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HQ 557149


November 22, 1993

CLA-2 CO:R:C:S 557149 BLS

CATEGORY: CLASSIFICATION

Steven S. Weiser, Esq.
Arthur W. Bodek, Esq.
Siegel, Mandell & Davidson, P.C.
1515 Broadway
New York, New York 10036

RE: United States-Israel FTA; substantial transformation; denim jeans; textile articles; assembly; imported directly; entry into the commerce; manipulation; 19 CFR 10.214, 12.130; HRL 556104, 555489, 555398, 071575

Dear Mssrs. Weiser & Bodek:

This is in reference to your letter dated February 10, 1993, and subsequent correspondence, requesting a ruling as to the eligibility of certain women's denim jeans imported from Israel for duty-free treatment under the United States-Israel Free Trade Implementation Act of 1985 ("Israel FTA"). See, General Note 3(c)(vi), Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

Your client, Liz Claiborne, Inc. ("LCI"), is contemplating the importation of two women's 100% cotton woven denim jeans from Israel, style nos. 261001 and 9035402. Each garment features a fly front with zipper closure, a button closure at the waistband, two rear patch pockets, two scoop front pockets and a coin pocket within the right scoop pocket; each front pocket is reinforced by means of a single metal rivet. As noted above, each garment is identical in every material respect other than fabric weight. Style no. 2610001 is constructed of a 12 ounce denim fabric while Style no. 9035402 is constructed of a 14 ounce denim fabric.

The components of each of the garments (exclusive of trim) will be manufactured from greige fabric woven in Israel from Israeli origin yarns. The Israeli origin fabric will be dyed and precisely cut to size and shape in Israel to form each of the numerous components of each garment. At least fourteen distinct components for each style will be produced in Israel.

The various components cut to size and shape in Israel, from fabric woven and dyed in Israel, will be sent to China for assembly. In China, the various garment components produced in Israel will be joined together by means of simple machine-sewing
operations such as joining and setting the leg components, setting the belt loops, sewing the crotch, etc. Moreover, certain trim articles and packing materials, of Chinese or Hong Kong origin, will also be attached to (or used to pack) the subject garments. Such articles are limited to pocket linings, buttons, zippers, rivets, leather patches, labels, hangtags, polybags and cartons. With the exception of the pocket linings, all of the trim articles and packing materials will be acquired by the Chinese assembler of the subject garments in a finished condition ready to be affixed to the garments. It is understood that the pocket linings are to be cut in China from Chinese or Hong Kong origin fabric.

After the finished garments have been assembled from the numerous components cut to size and shape in Israel (and the foreign origin trim articles), they will be stone-washed, pressed, inspected and packaged for shipment back to Israel. Upon arrival in Israel, the shipment will be unladen from the vessel and cleared through Israeli Customs. The complete shipments will then be transported (not in bond) to the premises of the Israeli manufacturer (i.e.), the Israeli cutting facility), a distance in excess of fifty miles, which is neither a bonded location nor otherwise under the control of the local Customs authorities. The contemplated contract between LCI and the Israeli cutter will require that each shipment of Style nos. 2610001 and 9035402 be subjected to a commercial inspection, and that inspection certificates be issued in connection therewith (i.e., a separate inspection certificate will be issued for each shipment). Such inspections are to be performed by employees of the Israeli manufacturer prior to direct shipment of the merchandise to the United States.

The inspection to be performed will be consistent with common commercial practice (and with the contract between LCI and the Israeli manufacturer). With respect thereto, each shipment will be examined in accordance with Military Standard 105-D, which you believe to be perhaps the most widely accepted statistical sampling plan in the world today. Such standard provides for the physical examination of a given number of units for each lot size in order to effect a commercial inspection of the entire lot. The precise number of units which will be examined will be primarily dependent upon two factors: 1) the size of the shipment; and 2) the results observed of the garments initially examined. For example, if the lot size is between 501 and 1,200 garments, 50 units will be examined. If the defects number two or less, the shipment will be accepted. If three or four defective units are found, then an additional 50 units must be physically examined. If, after examining the second 50 units, a total of 6 or fewer units (of the 100 units) are found to be defective, the entire shipment is to be accepted. Conversely, if 7 or more units are found to be
defective, then the entire shipment is subject to rejection.

The inspection itself will be a full quality assurance inspection. Specifically, each garment examined will be removed from its shipping container, separated from its individual packaging, unfolded and laid out on a table. Each such garment will then be physically examined for size specifications, color, quality workmanship, fabric shading, etc. The inspection (both in terms of number of units examined as well as degree of examination) will be the same as that utilized by LCI in connection with its own purchases of apparel articles. In addition, you advise that it is LCI's intention to submit, in connection with each entry of the merchandise covered by the ruling application, a written certification that such goods have been inspected in Israel pursuant to Military Standard 105-D prior to their direct shipment from Israel to the United States. Such certification will appear in substantially the following format:

This is to certify that all goods covered by this invoice have been inspected in Israel pursuant to
Military Standard 105-D.

The Israeli manufacturer will be contractually liable to LCI for any defective goods it delivers. While LCI is not privy to any contractual arrangements between the Israeli menufacturer and the Chinese assembler, in accordance with normal commercial transactions, it is contemplated that claims would be made by the Israeli manufacturer against the Chinese assembler with respect to any unacceptable merchandise.

ISSUES:

1) Whether the imported articles will be classifiable under an Israeli FTA-eligible provision.

2) Whether the imported garments will be considered a product of Israel.

3) Whether the articles will be "imported directly" to the U.S. from Israel.

4) Whether the imported articles will satisfy the value- content requirements of the statute.

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 percent of the appraised value of the article at the time it is entered. See, General Note 3(c)(vi), HTSUSA.

1) Classification

In our opinion, the garments are properly classifiable under subheading 6204.62.40, HTSUS, "Women's other cotton woven trousers bib and brace overalls, breeches and shorts", an Israel FTA- eligible provision.

2) Product of Israel

Section 12.130, Customs Regulations (19 CFR 12.130) is concerned with the country of origin of textiles and textile products. Pursuant to 19 CFR 12.130(b), a textile or textile product is considered to be a product of the country where it last underwent a substantial transformation ("S.T."). A textile or textile product is considered to have undergone an S.T. if it has been transformed by means of substantial manufacturing or processing operations into a new or different article of commerce.

The following will be considered in determining whether merchandise has been subjected to substantial manufacturing or processing operations: 1) the physical change in the material or article; 2) the time involved; 3) the complexity of the operations; 4) the level or degree of skill and/or technology required; 5) the value added to the article in each country or territory. Any one or a combination of these factors may be determinative and other factors may also be considered. 19 CFR 12.130(d).

Examples of processes which generally will result in an S.T. and those which usually will not are set forth in 19 CFR 12.130(e). Thus, the cutting of fabric into parts and the assembly of those parts into the completed article in a foreign country will usually result in an S.T. of the fabric so as to confer country of origin status. Also considered to be an S.T. would be a 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 into a completed garment (e.g., the complete assembly and tailoring of all cut pieces of suit-type jackets, suits, and shirts.) (19 CFR

However, operations which ordinarily will not transform an article into a product of a foreign country include (1) trimming and/or joining together by sewing, looping, linking, or other means
of attaching otherwise knit-to-shape component parts produced in a single country, even when accompanied by other processes (e.g., washing, drying, mending, etc.) normally incident to the assembly process; and (2) one or more finishing operations on yarns, fabrics, or other textile articles, such as showerproofing, superwashing, bleaching, decating, fulling, shrinking, mercerizing, or similar operations. (19 CFR 12.130(e)(2)(iii) and (iv)).

In HRL 556104, dated September 10, 1991, cotton fabric was cut into panels and then sewn together to form men's trousers. The sewing operation included hemming, lock stitching, fashioning pockets, and applying buttons and zippers. The issue was whether the trousers should be accorded duty-free treatment under General Note 3(a)(iv), HTSUS. We found that 19 CFR 12.130(e)(1)(v) was not applicable to the assembly operation involved, as the sewing, etc. was not as substantial, complex or meaningful as the assembly of suit-type jackets, suits, or shirts. (However, we held in that case that the overall processing operation, which included cutting the foreign fabric into components, and assembly of the trouser panels, resulted in an S.T. of the foreign fabric.) (See, also, HRL 555489, dated May 14, 1990, sewing together of foreign glove parts is insufficient to substantially transform the glove components into a product of the Philippines.)

There is no question as to whether the pre-cut component parts of the denim jeans are the product of Israel upon exportation to China; the components themselves are cut from Israeli fabric woven from Israeli yarn. Furthermore, based on the cited regulations and prior rulings, we find that the further processing in China does not transform the pre-cut components into a product of that country, as such operations are not substantial, complex, or meaningful, but are the type of simple assembly and finishing operations encompassed by 19 CFR 12.130(e)(2)(iii) and (iv). Neither will the presence of the trim items of Hong Kong or Chinese origin preclude treatment of the imported jeans as a product of Israel assuming all other legal requirements are satisfied.

Accordingly, we find that the imported articles are considered products of Israel for purposes of determining their eligibility for duty-free treatment under the Israel FTA.

3) "Imported Directly"

Annex 3, paragraph 8, of the Israel FTA defines the words "imported directly," as follows:

(a) Direct shipment from Israel to the U.S. without passing through the territory of any intermediate country;

(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 while enroute to the U.S., and the invoices, bills of lading, and other shipping documents, show the United States as the final destination;

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

(i) remain under 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 or 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 fabric components will be sent to China from Israel for assembly by machine-sewing, attachment of certain trim articles, and for stone-washing, pressing, inspection and packaging. It is apparent that these operations constitute a manipulation of the merchandise, and accordingly, the merchandise is deemed to have entered the commerce of China. Therefore, the merchandise will be considered to be "imported directly" from Israel only if, upon its return from China, it re-enters the commerce of, and then is directly shipped from, Israel to the U.S.

In HRL 555398, dated December 12, 1989, a certain spice grown
in India was sent to Singapore for processing. The processed shipment was placed on board a vessel which then proceeded to India, en route to the U.S. The shipment did not leave the vessel while it was docked in India. We held in that case that the shipment was considered to have been "imported directly" from Singapore, not India. In this regard, we noted that the word "from," as commonly used, indicates a starting point, a point or place of where an actual physical movement has its beginning, or the place of origin. See Webster's Third International Dictionary (Unabridged), 913 (1971). We pointed out that since the merchandise did not leave the vessel in India, and had no connection with that country, other than being aboard a vessel that transited its port, the shipment was considered to have been "imported directly" from Singapore, and not India. We also stated the following:

"We believe that this result is consistent with the statute and Customs Regulations. To accept your claim would render the statutory direct shipment requirement meaningless, for it would allow merchandise to be "imported directly" from the last foreign port at which the trans- porting vessel stops before reaching the U.S.

Customs Regulations clearly contemplate that if an article is merely transshipped through a country, it is not "imported directly" from that country, but from the country from which the shipment originates. .... To find that the merchandise is "imported directly" from the country through which the merchandise is merely transshipped would be, at best, inconsistent with the Customs Regulations defining the term."

Accordingly, in order to be "imported directly" from Israel, the shipment upon its return from China (the country from which this shipment originated) must enter the commerce of Israel, i.e., it must be manipulated in Israel. As noted, above, you have advised that after assembly of the jeans in China, the shipment will be returned to Israel, removed from the vessel and brought to the manufacturer's facility, where cartons will be opened and sample garments inspected, pursuant to contractual arrangement and commercial practice, as described. If the shipment passes the inspection, the samples will be repacked, the cartons sealed, and the shipment returned to the dock to be loaded aboard a vessel for shipment to the U.S. You have also advised that LCI will submit, in connection with each entry of merchandise covered by the
ruling request a written certification on each invoice that all goods covered by the invoice have been inspected pursuant to the commercially accepted statistical sampling procedure, "Military Standard 105-D."

Under these facts, we find that there will be a manipulation of the merchandise and therefore an entry into the commerce of Israel of all the goods in each shipment. Therefore, these articles will be considered to have been "imported directly" from Israel into the U.S.

HOLDING:

Based on the information provided, we find that:

1) The imported articles will be classifiable under subheading 6204.62.40, HTSUS, an Israel FTA eligible classification.

2) Upon importation into the U.S., the imported garments will be considered a product of Israel.

3) The imported articles will be considered to be "imported directly" from Israel into the U.S. on condition that upon return to Israel from China a) the goods are inspected in accordance with the statistical sampling procedure known as Military Standard 105- D, and b) a statement is included on each invoice that the merchandise covered by the invoice has been inspected pursuant to Military Standard 105-D.

4) The imported articles will qualify for duty-free treatment under the Israel FTA, provided the sum of a) the cost or value of the materials produced in Israel, plus b) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the articles at the time of entry. Whether the 35 percent test is met must await actual entry of the merchandise.

Sincerely,

John Durant, Director
Commercial Rulings Division

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