HQ 0556487 - Applicability of duty exemption under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS, to footwear uppers and upper parts produced in the Dominican Republic; CSD 91-88; 555788; 555742 - United States International Trade Commision Rulings

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HQ 556487

April 1, 1992

CLA-2 CO:R:C:S 556487 WAW

CATEGORY: CLASSIFICATION

John B. Pellegrini, Esq.
Ross & Hardies
529 Fifth Avenue
New York, N.Y. 10017-4608

RE: Applicability of duty exemption under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS, to footwear uppers and upper parts produced in the Dominican Republic; CSD 91-88; 555788; 555742

Dear Mr. Pellegrini:

This is in reference to your letter of January 14, 1992, on behalf of The Timberland Company and its wholly-owned subsidiary, The Outdoor Footwear Company, requesting a ruling on the eligibility for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), of leather footwear uppers and upper parts produced in the Dominican Republic. A sample of the fully-assembled upper and separate sock were submitted for our review.

FACTS:

You state that the merchandise which is the subject of this request consists of leather footwear uppers and upper parts. The upper, referred to as Style MAXI, consists of a leather plug, vamp and quarters. The upper is front part but not back part lasted. It has an oblong hole in the bottom which measures approximately five inches in length and approximately two inches and three-quarters of an inch in width. The upper will be heel seat lasted after importation into the U.S. It has a sewn-in sock which extends from the instep to the heel. The upper will be used to produce a five eyelet boat shoe for men. The footwear sock is made of elasticized nylon material with a rubber/plastic foam backing and a bottom of non-woven textile material (polyester fibers impregnated with plastic). The sock serves to provide a firm fit to the footwear while in active use. You state that the uppers and socks will be manufactured in the Dominican Republic using materials which originate entirely in the U.S. The materials used in making the uppers consist of leather, non-woven fabric, thermoplastic ionomer material, thread and cement. The socks consist of leather, an elasticized man- made fiber fabric material with a rubber/plastic foam backing, a non-woven textile material consisting of polyester fibers impregnated with plastic, and thread. All of these materials are shipped to the Dominican Republic where they are subsequently cut to shape and assembled by sewing. The heel counter is shaped by molding the ionomer material. The completed uppers and socks will be shipped to Puerto Rico directly from the Dominican Republic where they will be manufactured into complete footwear.

You have asked us to address the question of whether the footwear uppers and socks will be eligible for duty-free treatment under U.S. Note 2(b) in the following three scenarios: (1) the uppers are fully-assembled with the socks; (2) the uppers and the socks are imported in the same shipment but not assembled; and (3) the uppers and the socks are imported separately to Puerto Rico where they will be manufactured into complete footwear.

ISSUE:

Whether the footwear uppers and socks are eligible under each of the above-described scenarios for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUSA.

LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (P.L. 101- 382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUSA, ("Note 2(b)") to provide for duty-free treatment of articles, other than certain specified products, which are assembled or processed in a Caribbean Basin Initiative 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.

Specifically, 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 in the United States, enters the commerce of any foreign country other than a beneficiary country.

As used in this paragraph, the term "beneficiary country" means a country listed in General Note 3(c)(v)(A), HTSUSA. Pursuant to General Note 3(c)(v)(A), HTSUSA, the Dominican Republic has been designated as a BC for CBERA purposes. General Note 2, HTSUSA, states that "[t]he term 'customs territory of the United States,' as used in the tariff schedule, includes only the States, the District of Columbia and Puerto Rico."

1. Eligibility of Footwear Upper and Socks

As stated above, 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 petroleum products. The issue presented in the instant case concerns whether the footwear upper and upper parts are included in the "textile and apparel article" exclusion for purposes of Note 2(b) and, therefore, precluded from receiving duty-free treatment under this provision.

In T.D. 91-88, 25 Cust. Bull. 45 (1991), Customs addressed the question of what constitutes a "textile and apparel" article for purposes of Note 2(b). In T.D. 9l-88, we held that footwear and parts of footwear are not textile and apparel articles for purposes of Note 2(b), regardless of whether they are subject to textile agreements. Customs has followed this position on footwear and parts of footwear in Headquarters Ruling Letters (HRL's) 555742 dated November 5, 1990, and 555788 dated September 9, 1991. These rulings allowed duty-free treatment under Note 2(b) to footwear and footwear uppers made, at least in part, of textile materials. In the instant case, we are of the opinion that the uppers and socks constitute parts of footwear, and, therefore, are eligible for duty-free treatment under Note 2(b). Accordingly, regardless of whether the uppers and socks are imported into the U.S. fully-assembled, imported together but not assembled, or imported separately, they will be eligible for duty-free treatment under Note 2(b).

2. Assembling and Processing in the Dominican Republic

Note 2(b)(i) specifies that an eligible article will be entitled to duty-free treatment if it is :

(A) assembled or processed in whole of fabricated components that are a product of the U.S., or

(B) processed in whole of ingredients (other than water) that are a product of the U.S., in a BC.

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.

In regard to the operations performed in the Dominican Republic, we believe that the assembly and processing of the U.S. materials and ingredients, which consist of cutting materials to shape, molding the heel counter, assembling the cut pieces, and assembling the sock to the upper, are encompassed by the operations specified in Note 2(b). See HRL's 555788 and 555742. Therefore, if, in fact, all materials shipped directly from the U.S. to the BC are of U.S.-origin and the completed footwear uppers and socks are shipped directly to the U.S. without entering into the commerce of any foreign country other than a BC, these articles will be entitled to duty-free treatment under Note 2(b), provided that all documentation requirements are met.

HOLDING:

The footwear uppers and socks, which are parts of footwear, are eligible articles under Note 2(b).

These articles, which are assembled and processed in the Dominican Republic entirely of U.S.-origin components and ingredients and are either imported together fully-assembled or unassembled or imported separately, may enter the U.S. duty-free pursuant to Note 2(b), provided the documentation requirements set forth in Headquarters telex 9264071 dated September 28, 1990, are satisfied.

Sincerely,

John Durant, Director

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