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HQ 559993




November 5, 1996

CLA-2 RR:TC:SM 559993 MLR

CATEGORY: CLASSIFICATION

Mr. Chi Leung
Deckers Outdoor Corporation
1140 Mark Ave.
Carpinteria, CA 93013

RE: Eligibility of TEVA Silent Thong men's shoes from Costa Rica for duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS; webbing; outsoles; country of origin marking

Dear Mr. Leung:

This is in reference to your letter dated June 20, 1996, forwarded to us from Customs in New York, requesting a ruling concerning the applicability of duty-free treatment for TEVA Silent Thongs ("thongs") to be produced in Costa Rica, pursuant to Section 222 of the Customs Trade Act of 1990 (Public Law 101-382), which amended U.S. Note 2, Subchapter II, Chapter 98, Harmonized Tariff Schedule of the United States (HTSUS), {hereinafter "Note 2(b)"}. A sample was submitted with your request.

FACTS:

The articles at issue are mens' TEVA silent thongs. It is stated that continuous length nylon webbing, approximately « to 1 inch wide, will be imported from Taiwan or France into the U.S. In the U.S., the continuous webbing will be cut into different lengths according to the lengths needed to form the upper components of the thongs. The cut webbing components and U.S.-origin buckles will then be shipped to Costa Rica where they will be sewn together to complete the upper components of the thongs. In a telephone conversation, you stated that the outsoles will be made in Costa Rica using U.S.-origin chemical ingredients. The upper components will then be joined to the outsole to complete the TEVA silent thongs. The thongs, stated to be classifiable under 6404.19.35, HTSUS, will then be shipped to the U.S. You intend to mark the thongs "Made in Costa Rica".

ISSUES:

I. Whether the thongs produced in Costa Rica are eligible for duty-free treatment under Note 2(b).

II. What are the country of origin marking requirements for the imported thongs?

LAW AND ANALYSIS:

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.

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 used in this paragraph, the term "beneficiary country" means a country listed in General note 7(a), HTSUS, which includes Costa Rica. As stated above, Note 2(b) specifies four categories of products that are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain petroleum products. In this regard, for purposes of Note 2(b), Customs has held that "textile" and "apparel" articles are articles classified in provisions of the HTSUS which include a textile category number, i.e., are subject to textile agreements. However, we have also previously held that footwear and parts of footwear are not textile and apparel articles for purposes of Note 2(b), regardless of whether they are subject to textile agreements. See T.D. 91-88, 25 Cust. Bull. 45 (1991). Accordingly, the finished thongs are not considered textile or apparel articles for Note 2(b) purposes.

In order 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. The first question which must be resolved is whether the thongs are made entirely of products of the U.S. It is stated that the continuous webbing is imported into the U.S. from either Taiwan or France, where it is cut to length.

The rules of origin for textile and apparel products, 19 U.S.C. 3592(b)(4)(B), provides that:

[n]o article ... assembled in whole of components described in subparagraph (A), or of such components and components that are products of the United States, in a beneficiary country as defined in General Note 7(a) of the HTS shall be treated as a foreign article, or as subject to duty.

Subparagraph (A) refers to components that are cut to shape (but not to length, width, or both) in the United States from foreign fabric, which are exported to another country, territory, or insular possession for assembly into an article that is then returned to the United States. The effect of 19 U.S.C. 3592(b)(4), in part, is to preserve the tariff treatment afforded by Note 2(b), that otherwise would no longer be available since cutting fabric in the U.S. will no longer result in the cut fabric being considered a "product of" the U.S. In this case, while it appears that it is only possible to cut the webbing to length and not to shape, we find that the cut components are not components intended to receive the duty preservation afforded by 19 U.S.C. 3592(b)(4)(B). We note that prior to the new rules of origin for textile and apparel products, such cutting to length would also not have rendered the cut webbing components "products of" the U.S. Therefore, since all materials shipped to Costa Rica will not be "products of" the U.S., the thongs will not be entitled to duty-free treatment under Note

II. Country of Origin Marking

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the name of the country of origin of the article. Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations {19 CFR 134.1(b)}, defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations.

In this case, since the thongs, made with Taiwanese or French webbing, are not eligible for duty-free treatment under Note 2(b) which prohibits Customs from treating such articles as foreign, we must determine whether the processes performed in Costa substantially transform the materials imported into Costa Rica.

In a country of origin marking case involving imported shoe uppers, Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed. Cir. 1983), the United States Court of International Trade concluded that a substantially complete Indonesian upper was not substantially transformed when it was attached to an outsole in the U.S. since the attachment was a minor manufacturing or combining process which left the identity of the upper intact. By contrast, in Headquarters Ruling Letter (HRL) 735338 dated January 28, 1994, Customs considered the country of origin marking of athletic footwear. Italian leather was cut and stitched into an upper in the Czech Republic, and the upper was subsequently shipped to Italy where it was placed on a last and the midsole and outsole was mounted. It was determined that the Italian-made materials were substantially transformed in the Czech Republic when they were cut and stitched into an open and unlasted footwear upper. However, since the completely open and unlasted upper imported into Italy did not have the very essence of a completed shoe, the upper was substantially transformed as a result of the processing performed in Italy, and, therefore was considered to be a product of Italy.

In this case, it is stated that U.S. chemical ingredients will be imported into Costa Rica to form the outsole. It is clear that these U.S. ingredients will be substantially transformed when they are converted into an outsole. Additionally, we find that the cut webbing components do not have the essence of thong uppers, and will be substantially transformed when they are sewn together to form the thong uppers and attached to the outsoles to finish the thongs. Therefore, for purposes of country of origin marking, the thongs will be considered a product of Costa Rica and may be marked "Made in Costa Rica".

HOLDING:

On the basis of the information submitted, the continuous webbing imported from Taiwan or France, which is cut to length in the U.S. does not become a "product of" the U.S. Accordingly, since all materials shipped to Costa Rica will not be "products of" the U.S., the thongs will not be entitled to duty-free treatment under Note 2(b). The thongs will be considered a product of Costa Rica as the U.S. ingredients are substantially transformed into outsoles and the cut webbing components are substantially transformed when they are sewn together to form the thong uppers and attached to the outsoles to finish the thongs. Therefore, the finished thongs may be marked "Made in Costa Rica".

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
Tariff Classification Appeals

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