CLA-2 CO:R:C:S 557803 MLR
Stephen M. Zelman, Esq.
845 Third Avenue
New York, NY 10022
RE: Eligibility of tennis-style footwear from the Dominican
Republic for duty-free treatment under U.S Note 2(b),
Subchapter II, Chapter 98, HTSUS; uppers previously imported
Dear Mr. Zelman:
This is in response to your letter of January 28, 1994, on
behalf of Carter Footwear, Inc. ("Carter"),the applicability of
duty-free treatment for certain tennis-style footwear to be
produced in the Dominican Republic, pursuant to Section 222 of the
Customs Trade Act of 1990 (Public Law 101-382), which amended U.S.
Note 2, Subchapter II, Chapter 98, Harmonized Tariff Schedule of
the United States (HTSUS), {hereinafter "Note 2(b)"}.
FACTS:
Carter plans to export footwear uppers from the U.S. to the
Dominican Republic, which were previously manufactured in the
Dominican Republic and accorded duty-free treatment under Note 2(b)
pursuant to Headquarters Ruling Letter (HRL) 555788 dated September
9, 1991. While in the U.S., Carter states that the footwear uppers
remained in inventory and were not advanced in value or improved
in condition. Once returned to the Dominican Republic, Carter
intends to use the footwear uppers to manufacture completed tennis-
style footwear by securing the upper to a last and injection
molding a sole onto them. The production process Carter will use
to produce the finished footwear was approved in HRL 557545 dated
September 13, 1993. The difference now is that the uppers used in
this instance are previously entered into the U.S. under Note 2(b)
before being exported to the Dominican Republic where they are
finished into completed footwear.
ISSUE:
Whether the completed footwear produced in the Dominican
Republic with the use of uppers previously entered into the U.S.
and accorded duty-free treatment under Note 2(b), is eligible again
under this tariff provision.
LAW AND ANALYSIS:
Section 222 of the Customs and Trade Act of 1990 (Public Law
101-382) amended U.S. Note 2, Subchapter II, Chapter 98, HTSUS, to
provide for the duty-free treatment of articles, other than certain
specified products, which are assembled or processed in a Caribbean
Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly
of fabricated components or ingredients (except water) of U.S.
origin.
Note 2(b) provides as follows:
(b) No article (except a textile article, apparel article, or
petroleum, or any product derived from petroleum, provided for
in heading 2709 or 2710) may be treated as a foreign article,
or as subject to duty, if--
(i) the article is--
(A) assembled or processed in whole of fabricated
components that are a product of the United States,
or
(B) processed in whole of ingredients (other than water)
that are a product of the United States, in a
beneficiary country; and
(ii) neither the fabricated components, materials or
ingredients, after exportation from the United
States, nor the article itself, before importation
into the United States, enters the commerce of any
foreign country other than a beneficiary country.
As used in this paragraph, the term "beneficiary country"
means a country listed in general note 7(a).
To qualify for Note 2(b) duty-free treatment, an eligible
article must be assembled or processed in a BC entirely of
components or ingredients that are a "product of" the U.S.
Components or ingredients that are imported into the U.S. may
become "products of" the U.S. if they undergo a process of
manufacture in the U.S. which results in a substantial
transformation. See 19 CFR 10.12(e) and 19 CFR 10.14(b). 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 the processing. See Texas
Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778
(1982).
The operations performed in the Dominican Republic are not at
issue, since they were addressed in HRL 555788 and HRL 557545. In
this case, we must only determine whether the completed footwear
is eligible for duty-free treatment under Note 2(b), if the
footwear is made from uppers which were previously assembled in the
Dominican Republic wholly of U.S.-origin components, imported
directly into the U.S. and entered pursuant to Note 2(b), placed
in inventory, and then reexported directly to the Dominican
Republic.
Carter states that, in general, the country of origin of an
intermediate product is the country in which it was assembled, and
that if the general rules of origin were applied, the footwear
uppers would be considered to be products of the Dominican Republic
and not products of the U.S. However, because Note 2(b) provides
that articles meeting the requirements of this tariff provision may
not be treated as foreign articles, Carter claims that the uppers
must be considered U.S.-fabricated components for purposes of the
Note 2(b), citing HRL 557266 dated August 12, 1993, as support.
Therefore, since the uppers are not foreign articles, and the
additional materials used in the manufacture of the completed
footwear are all products of the U.S., Carter claims that the
previous importation of the uppers into the U.S. prior to reexport
for completion into footwear should not disqualify the completed
footwear for Note 2(b) treatment.
In HRL 557266 dated August 12, 1993, Customs considered
resolving agent which was a by-product of a process performed in
the Bahamas, that was imported into the U.S. under Note 2(b) and
synthesized with D,L-Acid to create resolved D,L-Acid. This
resolved D,L-Acid was exported to the Bahamas for use in a process
which partly created resolving agent. When this resolving agent
was imported into the U.S., Customs determined that it was eligible
for duty-free treatment under Note 2(b) because the resolved D,L-
Acid was a product of the U.S. as a result of the previous
substantial transformation of the resolving agent and D,L-Acid in
the U.S.
The decision in HRL 557266 was consistent with the holding in
HRL 556763 dated October 6, 1992, and the rationale stated in HRL
555409 dated March 12, 1990. In HRL 556763, Customs held that an
article imported into the U.S. free of duty under Note 2(b), and
subsequently returned to the same CBERA BC for repair, was eligible
for duty-free treatment under Note 2(b) upon re-entry into the U.S.
It was stated that "[s]ince Note 2(b) provides that eligible
articles are not to be treated as 'foreign,' it necessarily follows
that when the capacitors are returned to the Dominican Republic for
repair because they do not meet specification, they are considered
U.S. products." Consequently, the repaired articles returned to
the U.S. were considered processed (reworked) in whole of U.S.-
fabricated components.
In HRL 555409, Customs stated that where an article assembled
in whole or in part of U.S.-fabricated components was entered under
subheading 9802.00.80, HTSUS, and a partial duty exemption was
received for the cost or value of the U.S. components assembled
therein, the article was not entitled to the exemption again for
the same components when it was subsequently reimported into the
U.S, pursuant to U.S. Note 2(a), Subchapter II, Chapter 98, HTSUS
{hereinafter "Note 2(a)"}. Note 2(a) provides, in part, that "any
imported article which has been assembled abroad in whole or in
part of products of the United States, shall be treated for the
purposes of this Act as a foreign article...." Consequently, the
article entered under subheading 9802.00.80, HTSUS, was considered
a "foreign article" and unless subjected to processing in the U.S.
which transformed it into a "product of" the U.S. before subsequent
exportation, it could not be entered under subheading 9802.00.80,
HTSUS, again.
In this case, the uppers are eligible for duty-free treatment
under Note 2(b), based on HRL 555788, because they were produced
in a BC wholly from U.S.-origin components and were imported
directly into the U.S. Furthermore, we find that pursuant to HRL
556763, the uppers cannot be treated as foreign articles.
Consequently, it is our opinion that if the uppers and additional
material of 100 percent U.S.-origin are exported from the U.S.
directly to the Dominican Republic, and subjected to the processes
discussed in HRL 557545 to produce the completed footwear, the
footwear will be eligible for duty-free treatment under Note 2(b)
if it is shipped directly from the BC to the U.S. without entering
the commerce of any foreign country and the applicable documentary
requirements are satisfied.
HOLDING:
Based on the information submitted, we find that the use of
uppers previously imported into the U.S. duty-free under Note 2(b)
and exported directly to the Dominican Republic with additional
materials of 100 percent U.S.-origin, to be processed into
completed tennis-style footwear, does not disqualify the footwear
from receiving duty-free treatment under Note 2(b), if the footwear
is imported directly from the BC to the U.S., and the applicable
documentary requirements are satisfied.
Sincerely,
John Durant, Director