CLA-2 : RR:TC:SM 560308 BLS
John B. Pellegrini, Esq.
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, New York 10022-5555
RE: Applicability of U.S. Note 2(b), Subchapter II, Chapter 98,
HTSUS, to leather goods imported from Caribbean
countries; HRL 559969; manipulation;
Dear Mr. Pellegrini:
This is in reference to your letter dated April 2, 1997, and
fax dated May 22, 1997, on behalf of The Leather Group, Inc.,
(the "Company"), requesting a ruling that certain finished
leather goods imported from one or more Caribbean countries will
be entitled to duty-free treatment under U.S. Note 2(b), Chapter
98, Subchapter II, Harmonized Tariff Schedule of the United
States ("Note 2(b)").
FACTS:
Wet blue hides of U.S. origin will be shipped to Mexico,
where they will be split to separate the top grain portion from
the underflesh. The top grain and split leather will be shaved
to reduce the thickness. At that point, the top grain and split
leather will be re-tanned and/or colored. This process includes
"fat liquoring" (oiling with fats and chemicals to change the
texture of the leather). The top grain and split leather will be
dried and staked to soften the leather. The final process to be
performed in Mexico is to apply one or more surface finishes.
The finished leather will then be returned to the U.S.
You state that in the U.S., the leather will be entered for
consumption, usually at the port of Laredo, Texas. The Company
will sell the leather in the U.S. to customers who desire
delivery to the Caribbean. Once released from Customs custody,
the merchandise will be shipped by truck to a warehouse facility
in Massachusetts. At the Massachusetts facility, the leather
will be inspected and then labeled to verify the inspection. The
leather will then be placed in a sea-going container. At that
time a new bill of lading naming the customer as consignee is
prepared and the leather is exported for delivery to the
Caribbean nation site designated by the customer. In the
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Caribbean country, the leather will be used to manufacture
footwear and other consumer goods.
ISSUES:
1) Whether leather hides of U.S.-origin undergo a
substantial transformation in Mexico, for purposes of determining
whether the hides remain a "product of" the U.S. under U.S. Note
2(b).
2) Whether the leather hides are shipped directly from the
U.S. to the Caribbean country, without entering the commerce of
any foreign country other than a beneficiary country ("BC").
LAW AND ANALYSIS:
Section 222 of the Customs and Trade Act of 1990 (P.L. 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 Initiative beneficiary country (BC) wholly of
fabricated components or ingredients (except water) of U.S.
origin. This amendment was effective with respect to goods
entered on or after October 1, 1990.
Specifically, 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
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States, enters the commerce of any foreign country
other than a beneficiary country.
To qualify for duty-free treatment under Note 2(b), an
eligible article must be assembled or processed in a BC entirely
of components or ingredients that are a "product of" the U.S.
As used in this paragraph, the term "beneficiary country" means a
country listed in General Note 7(a), HTSUS.
Note 2(b) specifies four categories of products which are
excluded from duty-free treatment under this provision: textile
articles; apparel articles; petroleum; and certain products
derived from petroleum. Leather footwear and parts of footwear
are not textile and apparel articles for purposes of Note 2(b),
HTSUS, regardless of whether they are subject to textile
agreements. See T.D. 91-88, 25 Cust. Bull. 45 (1991) and
Headquarters Ruling Letter (HRL) 555742 (November 5, 1990).
While you have not described the other types of leather products
(other than footwear) which may be imported, we will assume, for
purposes of this ruling, that all of the imported products will
fall within those categories of articles that are eligible for
duty-free treatment under Note 2(b). We will also assume for
purposes of this ruling that the designated country is a country
listed in General Note 7(a), HTSUS.
The first question we must address is whether the U.S.-origin leather is considered a "product of" the U.S. after the
processing operations in Mexico.
In Headquarters Ruling Letter (HRL) 559969 (February 3,
1997), wet blue hides of U.S.-origin were sent to Mexico where
they were shaved to impart a uniform thickness, retanned,
colored, and fat liquored (lubricating the leather fibers with
animal, vegetable, and mineral oils and related fatty substances,
to soften and make the leather more flexible.) The leather was
then dried (by either hanging, vacuum drying or pasting), and
then further conditioned to a certain softness and flexibility,
and buffed. The final step involved plaiting, a high temperature
process which provides resistance to stains and abrasions, and
may also serve to make the leather smoother or impart varied
grain textures. When returned to the U.S., the leather was
inspected and then sold to an unrelated buyer for export to the
Dominican Republic, where it was used to produce footwear for the
U.S. market.
In that case, we found that the processing of the leather in
Mexico involved finishing operations which did not result in a
substantial transformation of the wet blue leather exported from
the U.S., and that accordingly, the leather imported into the
U.S. was a "product of" the U.S. for purposes of Note 2(b).
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The operations performed in Mexico in the present situation
appear to be virtually identical to the operations which occurred
in HRL 559969, with the exception that in this case the hides are
also split in Mexico, rather than in the U.S. We find that this
additional operation does not serve to substantially transform
the U.S.-origin wet blue leather into a new article of commerce,
but merely constitutes another finishing step in
preparing the leather for production into footwear and other
leather products.
Therefore, we find that the operations performed in Mexico
do not result in a substantial transformation of the U.S.-origin
leather, and when imported into the U.S., the leather may be
considered a "product of" the U.S. for purposes of Note 2(b).
The second issue we must address is whether, pursuant to
Note 2(b)(ii), the leather components, "after exportation from
the United States," are shipped directly to the Caribbean
country. This question is dependent upon whether the leather
enters the commerce of the U.S. after return from Mexico, so that
it will be deemed to be shipped directly to the Caribbean country
after exportation from the U.S., without entering the commerce of
a foreign country other than a BC.
There are no regulations defining the direct shipment
requirements for purposes of Note 2(b). However, Customs has
interpreted the direct shipment requirements of the United
States-Israel Free Trade Implementation Act of 1985 ("U.S.-Israel
FTA"), the Generalized System of Preferences (GSP), and the
Caribbean Basin Economic Recovery Act (CBERA), in a similar
manner. See Annex 3, paragraph 8 of the U.S.-Israel FTA; 19 CFR
10.175; and 19 CFR 10.193.
In HRL 557149 (November 22, 1993), Customs held that for
purposes of the "imported directly" requirement under the U.S.-Israel FTA, merchandise shipped from Israel to China was
considered to have entered the commerce of Israel upon return
when subjected to a commercial inspection accordance with a
recognized sampling procedure. In that case, we required that
each invoice include a statement that the merchandise covered by
the invoice was inspected in accordance with the specific
sampling procedure utilized. See also HRL 557647 (July 14,
1994).
Upon return to the U.S. from Mexico, the leather in the
present case will be entered for consumption and sold. It will
be inspected and labeled to verify the inspection.
Under these circumstances, and provided that the merchandise is
subject to a commercially recognized inspection procedure, we
find that the leather will be shipped directly to the BC from the
U.S.
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HOLDING:
1) Leather hides of U.S.-origin exported to Mexico do not
undergo a substantial transformation as a result of the
operations performed in Mexico. Therefore, the leather
components remain a "product of" the U.S., for purposes of
determining whether the imported leather products will be
entitled to duty-free treatment under U.S. Note 2(b), subchapter
II, Chapter 98, HTSUS.
2) The completed leather products will satisfy the direct
shipment requirements of Note 2(b), provided a commercially
recognized inspection procedure is performed in the U.S. after
return of the leather from Mexico, each shipment of merchandise
includes a statement verifying the inspection procedure, and
neither the leather exported to the BC nor the finished leather
products imported from the BC enters the commerce of any foreign
country other than a BC. Footwear products will also be subject
to the documentation requirements set forth in Headquarters Telex
9264071 dated September 28, 1990.
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John
Durant, Director
Tariff
Classification Appeals Division