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HQ 557708





February 17, 1994

CLA-2 CO:R:C:S 557708 WAS

CATEGORY: CLASSIFICATION

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

RE: Applicability of United States-Israel Free Trade Agreement; substantial transformation; women's skirts; assembly; imported directly; entry into the commerce; 19 CFR 12.130

Dear Mssrs. Weiser & Bodek:

This is in reference to your letters dated November 24, 1993, and January 10, 1994, requesting a ruling as to the eligibility of certain women's skirts imported from Israel for duty-free treatment 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).

FACTS:

Your client, Liz Claiborne, Inc. (LCI), is contemplating the importation of two full length 100 percent cotton woven skirts from Israel, style nos. 2610054 and 2636311. Each style features a full-front opening with placket secured by means of a seven (style no. 2610054) or eight (style no. 2636311) external button closure. Each skirt has hemmed edges and two inserted pockets at the waist. Style no. 2610054 also features a partially elasticized waistband, belt loops and a partial rear slit, characteristics which are not present in style no. 2636311. Each of the skirt styles may be constructed of either a cotton twill or denim fabric.

The components of each of the above garments (exclusive of trim) will be produced from greige fabric which is 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 components of each garment. You state that at least twelve distinct components for style no. 2610054 will be produced in Israel and at least twenty-two distinct components will be produced in Israel for style no. 2636311.

The various garment components cut to size and shape in Israel, from the fabric woven and dyed in Israel, will then 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 operation such as joining and setting the front, back and side components, fusing the waistband, etc. Specifically, all trimming, fitting and tailoring will be accomplished during the cutting stage in Israel. Each of the Israeli-cut components will feature notches which need only be matched-up by the Chinese assembler and sewn together in a straight line simple machine-sewing process. Moreover, certain Chinese-origin trim articles and packing materials will be used in connection with the assembly and packing of the subject garments. Such items consist primarily of pocket linings, buttons, thread, labels, hangtags, hangers and polybags.

After the garments have been assembled, they will be washed (e.g., conventional-wash, stone-wash, sand-wash and/or bleached) 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 cutting facility) which is neither a bonded location, nor otherwise under the control of the local Customs authorities. At such facility, each shipment of the subject garments will be inspected in accordance with U.S. Military Standard 105-D, which you state is 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 (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.

The contemplated contract between LCI and the Israeli cutter will require that each shipment of style nos. 2636311 and 2610054 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 U.S.

You state that 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. After the goods are inspected in Israel, they will then be exported therefrom directly to the United States.

ISSUES:

(1) Whether the imported articles will be classifiable under an Israel 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.

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 8(c)(vi), HTSUS.

1. Classification

Based on the information presented, it appears that the women's skirts are properly classifiable under subheading 6204.52.20, HTSUS, which provides for "Women's other cotton woven skirts," an Israel FTA-eligible provision.

2. "Product of" Israel

Section 12.130, Customs Regulations (19 CFR 12.130) concerns 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. Pursuant to the regulations, a textile or textile product will be considered to have undergone a substantial transformation if it has been transformed by means of substantial manufacturing or processing operations into a new and different article of commerce. See 19 CFR 12.130(b). According to section 12.130(d)(2), 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; and (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). According to 19 CFR 12.130(e)(iv), the cutting of fabric into parts and the assembly of those parts into a completed article in a foreign country or insular possession will usually result in a substantial transformation of the fabric so as to confer country of origin. Another example of a substantial transformation is 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 components 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

There is no question that the fabric which is woven from Israeli-origin yarn and cut to size and shape in Israel is the "product of" Israel. Subsection 12.130(e)(1)(iii) provides that "weaving, knitting or otherwise forming fabric" is a manufacturing or processing operation which results in a substantial transformation. See also Headquarters Ruling Letter (HRL) 555730 dated February 19, 1991 (forming of fabric in Israel from imported yarn constitutes a substantial transformation).

In addition, Customs has consistently held that cutting of fabric (which contains no indication where that fabric is to be cut) into garments parts, constitutes a substantial transformation of the fabric and the parts become a "product of" the country where the fabric is cut. See HRL 556647 dated August 10, 1992; and HRL 555693 dated April 15, 1991.

The only issue is whether the subsequent assembly of the component parts in China constitutes a further substantial transformation of the fabric. In a case similar to the facts presented, t-shirts manufactured from greige fabric knit in Israel from Israeli yarn or third country yarn was dyed, cut to size and shape, and subjected to a shrinkage process in Israel. The components were then sent to Egypt for sewing operations, such as joining the front and back panels at the shoulders, closing and setting sleeves, side sleeves, collar, tape and label, hemming the sleeves and bottom and sewing the pocket. The assembled t-shirts were then returned to Israel where they were inspected and packaged for shipment to the U.S. In that case, we held that the t-shirts were "products of" Israel as the sewing operations in Egypt did not substantially transform the t-shirts into "products of" that country. See HRL 555730 dated February 19, 1991.

In another case virtually indistinguishable from the instant case, women's trousers and shorts manufactured from greige fabric woven in Israel from Israeli-origin yarn were dyed and cut to size and shape in Israel. The components were then sent to China for assembly by means of machine-sewing operations such as joining and setting the leg components, setting the belt loops, sewing the crotch, etc. In China, certain trim articles and packing materials (i.e., pocket linings, waistband, interlinings, zippers, buttons, labels, polybags and hangtags) of Chinese or Hong Kong-origin were attached to the garments. The assembled trousers and shorts were then washed, pressed, inspected and packaged for shipment back to Israel. In Israel, the garments were subjected to a final inspection before being exported therefrom directly to the U.S. In that case, we found that the constituent components which were manufactured in Israel from greige fabric woven in Israel from Israeli-origin yarns clearly constituted "products of" Israel. Furthermore, we found that the sewing operation performed in China or Hong Kong (e.g., machine-sewing operations such as joining and setting the leg components, setting the belt loops, sewing the crotch, and attaching the pocket linings, waistband, interlinings zippers, buttons and labels), did not substantially transform the components into "products of" these countries. See HRL 557094 dated May 14, 1993.

Based on the cited regulations and the prior rulings, we find that the assembly of the component garment parts in China does not transform the pre-cut components into a "product of" China, 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). See, for example, HRL 732623 dated November 6, 1989 (holding that the country of origin of cotton industrial work glove pieces which were cut in country A, and sewn together in country B, was country A); HRL 086229 dated April 11, 1990 (fabric for industrial work gloves, which is cut in country A and sewn together in country B, has been substantially transformed in country A). The sewing together of the women's skirts at issue does not appear to require any tailoring. Rather, the facts indicate that the joining of the cut parts is a simple assembly operation which does not involve a high degree of skill and workmanship. The skirts at issue are designed, patterned, sized and cut in Israel, and these operations together with the cost of the Israeli-origin fabric constitute a large percentage of the value of the finished articles, while sewing, finishing and packing in China comprise a small percentage of the articles' value. Thus, a significant percentage of the value-added to the article occurs as a result of work performed or material sourced in Israel. We also find that the presence of the trim items of Chinese-origin does not preclude treatment of the imported skirts as a "product of" Israel, assuming all other legal requirements are satisfied.

Accordingly, since there is nothing to suggest that the assembly of the cut parts is in any degree a complex operation, or that the assembly requires anything more than a simple joining of the cut parts by stitching, it is our position that the skirts have not undergone a substantial transformation in China, and therefore, the skirts are a "product of" Israel, the country where the fabric is woven and cut to shape.

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 virtually identical to that under the FTA. See section 10.175, Customs Regulations (19 CFR 10.175).

We have recently issued a ruling dealing with substantially similar facts. See HRL 557149 dated November 22, 1993. In HRL 557149, denim jeans were produced from greige fabric woven in Israel from Israeli-origin yarns. In Israel, the fabric was dyed and precisely cut to size and shape to form each of the components of each garment. The various components cut to size and shape in Israel, were sent to China for assembly. In China, the various garment components were 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. After the garments were assembled, they were stone-washed, pressed, inspected and packaged for shipment back to Israel. In Israel, the shipment was removed from the vessel and brought to the manufacturer's facility, where cartons were opened and sample garments inspected, pursuant to contractual arrangement and commercial practice, in accordance with Military Standard 105-D, described therein. In HRL 557149, we held that under the facts described above, there was a manipulation of the merchandise and therefore an entry into the commerce of Israel of all the goods in each shipment. Therefore, we found that the denim jeans were considered to have been "imported directly" from Israel into the U.S.

Accordingly, in order to be considered "imported directly" from Israel, the finished garments upon their return from China (the country from which this shipment originated) must enter into the commerce of Israel, i.e., it must be manipulated in Israel. You have advised that after assembly of the skirts in China, the shipment will be returned to Israel where it will be unladen from the vessel and brought to the manufacturer's facility where they will undergo a full quality assurance inspection, after which they will be exported directly from Israel to the U.S. without passing through the territory of any intermediate country. In addition, 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." Consistent with our holding in HRL 557094, we are of the opinion that based on these facts, the goods will have entered into the commerce of Israel and 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 classified under subheading 6204.52.20, HTSUS, an Israel FTA eligible provision; (2) upon importation into the U.S., the imported garments will be considered "products 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;" and (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 merchandise at the time of entry. Whether the 35 percent value-content requirement has been met must await actual entry of the merchandise.

Sincerely,

John Durant, Director

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