HQ 558728 - "Product of the U.S." requirement under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; substantial transformation; - United States International Trade Commision Rulings

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HQ 558728

October 25, 1994

CLA-2 CO:R:C:S 558728 DEC

CATEGORY: CLASSIFICATION

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

RE: "Product of the U.S." requirement under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; substantial transformation;
HRL 556356; HRL 555247

Dear Mr. Zelman:

This is in response to your letter dated August 30, 1994, in which you seek a ruling with respect to the "product of the U.S." requirement under U.S. Note 2(b), subchapter II, Chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS), relating to certain plastics material known as "dry blend."

FACTS:

Carter Footwear, Incorporated (Carter) is a manufacturer of shoes. To create the soles of shoes, Carter produces a dry blend in the United States through a blending process of certain ingredients. These ingredients, which include synthetic rubbers, plastics, anti-oxidants, pigments, reinforcing agents, and chemical compounds are combined in precise quantities and under a temperature-controlled environment. After the dry blend is produced in the United States, it is shipped to the Dominican Republic where it is extruded into a mold to create soles for footwear. In Headquarters Letter Ruling (HRL) 556356, dated February 24, 1992, Customs determined that the manufacture of this dry blend constituted a substantial transformation. Accordingly, it was determined that the dry blend was a "product of the U.S." for purposes of U.S. Note 2(b), subchapter II, Chapter 98, HTSUS (Note 2(b)).

The facts upon which HRL 556356 was based involved a dry blend that contained United States and foreign-origin synthetic rubber. Since Carter has recently lost its United States source of synthetic rubber, all of the synthetic rubber used in the manufacture of the dry blend will be foreign. In addition, small amounts of an antioxidant and a pigment used to produce the dry blend will now be of foreign origin.

ISSUE:

Whether the operations performed in the United States with respect to the production of the dry blend from the revised combination of U.S. and foreign-origin materials results in a substantial transformation of the foreign materials into a "product of the U.S." for purposes of Note 2(b).

LAW AND ANALYSIS:

Note 2(b) provides for the 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.

Specifically, Note 2(b) provides that

(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 a subject to duty, if--

(i) the article is--

(A) assembled or processed in whole or 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 used in this paragraph, the term "beneficiary country" means a country listed in General Note

To qualify for Note 2(b) duty-free treatment, an eligible article must be assembled or processed in a BC entirely of components or ingredients that are a "product of the U.S." An article manufactured within the Customs Territory of the United states is considered a product of the United States. Foreign- origin articles or materials may become products of the United States if they undergo a process of manufacture in the United States which results in a substantial transformation. See sections 10.12(e) and 10.14(b), Customs Regulations (19 CFR 10.12(e) and 10.14(b)). The test for determining whether a substantial transformation occurs is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. Texas Instruments, Inc. v. U.S., 69 CCPA 152, 681 F.2d 778, 782 (1982).

Based on the revised information provided, it is our opinion that the blending of the various materials in the United States through the operations of controlled heating and mixing substantially transforms the materials into an article (the dry blend) which emerges with a new name, character, and use. The unique blending process remains the same notwithstanding the minor variation in the origin of certain of the ingredients. See HRL 555247, dated January 11, 1990.

HOLDING:

The foreign ingredients are substantially transformed during the blending process in the United States, and therefore, the dry blend is considered to be a "product of the U.S." for purposes of U.S. Note 2(b), Subchapter II, chapter 98, HTSUS.

Sincerely,

John Durant

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