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HQ 559737




June 27, 1997

CLA-2 RR:TC:SM 559737 KBR

CATEGORY: CLASSIFICATION

Area Director
U.S. Customs Service
J.F.K. Airport
Building 178
Jamaica, New York 11430

RE: Protest 1001-96-100147; Eligibility of hair adornments imported from the Dominican Republic for duty-free treatment under the Caribbean Basin Economic Recovery Act ("CBERA").

Dear Port Director:

This is in response to Protest 1001-96-100147, filed January 4, 1996, concerning Riviera Trading Company ("Riviera"), regarding the eligibility for duty-free treatment of hair adornments imported from the Dominican Republic, pursuant to the Caribbean Basin Economic Recovery Act ("CBERA"); or, in the alternative, for treatment pursuant to subheading 9802.00.80, HTSUS.

FACTS:

Riviera imported various hair adornments from the Dominican Republic. The Assist Value Breakdown Sheets included with the entry lists the various values of the components of the four different hair adornments imported. These sheets also list the country of origin of the components. The four types of hair adornments are: pony trios, long pony twisters, skinny trios HBs, and trios mini bows. The sheets indicate that the origin of all of the components is the U.S. However, your office has determined that although Riviera may have purchased the components from a U.S. company such as High Fashion - New York, the country of origin of the components was actually Japan or Korea. Information included with the entry indicate the costs incurred in the Dominican Republic comprise between 22% to 25% of the appraised value of the articles. You office classified these articles under subheading 9615.19.6010, Harmonized Tariff Schedule of the United States ("HTSUS"), at the General subcolumn rate of 11% ad valorum.

ISSUES:

1. Whether the hair adornments assembled in the Dominican Republic are eligible for duty-free treatment under CBERA.

2. Whether the components imported to the Dominican Republic from the U.S. qualify for treatment pursuant to subheading 9802.00.80, HTSUS.

LAW AND ANALYSIS:

1. CBERA

Under the CBERA, eligible articles the growth, product, or manufacture of a designated beneficiary country (BC), which are imported directly to the U.S. from a BC, qualify for duty-free treatment, provided the sum of (1) the cost or value of materials produced in a BC or two or more BCs, plus (2) the direct costs of processing operations performed in a BC or BCs is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. 19 U.S.C. ?2703(a)(1). In addition, the cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content minimum in an amount not to exceed 15 percent of the imported article's appraised value. See 19 CFR ?10.195(c). As stated in General Note 7(a), Harmonized Tariff Schedule of the United States (HTSUS), the Dominican Republic is a designated BC under the CBERA.

To determine whether an article will be eligible to receive duty-free treatment under the CBERA, it must first be classified under a tariff provision for which a rate of duty of "Free" appears in the "Special" subcolumn followed by the symbol "E" or "E*." The hair adornments appear to be classifiable under subheading 9615.19.6010, HTSUS, which is a CBERA-eligible provision. Therefore, the hair adornments will receive duty-free treatment if they are considered to be a "product of" the Dominican Republic, the 35 percent value-content requirement is met, and it is "imported directly" into the U.S. from the Dominican Republic.

In this situation, the hair adornments do not meet the 35 percent value-content requirement. The "Assist Value-Breakdown Sheets" show that the costs incurred in the Dominican Republic total only between 22 percent to 25 percent of the articles' appraised value. Further, the value of the components imported into the Dominican Republic imported from the U.S. and used in the assembly of these articles may not be included in the 35% calculation as U.S. materials because these components are of Japanese or Korean origin.

Where an article is produced from materials imported into a BC from non-BC's, as in this case, the cost or value of the materials from non-BC's may be counted toward satisfying the 35% value-content requirement only if there is a finding that the materials have been subjected to a double substantial transformation in the BC. See section 10.196(a), Customs Regulations (19 CFR 10.196(a).) That is, the cost or value of the imported materials used to produce the hair adornments may be included in the 35% value-content requirement only if such materials are first substantially transformed into a new and different intermediate article of commerce, which is itself substantially transformed into the hair adornments.

A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to the processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982). In the current situation, there is no evidence that the non-BC components undergo the required double substantial transformation. Therefore, the value of the components imported into the Dominican Republic from the U.S. may not be included towards meeting the 35 percent value-content requirement. Therefore, because the evidence does not show that the hair adornments meet the 35 percent value-content requirement, the hair adornments do not qualify for duty-free treatment under CBERA.

2. Subheading 9802.00.80

Subheading 9802.00.80, HTSUS, provides for a partial duty allowance for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article less the cost or value of the U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR ?10.24).

As discussed above, the components imported to the Dominican Republic from the U.S. are not of U.S. origin. Customs has determined that these components were imported from Japan or Korea. Therefore, the components will not qualify for a duty allowance pursuant to subheading 9802.00.80, HTSUS.

HOLDING:

Based on the information submitted, the hair adornments manufactured in the Dominican Republic and imported into the U.S. do not meet the 35 percent value-content requirement and, therefore, do not qualify for duty-free treatment under the CBERA. The components imported from the U.S. are not of U.S. origin and, therefore, do not qualify for a duty allowance pursuant to subheading 9802.00.80, HTSUS, when returned as part of the hair adornments. Therefore, the protest should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision should be attached to Customs Form 19, Notice of Action, and be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Tariff Classification Appeals
Division

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