HQ 0556055 - Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of polyvinyl chloride handbags from Haiti; 555803; 555742; 067823; 555189; C.S.D. 89-27(4); 554929 - United States International Trade Commision Rulings

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HQ 556055

August 26, 1991

CLA-2 CO:R:C:S 556055 WAW

CATEGORY: CLASSIFICATION

Kenneth H. Keefe, Esq.
Sandler, Travis & Rosenber, P.A.
The Waterford
5200 Blue Lagoon Drive
Miami, FL 33126-2022

RE: Eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, of polyvinyl chloride handbags from Haiti; 555803; 555742; 067823; 555189; C.S.D. 89-27(4); 554929

Dear Mr. Keefe:

This is in reference to your letter of May 20, 1991, in which you request a ruling, on behalf of Jaclyn, Inc., on the applicability for duty-free treatment of polyvinyl chloride (PVC) handbags to be imported from Haiti, pursuant to section 222 of the Customs and Trade Act of 1990 (Public Law 101-382), which amended U.S. note 2, subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States Annotated (HTSUSA). No sample was submitted for our review. In addition, you submitted further information on June 26, 1991, concerning the cutting operations performed on the PVC in the U.S.

FACTS:

According to your submission, your client intends to import PVC handbags made entirely of U.S. components which are assembled in Haiti, as well as handbags made from PVC material of foreign- origin which is die cut to various pattern shapes in the U.S. and subsequently assembled in Haiti into vinyl handbags. In both cases, you request a ruling on the eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA, ("Note 2(b)") for the polyvinyl chloride handbags.

ISSUE:

(1) Whether the handbags made entirely of PVC material of U.S. origin are eligible for duty-free treatment under Note 2(b).

(2) Whether the PVC handbags made of foreign-origin PVC which has been cut to shape in the U.S. are eligible for duty- free treatment under Note 2(b).
LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (Public Law 101-382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA, to provide for the duty-free treatment of articles (other than textile and apparel articles, petroleum and petroleum products) which are assembled or processed in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990.

Note 2(b) provides as follows:

(b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) may be treated as a foreign article, or as subject to duty, if--

(i) the article is--

(A) assembled or processed in whole of fabricated components that are a product of the United States, or

(B) processed in whole of ingredients (other than water) that are a product of the United States, in a beneficiary country; and

(ii) neither the fabricated components, materials or ingredients, after exportation from the United States, nor the article itself, before importation into the United States, enters the commerce of any foreign country other than a beneficiary country.

As stated in this paragraph, the term "beneficiary country" means a country listed in General Note 3(c)(v)(A).

Although Note 2(b)(i)(A) and (B) are separated by the word "or," it is our opinion that Congress did not intend to preclude free treatment under this provision to an article which is created in a BC both by assembling and processing U.S. fabricated components and by processing U.S. ingredients.

Pursuant to General Note 3(c)(v)(A), HTSUSA, Haiti has been designated as a BC for CBERA purposes. Note 2(b) specifies four categories of products which are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum. The PVC handbags are not an apparel or textile article as contemplated by Note 2(b) and, therefore, are eligible for duty- free treatment under this provision provided that all of the other requirements are satisfied. See Headquarters Ruling Letter (HRL) 555742 dated November 5, 1990.

In regard to the first process you describe, you state that the importer will use 100% U.S.-origin components and ingredients during the foreign manufacturing operation in Haiti. We believe that the operations to be performed in Haiti, which consist of assembling the U.S. vinyl materials which have been cut to different shapes and sizes in the U.S., are encompassed by the operations specified in Note 2(b)(i). See HRL 555803 dated March 8, 1991. Therefore, if, in fact, all raw materials are entirely of U.S. origin and the finished articles are shipped directly to the U.S. without entering into the commerce of any foreign country other than a BC, and the applicable documentation requirements are satisfied, the PVC handbags will be entitled to duty-free treatment under Note 2(b).

The question presented in the second scenario you describe is whether the cutting operations performed on the foreign-origin PVC material in the U.S. substantially transforms the material into a "product of" the U.S. Customs has held that a textile article or material usually will be a product of a particular country if the cutting of the fabric into parts and the assembly of those parts into the completed article have occurred in that country. With respect to whether the cutting of fabric to shape, in and of itself, changes the fabric's country of origin, we have consistently held that such an operation constitutes a substantial transformation if the cutting creates defined patterns or shapes suitable for use as components in an assembly operation. See HRL's 555742 dated November 5, 1990, 067823 dated June 2, 1982, 555189 dated June 12, 1989, and C.S.D. 89-27(4) (HRL 554929 dated November 3, 1988). Therefore, with respect to the facts in this case, we find that the foreign PVC which is die cut to shape in the U.S. into various shapes and sizes necessary to construct the handbags in Haiti, is substantially transformed into a "product of" the U.S. Articles which are wholly made of U.S. component materials or ingredients are eligible for duty- free treatment under Note 2(b). Accordingly, if the finished handbag is shipped directly to the U.S. without entering into the commerce of any foreign country other than a BC, and the applicable documentation requirements are satisfied, the handbags made of foreign-origin PVC which has been substantially transformed into a "product of" the U.S. will be entitled to duty-free treatment under Note 2(b).

We have enclosed a copy of Headquarters telex 9264071 dated September 28, 1990, to Customs field offices, setting forth procedures for the entry of articles under Note 2(b).

HOLDING:

The PVC handbags which are made in Haiti entirely of U.S. origin PVC or foreign origin PVC which has been cut to pattern shapes in the U.S. may enter the U.S. duty-free pursuant to Note 2(b), provided the documentation requirements set forth in the attached telex are satisfied.

Sincerely,

John Durant, Director

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