HQ 557545 - Eligibility of certain footwear from the Dominican Republic for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; de minimis - United States International Trade Commision Rulings

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HQ 557545

December 13, 1993

CLA-2 CO:R:C:S 557545 WAS

CATEGORY: CLASSIFICATION

Stephen M. Zelman & Associates
845 Third Avenue
New York, N.Y. 10022

RE: Eligibility of certain footwear from the Dominican Republic for duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; de minimis

Dear Mr. Zelman:

This is in response to your letter of August 16, and 19, 1993, on behalf of Carter Footwear, Inc., in which you request a ruling on the applicability of duty-free treatment for certain textile upper/rubber plastic sole footwear to be produced in the Dominican Republic, 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 (HTSUS) (hereinafter "Note 2(b)").

FACTS:

U.S.-origin laminated fabric is either (1) shipped in rolls to the Dominican Republic where it is cut to appropriate shapes or (2) is first cut in the U.S. before being shipped to the Dominican Republic. The remaining materials necessary for the production of the finished footwear (including thermoplastic in pellet form, foam midsole, thread, bindings, eyelets, plastic, cord and adhesive materials) are all of U.S.-origin.

In the Dominican Republic, the laminated fabric is cut to shape (unless previously cut in the U.S.) and a thin layer of plastics is applied to the toe area of the vamp (the forward section of the shoe upper). The fabric components are then sewn together to form the shoe upper and eyelets are inserted. The upper is secured to the last, thermoplastic pellets are simultaneously melted, formed, and joined to the upper in an injection molding machine, adhesive is applied to the bottom of a foam inner sole, and the inner sole is finally attached to the interior of the outer sole.

You state that at the present time, all of the ingredients of the adhesive, which is used to join the inner sole to the outer sole, are produced in the U.S. However, the Dominican supplier of the adhesive has advised that, in the future, it wishes to purchase the ingredients of the adhesive from a third country.

You state that the amount of adhesive used per pair or per shipload is "miniscule." In your calculation, forty gallons of adhesive, with a total value of approximately $275.00, is all that is required in the manufacture of between 15,000 and 18,000 pair of shoes having a value of approximately $1.40 to $1.50 per pair. You state that the value of the adhesive comprises approximately one percent of the value of the finished footwear. Moreover, you claim that the adhesive is not visible on the outside of the shoe and does not enhance the appearance of the finished shoe in any way.

ISSUE:

Whether the footwear which is produced in the Dominican Republic from U.S. materials and foreign adhesive as described above, is 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, HTSUS, to provide for the duty-free treatment of articles (other than textile and apparel articles, and 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), HTSUS, the Dominican Republic has been designated as a BC for CBERA purposes. We have previously held that footwear and parts of footwear are eligible articles under Note 2(b), regardless of whether they are subject to textile agreements. See T.D. 91-88, 25 Cust. Bull. 45 (1991). Customs has followed this position on footwear and parts of footwear in 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 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 laminated fabric to shape, molding components, assembling the cut pieces, and assembling the bottom of a foam inner sole and attaching the inner sole to the interior of the outer sole, are encompassed by the operations specified in Note 2(b).

In HRL 556013 dated June 17, 1991, we found that enema tip assemblies which were made with predominantly U.S. materials and adhesive of German-origin, which was used to secure the string ends and cuff of the enema tip assemblies, were eligible for duty-free treatment under Note 2(b). We stated in HRL 556013 that:

[b]ased on the information you submitted, the cost of the adhesive represents approximately one percent of the total cost of the completed article. General Note 7(e)(i), HTSUS, states that, for purposes of the tariff schedule, the term "'wholly of' means that the goods are, except for negligible or insignificant quantities of some other material or materials, composed completely of the named material." It is our determination that although the enema tip assemblies are not made of 100% U.S. components and ingredients, the adhesive constitutes merely an insignificant portion of the entire article and, therefore, the presence of the foreign adhesive would not preclude application of duty-free treatment under Note 2(b).

We are of the opinion that the instant case is analogous to HRL 556013. Like the adhesive in HRL 556013, the adhesive of non-U.S. origin in this case constitutes one percent of the value of the completed footwear, and represents merely an insignificant or de minimis amount in comparison to the value of the completed footwear. Therefore, the footwear is considered "wholly of" U.S. materials, and the presence of the non-U.S. adhesive does not defeat eligibility for duty-free treatment under Note 2(b). Accordingly, the footwear at issue will be eligible for duty-free treatment under Note 2(b), provided that the merchandise is imported directly into the U.S. without entering into the commerce of any foreign country other than a BC, and the applicable documentation requirements are satisfied.

HOLDING:

On the basis of the information submitted, we are of the opinion that the footwear is made in the Dominican Republic "wholly of" materials of U.S. origin, and is entitled to duty-free treatment under Note 2(b), upon compliance with the imported directly and documentation requirements of this provision. The documentation requirements are set forth in Headquarters telex 9264071 dated September 28, 1990, a copy of which has been enclosed with this letter.

Sincerely,

John Durant, Director

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