CLA-2 CO:R:C:S 555730 KCC
Mr. Sheldon Stone
ETA Import & Export Ltd.
248-06 Rockaway Blvd.
Suite 208
Jamaica, New York 11422
RE: Girls' t-shirts.U.S.-Israel Free Trade Area Agreement;
substantial transformation; 35% value-content requirement;
731036; 086229; 555489; 555379; marking; quota
Dear Mr. Stone:
This is in response to your letter dated August 16, 1990,
on behalf of Texinique, Inc., requesting a ruling concerning the
eligibility for duty-free treatment under General Note 3(c)(vi)
(United States-Israel Free Trade Area Agreement), Harmonized
Tariff Schedule of the United States (HTSUS), of girls' t-shirts
from Israel. Samples of the t-shirts in pattern pieces and as a
finished product were submitted for examination.
FACTS:
Texinique will import into the U.S. girls' t-shirts from
Israel. The t-shirts will be manufactured from gray-goods knit
in Israel from yarn of Israeli or third country origin or gray-
goods purchased from a third country. The gray-goods will be
dyed, cut to size and shape, and subjected to a shrinkage process
in Israel. The pattern pieces will then be sent to Egypt for
sewing operations, such as joining the front and back panels at
the shoulders, closing and setting sleeves, side sleeves, collar,
tape and label, hemming the sleeves and bottom, and setting the
pocket. The assembled t-shirts will be returned to Israel where
they will be inspected and packaged for shipment to the U.S.
You state that the cost for manufacturing a dozen t-shirts
from gray-goods knit in Israel is:
Israel A:
Yarn (local or imported) $6.00
knitting $1.50
dyeing and finishing $5.50
cutting $2.40
Egypt:
assembly $2.00
quality control and packaging $0.60
Israel B:
Inspection and packaging $0.60
Total Manufacturing Cost: $18.30
ISSUE:
I. Whether the t-shirts will be entitled to duty-free
treatment under General Note 3(c)(vi), HTSUS, when imported into
the U.S.
II. What is the country of origin of the t-shirts for country of
origin and quota purposes.
LAW AND ANALYSIS:
I. General Note 3(c)(vi), HTSUS, eligibility
Under General Note 3(c)(vi), HTSUS (copy enclosed),
eligible articles imported into the U.S. from Israel may enter
free of duty or at a reduced duty rate if each article:
1. is wholly 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;
2. each article is imported directly from Israel into the
customs territory of the U.S.; and
3. the sum of the cost or value of the materials produced
in Israel, plus the direct cost of processing
operations performed in Israel, is not less than 35
percent of the appraised value of each article at the
time it is entered.
Based upon your description, the 100% combed cotton girls'
t-shirts appear to be classified under subheading 6109.10.0045,
HTSUS, which provides for t-shirts, singlets, tank tops and
similar garments, knitted or crocheted: of cotton: women's or
girls': other: t-shirts: girls', which is a duty-free eligible
provision under General Note 3(c)(vi), HTSUS.
Articles are considered "products of" Israel if they are
made entirely of materials originating there or, if made from
materials imported into Israel, they are substantially
transformed into a new or different article of commerce. In
addition, "products of" Israel which are further processed in
another country prior to their shipment to the U.S. will lose
their Israeli "product of" status if the further processing in
the third country results in a substantial transformation of the
goods.
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. This is consistent with
Customs and the courts' interpretation of "materials produced"
under the Generalized System of Preferences (GSP) (19 U.S.C.
2461-2466) and the Caribbean Basin Economic Recovery Act (CBERA)
(19 U.S.C. 2701-2706). See, Torrington Co., v. United States, 8
CIT 150, 596 F. Supp. 1083 (CIT 1984), affirmed, 3 CAFC 158, 764
F.2d 1563 (Fed. Cir. 1985).
A substantial transformation occurs when an article emerges
from a process with a new name, character, or use different from
that possessed by the article prior to processing. See, Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
Sections 12.130(d) and (e), Customs Regulations (19 CFR
12.130(d) and (e)), set forth criteria for determining whether a
textile or textile article has been substantially transformed.
19 CFR 12.130(e)(1)(iii) states that an article or material
usually will be a product of the country where it is subjected to
weaving, knitting or other fabric forming operation. Moreover,
19 CFR 12.130(e)(1)(v) lists "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 into a completed garment..." as an example of
a manufacturing or processing operation that may result in a
substantial transformation. However, the regulations do not
contemplate that all sewing operations will constitute a
substantial transformation. The examples given in 19 CFR
12.130(e)(1)(v) involve the substantial and complete assembly
and/or tailoring of all cut pieces of suit-type jackets, suits,
and shirts.
We have previously held that cutting of fabric into pattern
pieces constitutes a substantial transformation of the fabric,
resulting in the apparel pieces becoming a product of the country
where the fabric is cut. However, a substantial transformation
does not occur when those pattern pieces are shipped to another
country where they are sewn together into gloves and polo style
shirts. See, Headquarters Ruling Letter (HRL) 731036 dated July
18, 1989 (the country of origin was found to be country A where
fabric was cut into 12 separate pattern pieces in country A and
then the pieces were shipped to country B for sewing together to
form a polo shirt); HRL 086229 dated April 11, 1990 (fabric for
industrial work gloves, which is cut in country A and sewn
together in country B, has been substantially transformed in
country A); and HRL 555489 dated May 14, 1990 (sewing together
previously cut glove pattern pieces in country B did not result
in a substantial transformation of the cut glove pattern pieces
into a product of country B).
T-shirt components created in Israel from gray-goods knit in
that country from yarn of Israeli or third country origin clearly
constitute "products of" Israel. See, 19 CFR 12.130(e)(1)(iii).
Moreover, based on our previous rulings, the cutting in Israel of
fabric from third countries into pattern pieces substantially
transforms the fabric into a "product of" Israel.
We further believe that the sewing operation performed in
Egypt does not substantially transform the t-shirts into
"products of" Egypt. The sewing operation performed in Egypt is
a simply assembly of seven cut pattern pieces into a t-shirt.
The sewing operation does not involve the complex sewing
operation required when manufacturing a suit, suit jacket, or
tailored shirt contemplated by 19 CFR 12.130(e)(v). It is a
simple operation which involves the steady feeding of the cut t-
shirt material into the sewing machine.
Regarding the 35% value-content requirement, the cost or
value of the Israeli origin yarn may be included in the 35%
computation because it is material which is "wholly the growth,
product or manufacture" of Israel. Additionally, the cost or
value of the yarn imported into Israel may be counted toward the
35% value-content requirement since it is subjected to the
required double substantial transformation--knitting into fabric
and cutting the fabric into pattern pieces. However, the cost or
value of the gray-goods imported into Israel may not be included
in the 35% value-content requirement. In this situation, the
gray-goods have only been subjected to one substantial
transformation--cutting into pattern pieces.
Based on the cost information you have provided, there
appears to be no question that those t-shirts produced from gray-
goods knit in Israel would satisfy the 35% requirement. However,
we are unable to state definitively that the t-shirts produced
from gray-goods of third country origin would satisfy this
requirement. A detailed breakdown of the "direct costs of
processing" and an estimate of the "appraised value" of the t-
shirts at the time of entry into the U.S. are necessary to
determine whether the 35% requirement is met under these
circumstances. We are enclosing a copy of HRL 555379 dated May
6, 1989, which discusses in some detail those costs which are and
are not considered direct processing costs under the CBERA. The
CBERA's value-content requirements are nearly identical to those
in General Note 3(c)(vi), HTSUS.
II. Country of Origin and Quota/Visa Requirements
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C.
1304), provides that, unless excepted, every article of foreign
origin imported into the U.S. shall be marked in a conspicuous
place as legibly, indelibly, and permanently as the nature of the
article (or container) will permit, in such a manner as to
indicate to the ultimate purchaser in the U.S. the English name
of the country of origin of the article. Part 134, Customs
Regulations (19 CFR Part 134), implements the country of origin
marking requirements and exceptions of 19 U.S.C. 1304. Section
134.41(b), Customs Regulations (19 CFR 134.41(b)), provides that
the marking of an imported product must be conspicuous enough so
that the ultimate purchaser will be able to find the marking
easily and read it without strain.
Because the articles in question are textile products
subject to section 204 of the Agricultural Act of 1956, as
amended (7 U.S.C. 1854), 19 CFR 12.130 is applicable. Section
12.130 provides that the country of origin of a textile product
is that foreign territory, country or insular possession where
the article last underwent a substantial transformation. As
discussed previously, the country where the last substantial
transformation occurred is Israel, and, therefore, Israel is the
country of origin for marking purposes.
After examination of the submitted sample t-shirt, we are of
the opinion that the textile label sewn into the back neck
portion of the t-shirt printed with "Made in Israel" satisfies
the requirements of 19 U.S.C. 1304 and 19 CFR Part 134.
The imported girls' t-shirts, manufactured in the manner
described above, will be subject to applicable quota requirements
as products of Israel. Based upon their classification under
subheading 6109.10.0045, HTSUS, the girls' t-shirts will be
subject to category 339 for quota requirements.
HOLDING:
The girls' t-shirts which are manufactured from yarn of
Israeli or third country origin will be eligible for duty-free
treatment under General Note 3(c)(vi), HTSUS, assuming that they
are imported directly to the U.S. Although the t-shirts made
from gray-goods imported into Israel are considered "products of"
Israel, we are unable to definitively state that they will
satisfy the 35% value-content requirement without more detailed
cost information.
The country of origin of the t-shirts is Israel for country
of origin marking purposes, and the textile label sewn into the
back neck portion of the t-shirt printed with "Made in Israel"
satisfies the marking requirements. Girls' t-shirts are subject
to category 339 quota requirements.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosures