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NY N010496




May 30, 2007

CLA-2-61:RR:NC:TAB:354

CATEGORY: CLASSIFICATION

TARIFF NO.: 6107.12.0010

Ms. Susan Osowiecki
Delta Galil USA Inc.
150 Meadowland Parkway
Secaucus, N.J. 07094

RE: The tariff classification and status under the United States-Israel Free Trade Agreement (US-IFTA), of men’s boxer styled briefs produced in Israel and Jordan.

Dear Ms. Osowiecki:

In your letter dated April 23, 2007, you requested a ruling on the status of men’s undergarments under the US-IFTA.

You have submitted a pair of men’s boxer styled briefs, “C.K. Men” brand, item #85209+10, made of 89% nylon, 7% Lycra spandex, and 4% polypropylene. The brand name “Calvin Klein” is featured on a portion of the waistband at the front of the garment.

You state that the yarns used to manufacture the undergarments will be sourced from Israel as well as other non-originating countries. In Israel, the yarns will be used to create a tubular knit fabric component, with lines of demarcation and a self-start bottom; a separate tubular knit fabric will also be made for the gusset crotch portion of the boxer styled briefs. The knitted tubes will be sent to Jordan, where cutting along the lines of demarcation and sewing will take place to create the finished article, sew gusset in crotch, etc. You state that after assembly of the garments in Jordan, the garments will be returned to Israel for “shipment preparation,” which you state includes taking inventory of the finished goods through the computer system to reflect stock, “quality assurance,” which you state involves inspection of the goods, preparing the purchase order and other shipping documents, possible repacking and preparing the goods for shipment to the U.S. After “shipment preparation” in Israel, they will be exported directly from Israel to the U.S. without passing through the territory of any other country.

For purposes of this ruling, we assume that the processes taking place in Jordan will not involve a Qualifying Industrial Zone (QIZ).

The applicable tariff provision for item #85209+10 will be 6107.12.0010, Harmonized Tariff Schedule of the United States (HTSUS), which provides for men’s or boys’ underpants, briefs, nightshirts, pajamas, bathrobes, dressing gowns and similar articles, knitted or crocheted: underpants and briefs: of man-made fibersmen’s. The general rate of duty will be 14.9% ad valorem.

COUNTRY OF ORIGIN – LAW AND ANALYSIS:

Section 334 of the Uruguay Round Agreements Act (codified at 19 U.S.C. 3592), enacted on December 8, 1994, provided rules of origin for textiles and apparel entered, or withdrawn from warehouse for consumption, on and after July 1, 1996. Section 102.21, Customs Regulations (19 C.F.R. 102.21), published September 5, 1995, in the Federal Register, implements Section 334 (60 FR 46188). Section 334 of the URAA was amended by Section 405 of the Trade and Development Act of 2000, enacted on May 18, 2000, and accordingly, section 102.21 was amended (68 Fed. Reg. 8711). Thus, the country of origin of a textile or apparel product shall be determined by the sequential application of the general rules set forth in paragraphs (c)(1) through (5) of Section 102.21.

EXCEPTION FOR UNITED STATES ISRAEL FREE TRADE AGREEMENT:

Section 102.21(a) specifically states that the rules in Section 102.21 shall not apply “for purposes of determining whether goods originate in Israel or are the growth, product, or manufacture of Israel.” The basis for the Israeli exception is Section 334(b)(5) of the Uruguay Round Agreements Act, which states 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 that 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 C.F.R. 102.22 rules of origin, which reflect 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 C.F.R. 102.22, Israel was determined 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 general statement of policy, Treasury Decision 96-58, appearing in the Federal Register, Vol. 61, No. 148, dated July 31, 1996.

Accordingly, applying Section 102.22(a), 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 articles 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.

Section 102.22(b) sets forth criteria for determining whether a substantial transformation of a textile product has taken place. These criteria are not exhaustive; one or any combination of criteria may be determinative, and additional factors may be considered.

Section 102.22(b)(1) states that a new and different article of commerce will usually result from a manufacturing or processing operation if there is a change in: (i) Commercial designation or identity,
(ii) Fundamental character, or
(iii) Commercial use.

Section 102.22(b)(2) states that for determining whether the merchandise has been subjected to substantial manufacturing or processing operations, the following is 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 102.22(c)(1) states, in pertinent part, that an article will usually be a product of Israel when it has undergone in Israel: Spinning fibers into yarn;
Weaving, knitting or otherwise forming fabric; (iv) Cutting of fabric into parts and the assembly of these parts into the completed article; or Substantial assembly by sewing and/or tailoring of all cut pieces of apparel articles which have been cut from fabric in another foreign territory or country, or insular possession of the U.S., into a completed garment. (e.g., the complete assembly and tailoring of all cut pieces of suit-type jackets, suits and shirts).

Conversely, 102.22(c)(2) states, in pertinent part, that an article or material usually will not be considered to be a product of Israel by virtue of merely having undergone any of the following: Cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use; Trimming, and/or joining together by sewing, looping, linking or other means of attaching otherwise completed knit-to-shape component parts produced in a single country, even when accompanied by other processes (e.g., washing, drying, and mending) normally incident to the assembly process.

Since in this case, the briefs are knit to shape in Israel with lines of demarcation, under the provisions of 102.22, the country of origin for the briefs is Israel. This is because, in Israel, a substantial transformation takes place when yarns are used to create a tubular knit fabric with lines of demarcation which is designated for use as a boxer styled brief, and a new and different article of commerce is thereby created.

STATUS UNDER THE US-IFTA:

General Note 8(b), HTSUS, sets forth the criteria for determining whether goods are eligible for treatment as "products of Israel" under the IFTA. General Note 8(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that

For purposes of this note, goods imported into the customs territory of the United States are eligible for treatment as "products of Israel" only if--

(i) each article is the growth, product or manufacture of Israel or is a new or different article of commerce that has been grown, produced or manufactured in Israel;

(ii) each article is imported directly from Israel (or directly from the West Bank, the Gaza Strip or a qualifying industrial zone as defined in general note 3(a)(v)(G) to the tariff schedule) into the customs territory of the United States; and

(iii) the sum of--

(A) the cost or value of the materials produced in Israel, and including the cost or value of materials produced in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, plus

(B) the direct costs of processing operations performed in Israel, and including the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone pursuant to general note 3(a)(v) to the tariff schedule, is not less than 35 percent of the appraised value of each article at the time it is entered.

If the cost or value of materials produced in the customs territory of the United States is included with respect to an article to which this note applies, an amount not to exceed 15 percent of the appraised value of the article at the time it is entered that is attributable to such United States cost or value may be applied toward determining the percentage referred to in subdivision (b)(iii) of this note.

35% 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. That is, the materials must be substantially transformed 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 this regard, as the tubular knit fabric that is formed in Israel is comprised of foreign-origin yarns, the cost or value of those foreign materials may not be included in calculating the 35% value-content requirement since they do not undergo a double substantial transformation in Israel.

“IMPORTED DIRECTLY” FROM ISRAEL:

Under General Note 8, Harmonized Tariff Schedule of the United States (HTSUS), products of Israel are eligible, when imported into the United States, for the "special" duty rate set forth in the tariff schedule only if each article is imported directly from Israel into the customs territory of the United States (General Note 8(b)(ii)). The garments which are the subject of this ruling are shipped from Israel to Jordan for final assembly to create the finished garments, then returned to Israel for what you refer to as “shipment preparation” prior to being exported to the U.S. To determine whether the garments will be eligible for the "special" duty rate, it is necessary to determine whether their return to Israel for this process qualifies as being "imported directly" from Israel.

     Annex 3, paragraph 8, of the U.S.-Israel FTA defines the words "imported directly," as follows:

Direct shipment from Israel to the U.S. without passing through the territory of any intermediate country;  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 enroute to the U.S., and the invoices, bills of lading, and other shipping documents, show the United States as the final destination; 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; and (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. See HQ 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.

As the garments are sent from Israel to Jordan to be assembled into finished briefs, to be "imported directly" from Israel to the U.S., the shipment, upon its return from Jordan must enter the commerce of Israel, i.e., it must be manipulated in Israel. We have held 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. As stated, after assembly of the garments in Jordan, you state that they will be returned to Israel for “shipment preparation,” which you state includes taking inventory of the finished goods through the computer system in order to reflect stock, “quality assurance,” which you state involves inspection of the goods, preparing the purchase order and other shipping documents, possible repacking and preparing the goods for shipment to the U.S. After “shipment preparation” in Israel, they will be exported directly from Israel to the U.S. without passing through the territory of any other country. Based on the facts, the goods will have entered the commerce of Israel and will be considered to have been “imported directly” from Israel to the U.S.

HOLDING:

Based on the information provided, the imported briefs will be classified under heading 6107, HTSUS, a U.S.-IFTA eligible provision; upon importation, the briefs will be considered “products of” Israel; the imported briefs will be considered to be “imported directly” from Israel into the U.S. on condition that upon return to Israel from Jordan, the garments undergo further manipulation and packaging, after which they will be exported directly from Israel to the U.S. without passing through the territory of any intermediate country; and the imported briefs will qualify for duty-free treatment under the U.S.-IFTA provided the sum of (a) the cost or value of the materials produced in Israel, plus (b) the direct costs of processing operations performed in Israel is not less than 35% of the appraised value of the briefs at the time of entry. Whether the 35% value-content requirement has been met must await actual entry of the merchandise.

Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.

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 Deborah Marinucci at 646-733-3054.

Sincerely,

Robert B. Swierupski
Director,

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