HQ 560981 - Applicability of U.S. Note 2(b), subchapter II Chapter 98, HTSUS, to moccasins imported from the Dominican Republic - United States International Trade Commision Rulings

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HQ 560981

October 28, 1998

CLA-2 RR:CR:SM 560981 RSD

CATEGORY: CLASSIFICATION

John Pellegrini, Esq.
Ross & Hardies
65 East 55th Street
New York, New York 10022-3219

RE: Applicability of U.S. Note 2(b), subchapter II Chapter 98, HTSUS, to moccasins imported from the Dominican Republic

Dear Mr. Pellegrini:

This is in reference to your letter dated April 28, 1998, requesting a ruling on behalf of Minnetonka Moccasin Co., Inc., (Minnetonka) concerning the applicability of U.S. Note 2(b), subchapter II, Chapter 98, of the Harmonized Tariff Schedule of the United States (HTSUS) (Note 2(b)) to moccasins that they are planning to import from the Dominican Republic. You have furnished a sample of a moccasin that Minnetonka plans to import for our consideration. As you have requested, the cost information contained in your letter will be given confidential treatment.

FACTS:

The subject merchandise consists of men's and women's leather moccasins imported from the Dominican Republic. The moccasins have a leather upper and a rubber/plastic outsole. All of the materials, components and ingredients are of United States origin except for the pigskin leather which lines the forepart or plug of the upper of the moccasin. The purpose of the lining is to reinforce the shoe upper. The moccasins will be manufactured in the Dominican Republic by Tonka Footwear Co., Inc., an entity related to Minnetonka.

You describe the processing of the footwear in the Dominican Republic as consisting of the following steps:

1) The upper leather is cut into component parts,

2) the upper components are machined stitched (back closed, collar seams are sewn and the lace is inserted, the back is sewn, and the bottom closed with a zig-zag stitch),

3) the sole and the upper are stitched,

4) the plug hand is laced to the vamp, and

5) the completed shoe is shaped by lasting.

The material used to make the plug lining represents about 0.84 percent of the total cost of the footwear.

ISSUE:

Whether based on the above description, the completed footwear is entitled to duty-free treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS.

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 specified products, which are assembled or processed in a Caribbean Basin Economic Recovery Act ("CBERA") beneficiary country ("BC") in whole of fabricated components or ingredients (except water) of U.S. origin.

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, 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).

Pursuant to General note 7(a), HTSUS, the Dominican Republic has been designated as a BC for CBERA purposes. Although U.S. Note 2(b)(i)(A) and (B) are separated by the word "or," it is our opinion that Congress did not intend to preclude duty-free treatment under this provision to an article which is created in a BC both by assembling and processing U.S. fabricated components and by processing U.S. ingredients.

The definition of the term "wholly of" pursuant to General Note 19(e)(i), HTSUS, while not identical to the term "in whole of" used under U.S. Note 2(b), is instructive in interpreting the latter term. See Headquarters Ruling Letter (HRL) 556013, dated June 17, 1991, and HRL 557545, dated December 13, 1993. "Wholly of" as defined in General Note 19(e)(i), HTSUS, means that "goods are, except for negligible or insignificant quantities of some other material or materials, composed entirely of the named material." Furthermore, in determining whether goods are composed "wholly of" certain materials, the de minimis concept shall be applied. See General Note 19(e), HTSUS.

Regarding the operations performed in the Dominican Republic, we believe that the assembly and processing of the U.S.-origin components and materials consisting of cutting materials to component parts, stitching the cut pieces together, stitching the sole to the upper, lacing the plug, and shaping the footwear by lasting constitute the type of operations contemplated by Note 2(b). See HRL 557735, dated May 27, 1994 and HRL 557545, dated December 13, 1993.

Accordingly, we must determine whether the presence of the non-U.S. origin pigskin lining in the plug would disqualify the completed footwear from duty-free treatment under Note 2(b). In HRL 556013, we found that enema tip assemblies, which were made with U.S. materials as well as adhesive of German origin, which was used to secure the string ends and cuff of the enema tip assemblies, were eligible for duty-free treatment under Note 2(b). In reaching this conclusion, Customs noted that the adhesive constituted only 1 percent of the total value of the completed article. As such, Customs reasoned that the adhesive constituted only an insignificant portion of the completed article and would not preclude duty-free treatment under U.S. Note 2(b). Similarly, in HRL 557545, dated December 13, 1993, a case also involving footwear from the Dominican Republic, Customs held that the presence of a foreign-origin adhesive which represented only 1 percent of the total value of the completed article was an insignificant or de minimis part of the total value of the completed footwear which did not defeat that product's eligibility for duty-free treatment under U.S. Note

In HRL 560364, May 6, 1997, all of the materials used to make footwear in the Dominican Republic were of U.S. origin except for beads that were used for a design on the uppers. We concluded that because the beads were decorative as opposed to functional in nature and constituted only 0.9 and 1.1 percent of the cost of the footwear, they were insignificant or de minimis materials which would not preclude the footwear from being considered to have been made " in whole of" U.S.-origin components, ingredients or materials.

In HRL 557735 dated May 24, 1994, non-U.S. origin items such as binding ribbons, thread, and elastic were supplied to a Dominican factory to make footwear. Customs stated in the ruling that we have generally held that the presence of foreign-origin material will not defeat eligibility under Note 2(b) where the cost of the foreign material does not represent more than one percent of the total cost of the completed article and the foreign material is not an integral component of the completed article. However, we stated that we could not conclude that the functional foreign materials such as thread, binding ribbon, and elastic which were used to produce the footwear upper were not integral components of the footwear. Indeed, we noted that under the circumstances presented, only one component of the upper would be of U.S.-origin, i.e. the fabric. Therefore, we found that the presence of the foreign-origin thread, binding ribbon, and elastic in the footwear would preclude eligibility for duty-free entry under Note 2(b).

In this instance, we believe that because of it functional nature, the pigskin plug lining is more akin to the thread, binding ribbon, and elastic used in HRL 557735 than the decorative beads described in HRL 560364. Unlike the beads in HRL 560364, the pigskin plug lining performs an important function for the moccasins by reinforcing and supporting the upper which contributes to the stability of the footwear. Moreover, in contrast to the adhesive used in HRL 556013 and HRL 557545, it can be seen from viewing the sample that the lining comprises more than an insignificant portion of the finished moccasin. Accordingly, although its value may comprise less than one percent of the cost of the finished footwear, we believe that the lining is an integral part of the moccasin. Therefore, we find that the presence of the non-U.S. origin pigskin plug lining would preclude eligibility of the moccasins for duty-free treatment under Note 2(b).

HOLDING:

The presence of the non-U.S. origin pigskin leather plug lining inside the moccasins would disqualify their eligibility for duty-free treatment under 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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