HQ 0556185 - Ceramic tile shipped from Israel to a Canadian customs bonded warehouse prior to being shipped to the U.S.; "imported directly"; Israel FTA - United States International Trade Commision Rulings

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HQ 556185

September 10, 1991

CLA-2 CO:R:C:S 556185 WAW

CATEGORY: CLASSIFICATION

Michael J. Biehler, Esq.
Jaeckle, Fleischmann & Mugel
Norstar Building
Twelve Fountain Plaza
Buffalo, N.J. 14022-2292

RE: Ceramic tile shipped from Israel to a Canadian customs bonded warehouse prior to being shipped to the U.S.; "imported directly"; Israel FTA

Dear Mr. Biehler:

This is in response to your letter dated August 6, 1991, requesting our advice on behalf of your client concerning whether certain products imported from Israel will qualify for duty-free treatment under the United States-Israel Free Trade Implementation Act of 1985 ("FTA") (See General Note 3(c)(vi), Harmonized Tariff Schedule of the United States Annotated

FACTS:

You represent a Canadian client who intends to purchase ceramic tile from Israel. The goods will be shipped from Israel under a Canadian in-transit bond to a Canadian customs bonded warehouse in Toronto, Ontario. Next, you state that a portion of the merchandise will be shipped to your client's dealers in Canada, and a portion will be shipped to your client's dealers in the U.S. You state that while the goods are in the customs bonded warehouse, they will remain in the original packaging and will not undergo any processing or alteration while in Canada. When the portion of the shipment destined for the U.S. is shipped from the customs bonded warehouse, the Canadian in-transit bonds will be cancelled and the goods will be entered into the customs territory of the U.S.

It is your understanding that the FTA "special" rate of duty would apply to the portion of the shipment which is destined for the United States dealers. The question that you have asked us to address is whether the ceramic tile will be considered to be "imported directly" for purposes of the FTA when it is shipped from Israel through an intermediate country where a portion of the merchandise will be held under bond prior to being shipped to the U.S.

ISSUE:

Whether the ceramic tile is "imported directly" for purposes of the FTA if it is shipped from Israel under a Canadian in- transit bond to a Canadian customs bonded warehouse prior to being shipped to the U.S.

LAW AND ANALYSIS:

Under the Israel FTA, eligible articles the growth, product, or manufacture of Israel which are imported directly to 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% of the appraised value of the article at the time it is entered. See General Note 3(c)(vi) HTSUSA.

Annex 3, paragraph 8, of the Agreement on the Establishment of a Free Trade Area between the United States and Israel (entered into on April 22, 1985) (hereinafter "the Agreement"), defines the words "imported directly," in pertinent part, as follows:

(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 and the invoices, bills of lading, and other shipping documents, show the United States as the final destination; or

(c) if shipment is through an intermediate country and the invoices and other documents do not show the United States as the final destination, then the articles in the shipment, upon arrival in the United States, are imported directly only if they:

(i) remain under the 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 and unloading), offered for sale (whether or not a sale actually takes place), or subjected to a title change in the country. See HRL 071575 dated November 20, 1984. The definition of "imported directly" under the GSP is very similar to that under the FTA. See section 10.175, Customs Regulations (19 CFR 10.175). In the instant case, the operations that your client intends to perform in Canada do not appear to constitute more than simple loading and unloading of the merchandise, and, as such, will not cause the merchandise to enter the commerce of the intermediate country. You state that the merchandise will remain in the original packaging and will not undergo any processing or alteration while it is in the Customs bonded warehouse. Accordingly, if the invoice, bill of lading, Israeli-FTA certificate, certificate of origin and other original shipping documents issued in Israel show the U.S. as the final destination, the merchandise will be considered "imported directly" pursuant to paragraph 8(b), Annex 3 of the Agreement.

Alternatively, if the invoice, bill of lading and other shipping documents do not show the U.S. as the final destination, the goods may still be considered "imported directly" under paragraph 8(c), Annex 3 of the Agreeement, assuming the goods remain under customs control while in Canada (such as in a Canadian customs bonded warehouse), and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer.

HOLDING:

Based on the information provided, we find that the ceramic tile may be considered "imported directly" into the U.S. from Israel when the merchandise is shipped from Israel under a Canadian in-transit bond to a Canadian customs bonded warehouse pending shipment to the U.S. provided that (1) the invoice, bills of lading, and other shipping documents show the U.S. as the final destination, or (2) the goods remain under customs control while in Canada and the district director is satisfied that the importation results from the original commercial transaction between the importer and the producer.

Sincerely,

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