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HQ 562553




January 4, 2003

CLA-2 RR:CR:SM 562553 ALH

CATEGORY: CLASSIFICATION

Mr. Miguel Ruiz

Customs Broker and Vice-President of Imports

C-Air Brokers & Forwarders, Inc.
6176 N.W. 74th Avenue
Miami, Florida 33166

RE: Ruling Request for a tariff classification of a tap-dance shoe and its qualification for duty-free entry under the Caribbean Basin Trade Partnership Act (CBTPA), specifically under the “North American Free Trade Agreement (NAFTA) Parity” provisions

Dear Mr. Ruiz:

This is in response to your letter of August 22, 2002, on behalf of Bojos Manufacturing requesting a binding ruling regarding the tariff classification of a tap-dance shoe and its qualification for duty-free entry under the Caribbean Basin Trade Partnership Act (CBTPA). Specifically, you inquire whether the tap-dance shoe qualifies under the “North American Free Trade Agreement (NAFTA) Parity” provisions found in Section 211, Title II of the Trade and Development Act of 2000. You submitted a sample of the girls’ size 12 tap-dance shoe.

FACTS:

In your letter, you state that the tap-dance shoe is manufactured in the Dominican Republic using materials of Hong Kong, Spanish, U.S., and Dominican Republic origin. Vinyl material sheets of Hong Kong origin are imported into the Dominican Republic. The sheets are cut into parts, pre-fit, and stitched to create the uppers. The sole and heel of the shoe are of Spanish origin. Sheets of rubber sole material are imported into the Dominican Republic and then cut to shape. The upper is cement lasted to the sole. The heel of the shoe is not further processed in the Dominican Republic, other than being tacked onto the sole of the shoe. Lastly, the metal taps are affixed with rivets to the sole and heel. You state that the finished product will be imported directly to the United States.

ISSUE:

Whether a tap-dance shoe manufactured in the Dominican Republic, incorporating parts from Hong Kong, Spain, the United States, and the Dominican Republic, when imported directly into the United States qualifies for CBTPA duty-free treatment under the “NAFTA Parity” provisions found in Section 211, Title II of the Trade and Development Act of 2000.

LAW AND ANALYSIS:

Classification

Classification under the Harmonized Tariff Schedule of the United States (HTSUS) is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. Chapter 64, HTSUS, covers footwear, gaiters, and the like, and parts of such articles. Classification of footwear is essentially based upon the composition of the outer soles and uppers. The composition of the outer sole and upper is determined in accordance with note 4(a) and (b), Chapter 64, which provides that:

Subject to note 3 to this Chapter:

The material of the upper shall be taken to be the constituent material having the greatest external surface area, no account being taken of accessories or reinforcements such as ankle patches, edging, ornamentation, buckles, tabs, eyelet stays or similar attachments;

The constituent material of the outer sole shall be taken to be the material having the greatest surface area in contact with the ground, no account being taken of accessories or reinforcements such as spikes, bars, nails, protectors or similar attachments.

In the present case, the shoe is a girl’s tap-dance pump-style shoe. The greatest external surface area of the upper is composed of rubber/plastic material. The outer sole is composed of rubber/plastic material and permanently attached metal taps on the front and rear of the sole and heel. The constituent material of the outer sole having the greatest external surface area in contact with the ground when in use is metal. The shoe does not cover the ankle and is secured to the foot by a textile ribbon, which ties into a bow.

In your letter, you made the determination that the tap-dance shoe is properly classified under subheading 6402.99.18.71, HTSUS, applicable to “Other footwear with outer soles and uppers of rubbers or plastics, Other, Other.” Subheading 6402.99.18.71 is not the appropriate classification for this article since the constituent material of the sole is metal. Based upon a review of the sample shoe you provided, the applicable subheading for the shoe is 6405.90.90, HTSUS, which provides for “Other footwear, Other, Other.” The General Rate of Duty is 12.5 percent ad valorem. The Special Rate of Duty subcolumn includes the Special Program Indicator (SPI) “R” which represents CBTPA allowing for preferential duty-free treatment for eligible articles.

CBTPA Eligibility

Title II of the Trade and Development Act of 2000 concerns trade benefits for the Caribbean Basin and is referred to in the Act as CBTPA. Title II amends the Caribbean Basin Economic Recovery Act (CEBRA) providing preferential tariff treatment for textile and apparel articles, as well as “NAFTA Parity” treatment for certain non-textile goods previously excluded from CBERA eligibility. Under the “NAFTA Parity” provisions of the CBTPA, certain non-textile goods are afforded identical tariff treatment to that afforded to Mexico under NAFTA if they qualify as CBTPA goods and are imported directly into the United States from a CBTPA beneficiary country. The provisions of 19 CFR 10.231 –10.237 set forth the legal requirements and procedures that apply for purposes of obtaining preferential tariff treatment for non-textile articles under the CBTPA. Under 19 CFR 10.233(a)(1), footwear, with a few exceptions, is eligible for preferential tariff treatment.

The enhanced trade benefits under CBTPA are available to eligible articles imported directly from a country: (1) that is designated as a CBTPA beneficiary country; and (2) which the U.S. Trade Representative ("USTR") has determined has implemented and follows, or is making substantial progress toward implementing and following certain customs procedures that allow U.S. Customs to verify the origin of the articles (See Administrative Message 01-0078 dated 01/16/01). The Dominican Republic is designated as a CBTPA beneficiary country (See Presidential Proclamation 7351) and has satisfied the second criterion (See 65 Fed. Reg. 60236, dated October 10, 2000).

Under 19 CFR 10.232, a “CBTPA originating good” is defined as a good that meets the rules of origin for a good as set forth in General Note 12, HTSUS, (19 U.S.C. §1202), the NAFTA Rules of Origin Regulations (“ROR”) in appendix to 19 CFR Part 181, and as applied under §10.233(b), Customs Regulations (19 CFR 10.233(b)). Section 10.233(b), Customs Regulations (19 CFR 10.233(b)), limits the application of the NAFTA rules of origin to the United States and CBTPA beneficiary countries.

General Note 12(b), HTSUS, states in pertinent part:

For the purposes of this note, 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 --

........................................................................................

(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that --
except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s), and (t) of this note or the rules set forth therein, or
the goods otherwise satisfy the applicable requirements of subdivisions (r), (s), and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note.

In the present case, the applicable tariff classification for the tap-dance shoe is 6405.90.90, HTSUS. In order for a product in that subheading to qualify for the NAFTA preference, the non-originating materials must undergo a change in tariff classification and the final product must meet a minimum regional value content. General Note 12(t), HTSUS, Change in Tariff Classification Rules, Chapter 64 states:

A change to headings 6401 through 6405 from any heading outside that group, except from subheading 6406.10, provided there is a regional value content (RVC), of not less than 55 percent under the net cost method.

Pursuant to 19 CFR Part 181, Appendix, §6(3), the net cost method for calculating the regional value content of a good is as follows:

RVC = NC-VNM X100
NC
where

RVC is the regional value content of the good, expressed as a percentage; NC is the net cost of the good, calculated in accordance with subsection (11); VNM is the value of non-originating materials used by the producer in the production of the good, determined, except as otherwise provided in sections 9 and 10, in accordance with section 7.

Subsection (11), Customs Regulations (19 CFR Part 181, Appendix, §6(11), requires excluded costs to be subtracted from the total cost to find the net cost. Excluded costs are defined as sales promotion, marketing, and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs. (See 19 CFR Part 181, Appendix §1).

The net cost of a good is determined in accordance with the ROR, section 6(11), Customs Regulations (19 CFR Part 181, Appendix, §6(11)), pursuant to one of several possible options, all of which involve a calculation of the producer's total cost. The term " total cost" is defined by section 2(6) of the ROR, Customs Regulations (19 CFR Part 181, Appendix, §2(6)), which provides, in pertinent part, that for purposes of determining net cost under section 6(11):

(a) total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in paragraphs (b)(i) and (ii), on the books of the producer without regard to the location of the persons to whom payments with respect to those costs are made;

(b) in calculating total cost,

(i) the value of the materials, other than intermediate materials, indirect materials and packing materials and containers, shall be the value determined in accordance with section 7(1),

(ii) the value of intermediate materials used in the production of the good or material with respect to which total cost is being calculated shall be calculated in accordance with section 7(6),

(iii) the value of indirect materials and the value of packing materials and containers shall be the costs that are recorded on the books of the producer for those materials, and

(iv) product costs, period costs and other costs, other than costs referred to in subparagraphs (i) through (iii), shall be the costs thereof that are recorded on the books of the producer for those costs.

In regard to the value of materials, section 7(1), Customs Regulations (19 CFR Part 181, Appendix, §7(1)), provides that where the material is imported by the producer of the good into the territory of the NAFTA country in which the good is produced, the value of a material used in the production of the good shall be the customs value of the material with respect to that importation. However, if the customs value of the material was not determined in a manner consistent with Schedule VIII of the ROR, section 7(2), Customs Regulations (19 CFR Part 181, Appendix, §7(2)), provides that the value of the material shall be determined in accordance with Schedule VIII with respect to that material. For purposes of this ruling we have assumed that the value of the materials supplied to Bojos Manufacturing by its foreign suppliers was based on the customs value as determined in accordance with section 7, Customs Regulations (19 CFR Part 181, Appendix, §7).

In the present case, the RVC will only be satisfied based on the following assumptions:
the total cost was calculated in accordance with the applicable NAFTA formula taking into account excluded costs; the value of non-originating materials was also properly determined in accordance with the relevant provision; and the cost information provided is accurate for the merchandise when imported into the United States.

Based on the information submitted with this inquiry, the required tariff shift is met. With the above mentioned assumptions, the RVC figure equals 62%, which will satisfy the 55 percent requirement under the net cost method. Assuming that the net cost calculation was determined in accordance with section 6(11) of the ROR, Customs Regulations (19 CFR Part 181, Appendix, §6(11)), the tap-dance shoes are originating goods when exported to the United States.

In addition to qualifying as an “originating good” the article must be “imported directly to the United States” to receive preferential duty-free treatment. The “imported directly” requirement is discussed in detail in 19 CFR 10.233(d).

A claim for CBTPA non-textile preferential tariff treatment will be subject to whatever verification the port director deems necessary. If, for any reason, the port director is prevented from verifying the claim, she or he may deny the claim for preferential tariff treatment (See 19 CFR 10.237). HOLDING:

Based on the information submitted, if the finished product (tap-dance shoe) is shipped directly from the Dominican Republic to the United States, the submitted information regarding origin of raw materials and values is accurate, and all the applicable requirements are met this merchandise is eligible for duty-free entry under the CBTPA “NAFTA Parity” provisions. This holding applies only to the specific factual situation and merchandise identified in this ruling request.

A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If you have any questions regarding the foregoing, please let us know.

Sincerely,

Myles B. Harmon
Director

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