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HQ 562029




March 16, 2001

CLA-02 RR:CR:sm 562029 tjm

Category: CLASSIFICATION

Ms. Mary C. Hunter
Import Production Status Administrator
Woolrich, Inc.
One Mill Street
Woolrich PA 17779

RE: Qualifying Industrial Zone; duty free treatment; General Note 3(a)(v), HTSUS; U.S.-Israel Free Trade Agreement.

Dear Ms. Hunter:

This is in reply to your letter dated January 26, 2001, requesting a ruling on the eligibility of garments assembled in a qualifying industrial zone (“QIZ”) in Al Tajamouat Industrial City, Jordan, for duty-free entry under General Note 3(a)(v) of the Harmonized Tariff Schedule of the United States (“HTSUS”). Please find our response below.

FACTS:

Woolrich Inc. of Woolrich, Pennsylvania, plans to import readymade garments from Al Tajamouat Industrial City, Jordan, a QIZ. You stated that the garments are men’s and women’s finished apparel classifiable as follows:

Men’s full frontal opening, zipper closure jacket with collar and long sleeves – HTS 6101.30.2010, Men’s full frontal opening, zipper closure sleeveless vest with collar – HTS 6110.30.3030 Men’s pullover partial front zip opening with a collar and long sleeves – HTS 6110.30.3050 Men’s pull on pants with elastic waist and an inside drawcord – 6103.43.1520 Women’s full frontal opening, zipper closure jacket with collar and longs sleeves – HTS 6102.30.2010 Women’s full frontal opening, zipper closure sleeveless vest with collar – HTS 6110.30.3035

You stated that all the garments are produced in the same manner. The fabric (100% polyester Duraloft 8 ounce fleece) is formed in Taiwan (or another Asian country) and then it is shipped to Jordan to a factory within the Al Tajamouat Industrial City, Jordan, a QIZ. In the QIZ, the fabric is cut to shape into various components which are then assembled into finished garments.

ISSUE:

Whether garments produced in a qualifying industrial zone (QIZ) in Jordan from fabrics formed in Taiwan (or another Asian country) qualify for duty-free entry under General Note 3(a)(v) of the HTSUS?

LAW AND ANALYSIS:

In 1996, Congress amended the U.S.-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. § 2112 note) to provide the President additional proclamation authority with respect to products of the West Bank, Gaza Strip, or a qualifying industrial zone (QIZ). Subsequently, on November 13, 1996, the President issued Proclamation 6955 (published in the Federal Register on November 18, 1996 (61 FR 58761)). In Proclamation 6955, the President modified General Note 3(a) of the HTSUS to provide duty-free treatment to articles which are products of the West Bank, Gaza Strip or a QIZ, provided certain requirements are met.

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

By a notice published in the Federal Register on October 15, 1999, (64 FR 56015), pursuant to section 9 of the U.S.-Israel Free Trade Area Implementation Act and General Note 3(a)(v)(G)(3), HTSUS, the Office of the United States Trade Representative designated the Al Tajamouat Industrial City as a QIZ. The QIZ encompasses certain areas under the customs control of the Governments of Israel and Jordan. Thus, effective on the date of publication of the above notice, goods produced in the Al Tajamouat QIZ which meet all the conditions and requirements of General Note 3(a)(v), HTSUS, are entitled to duty-free treatment.

General Note 3(a)(v)(A) also prescribes that to qualify for duty-free treatment, the articles produced in a QIZ must be imported directly from a QIZ, Israel, West Bank, or the Gaza Strip. See General Note 3(a)(v)(B) for what constitutes “imported directly.”

Origin Requirement

The first issue to be addressed is whether the garments are considered to be “products of” the Al Tajamouat QIZ. To determine whether a textile or apparel article is considered to be a product of the QIZ, it is necessary to refer to the rule of origin for textiles and apparel products set forth in 19 U.S.C. §3592 as implemented by section 102.21, Customs Regulations (19 C.F.R. §102.21). Except for the purpose of determining whether a good is a product of Israel (see 19 C.F.R. §102.21(a)), 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 C.F.R. §102.21.

Under section 102.21(c)(1), which is the first of the sequential rules of origin to be applied, the country of origin of a textile or apparel product is the single country, territory, or insular possession in which the good was wholly obtained or produced. This provision is inapplicable in this case because the goods are not wholly obtained or produced in a single country, territory or insular possession. Therefore, we turn to section 102.21(c)(2) which provides that where the country of origin cannot be determined under paragraph (c)(1), the country of origin of the good is the single country in which each foreign material incorporated in that good underwent an applicable change in tariff classification and/or met any other requirement specified for the good in 19 C.F.R. §102.21(e).

You provided the tariff classifications for the garments at issue. They include headings 6101 to 6110. Assuming that the classifications of the articles are correct, the applicable rule of origin is stated in 19 C.F.R. §102.21(e):

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.

In this case, each garment is not knit to shape and is produced by assembling two or more components. Because you state that the garments will be wholly assembled in the Jordanian portion of the Al Tajamouat QIZ, under the applicable rule, the origin of the garments will be Jordan. Therefore, they will be considered “products of” the QIZ.

Value Content Requirement

Where, as in this case, an article is comprised of materials that are transported into the QIZ from Taiwan (or other Asian countries), the cost or value of those materials may be included in calculating the 35% value-content requirement only if they undergo a double substantial transformation in the QIZ. That is, the materials must be substantially transformed in one or more of these areas into a new and different intermediate article of commerce, which is then transformed a second time during production of the final article which is exported to the U.S. See HRL 560906 (dated May 11, 1999), HRL 561657 (dated August 29, 2000), and HRL 561687 (dated January 19, 2001).

In T.D. 95-69 (the Final Rule document promulgating 19 C.F.R. §102.21), which was published in the Federal Register on September 5, 1995 (60 FR 46189), Customs responded to certain comments received in response to the Notice of Proposed Rulemaking concerning the effect of the section 102.21 rules of origin on existing Customs rulings holding that the cutting of garment parts and the assembly of those parts into garments constitute a double substantial transformation for purposes of the foreign value limitation in General Note 3(a)(iv), HTSUS. Customs stated that:

[s]ince section 334 deals with the country of origin of textile and apparel products and not with value requirements for purposes of duty preferences, section 334 will not affect either foreign material value determinations required under General Note 3(a)(iv) or value-added requirements contained in other statutory provisions. Accordingly, Customs intends to continue its current tariff treatment of garments which are cut and assembled in insular possessions.

In T.D. 98-62, published in the Federal Register on June 26, 1998 (63 FR 34960), Customs reiterated that the section 102.21 rules of origin are not used to determine whether foreign materials have undergone a double substantial transformation for purposes of determining whether their cost or value may be considered as part of the value of materials produced in the beneficiary country, territory or possession under certain tariff preference programs, including General Note 3(a)(v), HTSUS.

Headquarters Ruling Letter (HRL) 560882 dated July 1, 1998, concerned, in part, whether foreign fabric which is imported into the West Bank or Gaza Strip where it is cut into components and then assembled to produce finished short-sleeved polo-type shirts, long-sleeved pullover shirts, and full-length pull-on pants, is subjected to a double substantial transformation. We held that, consistent with previous rulings relating to this issue (e.g., HRLs 559810 dated August 16, 1996, and 559137 dated September 7, 1995), the described cutting and assembly operations performed in the West Bank or Gaza Strip results in a double substantial transformation and, therefore, the cost or value of the foreign fabric may be counted towards satisfying the 35% value-content requirement under General Note 3(a)(v), HTSUS.

In HRL 560906, Customs ruled that certain garments made in a QIZ in Jordan qualified for duty-free treatment under GN 3(a)(v), assuming the 35% value-content requirement was met. In that case, where the facts were similar to the instant case, the fabric was formed in a locality outside qualifying areas specified under GN 3(a)(v). As in this case, the fabric was shipped to a QIZ where it was cut into the shape of various garment components and the components were assembled into finished outerwear. Similar to HRL 560906, the fabric in this case is shipped from Taiwan or from another Asian country to a QIZ. The fabric is cut into component parts and assembled into the final garment in the Al Tajamouat QIZ, thereby undergoing double substantial transformation. Therefore, in the instant case, the cost or value of the fabric from Taiwan or another Asian country, which is shipped to the Al Tajamouat QIZ, may be counted toward satisfying the 35% value-content requirement.

Please note that a claim for special tariff treatment under GN 3(a)(v), HTSUS, is made by inserting the symbol “N” prior to the appropriate HTSUS subheading on the Customs Form 7501, Entry Summary. See General Statistical Note 3(d), HTSUS.

HOLDING:

Based on the information provided, the garments assembled in the Al Tajamouat QIZ as described above will be considered “products of” the QIZ. In addition, the foreign fabric which is cut into components in the QIZ and assembled there to create the finished garments undergoes a double substantial transformation. Therefore, the fabric’s cost or value may be counted towards satisfying the 35% value-content requirement.

Assuming that the finished garments are imported directly into the U.S. from the Al Tajamouat QIZ, the West Bank, Gaza Strip, or Israel, and the 35% value-content requirement is satisfied, the garments will be entitled to duty-free treatment under General Note 3(a)(v), HTSUS. 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 documents filed at the time this merchandise is entered. If the documents are 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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