HQ 560250 - Eligibility of brassieres for duty-free treatment under the U.S.-Israel Free - United States International Trade Commision Rulings

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HQ 560250

April 10, 1997

CLA-2 RR:TC:SM 560250 DEC

CATEGORY: CLASSIFICATION

Mr. Sal LoBello
Logistics Services, Incorporated
600 Bayview Avenue
Inwood, New York 11096

RE: Eligibility of brassieres for duty-free treatment under the U.S.-Israel Free
Trade Agreement; 19 U.S.C. 3592; 19 CFR 12.130; HRL 952531; HRL 089539;
HRL 950887; HRL 082787; HRL 082747; HRL 071575; HRL 071575

Dear Mr. LoBello:

This is in response to your letter dated November 12, 1996, on behalf of Gibor Sabrina Textile Enterprises Ltd, (Gibor Sabrina), concerning the eligibility of brassieres produced in Israel for duty-free treatment under the U.S.-Israel Free Trade Implementation Act (FTA).

FACTS:

In your ruling request, you state that Gibor Sabrina intends to produce brassieres in Israel pursuant to the following steps.

1. The brassieres will be either 100% cotton or 90% to 95% cotton and 5% to 10% Lycra. You note that these percentages refer only to the body of the brassieres and does not include trimmings such as lace and does not include plastic and/or metal hooks.

2. The yarns will be either of Israeli origin or of an unspecified origin from the Far East.

3. All knitting will be done in Israel.

4. All dyeing, printing, and finishing will be done in Israel.

5. All cutting will be done in Israel.

6. The cut parts, varying from 5-9 parts depending on the design, will be sent to Egypt for sewing under the supervision and quality control of Gibor Sabrina.

7. The sewn brassieres will be sent back to Gibor Sabrina in Israel for final inspection and packing.

8. The brassieres will then be sent from Israel directly to the U.S.

9. All product design and development will be done in Israel.

The brassieres will be entered through John F. Kennedy Airport.

ISSUES:

Are the brassieres eligible for duty-free treatment under the U.S.-Israel Free Trade Agreement when imported into the U.S.?

LAW AND ANALYSIS:

Under the U.S.-Israel FTA, eligible articles which are the growth, product, or manufacture of Israel and are imported directly to the U.S. from Israel qualify for duty-free treatment or a duty preference, 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, Harmonized Tariff Schedule of the United States (HTSUS).

Classification

In our opinion, the subject brassieres are properly classified under heading 6212, HTSUS, which provides for "brassieres." Articles classified under this heading which otherwise satisfy the requirements of the U.S.-Israel FTA will not be subject to duty upon importation into the U.S.

"Product of" Israel

Articles are considered the "product of" Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, as in the case where the yarns used to knit the material for the brassieres are from the Far East, they are "substantially transformed into a new and different article of commerce, having a new name, character or use, distinct from the article or material from which it was so transformed." Annex 3 of the Agreement on the Establishment of a Free Trade Area Between the Government of the United States of America and the Government of Israel. The Agreement was approved by Congress in the United States-Israel Free Trade Area Implementation Act of 1985, Public Law 99-47. The basic rules of origin set forth in Annex 3 of the U.S.-Israel FTA (which are derived from section 402 of the Trade and Tariff Act of 1984) are based on section 213(a) of the Caribbean Basin Economic Recovery Act, as amended (CBERA) (19 U.S.C. 2703(a)), which contains the origin rules governing duty-free treatment under the Caribbean Basin Initiative (CBI).

On December 8, 1994, the President signed into law the Uruguay Round Agreements Act. Section 334 of that Act (codified at 19 U.S.C. ?3592) provides new rules of origin for textiles and apparel entered, or withdrawn from warehouse, for consumption, on and after July 1, 1996. On September 5, 1995, Customs published section 102.21, Customs Regulations, in the Federal Register, implementing section 334 (60 FR 46188). Thus, effective July 1, 1996, the country of origin of a textile or apparel product shall be determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21. Section 334(b)(5) provides that:

This section shall not affect, for purposes of the customs laws and administration of quantitative restrictions, the status of goods that, under rulings and administrative practices in effect immediately before the enactment of this Act, would have originated in, or been the growth, product, or manufacture of, a country that is a party to an agreement with the United States establishing a free trade area, which entered into force before January 1, 1987. For such purposes, such rulings and administrative practices that were applied, immediately before the enactment of this Act, to determine the origin of textile and apparel products covered by such agreement shall continue to apply after the enactment of this Act, and on and after the effective date described in subsection (c), unless such rulings and practices are modified by the mutual consent of the parties to the agreement.

Israel is the only country which qualifies under the terms of section 334(b)(5). As the section 334 rules of origin for textiles and apparel products do not apply to Israel, we refer to the 19 CFR 12.130 rules of origin, the rules of origin applicable to textiles and textile products before the enactment of section 334. Section 334(b)(5) makes clear that if, by application of 19 CFR 12.130, Israel was determined to be the country of origin of a product prior to enactment of section 334, the same treatment will be accorded after enactment of section 334. This interpretation of section 334(b)(5) was confirmed in a Notice of a general statement of policy, Treasury Decision (T.D.) 96-58, appearing in the Federal Register, Vol. 61, No. 148, dated July 31, 1996.

Accordingly, applying section 12.130(b), the standard of substantial transformation governs the country of origin determination where textiles and textile products are processed in more than one country. The country of origin of textile products is deemed to be that foreign territory or country where the article last underwent a substantial transformation. Substantial transformation is said to occur when the article has been transformed into a new and different article of commerce by means of substantial manufacturing or processing.

The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d)(2). The following are considered:

(i) The physical change in the material or article; (ii) The time involved in the manufacturing or processing;
(iii) The complexity of the manufacturing or processing;
(iv) The level or degree of skill and/or technology required in the manufacturing or processing operations;
(v) The value added to the article or material;

Pursuant to 19 CFR 12.130(e)(iii), the origin of a material that is knit into fabric will be the particular foreign country where the material has been knit. Furthermore, Customs has consistently determined that cutting fabric into specific or defined shapes suitable for use as components in an assembly operation of garment pieces constitutes a substantial transformation of the fabric and the clothing pieces become products of the country where the fabric is cut. Headquarters Ruling Letter (HRL) 952531, dated November 25, 1992, and HRL 089539, dated April 22, 1992.

In HRL 950887, dated March 2, 1992, Customs concluded that the country of origin of brassieres made from fabric sourced from various countries which was cut in the Philippines and assembled in Indonesia or Pakistan was the Philippines because Customs concluded that the mere assembly process entailing simple combining operations, trimming, or joining together by sewing was not enough to substantially transform the brassiere components into a new and different article of commerce. The cutting process of the fabric into component parts suitable for use in the production of brassieres resulted in a substantial transformation of the fabric into a new and different article of commerce. Customs concluded that the cutting materially altered the fabric into designated garment pieces, which constituted new and different articles of commerce. Similarly, in this case, we find that the brassieres are a product of Israel, the country where the fabric will not only be knit, but where it will be cut into garment pieces.

With respect to whether the subsequent assembly process in Egypt results in a substantial transformation, T.D. 85-38 (19 Cust. Bull. 58 (1985)), the final rule document establishing 19 CFR 12.130, stated that:

The assembly of all the cut pieces of a garment usually is a substantial manufacturing process that results in an article with a different name, character, or use than the cut pieces. It should be noted that not all assembly operations of cut garment pieces will amount to a substantial transformation of those pieces. Where either less than a complete assembly of all the cut pieces of a garment is performed in one country, or the assembly is a relatively simple one, then Customs will rule on the particular factual situation as they arise, utilizing the criteria in Section 12.130(d).

Customs has also long held that the mere assembly of goods entailing simple combining operations, trimming or joining together by sewing is not enough to substantially transform the components of an article into a new and different article of commerce. HRL 950887, dated March 2, 1992, HRL 082787, dated March 9, 1989, and HRL 082747, dated February 23, 1989.

In this instance, the sewing operations that will be performed in Egypt involve the simple assembly of various garment pieces. The sewing of the components of the brassieres does not amount to the complex sewing operation required in section 12.130(e)(1)(v), and therefore, the brassieres remain products of Israel.

"Imported Directly" from Israel

Annex 3, paragraph 8, of the U.S.-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;

(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. HRL 071575, dated November 20, 1984. The definition of "imported directly" under the GSP is very similar to that under the U.S.-Israel FTA. See 19 CFR 10.175.

In HRL 557149, dated November 22, 1993, denim jeans were produced from greige fabric woven in Israel from Israeli-origin yarns. In Israel, the fabric was dyed and precisely cut to size and shape to form each of the components of each garment. The various components cut to size and shape in Israel, were sent to China for assembly. In China, the various garment components were joined together by means of simple machine-sewing operations such as joining and setting the leg components, setting the belt loops, sewing the crotch, etc. After the garments were assembled, they were stone-washed, pressed, inspected and packaged for shipment back to Israel. In Israel, the shipment was removed from the vessel and brought to the manufacturer's facility, where cartons were opened and sample garments inspected, pursuant to contractual arrangement and commercial practice, in accordance with Military Standard 105-D, described therein. In HRL 557149, we held that under the facts described above, there was a manipulation of the merchandise and therefore an entry into the commerce of Israel of all the goods in each shipment. Therefore, we found that the denim jeans were considered to have been "imported directly" from Israel into the U.S.

Accordingly, in order to be considered "imported directly" from Israel, the finished brassieres upon their return from Egypt must enter into the commerce of Israel, i.e., it must be manipulated in Israel. You have advised that after assembly of the brassieres in Egypt, they will be returned to Gibor Sabrina's facilities in Israel where they will undergo a final inspection and packaging, after which they will be exported directly from Israel to the U.S. without passing through the territory of any intermediate country. Consistent with our holding in HRL 557194, we are of the opinion that based on these facts, the goods will have entered into the commerce of Israel and will be considered to have been "imported directly" from Israel into the U.S.

35% Requirement

If an article is produced or assembled from materials which are imported into Israel, the cost or value of those materials may be counted toward the 35% value-content minimum as "materials produced in Israel" only if they are subjected to a double substantial transformation in Israel. This is consistent with Customs and the courts' interpretation of "materials produced" under the Generalized System of Preferences (GSP) (19 U.S.C. (19 U.S.C. ?2701-2706). See Torrington Co., v. United States, 8 CIT 150, 596 F. Supp. 1083 (CIT 1984), aff'd, 3 CAFC 158, 764 F.2d 1563 (Fed. Cir. 1985).

In determining whether the 35% value-content requirement is satisfied, the cost or value of the cut component pieces in Israel may be included in the 35% computation only if the yarn undergoes the requisite double substantial transformation. Foreign material that does not originate in Israel may be considered as part of the value of material produced in Israel for purposes of the 35% value-content requirement, provided the foreign material is substantially transformed in Israel and this different product is then transformed into yet another new and different product which is exported to the United States.

You stated that the yarn that will be imported into Israel from the Far East will be knitted into fabric, dyed, printed, and cut-to-shape in Israel. Pursuant to 19 CFR 12.130 (e)(1)(iii), knitting is a process which will substantially transform the yarn from the Far East into a new and different article of commerce which will be a product of Israel. This fabric will be considered an intermediate article of commerce which is ready to be put into the stream of commerce where it can be bought and sold. In addition, the cutting in Israel of the fabric into component parts of the brassiere results in a second substantial transformation. See HRL 952531 and HRL 089539, supra. Therefore, applying the principles of substantial transformation contained in 19 CFR 12.130 to the processing performed in Israel, we believe that the double substantial transformation requirement is satisfied with respect to the fabric used for the production of the brassieres. The value of the cut fabric components made from the yarn from the Far East therefore will be eligible to be included in determining whether the brassieres will meet the 35% value-content requirement. The fabric that is knit from Israeli-origin yarn and cut in Israel will also be eligible to be included in determining whether the brassieres will meet the 35% value-content requirement.

We are unable to state definitively that the brassieres will or will not satisfy the 35% value content requirement. Whether the requirement is satisfied can only be ascertained when the "appraised value" of the brassieres is determined at the time of entry into the United States.

HOLDING:

Based on the information provided, we find that (1) the imported brassieres will be classified under heading 6212, HTSUS, a U.S.-Israel FTA eligible provision; (2) upon importation into the U.S., the imported brassieres will be considered "products of" Israel; (3) the imported brassieres will be considered to be "imported directly" from Israel into the U.S. on condition that upon return to Israel from Egypt the brassieres are inspected and packaged at Gibor Sabrina's facilities; and (4) the imported brassieres will qualify for duty-free treatment under the U.S.-Israel FTA, provided the sum of (a) the cost or value of the materials produced in Israel, plus (b) the direct costs of processing operations performed in Israel is not less than 35 percent of the appraised value of the brassieres at the time of entry. Whether the 35 percent value-content requirement has been met must await actual entry of the merchandise.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is 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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