United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1994 HQ Rulings > HQ 0557296 - HQ 0557665 > HQ 0557647

Previous Ruling Next Ruling


HQ 557647


July 14, 1994

CLA-2 CO;R;C;S 557647 BLS

CATEGORY: CLASSIFICATION

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

RE: Eligibility of women's pullovers for United States-Israel FTA; substantial transformation; assembly; imported directly

Dear Mssrs. Weiser and Bodek:

This is in reference to your letter dated October 21, 1993, requesting a ruling as to the applicability of women's pullovers imported from Israel for duty preference under the United States- Israel Free Trade Implementation Act of 1985 ("Israel FTA"). See, General Note 8, Harmonized Tariff Schedule of the United States (HTSUS). An addendum to the request has also been submitted by fax dated June 3, 1994.

FACTS:

Your client is contemplating the importation of two 100% cotton knitted women's pullover garments from Israel, style nos. 30037 and 40351. Style no. 30037 is a long-sleeved garment constructed of a ribbed fabric measuring approximately nine stitches per two linear centimeters and features a V-neck (with no opening in the neckline). Style no. 40351 is a short-sleeved garment constructed from a knitted fabric measuring approximately eleven stitches per two centimeters and features a rounded neck (with no opening in the neckline) and a ribbed waistband and cuffs. All of the components of each of the above garments (exclusive of trim) will be knit-to-shape in Israel from Indian-origin yarns which will be dyed in Israel.

1) Style No. 30037

The knit-to-shape components of this style, consisting of a front, a back, two sleeves and a neck border, will be produced in Israel in the form of vertical strips. Such strips will then be separated in Israel (by removing a marker thread joining the components) resulting in the individual garment components. Each of the components knitted-to-shape and separated in Israel will then be matched with its corresponding counterparts required to
form a finished garment. Once the components have been so segregated, they will be packaged for shipment to China.

In China, the knit-to-shape components produced in Israel will be assembled by means of a simple looping operation. In addition, certain Chinese origin trim items (i.e., shoulder pads, labels and hang tags) will be affixed to the assembled garments. The finished pullovers will then be washed and packaged for shipment back to Israel.

In Israel, each entire shipment of assembled garments 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 knitting facility), which is understood to be approximately two hours away by truck, for inspection. This facility is neither a bonded location nor otherwise under the control of the local Customs authorities. You state that a full quality-assurance inspection in accordance with Military Standard 105-D, a commercially recognized statistical sampling procedure, will be conducted at this facility. Such standard provides for the physical examination of a given number of units (randomly selected) 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. Your client also intends to include a statement on each applicable commercial invoice certifying that goods have been inspected in Israel pursuant to Military Standard 105-D. After the goods are thus inspected in Israel, they will then be repacked and exported directly to the U.S.

2) Style No. 40351

As with style 30037, the components of style no. 40351, consisting of a front, a back, two sleeves and a collar, will likewise will be knitted-to-shape in Israel from Indian-origin yarn dyed in Israel. However, unlike style no. 30037, such yarn will be knitted in Israel into connected strips of "patterned" fabric already containing distinct lines of demarcation for each shaped component. Each strip will bear cutting lines for a series of repeating components pre-knit into the fabric. The strips are to be separated vertically in Israel by removing a marker thread inserted during the knitting process.

The individual strips of patterned fabric produced in Israel will then be sent to China where the specific components will be separated therefrom by means of running the pre-existing cutting lines knit into the fabric in Israel over a blade. Once the
components have been so separated, the remaining operations will be identical to those described in connection with style no. 30037 (i.e., looping, affixing trim items, washing and packing in China, inspection in Israel followed by direct exportation to the U.S.)

ISSUES:

1) What is the tariff classification of the imported garments?

2) Whether the imported garments will be considered a "product of" Israel for purposes of the Israel FTA.

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

LAW AND ANALYSIS:

Under the Israel FTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly to the U.S. from Israel qualify for duty-free treatment or a duty preference, 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 8, HTSUS.

1) Classification

In our opinion, the garments are properly classifiable under subheading 6110.20.20, HTSUS, which provides for "Sweaters, pullovers..., and similar articles, knitted or crocheted: Of cotton...Other". Articles classified under this provision which satisfy the requirements of the Israel FTA are subject to a duty rate of 1.3% ad valorem.

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 a country where it last underwent a substantial transformation. A textile or textile product is considered to have undergone a substantial transformation 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 a substantial transformation and those which usually will not are set forth in 19 CFR 12.130(e). Material usually will be considered a product of a foreign territory or country, or insular possession, as the result of knitting, weaving, or otherwise forming fabric. (19 CFR 12.130(e)(iii)).

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 Headquarters Ruling Letter (HRL) 089068 dated July 1, 1991, in connection with a country of origin determination, we held that sweater components produced from yarn made in Taiwan were products of Hong Kong as the result of knitting-to-shape in that country. We have also held that operations such as looping, hemming, lock stitching, and affixing pockets, zippers, and buttons (findings), are simple assembly operations which do not result in a substantial transformation. (See, e.g., HRLs 088069 dated January 25, 1990, and 556104 dated September 10, 1991.) Further, demarcating fabric into readily identifiable shapes, in connection with the knit-to- shape process, results in a similar finding of a substantial transformation in the country where these operations occur, although cutting along the pre-existing lines (and assembly) which takes place in a second country does not. (See HRL 088069.)

As applied to the instant case, we find that the knitting- to-shape in Israel of the Indian yarn into the garment components, in connection with style nos. 30037 and 40351, results in a substantial transformation of the yarn into a product of Israel. The subsequent operations in China, which include looping, affixing trim items, cutting along pre-existing lines (style no. 40351), and washing and packing, are considered simple assembly and finishing operations, and do not constitute a substantial transformation.

Therefore, the imported articles are considered products of Israel for purposes of determining their entitlement to a duty preference 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 looping, attachment of certain trim articles, and for washing and packing. 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 imported from, Israel to the U.S.

In HRL 557149 dated November 22, 1993, also involving the "imported directly" issue, Israeli-origin garments were assembled in China and shipped back to Israel for sampling and inspection. In that case, we held that the imported articles subject to this inspection and sampling procedure would be considered to be "imported directly" from Israel into the U.S. on condition a statement was also included on each invoice that the merchandise covered by the invoice was inspected pursuant to Militery Standard 105-D. See also HRL 557708 dated February 17, 1994.

You state that the inspection and sampling procedures to be undertaken under the present scenario are materially indistinguishable from the procedures performed in HRLs 557149 and 557708. You also state that your client will submit in connection with each entry of merchandise covered by the invoice a statement (on each invoice) that such merchandise has been inspected pursuant to 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 6110.20.20, HTSUS, which provides for "Sweaters, pullovers... and similar articles, knitted or crocheted: Of cotton: ...Other".

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

3) The imported articles will be considered "imported directly" from Israel into the U.S. for purposes of the Israel FTA 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 the duty preference 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

Previous Ruling Next Ruling

See also: