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HQ 557943




September 21, 1994

CLA-2 CO:R:C:S 557943 BLS

CATEGORY: CLASSIFICATION

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

RE: Eligibility of women's shirts for United States-Israel FTA; substantial transformation; assembly; imported directly; 19 CFR 12.130

Dear Mssrs. Weiser and Bodek:

This is in reference to your letter dated May 24, 1994, requesting a ruling as to the applicability of women's woven shirts imported from Israel for duty preference 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). A sample of the subject garment has been submitted.

FACTS:

Your client, Liz Claiborne Inc. ("LCI"), is contemplating the importation of a casual, full-cut, short-sleeved women's 100% cotton woven chambray shirt from Israel. The casual shirt features a collar (which does not button down), a full-front opening secured by means of a multiple button closure (with no button closure present at the neck), a patch pocket in the left chest area and a rear yoke. The garment is to be manufactured in extra small, medium and large sizes and will not be delineated by neck size.

The components of the garment (exclusive of trim) will be manufactured from greige fabric woven in Israel from Israeli yarns. The Israeli origin fabric will be dyed and precisely cut to both size and shape in Israel to form each of the twelve components of the casual shirt (right and left fronts, back, back yokes (2), sleeves (2), top collar, under collar, left and right front facings, and pocket).

The various garment components, cut to size and shape in Israel from the fabric woven (from Israeli origin yarns) and dyed in Israel, will then be sent to Thailand for assembly. In Thailand, the various pre-cut garment components will be joined together by means of simple machine-sewing operations such as
joining the front, back and yoke panels, sewing down the pocket, etc. Specifically, all fitting will be accomplished during the cutting stage in Israel. Each of the Israeli-cut components will be matched up by the Thai assembler, by means of notches pre-cut in Israel, and sewn together in a simple straight line machine sewing process. Moreover, certain Thai and/or Hong Kong trim items and packing materials will be used in connection with the assembly and packing of the subject garment. Such items primarily include buttons, thread, labels, polybags and hangers.

After the finished casual shirts have been assembled from the components cut to size and shape in Israel (and the Thai and/or Hong Kong origin trim articles), they will be washed (i.e. garment- wash with bleach) 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 an inspection facility which is not 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 Military Standard 105-D. 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. For example, if the lot size is between 501 and 1,200 garments, 50 units will be examined. If the defects number two or less, the shipment will be accepted. If three or four defective units are found, then an additional 50 units must be physically examined. If, after examining the second 50 units, a total of six or fewer units (of the 100 units) are found to be defective, the entire shipment is to be accepted. Conversely, if seven or more units are found to be defective, then the entire shipment is subject to rejection.

The importer intends to submit, in connection with each shipment of merchandise covered by this ruling application, a written certification that such goods have been inspected in Israel pursuant to Military Standard 105-D prior to their direct shipment from Israel to the United States.

You state that each garment inspected will undergo a full quality assurance inspection. Specifically, each garment examined will be removed from its shipping container, separated from its individual packing, 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 degrees 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 directly to the United States.

Based on the above, it is your position that the merchandise will be eligible for duty-free treatment under the United States- Israel FTA. In this regard, you also believe that the imported articles will satisfy the value-content requirement under this provision.

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, HTSUS.

1) Classification

In our opinion, the garments are properly classifiable under subheading 6206.30.30, HTSUS, "Women's or girls' blouses, shirts and shirtblouses, of cotton, other, other", an Israel FTA-eligible provision.

2) Product of Israel

Section 12.130, Customs Regulations, (19 CFR 12.130), is concerned with 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 the product of the country where it last underwent a substantial transformation ("S.T."). A textile or textile product is considered to have undergone an S.T. if it has been transformed by means of substantial manufacturing or processing operations into a new or different article of
commerce.

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; 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 an S.T. and those which usually will not are set forth in 19 CFR 12.130(e). Thus, spinning fibers into yarn and forming fabric are each considered to be a S.T. In addition, the cutting of fabric into parts and the assembly of those parts into the completed article in a foreign country will usually result in an S.T. of the fabric so as to confer country of origin status. Also considered to be an S.T. would be a substantial assembly by sewing and/or tailoring of all cut pieces of apparel articles which have been cut from fabric in another foreign country or territory, 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 12.130(e)(1).)

However, operations which will ordinarily 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 component 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 12.130(e)(2)(iii) and (iv)).

In Headquarters Ruling Letter (HRL) 557149 dated November 22, 1993, dyed Israeli fabric woven from Israeli yarn was cut to size and shape in Israel to produce components to be assembled into denim jeans. The components were then sent to China where they were joined by simple machine-sewing operations such as joining and setting the leg components, setting the belt loops, sewing the crotch, etc. Certain trim articles and packing materials of foreign origin were attached to (or used to pack) the subject garments. After assembly, the garments were stone-washed, pressed, and inspected, before being packaged for shipment back to Israel. We held in that case that the pre-cut
component parts of the jeans were clearly the product of Israel upon exportation to China; and that the processing in China was not complex, substantial, or meaningful, but was the type of simple assembly and finishing operations encompassed by 19 CFR

HRL 557149 is clearly in point, as the processing in Israel and Thailand in the subject scenario is almost identical to the operations performed in Israel and China, in the prior case. In addition, washing the garments is considered incidental to the assembly process (19 CFR 12.130(e)(2)(iii)). Accordingly, we find that the pre-cut components of the woven shirts are the product of Israel upon exportation to Thailand. Further, we also find that that the processing in Thailand does not transform the pre-cut components into a product of that country, as such operations constitute simple assembly and finishing operations as described in 19 CFR 12.130(e)(2)(iii) and (iv). Neither will the presence of the trim articles and packing materials of Thai and/or Hong Kong origin preclude treatment of the imported shirts as a product of Israel assuming all other legal requirements are satisfied.

In summary, we find that the imported articles are considered products of Israel for purposes of determining their eligibility for duty-free treatment under the Israel FTA.

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 shipmment 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 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 imported 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 very similar to that under the FTA. See section 10.175, Customs Regulations (19 CFR 10.175).

In the instant case, the fabric components will be sent to Thailand from Israel for assembly by machine-sewing, attachment of certain trim articles, and for washing and packaging. It is clear that these operations constitute a manipulation of the merchandise, and accordingly, the merchandise is deemed to have entered the commerce of Thailand. Therefore, the merchandise will be considered to be "imported directly" from Israel only if, upon its return from Thailand, it re-enters the commerce of, and then is directly shipped from, Israel to the U.S.

In HRL 557149, supra, Israeli-origin garments were assembled in China and shipped back to Israel for sampling and inspection. In that case, we held that the imported articles subject to this inspection and sampling procedure would be considered "imported directly" from Israel into the U.S. on condition a statement was also included on each invoice that the merchandise covered by the invoice was inspected pursuant to Military Standard 105-D. See also HRL 557647 dated July 14, 1994, involving a similar scenario.

The inspection and sampling procedures to be undertaken in connection with the subject importations appear to be indistinguishable from the inspection and sampling procedures involved in HRLs 557149 and 557647. Further, as in the prior cases, the importer will submit a statement on each invoice that the merchandise has been inspected pursuant to Military Standard 105-D.

HOLDING:

Based on the information provided, we find that:

1) The imported articles will be classifiable under subheading 6206.30.30, HTSUS, "Women's or girls' blouses, shirts and shirtblouses, of cotton, other, other", an Israel FTA-eligible provision.

2) Upon importation into the U.S., the imported garments will be considered a "product of" Israel for purposes of the Israel FTA.

3) The imported articles will be considered "imported dirctly" from Israel into the U.S. for purposes of the Israel FTA 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.

4) The imported articles will qualify for the duty preference 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 performed in Israel is not less than 35 percent of the appraised value of the articles at the time of entry. Whether the 35 percent test is met must await actual entry of the merchandise.

Sincerely,

John Durant, Director

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