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HQ 560882

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July 1, 1998

CLA-02 RR:CR:SM 560882 RSD

CATEGORY: CLASSIFICATION

Arthur Bodek, Esq.
Graham & James, LLP
885 Third Avenue
24th Floor
New York, New York 10022

RE: Eligibility of garments for preferential duty treatment under the U.S.-Israel Free Trade Agreement (USIFTA); General Note 8; 19 U.S.C. ?3592; 19 C.F.R. 12.130; Duty-Free treatment for products of the West Bank, Gaza Strip, or a Qualifying Industrial Zone; Presidential Proclamation 6955; 61 Fed. Reg. 58761; General note 3(a)(v); Textile Rules of Origin; 19 CFR 102.21; Double substantial transformation; Imported directly

Dear Mr. Bodek:

This is in response to your letter dated March 9, 1998, requesting a ruling on behalf of BCTC Corporation (BCTC) concerning the eligibility of certain garments imported from Israel, West Bank or Gaza Strip for duty-free entry under the U.S.-Israel Free Trade Area Agreement ("Israel FTA") or under General Note 3(a)(v) of the Harmonized Tariff Schedule of the United States (HTSUS). Samples of the garments were enclosed with your letter. As you requested, the samples will be returned to you under a separate cover.

FACTS:

BCTC is planning to import various garments from Israel, the West Bank or Gaza Strip. The five sample garments are said to be representative of the types of garments that BCTC is planning to import into the United States. The first garment is a traditional short-sleeved knitted polo-type shirt. It features a two button partial placket, ribbed cuffs and collar, a patch pocket on the left chest (with no means of closure) and a hemmed bottom. The second garment is a short-sleeved knitted polo-type shirt similar to the first garment. It features a four button partial placket, pointed collar (not ribbed), a patch pocket on the left chest (secured by means of a one-button closure), a hemmed cuff and a hemmed bottom. The third garment is also a short-sleeved knitted polo-type shirt of pieced construction featuring a three button partial placket, ribbed cuffs, collar and waistband and an inserted pocket on the left chest (with no means of closure). The fourth garment is a woven long-sleeved pullover shirt with a three button partial placket, a
pointed collar, an inserted pocket on the left chest (with no means of closure) and ribbed cuffs and waistband. The fifth garment is a knitted full-length pair of basic pull-on pants with an elasticized waistband and right and left inserted side pockets.

The garments will be produced through one of three possible manufacturing scenarios. Under the first manufacturing scenario, foreign origin yarn will be imported into Israel where it will be formed into either knitted or woven greige fabric. The fabric then will be shipped to a foreign country for dyeing and then returned to Israel. In Israel, the fabric will be cut into the component pieces of the garments. The Israeli-formed and cut components will then be shipped from Israel to a foreign country for complete assembly. After assembly, the garments will be returned to Israel where they will be subjected to any necessary finishing operations including tagging of each item (e.g., with a hang tag, price ticket, or other tag). The finished garments will then be shipped directly from Israel to the United States.

Under the second manufacturing scenario, foreign-origin fabric will be imported into Israel where all further operations necessary to produce the garments (i.e., cutting the fabric into component pieces, assembling the components, and performing any necessary finishing operations) will be performed. The finished garments will then be shipped directly from Israel to the United States.

In the third manufacturing scenario, foreign origin fabric will be imported into the West Bank or the Gaza Strip where all further operations necessary to produce the garments (i.e., cutting the fabric into components, assembling the components, and performing any necessary finishing operations) will be performed. The finished garments will then be shipped directly to the U.S. from the West Bank, Gaza Strip, or Israel.

ISSUES:

Whether the subject garments in scenarios 1 and 2 are eligible for preferential duty treatment under the U.S.-Israel Free Trade Agreement (USIFTA) when imported into the United States.

Whether the garments in scenario 3 are eligible for preferential duty treatment under General Note 3(a)(v), HTSUS, when imported into the United States.

LAW AND ANALYSIS:

U.S. -Israel Free Trade Agreement

Under the U.S.-Israel Free Trade Agreement (USIFTA), eligible articles the growth, product, or manufacture of Israel which are imported directly into the U.S. from Israel qualify for duty-free treatment, 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

Based on the samples and the descriptive information you have provided concerning the garments under consideration here, it appears that garment style number 1, a knitted cotton polo shirt would be classified under subheading 6105.10.00.10, HTSUS. Garment style number 2, a short-sleeve knitted polo shirt, appears to be classified under subheading 6105.20.20.10, HTSUS. Garment style number 3, a short-sleeved knitted polo type shirt construction, appears to be classified under subheading 6110.30.30.50, HTSUS. Garment style number 4, a woven long-sleeve pullover shirt, appears to be classified under subheading 6205.30.20.70, HTSUS. The final article, garment style number 5, the pull on pants, appears to be classified under subheading 6104.63.20.11, HTSUS. Articles provided for in all five of these provisions are eligible for duty-free treatment under the USIFTA, provided that they are a "product of" Israel, meet the value-content requirement, and are "imported directly" to the U.S.

First Scenario--Yarn Imported into Israel

A) Country of origin ("Product of") requirement

Articles are considered "products of" Israel if they are made entirely of materials originating there or, if made from materials imported into Israel, those materials 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." See 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, Pub. L. No. 99-47, 99 Stat. 82.

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 a final rule in the Federal Register, (60 FR 46188) implementing section 334 by creating a new section 102.21, Customs Regulations (19 CFR 102.21). 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. However, 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, which were 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 or determined not 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.

Section 12.130(b), Customs Regulations (19 CFR 12.130(b)), states that 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.

Section 12.130(e)(1), Customs Regulations (19 CFR 12.130(e)(1)), which sets forth various processes that, if performed in a foreign territory, country or insular possession, are usually sufficient to effect a substantial transformation, specifically includes the cutting of fabric into parts and the assembly of those parts into the completed article. See 19 CFR

In the first scenario, foreign yarn will be imported into Israel and formed into fabric. After the fabric is dyed in a second country, it is returned to Israel, where it is cut into the component parts of the garments and shipped to another country for the assembly. The garments are then sent back to Israel for finishing before they are shipped to the United States.

Customs has consistently determined that cutting fabric into specific or defined shapes suitable for use as components in an assembly operation of the garment pieces constitutes a substantial transformation of the fabric and that the clothing pieces became products of the country where the fabric is cut. See, Headquarters Ruling Letter (HRL) 731036, dated July 18, 1989, where the country of origin was found to be Country A where fabric was cut into twelve separate pattern pieces in Country A and then transported to Country B for assembly into the finished polo shirt. Therefore, pursuant to Section 12.130, the last substantial transformation in scenario one occurs in the country where the fabric is cut--Israel.

With respect to whether in the first scenario, the subsequent assembly process in a second country results in a second substantial transformation, which would change the country of origin of the finished garments, 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. However, note 19 CFR 12.130(e)(1)(v) which specifies the following processing as usually effecting a substantial transformation:

Substantial assembly by sewing and/or tailoring of all cut pieces of apparel article which have been cut from fabric in another foreign territory or country, or insular possession, into a completed garment (e.g. the complete assembly and tailoring of all cut pieces of suit type jackets, suits and shirts)

In this instance, when the Israeli cut components are assembled together in a second country, we believe that the sewing the of the cut pieces appears to involve a simple assembly of garment pieces to make the 4 types of shirts and the pair of pants. The sewing of the components of the garments does not amount to the complex sewing operation required in section 12.130(e)(1)(v) because a limited number of parts are sewn together and there is no individual tailoring of the garments. Therefore, after the assembly in a second country, the shirts and pants would remain products of Israel.

B) "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 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. We held that under the facts described, 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. In HRL 560250, dated April 10, 1997, we determined that goods were considered to have entered the commerce of Israel and be imported directly from Israel to the United States after they were returned to Israel from Egypt for a final inspection and packaging.

Accordingly, in order to be considered "imported directly" from Israel, the finished garments, upon their return from a second country, must enter into the commerce of Israel, i.e., they must be manipulated in Israel. You have advised that after assembly, the garments will be returned to Israel where they will undergo finishing operations, such as tagging. Consistent with our holding in HRL 557194, we are of the opinion that based on these facts, the goods will enter into the commerce of Israel and will be considered to be "imported directly" from Israel into the U.S., assuming they are transported from Israel to the U.S. without passing through the territory of any intermediate country.

C) Value Content Requirement

In addition to the "imported directly" and "product of" requirements, to be eligible for duty-free treatment under the USIFTA, merchandise must also satisfy the 35% value-content 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. ?2461-2466) and the Caribbean Basin Economic Recovery Act (CBERA) (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).

Thus, in the case before us, in order to achieve a "double substantial transformation," any materials imported into Israel must be substantially transformed into a new and different intermediate article of commerce, which is then used in Israel in the production of the final imported articles--the shirts and pants. The intermediate article itself must be an article of
commerce, which must be "readily susceptible of trade, and be an item that persons might well wish to buy and acquire for their own purposes of consumption or production." Torrington, supra, at 1570.

As previously described, the foreign origin yarn will be imported into Israel, where it will be knitted or woven into fabric, which will be cut into the component pieces used to make the garments. 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.

Pursuant to 19 CFR 12.130 (e)(1)(iii), knitting and weaving will substantially transform the yarn into a new and different article of commerce resulting in a product of Israel. In addition, the cutting in Israel of the fabric into component parts of the garments results in a second substantial transformation. See HRL 560250, dated April 10, 1997 and HRL 555730 dated February 19, 1991. Therefore, we believe that the double substantial transformation requirement will be satisfied with respect to the yarn used for the production of the shirts or pants. Therefore, the value of the yarn may be included in determining whether the garments meet the 35% value-content requirement.

The USIFTA provides that the term "direct costs of processing operations" means:
those costs either directly incurred in or which can be reasonably allocated, the growth, production, manufacture or assembly, of the specific article under consideration. Such costs include, but are not limited to the following, to the extent that they are includible in the appraised value of articles imported into a party:
a) all actual labor costs involved in the growth, production, manufacture or assembly of the specific merchandise, including fringe benefits, on-the-job training and the cost of engineering, supervisory, quality control and similar personnel; and

(b) dies, molds, tooling and depreciation on machinery and equipment which are allocable to the specific merchandise.

(c) research, development, design, engineering and blue print costs insofar as they are allocable to the specific article; and

(d) costs of inspecting and testing the specific article.

Specifically excluded are costs which are not directly attributable to the merchandise or are not costs of manufacturing the product, such as, "(A) profit, and (B) general expenses of doing business which are either not allocable to the specific merchandise or are not related to the growth, production, manufacture or assembly of the merchandise, such as administrative salaries, casualty and liability insurance, advertising and salesmen's salaries, commissions or expenses."

Therefore, the actual Israeli labor costs involved in forming the fabric, cutting the garment parts and tagging the garments may be counted toward the 35% requirement.

However, we are unable to state definitively that the garments 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 garments is determined at the time of entry into the United States.

Second Scenario--Fabric Imported into Israel

In the second scenario, formed fabric will be imported into Israel, where it will be cut into component pieces and those piece which will be assembled into the finished garments. For the reasons mentioned in scenario one, if the fabric is cut into the component parts of the garments in Israel, the imported garments will be considered products of Israel under 19 CFR 12.130.

In regard to the 35% value content requirement, the question that arises is whether the foreign fabric may be counted towards satisfying the 35% value content requirement. As we previously explained, the fabric imported into Israel may be counted as "materials produced in Israel" only if it is substantially transformed into a new and different intermediate article of commerce, which is then used in Israel in the production of the final imported articles--the shirts and pants.

In Texas Instruments, Inc. v. United States, 681 F.2d 778 (Fed. Cir. 1982), the court implicitly found that the assembly of 3 integrated circuits, photodiodes, one capacitor, one resistor, and a jumper wire onto a flexible circuit board (PCBA) constituted a second substantial transformation. Although it appeared that this assembly procedure did not achieve a high level of complexity, the court pointed out that in situations where all the processing is accomplished in one GSP beneficiary country, the likelihood that the processing constitutes little more than a pass-through operation is greatly diminished. Consequently, if the entire processing operation performed in the single BDC is significant, and the intermediate and final articles are distinct articles of commerce, then the double substantial transformation requirement will be satisfied. Such is the case even though the processing required to convert the intermediate article into the final article is relatively simple and, standing alone, probably would not be considered a substantial transformation. See HRL 071620, dated December 24, 1984 (in view of the overall processing in the BDC, materials were determined to have undergone a double substantial transformation, although the second transformation was a relatively simple assembly process which, if considered alone, would not have conferred origin). In HRL 559137, dated September 7, 1995, we found that knitted and ribbed fabric imported into the Commonwealth of the Northern Mariana Islands (CNMI) where it was cut to shape and then assembled into T-shirts underwent a double substantial transformation for purposes of receiving duty-free treatment under General Note 3(a)(iv), HTSUS.

In HRL 559810, dated August 16, 1996, Customs considered sweatshirts assembled in Israel from a variety of components. The front panel of the sweatshirt was cut to shape and embroidered in China and exported to Israel. The fabric used to produce the sleeves and back of the shirt was exported from China to Israel where it was cut to shape. The neck, cuffs and waist were made of rib trim made in China and exported to Israel to be cut to length and/or width. With regard to the fabric used for the sleeves and back panel of the sweatshirts, Customs determined that the cutting to shape of the imported Chinese fabric substantially transformed the foreign fabric into a new and different intermediate article, ready to be put into the stream of commerce, where they can be bought and sold. While the assembly operation of sewing the sleeves and back panel of the sweatshirt into a finished sweatshirt was not complex enough to constitute a substantial transformation by itself, Customs ascertained that the overall processing operations (i.e., cutting and sewing) performed in Israel were substantial. For this reason, and in view of the production in Israel of distinct articles of commerce in the form of a sweatshirt, Customs held that the double substantial transformation requirement with respect to the sleeves and the back panel was satisfied and the fabric used for these items could be considered towards satisfying the 35% value content requirement.

Consistent with the foregoing, we find that under the second scenario, the foreign fabric which is cut into component pieces, and assembled by sewing into the final garments undergo a double substantial transformation and thus, may be considered as "materials produced in Israel" for purposes of the 35% value content requirement.

Third Scenario--Processing done in the West Bank or Gaza Strip

In the third proposed scenario, foreign origin fabric will be imported into the West Bank or Gaza Strip where all further operations necessary to produce the garments will be performed. This includes cutting the fabric into components, assembling the components, and performing any finishing operations.

Pursuant to the authority conferred by section 9 of the U.S.-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. 2112 note), the President issued Proclamation No. 6955 dated November 13, 1996 (published in the Federal Register on November 18, 1996 (61 Fed. Reg. 58761)), which modified the Harmonized Tariff Schedule of the United States (HTSUS) (by creating a new General Note 3(a)(v)) to provide duty-free treatment to articles which are the product of the West Bank, Gaza Strip or a qualifying industrial zone, provided certain
requirements are met. Such treatment was effective for products of the West Bank, Gaza Strip or a qualifying industrial zone entered or withdrawn from warehouse for consumption on or after November 21, 1996.

Under General Note 3(a)(v), HTSUS, articles the products of the West Bank, Gaza Strip or a qualifying industrial zone which are imported directly to the U.S. from the West Bank, Gaza Strip, a qualifying industrial zone or Israel qualify for duty-free treatment, provided the sum of 1) the cost or value of materials produced in the West Bank, Gaza Strip, a qualifying industrial zone or Israel, plus 2) the direct costs of processing operations performed in the West Bank, Gaza Strip, a qualifying industrial zone or Israel, is not less than 35% of the appraised value of such articles when imported into the U.S. An article is considered to be a product of the West Bank, Gaza Strip or a qualifying industrial zone if it is either wholly the growth, product or manufacture of one of those areas or a new and different article of commerce that has been grown, produced or manufactured in one of those areas.

First, we must determine if the garments are products of the West Bank or Gaza Strip. To determine whether a textile or apparel article is considered to be a product of the West Bank, Gaza Strip or a qualifying industrial zone, it is necessary to refer to the rules of origin for textiles and apparel products set forth in section 102.21, Customs Regulations (19 CFR 102.21). Pursuant to section 334 of the Uruguay Round Agreements Act, these new rules of origin (published in the Federal Register on September 5, 1995 (60 Fed. Reg. 46188)) became effective for textile or apparel products entered, or withdrawn from warehouse, for consumption on or after July 1, 1996. Thus, except for the purpose of determining whether a good is a product of Israel, the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of 19 CFR 102.21.

Based on the classifications cited previously, the applicable rule in 19 CFR 102.21(e) for the knitted sample shirts and pants would be:

6101-6117...............(1) If the good is not knit to shape and consists of two or more component parts, a change to an assembled good of heading 6101 through 6117 from unassembled components provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession.

With respect to the woven shirt, the applicable rule would be:

6201-6208.............(1) If the good consists of two more component parts, a change to heading 6201 through 6208 from unassembled components, provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession.

Because you indicate that the garments in the third scenario will be wholly assembled in the West Bank or Gaza Strip, under the applicable rules of origin for textiles, they would be considered products of the West Bank or Gaza Strip.

With respect to the requirement that the articles be imported directly, General Note 3(a) (v)(B) (1) provides that:

Articles are "imported directly" for purposes of this paragraph if--

(1) they are shipped directly from West, the Gaza Strip, a qualifying industrial zone or Israel into the United States with out passing through the territory of any intermediate country;

Based upon the facts presented, it appears that the garments in the third scenario will satisfy this requirement.

In regard to 35% value content requirement, you are correct in assuming that Customs would apply the double substantial transformation test to determine whether the cost or value of materials imported into the West Bank or Gaza Strip may be counted toward the 35% requirement. Accordingly, for reasons explained in scenario two, if foreign fabric is brought into the West Bank or Gaza Strip where it is cut into components which are sewn together to make the garments, a double substantial transformation would result. Therefore, the value of the fabric may be counted towards satisfying the 35% value content requirement.

You also inquire about whether the cost of transporting the fabric may be counted towards satisfying the 35% value content requirement. General Note 3(a)(v)(D)(1)(II), HTSUS, indicates that "when not included in the manufacturer's actual cost for the materials, the freight, insurance, packing, and all other costs incurred in transporting the materials to the manufacturer's plant" may be included in the cost or value of the materials produced in the West Bank or Gaza Strip. Accordingly, the cost of transporting the fabric to the factory in the West Bank or Gaza Strip, if not already included in the value of the fabric, may be counted toward the 35% requirement. In addition, as provided for in General Note 3(a)(v)(E)(1), HTSUS, any direct labor costs attributable to cutting the garment components and assembling and tagging the garments in the West Bank or Gaza Strip may be counted toward satisfying the 35% value content requirement.

However, again, we are unable to state definitively that the garments 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 garments is determined at the time of entry into the United States.

HOLDING:

Based on the information provided, the garments in scenarios one and two will be considered products of Israel, and if they are imported directly from Israel and meet the 35 % value content requirement, they will qualify for the preferential duty treatment under the USIFTA. Whether the 35% value content requirement has been met must await actual entry of the merchandise. In scenario three, the garments will be considered products of the West Bank or Gaza Strip, and they will be eligible for preferential duty treatment under General Note HTSUS, assuming that they are imported directly from the West Bank, Gaza Strip, or Israel, and the 35 percent value content requirement is satisfied. Again, whether the 35% value content requirement will be met must await actual entry of the merchandise.

A copy of this ruling letter should be attached to the entry document 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
Commercial Rulings Division

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See also:

• Tariff No.: 6104.63.20 - Women's or girls' trousers, breeches and shorts, knitted or crocheted, of synthetic fibers, nesoi
• Tariff No.: 6105.10.00 - Men's or boys' shirts, knitted or crocheted, of cotton
• Tariff No.: 6105.20.20 - Men's or boys' shirts, knitted or crocheted, of manmade fibers, nesoi
• Tariff No.: 6110.30.30 - Sweaters, pullovers and similar articles, knitted or crocheted, of manmade fibers, nesoi
• Tariff No.: 6205.30.20 - Men's or boys' shirts, not knitted or crocheted, of manmade fibers, nesoi