HQ 560381 - Applicability of U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, to leather goods imported from Caribbean countries; HRL 559969; manipulation; - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1997 HQ Rulings > HQ 560327 - HQ 734474 > HQ 560381

HQ
560381

June
13, 1997

CLA-2 : RR:TC:SM 560308 BLS

CATEGORY: CLASSIFICATION

John B. Pellegrini, Esq.
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, New York 10022-5555

RE: Applicability of U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, to leather goods imported from Caribbean countries; HRL 559969; manipulation;

Dear Mr. Pellegrini:

This is in reference to your letter dated April 2, 1997, and fax dated May 22, 1997, on behalf of The Leather Group, Inc., (the "Company"), requesting a ruling that certain finished leather goods imported from one or more Caribbean countries will be entitled to duty-free treatment under U.S. Note 2(b), Chapter 98, Subchapter II, Harmonized Tariff Schedule of the United

FACTS:

Wet blue hides of U.S. origin will be shipped to Mexico, where they will be split to separate the top grain portion from the underflesh. The top grain and split leather will be shaved to reduce the thickness. At that point, the top grain and split leather will be re-tanned and/or colored. This process includes "fat liquoring" (oiling with fats and chemicals to change the texture of the leather). The top grain and split leather will be dried and staked to soften the leather. The final process to be performed in Mexico is to apply one or more surface finishes. The finished leather will then be returned to the U.S.

You state that in the U.S., the leather will be entered for consumption, usually at the port of Laredo, Texas. The Company will sell the leather in the U.S. to customers who desire delivery to the Caribbean. Once released from Customs custody, the merchandise will be shipped by truck to a warehouse facility in Massachusetts. At the Massachusetts facility, the leather will be inspected and then labeled to verify the inspection. The leather will then be placed in a sea-going container. At that time a new bill of lading naming the customer as consignee is prepared and the leather is exported for delivery to the Caribbean nation site designated by the customer. In the

Caribbean country, the leather will be used to manufacture footwear and other consumer goods.

ISSUES:

1) Whether leather hides of U.S.-origin undergo a substantial transformation in Mexico, for purposes of determining whether the hides remain a "product of" the U.S. under U.S. Note

2) Whether the leather hides are shipped directly from the U.S. to the Caribbean country, without entering the commerce of any foreign country other than a beneficiary country ("BC").

LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (P.L. 101- 382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS, to provide for the duty-free treatment of articles, other than certain specified products, which are assembled or processed in a Caribbean Basin Initiative beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990.

Specifically, 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.

To qualify for duty-free treatment under Note 2(b), an eligible article must be assembled or processed in a BC entirely of components or ingredients that are a "product of" the U.S. As used in this paragraph, the term "beneficiary country" means a country listed in General Note 7(a), HTSUS.

Note 2(b) specifies four categories of products which are excluded from duty-free treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum. Leather footwear and parts of footwear are not textile and apparel articles for purposes of Note 2(b), HTSUS, regardless of whether they are subject to textile agreements. See T.D. 91-88, 25 Cust. Bull. 45 (1991) and Headquarters Ruling Letter (HRL) 555742 (November 5, 1990). While you have not described the other types of leather products (other than footwear) which may be imported, we will assume, for purposes of this ruling, that all of the imported products will fall within those categories of articles that are eligible for duty-free treatment under Note 2(b). We will also assume for purposes of this ruling that the designated country is a country listed in General Note 7(a), HTSUS.

The first question we must address is whether the U.S.-origin leather is considered a "product of" the U.S. after the processing operations in Mexico.

In Headquarters Ruling Letter (HRL) 559969 (February 3, 1997), wet blue hides of U.S.-origin were sent to Mexico where they were shaved to impart a uniform thickness, retanned, colored, and fat liquored (lubricating the leather fibers with animal, vegetable, and mineral oils and related fatty substances, to soften and make the leather more flexible.) The leather was then dried (by either hanging, vacuum drying or pasting), and then further conditioned to a certain softness and flexibility, and buffed. The final step involved plaiting, a high temperature process which provides resistance to stains and abrasions, and may also serve to make the leather smoother or impart varied grain textures. When returned to the U.S., the leather was inspected and then sold to an unrelated buyer for export to the Dominican Republic, where it was used to produce footwear for the U.S. market.

In that case, we found that the processing of the leather in Mexico involved finishing operations which did not result in a substantial transformation of the wet blue leather exported from the U.S., and that accordingly, the leather imported into the U.S. was a "product of" the U.S. for purposes of Note 2(b).

The operations performed in Mexico in the present situation appear to be virtually identical to the operations which occurred in HRL 559969, with the exception that in this case the hides are also split in Mexico, rather than in the U.S. We find that this additional operation does not serve to substantially transform the U.S.-origin wet blue leather into a new article of commerce, but merely constitutes another finishing step in preparing the leather for production into footwear and other leather products.

Therefore, we find that the operations performed in Mexico do not result in a substantial transformation of the U.S.-origin leather, and when imported into the U.S., the leather may be considered a "product of" the U.S. for purposes of Note 2(b).

The second issue we must address is whether, pursuant to Note 2(b)(ii), the leather components, "after exportation from the United States," are shipped directly to the Caribbean country. This question is dependent upon whether the leather enters the commerce of the U.S. after return from Mexico, so that it will be deemed to be shipped directly to the Caribbean country after exportation from the U.S., without entering the commerce of a foreign country other than a BC.

There are no regulations defining the direct shipment requirements for purposes of Note 2(b). However, Customs has interpreted the direct shipment requirements of the United States-Israel Free Trade Implementation Act of 1985 ("U.S.-Israel FTA"), the Generalized System of Preferences (GSP), and the Caribbean Basin Economic Recovery Act (CBERA), in a similar manner. See Annex 3, paragraph 8 of the U.S.-Israel FTA; 19 CFR 10.175; and 19 CFR 10.193.

In HRL 557149 (November 22, 1993), Customs held that for purposes of the "imported directly" requirement under the U.S.-Israel FTA, merchandise shipped from Israel to China was considered to have entered the commerce of Israel upon return when subjected to a commercial inspection accordance with a recognized sampling procedure. In that case, we required that each invoice include a statement that the merchandise covered by the invoice was inspected in accordance with the specific sampling procedure utilized. See also HRL 557647 (July 14, 1994).

Upon return to the U.S. from Mexico, the leather in the present case will be entered for consumption and sold. It will be inspected and labeled to verify the inspection. Under these circumstances, and provided that the merchandise is subject to a commercially recognized inspection procedure, we find that the leather will be shipped directly to the BC from the U.S.

HOLDING:

1) Leather hides of U.S.-origin exported to Mexico do not undergo a substantial transformation as a result of the operations performed in Mexico. Therefore, the leather components remain a "product of" the U.S., for purposes of determining whether the imported leather products will be entitled to duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS.

2) The completed leather products will satisfy the direct shipment requirements of Note 2(b), provided a commercially recognized inspection procedure is performed in the U.S. after return of the leather from Mexico, each shipment of merchandise includes a statement verifying the inspection procedure, and neither the leather exported to the BC nor the finished leather products imported from the BC enters the commerce of any foreign country other than a BC. Footwear products will also be subject to the documentation requirements set forth in Headquarters Telex 9264071 dated September 28, 1990.

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,

Previous Ruling Next Ruling