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NY H80867




June 6, 2001

MAR-2-64:RR:NC:TP:347 H80867

CATEGORY: MARKING

Mr. Harvey Arias
Romika USA, Inc.
8730 NW 36th Avenue
Miami, FL 33147

RE: The marking requirements and status of footwear under the North American Free Trade Agreement (NAFTA), U.S. Goods Returned, and CBI II, involving seven different scenarios.

Dear Mr. Arias:

In your letter dated May 4, 2001, you requested a tariff classification ruling.

You request a ruling on the use of a “Made in U.S.A.” tag or outsole plug on your waterproof boots. You state that you typically have uppers made in China and then ship them to your plant in Miami where you inject the outsoles to form complete shoes and pack the footwear.

You have proposed seven different scenarios for consideration and you have submitted a sample of the completed footwear, which is made up of a leather upper and a rubber/plastics outer sole, covering the ankle, with a lace-tie closure. You have not submitted a representative sample of the footwear uppers as they will appear upon importation into the United States.

These are your scenarios as you describe them:

Scenario I
The uppers are cut and stitched in China from materials with various countries of origin including the U.S.

Scenario II
The upper components are cut in China from materials with various countries of origin including the U.S., and the cut parts are sent to Dominican Republic to be stitched there into uppers.

Scenario III
The upper raw materials are shipped to Mexico from several countries including the U.S. The raw materials are cut and stitched into uppers in Mexico.

Scenario IV
The upper raw materials are shipped to Mexico from USA. (100% US materials) The raw materials are cut and stitched into uppers in Mexico. We assume for purposes of this ruling that all materials will be originating under the NAFTA origin rules.

Scenario V
The upper raw materials are shipped to Dominican Republic from several countries including the U.S. The raw materials are cut and stitched into uppers in Dominican Republic.

Scenario VI
The upper raw materials are shipped to Dominican Republic from USA. (100% US materials). The raw materials are cut and stitched into uppers in the Dominican Republic.

Scenario VII
The uppers are cut and stitched in China with a majority of U.S. raw materials.

In your letter, you also state that for all the proposed scenarios, once the uppers are imported into the U.S., outer soles will be injection-molded to them to form complete shoes.

As stated, you request information concerning the country of origin marking procedures for the footwear in each scenario. We will discuss the country of origin requirements for each of the scenarios as they relate to the special programs and regulations they involve:

NAFTA-related scenarios:

Scenario III:

For scenario III, raw materials from several countries, including the United States, are shipped to Mexico where they are cut and stitched into uppers of subheading 6406.10 (this subheading includes formed and unformed uppers) and will be eligible for NAFTA treatment from Mexico if they undergo the change in tariff classification required by General Note 12 (t)/64, Harmonized Tariff Schedule of the United States (HTSUS) - used when one or more materials involved in the production of the goods are “non-originating.” Subheading (t) of General Note 12 for Chapter 64 states that in order to qualify for NAFTA there must be “a change to subheading 6406.10 from any other subheading, except 6401 through 6405, provided there is a regional value content of not less than 55 percent under the net cost method.” Raw materials from several countries including the U.S. are cut and stitched to form uppers (of subheading 6406.10) in Mexico. Provided that the Regional Value Content is not less than 55% under the net cost method, the uppers of this scenario would qualify for NAFTA duty preference upon importation into the U.S.

For scenario III, if we determine that the uppers eligible for NAFTA using the rules discussed in the previous paragraph, we would then determine the country of origin for the finished shoes using the NAFTA rules of origin described in 19 CFR 102.11(a)(3). 19 CFR 102.11 (a)(3) states that the country of origin of a good is the country in which “each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in 102.20” The country of origin rules set out in CFR 102.20 for chapter 64 state that in order to determine origin for a good “a change to subheading 6406.10 from any other subheading” must be met and “a change to 6401 through 6405 from any other heading outside that group, except from formed uppers” must be met. Also, CFR 102.19 (a) states that “if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under 102.11(a) or (b) or 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see 181.11 of this chapter) has been completed and signed for the good. In scenario III, footwear uppers created in Mexico are imported into the U.S., where soles are “injection-molded” onto them to form complete footwear. In order to determine the country of origin for the finished footwear, we need to see a sample of the uppers as they will look upon import into the United States. If the uppers imported into the U.S. from Mexico are “unformed uppers” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be the U.S. If the uppers imported into the U.S. from Mexico are “formed uppers” for purposes of chapter 64, HTS, then according to the country of origin NAFTA rules, the country of origin of the finished footwear will be Mexico.

Scenario IV:

The boots for scenario IV, being made entirely in the territory of the United States and Mexico using 100% U.S. raw materials, will satisfy the requirements of HTSUSA General Note 12(b)(iii) which states that “goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as ‘goods originating in the territory of a NAFTA party’ only if – they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials” In this regard, the merchandise in scenario IV will be entitled to a special rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements.

In determining the country of origin for the finished footwear of scenario IV, we used the NAFTA rules of origin described in 19 CFR 102.19 (a), which states that “if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under 102.11(a) or (b) or 102.21 to be a good of a single NAFTA country, the country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of Origin (see 181.11 of this chapter) has been completed and signed for the good.” In scenario IV, 100% U.S. raw materials are shipped to Mexico where they become uppers of 6406.10. The uppers are then imported into the U.S. to be attached to outer soles and made into finished footwear. In order to determine the country of origin for the finished footwear, we need to see a sample of the uppers as they will look upon import into the U.S. If the uppers imported into the U.S. from Mexico are “unformed uppers” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be the U.S. Since more than “minor” processing will take place to produce the finished footwear. If the uppers imported into the U.S. from Mexico are “formed uppers” for purposes of chapter 64, HTS, then the country of origin will be Mexico.

U.S. Goods Returned scenarios:

Scenarios I and VII:

In scenario I, raw materials originating from several different countries are cut and stitched together to form uppers in China. The uppers are then imported into the U.S. where the outsoles are injected onto them to form complete shoes. In scenario VII, uppers are cut and stitched together in China with a majority of U.S. raw materials. The uppers are then imported into the U.S. where the outsoles are injected onto them to form complete shoes. The operations performed in China are considered neither assembly operations under tariff number 9802.00.80 (U.S. Goods Returned), nor “alterations” under tariff number 9802.00.50, HTS. Therefore, the imported uppers are not entitled to a duty allowance pursuant to subheading 9802.00.80 or 9802.00.50, HTS. Classification will be assessed at the general rate of duty.

Regarding the country of origin marking requirements, Section 134.1(b), Customs Regulations [19 CFR 134.1(b)] defines “country of origin” as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of the marking laws and regulations. Therefore, foreign-made articles or materials may become products of the U.S. if they undergo a process of manufacture in the U.S. which results in their substantial transformation. Section 10.12(e), Customs Regulations, provides generally that an article wholly or partially of foreign components or materials, may be a “product of the U.S.” if such foreign components or materials are “substantially transformed” by a process or manufacture into a new or different article, or are merged into a new or different article. Section 10.14(b) provides that a “substantial transformation” occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. If the manufacturing or combining process is merely a minor one that leaves the identity of the article intact, a substantial transformation has not occurred. As per HQ 558795 (April 28, 1995), it was determined that the “injection molding” process was more than minor processing, and therefore is a process of further fabrication. In a country of origin marking case involving imported shoe uppers, Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), the United States Court of International Trade concluded that a substantially complete Indonesian upper was not substantially transformed when it was attached to an outsole in the U.S. since the attachment was a minor manufacturing or combining process which left the identity of the upper intact. By contrast, in Headquarters Ruling Letter (HRL) 735338 dated January 28, 1994, Customs considered the country of origin marking of athletic footwear. Italian leather was cut and stitched into an upper in the Czech Republic, and the upper was subsequently shipped to Italy where it was placed on a last and the midsole and outsole was mounted. It was determined that the Italian-made materials were substantially transformed in the Czech Republic when they were cut and stitched into an open and unlasted footwear upper. However, since the completely open and unlasted upper imported into Italy did not have the very essence of a completed shoe, the upper was substantially transformed as a result of the processing performed in Italy, and, therefore was considered to be a product of Italy. In this regard, we do not consider injection molding a sole to an upper a “minor” manufacturing or combining process if the upper is considered an “unformed” upper for purposes of chapter 64, HTS. Therefore, the extent of the processing upon return to the U.S. creates a substantial transformation by injection-molding the soles onto the uppers to create the finished footwear, provided that the uppers are in fact “unformed” before the soles are injection-molded onto them. In this regard, Section 134.35, Customs Regulations (19 CFR 134.35) states that the manufacturer or processor in the U.S. who converts or combines the imported article into a different article having a new name, character or use will be considered the ultimate purchaser of the imported article within the contemplation of 19 U.S.C. 1304 and the article shall be excepted from marking. Only the outermost containers of the imported articles shall be marked. Therefore, if the uppers imported into the U.S. are “unformed” uppers, the finished footwear will be considered products of the U.S. once the soles are injection-molded onto them, for country of origin marking purposes.

CBI II scenarios:

Scenario VI:

In scenario VI, 100% U.S. raw materials are shipped to Dominican Republic where they are cut and stitched into footwear uppers. The uppers are then imported into the U.S. where the outsoles are injected onto the uppers to form complete shoes. Provided that all the components used to make the uppers in Dominican Republic are of U.S. origin and all other requirements for U.S. Note 2(b), Subchapter II of Chapter 98, HTSUS (or CBI II) are met, footwear of this scenario would be eligible for duty-free treatment. Since “processing” and “assembly” procedures take place in Dominican Republic to make the footwear uppers, classification at 9802.00.5010, HTS, free of duty, would apply. Items classified in 9802.00.5010 do not need to have any country of origin marking when imported into the U.S. Regarding country of origin marking for the finished footwear, as stated in previous scenarios, if the uppers imported into the U.S. from Dominican Republic are considered “unformed” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be the U.S. If the uppers imported into the U.S. are “formed” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be D.R.

Scenario II and V:

In scenario II, upper components are cut in China from materials with various countries of origin. They are shipped to Dominican Republic to be stitched into uppers. The uppers are then imported into the U.S. where you inject the outsoles onto them to form complete shoes. In scenario V, you state that upper raw materials are shipped to Dominican Republic from several countries including the U.S. The raw materials are cut and stitched into uppers in Dominican Republic. The uppers are then imported into the U.S. where you inject the outsoles onto them to form complete shoes. In order to qualify for U.S. Note 2(b), Subchapter II of Chapter 98, HTSUS, (or CBI II) duty-free treatment, an eligible article must be “assembled” or “processed” in a beneficiary country entirely of components or ingredients that are a “product of” the U.S. Since all materials shipped to Dominican Republic will not be “products of” the U.S., the uppers will not be entitled to duty-free treatment under U.S. Note 2(b). Therefore, HTS 9802.00.5010 or 9802.00.8040 does not apply in this scenario. In addition, an allowance for any U.S. materials (U.S. Goods Returned) is not allowed since the processes that take place in China and Dominican Republic are more than “assembly” procedures under HTS 9802.00.80, nor are they considered “repairs or alterations” under HTS 9802.00.50. Regarding the country of origin marking for the finished footwear, as stated in the previous scenarios, if the uppers imported into the U.S. from Dominican Republic are considered “unformed” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be the U.S. If the uppers imported into the U.S. are considered “formed” for purposes of chapter 64, HTS, then the country of origin of the finished footwear will be Dominican Republic.

Regarding references to “Made in U.S.A.” used on the footwear, questions should be directed to the Federal Trade Commission (FTC), Division of Enforcement, 6th and Pennsylvania Avenue, NW, Washington, DC, 20508. If the country of origin of the finished footwear is the United States under the Customs statutes, the FTC has the primary responsibility under statutes which require the identification of certain foreign components if a “Made in U.S.A.” claim is made.

This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).

A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Richard Foley at 212-637-7089.

Sincerely,

Robert B. Swierupski
Director,

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