OT:RR:CTF:VS H273102 RMC
Port Director
Attn: Chief, Trade Operations Branch D
U.S. Customs & Border Protection
Building 77 JFK International Airport
Jamaica, NY 11430
Re: Application for Further Review of Protest 4701-15-100274; U.S.-Israel Free Trade Agreement; Substantial Transformation; Apparel
Dear Port Director:
This is in response to your correspondence dated December 4, 2015, forwarding the Application for Further Review (“AFR”) of Protest 4701-15-100274, timely filed by Roni Rabl Inc. (“Roni Rabl”).
FACTS:
Roni Rabl is a distributor of women’s clothing in the United States. Two times per year, a supplier, Alembika, provides Roni Rabl Inc. with samples. The samples at issue here are various types of women’s wearing apparel that Roni Rabl claims were cut and sewn by Alembika in Israel using foreign fabric. The merchandise was entered at John F. Kennedy International Airport in Jamaica, New York, on January 16, 2014, after arriving on a direct flight from Tel Aviv, Israel. Roni Rabl, which served as the importer of record, claimed duty-free treatment for the merchandise under the U.S.-Israel Free Trade Agreement (“U.S.-Israel FTA”).
In April 2014, a U.S. Customs and Border Protection (“CBP”) Textile Production Verification Team (“TPVT”) visited Alembika’s Tel Aviv location. During its visit, the TPVT requested documentation to substantiate the U.S.-Israel FTA claim on the entry at issue in this case. Alembika could not provide cutting and sewing records, and the TPVT did not observe cutting and sewing at the Tel Aviv location.
On November 12, 2014, in response to a CBP Commercial Targeting request based on the TPVT site visit, the Port at John F. Kennedy International Airport initiated a verification of Roni Rabl’s claim under the U.S.-Israel FTA. Specifically, CBP requested information to verify that the 35% value-content requirement under the U.S.-Israel FTA was met. CBP asked Roni Rabl to supply relevant information including, among other documents, proof of payment, production records, transportation records, bills of lading, freight invoices, and purchase orders.
On December 1, 2014, Robi Rabl responded with documentation describing the cutting and sewing that takes place in Israel. However, no purchase order numbers were included to compare with the invoice, and no proof of payments were submitted for raw materials. According to a Notice of Action (CBP Form 29), dated December 29, 2014, CBP denied Roni Rabl’s claim for duty-free treatment under the U.S.-Israel FTA because Roni Rabl failed to provide sufficient documentation to support the cost of materials produced in Israel and direct costs of processing. The Port noted that Roni Rabl did not provide freight invoices, proof of payment, purchase orders, or documentation of the manufacturing process. The entry was therefore rate-advanced and liquidated at the applicable rate for each tariff line in the entry.
Roni Rabl timely protested. On October 7, 2015, and January 25, 2017, Roni Rabl responded to several of the port’s concerns about missing documentation. Roni Rabl explained that no purchase orders are generated for the sample merchandise. Instead, the samples are sent automatically to distributors with a 50% discount. Distributors such as Roni Rabl then present the samples at showrooms and fashion fairs throughout the United States. At the end of the season, distributors such as Roni Rabl send a bulk order to Alembika that gathers all the season’s orders for the relevant territory. With respect to freight invoices, Roni Rabl provided the airway bill showing direct air transportation from Tel Aviv to John F. Kennedy International Airport. It also provided the customs broker’s statement and Roni Rabl’s check tendering payment for international transportation. As for proof of payment for the merchandise, Roni Rabl provided proof of payment by wire transfer as well as a bookkeeping record showing payment to Alembika. This payment information is consistent with an invoice from Alembika to Roni Rabl dated to January 14, 2014. Roni Rabl also provided additional information describing the manufacturing process for each of the garments in the entry.
Roni Rabl maintains that the merchandise meets the 35% value-content requirement in the U.S.-Israel FTA. Specifically, Roni Rabl argues that the foreign fabric that comprises each garment undergoes a double substantial transformation in Israel: the foreign fabric first undergoes a substantial transformation when Alembika cuts it into component parts and then undergoes a second substantial transformation when Alembika assembles it into finished garments. Therefore, according to Roni Rabl, the value of the foreign fabric constitutes U.S.-Israel FTA-eligible costs. If this is the case, the value of the fabric plus the direct costs of processing in Israel exceed the 35% value-content threshold for duty-free treatment.
ISSUE:
Whether the wearing apparel imported from Israel is eligible for duty-free treatment under the U.S.-Israel FTA.
LAW AND ANALYSIS:
The U.S.-Israel FTA is implemented in the HTSUS in General Note (“GN”) 8. GN 8 provides that for purposes of the note, goods imported into the customs territory of the United States are eligible for treatment as “products of Israel” only 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(v)(G)to the tariff schedule) into the customs territory of the United States; and
the sum of—
(A) the cost or value of 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% of the appraised value of each article at the time it is entered.
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 is 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 that 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 C.F.R. § 102.22 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 these rules, 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.
In this case, the port requested information to substantiate the claim that the merchandise in the entry qualified for preferential treatment under the U.S.-Israel FTA. As noted above, by a CBP Form 29, dated December 29, 2014, the port informed Roni Rabl that the information submitted was insufficient to substantiate the cost of materials produced in Israel and direct costs of processing. Accordingly, the merchandise was rate advanced. The port also notified Roni Rabl of its right to protest, which it exercised as reflected in this decision.
It is undisputed that, if the production process conforms to Roni Rabl’s description, the value of the foreign fabric would be eligible to be counted toward the 35% value-content threshold for duty-free treatment under the U.S.-Israel FTA. See, e.g., Headquarters Ruling (“HQ”) 560882, dated July 1, 1998 (holding that foreign-origin fabric that is imported into Israel and cut and assembled into finished garments may be counted as “materials produced in Israel” for purposes of the U.S.-Israel FTA 35% value-content requirement). However, under the Customs Modernization Act, enacted as Title VI of the North American Free Trade Agreement Implementation Act (Pub. L. No. 103-182), an importer must exercise reasonable care in providing entry information including the values, tariff classifications, quantities, and rate of duty applicable to their merchandise. Part of the responsibility of importers is providing accurate documentation to the ports when requested to verify claims made at entry.
We have examined the documentation submitted by the importer and discussed the documentation with the import specialist at the port and a TPVT member who visited Alembika’s Tel Aviv location. We agree that there are problems with the documentation submitted to substantiate that the entry at issue qualifies under the U.S.-Israel FTA. For example, the entry summary states that there are a total of 924 pieces in the shipment. This figure conflicts with the information on the invoice, which states that there are 824 pieces in the shipment. Furthermore, as the TPVT member did not observe cutting and sewing taking place at the Tel Aviv location, information on cutting and sewing records was requested. Alembika could not provide this information at the time of the TPVT visit, and the information provided in its protest and supplements is insufficient to demonstrate that cutting and sewing of the foreign fabric occurred in Israel. Specifically, upon review of the information provided, we are unable to link purchases of the foreign fabric to the hand-written cutting and sewing records provided. Most importantly, the names of the fabrics listed on the invoice from the foreign supplier (e.g., “Knit Black 07”) did not match the names or fabric numbers in the cutting and sewing records. Therefore, we could not establish that the fabrics listed in the invoice were the same fabrics used in the production of the merchandise at issue.
In this case, the port requested information to substantiate that the merchandise in the entry at issue qualified for preferential treatment. However, as noted above, the quantity listed on the entry summary did not match the quantity on the invoice and the foreign fabric could not be traced through the cutting and sewing process to the final product. Under these circumstances, Roni Rabl has not established that the merchandise is eligible for duty-free treatment under the U.S.-Israel FTA.
HOLDING:
The protest is denied. The subject merchandise is not eligible for duty-free treatment under the U.S.-Israel FTA.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (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 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP website 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