HQ 559130 - Eligibility of surface mounted networks under the U.S.-Israel Free Trade Agreement ("Israel-FTA"); imported directly; consolidate; through Mexico - United States International Trade Commision Rulings

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HQ 559130

June 29, 1995

CLA-2 R:C:S 559130 MLR

CATEGORY: CLASSIFICATION

Mr. James J. Holmberg
Secretary
Dale Electronics, Inc.
1122 23rd Street
P.O. Box 609
Columbus, NE 68602-0609

RE: Eligibility of surface mounted networks under the U.S.-Israel Free Trade Agreement ("Israel-FTA"); imported directly; consolidate; through Mexico

Dear Mr. Holmberg:

This is in response to your letter of April 3, 1995, requesting a ruling as to the eligibility of certain surface mounted networks ("networks") imported from Israel for preferential duty 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:

It is stated that an affiliate of Dale Electronics, Inc. ("Dale") manufactures surface mounted networks in Israel. Dale plans to ship these networks in-bond to Juarez, Mexico, where Dale has a wholly-owned subsidiary operating as a Maquiladora. In Mexico, Dale plans to consolidate the networks with products manufactured by the Maquila. The networks from Israel are stated to be affixed in reels carrying 2,000 units each. Five reels are packed in a carton which is a basic shipping package. These cartons from Israel are placed in an overseas shipping box or crate for shipment to the Maquila location. In Mexico, it is stated that the carton is then removed from the freight container and consolidated with NAFTA qualifying products for shipment to the U.S. In a telephone conversation on June 26, 1995, it was stated that other surface mounted networks, manufactured in Mexico, are packed with the Israeli networks in the same outer freight container, and, are then shipped to Dale in the U.S. for redistribution to Dale's customers. Dale's customers are either Original Equipment Manufacturers ("O.E.M.s"), or distributors selling to O.E.M.s.

It is stated that in accordance with Dale's agreement with the Maquila, all inventory items delivered to the Maquila are owned by Dale and treated as consigned goods to the Maquila. The networks are purchased by Dale from an Israeli affiliate and shipped with Dale's name on the bill of lading as the importer to the Maquila. After the networks are consolidated with the other products for shipment to the U.S., Dale is stated to be both the consignee and importer. Dale also receives all orders from the customer, provides the shipping instructions to the Maquila and invoices the ultimate customer.

ISSUE:

Whether the networks from Israel are "imported directly" for purposes of the Israel-FTA when they are shipped through Mexico to the U.S.

LAW AND ANALYSIS:

Under General Note 8, HTSUS, relating to the Israel-FTA, eligible articles imported into the U.S. from Israel may enter free of duty or at a reduced duty rate if:

1. the article is wholly the growth, product or manufacture of Israel or is a new and different article of commerce that has been grown, produced or manufactured in Israel;
2. the article is imported directly from Israel into the customs territory of the U.S.; and
3. the sum of the cost or value of the materials produced in Israel, plus the direct costs of processing operations performed in Israel, is not less than 35 percent of the appraised value of each article at the time it is entered.

For purposes of this ruling request, we will assume that the networks are classified under a tariff provision which contains the symbol "IL" in the "Special" subcolumn, and, therefore are eligible to receive preferential duty treatment under the Israel-FTA. We will also assume that the networks are "products of" Israel.

Therefore, the issue in this case concerns whether the networks from Israel are considered to be "imported directly" from Israel to the U.S., if they are shipped from Israel through Mexico, and subsequently entered into the U.S. 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 en route 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; [and]
(iii) have not been subjected to operations other than loading or unloading, and other activities necessary to preserve the article in good condition.

The definition of "imported directly" under the Israel FTA is very similar to that under the Generalized System of Preferences (GSP). See 19 CFR 10.175. For purposes of the GSP, 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.

In this case, the cartons of Israeli networks will be removed from the freight container, consolidated with other networks manufactured in Mexico, and will then be packed in the same outer freight container for shipment to Dale in the U.S. We find that this consolidation only amounts to an unloading and loading operation. Therefore, the Israeli networks will not be deemed to have entered the commerce of Mexico. Furthermore, Dale states that it will be the owner of the networks delivered to Mexico, and that its name will be on the bill of lading as the importer to the Maquila. In addition, Dale states that once the networks are consolidated for shipment to the U.S., Dale will be both the consignee and importer. We find that this indicates that the U.S. will be the final destination of the Israeli networks, and that Dale will retain title to the Israeli networks while they are in Mexico. Accordingly, the Israeli networks will be considered "imported directly" from Israel, as defined by Annex 3, paragraph 8(b), of the Israel FTA.

HOLDING:

Based on the information submitted, we find that the networks shipped from Israel through Mexico, where they are only subjected to unloading and loading operations will not be considered to have entered the commerce of Mexico. Furthermore, since Dale will be both the consignee and importer on the bill of lading and retains title to the Israeli networks while they are in Mexico, the networks will be considered "imported directly", as defined by Annex 3, paragraph 8(b), of the Israel FTA.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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