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HQ 558754




November 15, 1994

CLA-2 CO:R:C:S 558754 WAS

CATEGORY: CLASSIFICATION

Ms. Tracy Ann Ehme
A.W. Fenton Company Inc.
P.O. Box 360614
Columbus, Ohio 43236-0614

RE: Eligibility of footwear uppers from the Dominican Republic for duty-free treatment under the CBERA; U.S. Note 2(b); country of origin marking; telex 9264071

Dear Ms. Ehme:

This is in response to your letter dated September 9, 1994, on behalf of Rocky Shoes & Boots Co., concerning the eligibility of footwear parts from the Dominican Republic for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C. 2701-2706) or under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS) ("Note 2(b)), and country of origin marking requirements. A sample of the merchandise was submitted for our review.

FACTS:

You state that you propose to ship 100 percent U.S.-origin materials to the Dominican Republic where they will be made into footwear uppers. In the Dominican Republic, the production of the footwear uppers involves cutting, assembling and stitching the components together. Upon completion of the footwear upper, it is shipped to Puerto Rico where it is made into a completed shoe.

You state that the labor costs incurred in the Dominican Republic are $1.50 per pair; finishing costs incurred in Puerto Rico are $2.71 per pair; processing time in the Dominican Republic is 1 1/2 hours; processing time in Puerto Rico is 30 minutes, due to the advanced level of technology present at the facility.

ISSUES:

(1) Whether the footwear uppers are eligible for duty-free treatment under the CBERA.

(2) Whether the footwear uppers which are produced in the Dominican Republic from U.S. materials are eligible for duty-free treatment under Note 2(b).

(3) What are the country of origin marking requirements for the footwear uppers from the Dominican Republic?

LAW AND ANALYSIS:

I. Eligibility under the CBERA

Under the CBERA, eligible articles the growth, product, or manufacture of designated beneficiary countries (BC's), may enter the U.S. free of duty if such articles are imported directly to the U.S. from the BC, and if the sum of (1) the cost or value of the materials produced in a BC or BC's, plus (2) the direct cost of processing operations performed in a BC or BC's, is not less than 35% of the appraised value of the article at the time it is entered into the U.S. See 19 U.S.C. 2703(a). The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article's appraised value. See section 10.195(c), Customs Regulations (19 CFR 10.195(c)). Materials made in Puerto Rico are considered to be of U.S.-origin for purposes of the CBERA.

The Dominican Republic is a BC for purposes of the CBERA. See General Note 7(a), HTSUS. General Note 7(c), HTSUS, provides that, unless excluded from eligibility under subdivision (d), an article from a BC shall be entitled to duty-free treatment under the CBERA if it is provided for in a subheading for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "E" or "E*", and all the CBERA rules of origin are satisfied. General Note 7(d)(iii), HTSUS, excludes from eligibility textile and apparel articles which consist of certain materials which are set forth in subsections (A) - (D) of subsection (d). The footwear upper at issue in this ruling is classified in subheading 6406.10.90, HTSUS, which provides for parts of footwear. . . Uppers and parts thereof. . . Other. Footwear uppers classified in this provision are subject to Textile Category Number 669. It appears that based on your description and the sample of the footwear uppers, they would be considered a textile article as defined in General Note 7(d)(iii), HTSUS, and therefore, ineligible for CBERA treatment.

II. Eligibility under Note 2(b)

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 7(a), HTSUS.

General Note 2, HTSUS, states that "[t]he term 'customs territory of the United States' as used in the tariff schedule, includes only the States, the District of Columbia and Puerto Rico."

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 HRL 556487 dated April 1, 1992, footwear uppers and socks were manufactured in the Dominican Republic using materials which originated entirely in the U.S. The uppers and socks were shipped to Puerto Rico directly from the Dominican Republic where, in some instances, they were manufactured into completed footwear. We held that the footwear uppers and socks were eligible articles under Note 2(b). Moreover, we stated that the footwear uppers, which were assembled and processed in the Dominican Republic entirely from U.S.-origin components and ingredients and were either imported into Puerto Rico fully-assembled, unassembled or in separate components, may enter duty-free pursuant to Note 2(b), provided the documentation requirements set forth in Headquarters telex 9264071 dated September 28, 1990, were satisfied.

We believe that the facts in the instant case are closely analogous to HRL 556487. In regard to the operations performed in the Dominican Republic, we believe that the assembly and processing operations which consist of cutting fabric to shape and assembling the cut pieces are encompassed by the operations specified in Note 2(b). Therefore, if, in fact, all of the materials used to produce the footwear uppers are of U.S. origin and have been shipped directly to the Dominican Republic, and the articles at issue are shipped directly to Puerto Rico without entering into the commerce of any foreign country other than a BC, the footwear uppers will be entitled to duty-free treatment under Note 2(b), provided all documentation requirements are met.

III. Country of Origin Marking Requirements under Note 2(b)

With regard to the country of origin marking requirements for the footwear uppers which are eligible for duty-free treatment under Note 2(b), the Director of the Office of Trade Operations, Headquarters, issued instructions to Customs field offices in Headquarters telex 9264071 dated September 28, 1990. The following paragraph on country of origin marking appears in the telex:

Since the language of this provision prohibits us from treating these articles as foreign, there appears to be no basis for requiring that the articles be marked with the Caribbean country of processing or assembly. If so desired, however, they may be marked "Assembled in (name of CBI country) of U.S. components" or other similar wording. Whether or not the articles can be marked as products of the United States must be decided by the Federal Trade Commission (FTC). Until further instructions are issued, marking requirements should be limited to these guidelines.

Therefore, based on the conclusion set forth above in telex 9264071, the footwear parts which you intend to import from the Dominican Republic which qualify for duty-free treatment under Note 2(b) are not required to be marked as a product of the Dominican Republic.

HOLDING:

Based on the information and sample provided, we are of the opinion that the footwear uppers do not qualify for duty-free treatment under the CBERA. However, the footwear uppers will be eligible for duty-free treatment under Note 2(b), provided that the direct shipment and documentary requirements which are set forth in Headquarters telex 9264071 dated September 28, 1990 (copy enclosed) are satisfied. Finally, articles which qualify for duty-free treatment under Note 2(b) are not required to be marked with the country of origin.

Sincerely,

John Durant, Director

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