUE:

Whether the PVC, PVC-PU or Polyurethane coated fabrics are eligible for preferential treatment under the IFTA. LAW AND ANALYSIS:

Under General Note (“GN”) 8(b), HTSUS, goods imported into the U.S. are eligible for duty-free treatment under the IFTA if:

each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel;

each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and

the sum of--

the cost or value of the materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus (B) the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered.

If the cost or value of materials produced in the customs territory of the United States is included with respect to an article to which this note applies, an amount not to exceed 15 percent of the appraised value of the article at the time it is entered that is attributable to such United States cost or value may be applied toward determining the percentage referred to in subdivision (b)(iii) of this note.

Based on the sample submitted by the protestant, CBP liquidated the sample PVC coated polyester fabric (product E352) under subheading 5903.10.25, HTSUS, which is an IFTA eligible provision, but denied preference under IFTA, finding that the chemical materials imported into Israel did not undergo a double substantial transformation.

The protestant claims that the thermoplastic products manufactured in Israel by the protestant are eligible for duty-free treatment under the IFTA. Specifically, the protestant claims that:

The thermoplastic products manufactured by Erez are “products of Israel” in that the foreign materials undergo a substantial transformation in Israel that results in a new and different article of commerce with a new name, character and use.

The process for manufacturing the thermoplastic products is complex, requires ongoing R&D, several independent stages of production, skilled engineers and technical personnel, capital investment and related improvements, and product testing to assure that individual thermoplastic products satisfy exacting Israeli, U.S., European and other international standards.

The foreign chemicals utilized by Erez to produce the thermoplastic products undergo a double substantial transformation, therefore permitting their value to be included within the 35 percent value-added calculation of Israel-origin content.

There are two basic types of intermediate products utilized in the production of the thermoplastic products. Each type of these intermediate products is manufactured by Erez in separate and distinct production lines, and as formulated, are dedicated for use in making thermoplastic products. Further, these intermediate products are produced and sold by chemical companies in Israel, the U.S., Western Europe and Asia specifically for the production of thermoplastic products of the types made in Israel by the protestant. Although the entire production by Erez is utilized in the production of its product lines, both types of chemical products could be marketed and sold internationally.

The cost of materials produced in Israel, with the exception of the imported fabric, plus the value of the direct processing costs in Israel exceeds the 35 percent value-added threshold required to qualify for duty-free treatment under the IFTA.

The finished thermoplastic materials are imported directly from Israel into the U.S.

“Product of” Requirement

Since the thermoplastic coated fabrics are comprised, in part, of non-originating materials, they are not considered “the growth, product or manufacture of Israel” as set forth in GN 8(b)(i). See also 19 C.F.R. § 102.22(a). Therefore, we must determine whether they are new or different articles of commerce that have been grown, produced or manufactured in Israel.

Section 102.22, CBP Regulations (19 C.F.R. § 102.22) applies for the purposes of determining whether a textile or apparel product is considered a product of Israel. Thermoplastic products classified under Chapter 59, HTSUS, will be analyzed under this section. 19 C.F.R. § 102.22(a) provides that a textile or apparel product that consists of materials produced or derived from, or processed in, another country in addition to Israel, will be a product of Israel if it last underwent a substantial transformation in Israel. A textile or apparel 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.

The criteria for determining whether an imported textile or apparel product is a product of Israel are set forth in 19 C.F.R. § 102.22(b)(1)-(2). The regulation states that these criteria are not exhaustive; one or any combination of criteria may be determinative, and additional factors may be considered.

19 C.F.R. § 102.22(b)(1) states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in: (i) Commercial designation or identity;

(ii) Fundamental character; or

(iii) Commercial use.

19 C.F.R. § 102.22(b)(2) states that in determining whether merchandise has been subjected to substantial manufacturing or processing operations, the following will be considered:

(i) The physical change in the material or article as a result of the manufacturing or processing operations in Israel or in Israel and a foreign territory or country or insular possession of the U.S.;

(ii) The time involved in the manufacturing or processing operations in Israel or in Israel and a foreign territory or country or insular possession of the U.S.;

(iii) The complexity of the manufacturing or processing operations in Israel or in Israel and a foreign territory or country or insular possession of the U.S.;

(iv) The level or degree of skill and/or technology required in the manufacturing or processing operations in Israel or in Israel and a foreign territory or country or insular possession of the U.S.; and

(v) The value added to the article or material in Israel or in Israel and a foreign territory or country or insular possession of the U.S., compared to its value when imported into the U.S.

19 C.F.R. § 102.22(c)(1) sets forth manufacturing or processing operations which will usually constitute a substantial transformation. 19 C.F.R. § 102.22(c)(2) enumerates instances which will usually not constitute a substantial transformation. Treasury Decision (T.D.) 85-38, published in the Federal Register on March 5, 1985, (50 FR 8714), the final rule document which established 19 C.F.R. § 12.130, states that the examples set forth in 19 C.F.R. § 12.130(e) are intended to give guidance to Customs officers and other interested parties. The notice provides:

[T]he examples represent clear factual situations where the country of origin of the imported merchandise is easily ascertainable. The examples are illustrative of how Customs, given factual situations which fall within those examples, would rule after applying the criteria listed in 12.130(d). Any factual situation not squarely within those examples will be decided by Customs in accordance with the provisions of 12.130(b) and (d).

19 C.F.R. § 102.22(c), which replaced 19 C.F.R. § 12.130(e), provides:

(c) Manufacturing or processing operations. (1) An article or material usually will be a product of Israel when it has undergone in Israel prior to importation into the United States any of the following:

(i) Dyeing of fabric and printing when accompanied by two or more of the following finishing operations: bleaching, shrinking, fulling, napping, decating, permanent stiffening, weighting, permanent embossing, or moireing;

(ii) Spinning fibers into yarn;

(iii) Weaving, knitting or otherwise forming fabric;

(iv) Cutting of fabric into parts and the assembly of those parts into the completed article; or

(v) 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 of the U.S., into a completed garment (e.g., the complete assembly and tailoring of all cut pieces of suit-type jackets, suits, and shirts).

(2) An article or material usually will not be considered to be a product of Israel by virtue of merely having undergone any of the following:

(i) Simple combining operations, labeling, pressing, cleaning or dry cleaning, or packaging operations, or any combination thereof;

(ii) Cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use;

(iii) Trimming and/or joining together by sewing, looping, linking, or other means of attaching otherwise completed knit-to-shape component parts produced in a single country, even when accompanied by other processes (e.g., washing, drying, and mending) normally incident to the assembly process;

(iv) One or more finishing operations on yarns, fabrics, or other textile articles, such as showerproofing, superwashing, bleaching, decating, fulling, shrinking, mercerizing, or similar operations; or

(v) Dyeing and/or printing of fabrics or yarns.

This case is not squarely within the examples set forth in 19 C.F.R. § 102.22(c). Therefore, the factors set forth in 19 C.F.R. § 102.22(b)(1)-(2) will be considered to determine whether the operations performed in Israel are substantial manufacturing or processing operations.

In this case, the PVC or Polyurethane coated fabrics classified under Chapter 59, HTSUS, are manufactured in Israel using imported fabrics and certain imported and Israeli chemicals. The protestant claims that as a result of the processing in Israel, the imported fabrics and chemicals are substantially transformed and therefore the finished thermoplastic coated fabrics are a product of Israel.

The protestant claims that the PVC or Polyurethane coated fabrics, have a new name, character, and use. First, the processing in Israel changes the commercial designation or identity of the merchandise imported into Israel. Even though both the foreign sourced merchandise and the finished product are generally referred to as fabrics, the materials that are imported into Israel are commercially referred to as polyester or polyamide (nylon) woven fabrics. After being processed in Israel, the finished products are referred to as PVC or Polyurethane coated fabrics. The protestant states that the imported polyester or polyamide (nylon) woven fabrics are generally classified under subheading 5407.10.00, HTSUS, as “[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Woven fabrics obtained from high tenacity yarn of nylon or other polyamides or of polyesters” whereas the finished products are classified under subheading 5903.10.25, HTSUS, as “[t]extile fabrics impregnated, coated, covered or laminated with plastics, other than those of heading 5902: With poly(vinyl chloride): Of man-made fibers: Other: Other” or subheading 5903.20.25, HTSUS, as “[t]extile fabrics impregnated, coated, covered or laminated with plastics, other than those of heading 5902: With polyurethane: Of man-made fibers: Other: Other.”

After the processing in Israel, the fundamental character of the imported fabrics and the chemicals change from crude unfinished products with several uses into a waterproof thermoplastic product with chief weight of compounds of plastic dedicated to specific end-use applications. Additionally, the processing operations in Israel change the appearance and texture of the fabrics and chemicals. As a result of the processing in Israel, there is a change in the commercial use of the imported fabrics and chemicals. The protestant states that the greige fabrics can be used in the manufacture of industrial products such as geotextiles, including as an underlay for agricultural purposes, nurseries (e.g. weed control), as part of the base for ornamental gravel for driveways and soil stabilization, reinforcing fabrics for laminating and needle punching, and filtration applications. The end use applications for the PVC or Polyurethane coated fabrics include life vests, inflatable products, oil booms, fuel tanks, storage tanks (food, chemical products), general purpose tarps, and building related materials. Additionally, the protestant claims that there is no possibility that the base fabric imported into Israel could be used or adapted for any of the end-use applications of the thermoplastic fabrics.

The protestant states that the time required to produce one lot (approximately 4,000 linear yards) of the PVC or Polyurethane coated fabrics during the four production stages is approximately 17 hours. Further, the products are the result of substantial in-house research and development. The protestant states that during the last ten years, Erez has invested approximately $2 million in its production plant and equipment for the production of the tie coat (plastisol and organosol) and the top coat (PVC, PVC-PU, and Polyurethane) and for the equipment to utilize these intermediate products to produce the finished material. The protestant claims that a high degree of skill is required to maintain the production operations, perform product testing, and engage in R&D. In support of these activities, Erez employs four chemical engineers, three technical chemists, and three technicians who hold technical degrees and have a minimum of 15 years experience. These factors are relevant according to 19 C.F.R. § 102.22(b)(2).

In Headquarters Ruling Letter (“HQ”) 959337, dated July 3, 1996, glove shells were imported into the U.S. where they were coated with a PVC compound, heated, and cured. CBP held that under the country of origin rules of 19 C.F.R. § 12.130, which had the same criteria as 19 C.F.R. § 102.22, the imported shells were substantially transformed in the U.S. when coated with PVC. Similarly, in this case, we find that under the described processing operations, the foreign fabrics and chemicals lose their individual identities and become integral parts of the new article, PVC or Polyurethane coated fabrics, possessing new names, characters, and uses. Accordingly, based upon the information before us, we find that the imported fabrics and the chemicals are substantially transformed as a result of the processing operations in Israel.

Similar to the thermoplastic products classified under Chapter 59, HTSUS, we find that the imported fabrics and chemicals that comprise the thermoplastic products classified under subheadings 3921.90.19 and 3921.90.40, are substantially transformed as a result of the processing in Israel. Thirty-five percent requirement

If an article is produced from materials which are imported into Israel, as in this case, the cost or value of those imported materials may be counted toward the 35 percent value content requirement only if they undergo a double substantial transformation in Israel. The protestant states that the cost of the chemicals imported into Israel are included in the 35 percent value content requirement; however, the cost of the fabric is not included in the computation. Thus, the foreign chemicals must be substantially transformed into new and different intermediate articles of commerce, the tie and top coats, which are then substantially transformed into a new and different article of commerce, the PVC, PVC-PU or Polyurethane coated fabrics. The intermediate article itself must be an article of commerce, which must be “commercially recognizable as a different article, i.e., it must be a “new and different article” 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 Co., v. United States, 764 F.2d 1563, 1570 (Fed. Cir. 1985).

A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.  United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (1940); National Juice Products Association, et al v. United States, 10 C.I.T. 48, 61 (1986).  CBP has previously held that when chemical compounds are mixed together to form a different substance and the individual properties of each ingredient are no longer discernible, a substantial transformation results. See HQ 563303, dated September 30, 2005; HQ 555609, dated November 5, 1990; and HQ 555032, dated September 23, 1988.

As previously noted, in the instant case, the plastisol tie coat is manufactured by mixing phthalate esters, mixed metal organic complexes, microsuspension type PVC resin, emulsion type PVC resin, chalk, aromatic polyisocyanurate, and pigments. The organosol tie coat is manufactured by mixing different types of polyurethane resins, certain solvents, and a polyisocyanurate bonding agent. The resulting tie coat is applied to the fabric using the air knife spread coating technique.  The PVC top coat is manufactured by mixing suspension type PVC resin, mixed metal organic complexes, epoxidized soybean oil, phthalate esters, phenolic antioxidant, benzophenone UV absorber, and chalk. The PVC-PU top coat is manufactured in the same way as the PVC top coat, except that polymeric polyurethane plasticizers are added to the mixture. The Polyurethane top coat is manufactured by mixing different types of polyurethane resins, certain slipping and anti-block agents, and benzophenone UV absorber. The resulting top coat is applied on top of the tie coat using a calendar melt coating technique. Based on the protestant’s description of the manufacturing process, we determine that while the processing of the raw materials into the tie coats and the top coats is not a chemical reaction, the process mixes certain chemical compounds together to form a different substance, and the individual properties of each ingredient are no longer discernable. See HQ 563303. The resulting intermediate products have different chemical structures, physical form, physical properties, performance characteristics, and uses than the original articles.  As such, we find that the imported chemicals used in the production of the PVC, PVC-PU or Polyurethane coated fabrics are substantially transformed into intermediate commercial products of Israel when they are processed in Israel into the tie coats and the top coats. See HQ 563303; HQ 555609; and HQ 555032. The resulting products are new and distinct intermediate articles of commerce, that have new names, characters, and uses and are readily susceptible of trade evidenced by the examples of companies provided by the protestant that manufacture and sell products similar to those developed by Erez. See Torrington, 764 F.2d at 1570.

Next, we must determine whether the subsequent processing in Israel results in a second substantial transformation such that the cost or value of the chemicals imported into Israel may be included in the 35 percent value-content requirement of the IFTA. With respect to the production of the PVC, PVC-PU or Polyurethane coated fabrics, we find that applying the tie and top coats to the fabric substantially transforms the constituent parts into a new and distinct article of commerce that has a new name, character, and dedicated use distinct from that possessed by the individual intermediate articles from which the PVC, PVC-PU or Polyurethane coated fabrics are made. Therefore, the cost or value of the chemicals imported into Israel and used in the production of the finished PVC, PVC-PU or Polyurethane coated fabrics may be counted toward satisfying the 35 percent value-content requirement of the IFTA.

Direct Costs of Processing Operations

In addition to the cost or value of materials produced in Israel, and the cost or value of imported materials which undergo the requisite double substantial transformation in Israel, the direct costs of processing operations performed in Israel may be used in determining whether the PVC, PVC-PU or Polyurethane coated fabrics will meet the 35 percent value-content requirement. GN 8(d) provides that “direct costs of processing operations” include:

(i) 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

(ii) dies, molds, tooling and depreciation on machinery and equipment which are allocable to the specific merchandise.

Such phrase does not include costs which are not directly attributable to the merchandise concerned, 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.

The protestant claims that the direct costs of processing should include salaries and expenses for certain personnel including the production line manager, the quality assurance technician, the senior technician, the feeding technician, the spreading technician, the machine operator, the logistics production operator, the rolling technicians, and the packaging operators. Additionally, the protestant claims that the following expenses should be includable as direct costs of processing: costs of utilities including electricity and fuel; plant costs including costs for maintaining the production equipment such as spare parts and installation; and packing and packaging.

GN 8(d) expressly provides that direct costs of processing operations include the cost of supervisory, quality control, and similar personnel. Further, CBP has held that personnel expenses for production line employees, operational and production supervisory personnel, first-line production foremen, laboratory and maintenance workers, process and industrial engineers, and shipping and receiving employees who are involved in the handling of raw materials upon receipt in the plant are includable as direct costs of processing operations. See HQ 955476, dated September 20, 1994; and HQ 542035, dated March 24, 1980. Consistent with GN 8(d) and CBP rulings, we find that the labor costs specified by the protestant may be included in the direct costs of processing operations.

The costs of utilities, such as electricity, fuel, and water are includable as direct costs of processing, to the extent they are actually used in, or allocated to, the production process. See HQ 955476; HQ 556956, dated July 22, 1993. Accordingly, the electricity and fuel costs claimed by the protestant are includable as direct costs of processing. The cost of maintaining production machinery, including spare parts used to maintain and repair production equipment and materials consumed during the production process, are includable in the direct costs of processing. See HQ 955476; HQ 556956. Accordingly, the cost of maintenance claimed by the protestant is a direct cost of processing. CBP previously held that packaging performed in a beneficiary developing country and essential for the shipment of an eligible article to the U.S. is a cost or value includable as a direct cost of processing operation under the GSP. This value includes the cost of packaging operations and the cost or value of materials which are produced in the beneficiary developing country and are non-reusable shipping containers. See HQ 562743, dated July 2, 2003; and HQ 542035. Accordingly, we find that the cost of the packing materials from Israel, to the extent they are non-reusable, may be included in the direct cost of processing operations. See HQ 562743.

“Imported Directly” Requirement

GN 8(b)(ii), HTSUS, provides that goods imported into the U.S. are eligible for treatment as “products of Israel” only if they are “imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States.” The protestant submitted bills of lading issued by the carriers indicating the port of loading in Israel and the port of discharge in the U.S. These bills of lading correspond to the commercial invoices and packing lists issued from Erez to the protestant. Accordingly, we find that the thermoplastic products meet the “imported directly” requirement of the IFTA. HOLDING:

Based on the information provided, we find that the PVC, PVC-PU or Polyurethane coated fabrics at issue (E 352, E 530, E 610, E 750, E 750-HT, E 955, E 1055, Rezproof 111-48, TPU 1001, TPU 1001-T, TPU 1001-S, TPU 1004, TPU 1004-H, TPU 2003, TPU 2003-M, TPU 2041, TPU 2058, TPU 2080, TPU 2084, TPU 3008, TPU 3010, TPU 3012, TPU 3031, TPU 3036, TPU 3043, TPU 3047, and TPU 3050) meet the “product of” criteria for purposes of the IFTA. We further determine that the chemicals imported into Israel undergo a double substantial transformation in the production of the PVC, PVC-PU or Polyurethane coated fabrics at issue. Therefore, the cost of the chemicals may be included in the determination of whether the finished merchandise meets the 35 percent value-content criteria. We also determine that the costs claimed by the protestant are includable as direct costs of processing operations. To the extent that your office is satisfied that the direct costs of processing operations represent the actual cost figures, the protests should be ALLOWED.

In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than sixty days from the date of this letter. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division