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HQ 560552

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October 10, 1997

CLA-2 RR:TC:SM 560552 MLR

CATEGORY: CLASSIFICATION

John Scura
J.T. Scura, Inc.
70 Lord Ave.
Inwood, NY 11696

RE: Eligibility of footwear uppers from the Dominican Republic for duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS; crust leather; buffing; milling; plating; coloring; staking; HRL 556242; HRL 559969

Dear Mr. Scura:

This is in response to your letter of May 21, 1997, to Customs in New York, on behalf of Leather Trends, Inc., regarding the applicability of duty-free treatment for certain shoes, 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)"}.

FACTS:

The articles at issue are finished leather and the shoes manufactured therefrom. It is stated that "not fancy crust bovine leather" classifiable under subheading 4104.31.60, HTSUS, of Brazilian origin will be imported into the U.S. for further processing into finished leather. In the U.S., it is stated that the imported leather is sorted, initially buffed by machine, milled by machine, and plated which puts on a grain. The leather is also colored by a spraying process, milled again, staked, and plated again by applying a celled texture. At this point, it is stated that the article is classifiable under subheading 4104.31.80, HTSUS, as "bovine leather fancy".

The leather is then shipped to a shoe manufacturer in the Dominican Republic, who intends to manufacture shoes from the finished leather. Some of the finished shoes will be imported into the U.S.

ISSUE:

Whether the finished leather is a product of the U.S., thereby allowing the shoes produced in the Dominican Republic to be eligible for duty-free treatment under Note

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.

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. As used in this paragraph, the term "beneficiary country" means a country listed in General note 7(a), HTSUS, which includes the Dominican Republic. 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).

The first question which must be resolved is whether the leather shipped from the U.S. to the Dominican Republic is considered a "product of" the U.S. As support for the position that the leather is considered a product of the U.S., you cite the tariff shift rule for 4101-4107 in 19 CFR 102.20, namely a "change to heading 41.04 through 41.07 from any other heading, including another heading within that group, or a change to finished leather of heading 4104 through 4107 from wet blue hides or leather". However, as indicated in 19 CFR 102.0, the rules set forth in Part 102 are only used for certain purposes, and these purposes do not include whether a good is a "product of" the U.S. for purposes of Note 2(b) duty-free treatment. Additionally, we note that final rule published on June 6, 1996, changed the rule for 4104-4107 as originally published in 59 FR 110, 123 (January 3, 1994), by removing the alternative rule from wet blue hides or leather. See 61 FR 28932, 28945 (June 6, 1996),

Accordingly, in order to determine whether the leather shipped from Brazil to the U.S. is considered a "product of" the U.S., we must apply the traditional substantial transformation analysis. A substantial transformation occurs when a new and different article of commerce emerges from a process with a new name, character or use different from that possessed by the article prior to processing. Texas Instruments, Inc. v. United States, 69 C.C.P.A. 152, 681 F.2d 778 (1982).

In Headquarters Ruling Letter (HRL) 556242 dated October 2, 1991, Customs considered, for purposes of Note 2(b), "non-perishable crust leather" which was imported into the U.S. from several South American countries. The operations performed in the U.S. included among the following operations:

1. retanning the crust for more consistent texture; 2. coloring the crust based on the desired finished color;
3. fat liquoring or oiling to change the texture of the leather;
4. drying;
5. dampening if vacuum drying was used;
6. dry milling by tumble drying for a softer feel; 7. toggling to stretch the hides back to yield size after shrinkage;
8. mechanical softening to further soften the leather; 9. embossing the leather with the desired print patter; 10. painting to desired color; and
11. sealing and trimming.

It was held that the material imported into the U.S. did not undergo a substantial transformation by the operations performed in the U.S. as the operations were cosmetic in nature and the crust leather and the finished leather were the same product at different stages of production.

In HRL 559969 dated February 3, 1997, Customs also considered, for purposes of Note 2(b), "wet blue leather" which was exported from the U.S. to Mexico. The operations performed in Mexico included among the following operations:

1. shaving,
2. retanning,
3. coloring,
4. fatliquoring,
5. setting out and drying,
6. conditioning by staking or milling,
7. buffing, and
8. plating.

It was held that the wet blue exported from the U.S. did not undergo a substantial transformation by the operations performed in Mexico as it was the initial tanning process, performed before the material was exported to Mexico, that was the final process to convert hide or skin into finished leather, and the wet blue was actually considered leather. Furthermore, it was determined that the additional operations performed in Mexico to make conditioned crust leather were only finishing operations.

As also mentioned in HRL 559969, "tanning" is the process used to convert hides into a stable, non-putrescible material, and is foremostly performed using a method called chrome tanning which imparts a blue-green color to the hides. See Leather Facts 15 (New England Tanners Club 2d ed. 1983). Tanning is also stated to the be the final process in turning hides and skins into finished leather. See Compton's Encyclopedia (1992-1995). "Staking" involves mechanically softening the leather to make it pliable by pounding the leather with pins, and "milling" is one type of mechanical softening process. Id. at 22.

While there are differences in terminology for the same process, in this case, it is our opinion that the "not fancy crust bovine leather" exported from Brazil is already considered leather and the additional operations performed in the U.S. are only finishing operations. None of the processes described in the U.S. involve converting the material to a non-perishable state, and as determined in HRL 559969, buffing, milling, plating, and staking are finishing operations. Accordingly, we find that for purposes of Note 2(b), the "not fancy crust bovine leather" is not substantially transformed in the U.S., and, therefore the finished leather exported to the Dominican Republic from the U.S. is not a "product of" the U.S. Therefore, the shoes manufactured in the Dominican Republic and imported into the U.S. will not be eligible for duty-free treatment under Note

HOLDING:

Based upon the information provided, the "not fancy crust bovine leather" is not substantially transformed in the U.S. and will not be considered a "product of" the U.S. for purposes of Note 2(b). Therefore, shoes made in the Dominican Republic will not be eligible for entry duty-free pursuant to Note 2(b).

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
Commercial Rulings Division

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See also:

• Tariff No.: 4104.31.60 - Bovine and equine leather, without hair on, nesi, full grains and grain splits, parchment-dressed or prepared after tanning, not fancy
• Tariff No.: 4104.31.80 - Bovine and equine leather, without hair on, nesi, full grains and grain splits, parchment-dressed or prepared after tanning, fancy