CLA-2 RR:CR:SM 560906 CW
Margaret R. Polito, Esq.
Neville, Peterson & Williams
80 Broad Street, 34th Floor
New York, New York 10004
RE: Eligibility of outerwear produced in a qualifying industrial zone for duty-free treatment;
General Note 3(a)(v), HTSUS; U.S.-Israel Free Trade Agreement
Dear Ms. Polito:
This is response to your letter of April 1, 1998, on behalf of Fieldston Clothes, Inc., requesting a binding ruling on the eligibility of certain garments (coats) produced in the Irbid, Jordan Qualifying Industrial Zone for duty-free treatment under General Note 3(a)(v), Harmonized Tariff Schedule of the United States (HTSUS). We regret the delay in responding.
FACTS:
Fieldston Clothes, Inc., an importer of coats and similar outwear such as anoraks, is contemplating the production of similar garments in the Irbid, Jordan Qualifying Industrial Zone (“QIZ”). You state that fabric will be shipped to the Irbid QIZ where it will be cut into the shape of the various coat components. Although you do not indicate the origin of the fabric, we assume that it is not produced in Israel or Jordan. The fabric components, along with certain U.S.-origin trim and lining material, will then be assembled into the finished coats in the Irbid QIZ. You ask that we confirm that the cost of the foreign fabric may be counted towards satisfying the 35% value-content requirement under General Note 3(a)(v), HTSUS, and that the coats will be entitled to special tariff treatment under that Note.
ISSUE:
Whether coats produced in the Irbid QIZ as described above will qualify for duty-free treatment under General Note 3(a)(v), HTSUS, when imported into the U.S.
LAW AND ANALYSIS:
Pursuant to the authority conferred by section 9 of the U.S.-Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. 2112 note), the President issued Proclamation No. 6955 dated November 13, 1996 (published in the Federal Register on November 18, 1996 (61 FR 58761)), which modified General Note 3(a) of the Harmonized Tariff Schedule of the United States (HTSUS) to provide duty-free treatment to articles which are the product of the West Bank, Gaza Strip or a QIZ, provided certain requirements are met. Such treatment was effective for products of the West Bank, Gaza Strip or a QIZ entered or withdrawn from warehouse for consumption on or after November 21, 1996.
Under General Note 3(a)(v), HTSUS, articles the product of the West Bank, Gaza Strip or a QIZ which are imported directly to the U.S. from the West Bank, Gaza Strip, a QIZ or Israel qualify for duty-free treatment, provided the sum of 1) the cost or value of materials produced in the West Bank, Gaza Strip, a QIZ or Israel, plus 2) the direct costs of processing operations performed in the West Bank, Gaza Strip, a QIZ or Israel, is not less than 35% of the appraised value of such articles when imported into the U.S. The cost or value of materials produced in the U.S. may be applied toward the 35% value-content minimum in an amount not to exceed 15% of the imported article’s appraised value. An article is considered to be a “product of” the West Bank, Gaza Strip or a QIZ if it is either wholly the growth, product or manufacture of one of those areas or a new or different article of commerce that has been grown, produced or manufactured in one of those areas.
By notice published in the Federal Register on March 13, 1998 (63 FR 12572), the Office of the United States Trade Representative designated the Irbid QIZ as a QIZ pursuant to section 9 of the U.S.-Israel Free Trade Area Implementation Act and General Note 3(a)(v)(G)(3), HTSUS. The QIZ encompasses certain areas under the customs control of the Governments of Israel and Jordan. Thus, effective on the date of publication of the above notice, goods produced in the Irbid QIZ which meet all the conditions and requirements of General Note 3(a)(v), HTSUS, are entitled to duty-free treatment when imported into the U.S.
“Product of” Requirement
The first issue to be addressed is whether the coats are considered to be “products of” the Irbid QIZ. To determine whether a textile or apparel article is considered to be a product of the West Bank, Gaza Strip or a QIZ, it is necessary to refer to the rules of origin for textiles and apparel products set forth in 19 U.S.C. 3592 as implemented by section 102.21, Customs Regulations (19 CFR 102.21). Pursuant to section 334 of the Uruguay Round Agreements Act, these rules of origin (published in the Federal Register on September 5, 1995 (60 FR 46188)) became effective for textile or apparel products entered, or withdrawn from warehouse, for consumption on or after July 1, 1996. Thus, except for the purpose of determining whether a good is a product of Israel (see 19 CFR 102.21(a)), the country of origin of a textile or apparel product is determined by sequential application of the general rules set forth in paragraphs (c)(1) through (5) of 19 CFR 102.21.
Under section 102.21(c)(1), which is the first of the sequential rules of origin to be applied, the country of origin of a textile or apparel product is the single country, territory, or insular possession in which the good was wholly obtained or produced. This provision is inapplicable in this case because the goods are not wholly obtained or produced in a single
country, territory or insular possession. Therefore, we turn to section 102.21(c)(2) which provides that where the country of origin cannot be determined under paragraph (c)(1), the country of origin of the good is the single country in which each foreign material incorporated in that good underwent an applicable change in tariff classification and/or met any other requirement specified for the good in 19 CFR 102.21(e).
Although you have not provided the tariff classification of the outerwear subject to your request, it appears to be classifiable in heading 6201 (men’s or boy’s overcoats, carcoats, capes, cloaks, anoraks (including ski-jackets), windbreakers and similar articles) or 6202 (women’s or girl’s overcoats, carcoats, capes, cloaks, anoraks (including ski-jackets), windbreakers and similar articles), HTSUS. The applicable rule in 19 CFR 102.21(e) is:
6201-6208.........(1) If the good consists of two or more component parts, a change to an assembled good of heading 6201 through 6208 from unassembled components, provided that the change is the result of the good being wholly assembled in a single country, territory, or insular possession.
Because you advise that the outerwear will be wholly assembled in the Jordanian portion of the Irbid QIZ, under the applicable rule, the origin of the garments will be Jordan. Therefore, they will be considered “products of” the QIZ.
Value Content Requirement
Where, as in this case, an article is comprised of materials that are transported into the QIZ from outside thereof (other than from Israel, the West Bank or Gaza Strip), the cost or value of those materials may be included in calculating the 35% value-content requirement only if they undergo a double substantial transformation in the QIZ, Israel, West Bank or Gaza Strip. That is, the materials must be substantially transformed in one or more of these areas 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.
In T.D. 95-69 (the Final Rule document promulgating 19 CFR 102.21), which was published in the Federal Register on September 5, 1995 (60 FR 46189), Customs responded to certain comments received in response to the Notice of Proposed Rulemaking concerning the effect of the section 102.21 rules of origin on existing Customs rulings holding that the cutting of garment parts and the assembly of those parts into garments constitute a double substantial transformation for purposes of the foreign value limitation in General Note 3(a)(iv), HTSUS. Customs stated that:
[s]ince section 334 deals with the country of origin of textile and apparel products and not with value requirements for purposes of duty preferences, section 334 will not affect either foreign material value determinations required under General Note 3(a)(iv) or value-added requirements contained in other statutory provisions. Accordingly, Customs intends to continue its current tariff treatment of garments which are cut and assembled in insular possessions.
In T.D. 98-62, published in the Federal Register on June 26, 1998 (63 FR 34960), Customs reiterated that the section 102.21 rules of origin are not used to determine whether foreign materials have undergone a double substantial transformation for purposes of determining whether their cost or value may be considered as part of the value of materials produced in the beneficiary country, territory or possession under certain tariff preference programs, including General Note 3(a)(v), HTSUS.
Headquarters Ruling Letter (HRL) 560882 dated July 1, 1998, concerned, in part, whether foreign fabric which is imported into the West Bank or Gaza Strip where it is cut into components and then assembled to produce finished short-sleeved polo-type shirts, long-sleeved pullover shirts, and full-length pull-on pants, is subjected to a double substantial transformation. We held that, consistent with previous rulings relating to this issue (e.g., HRLs 559810 dated August 16, 1996, and 559137 dated September 7, 1995), the described cutting and assembly operations performed in the West Bank or Gaza Strip results in a double substantial transformation and, therefore, the cost or value of the foreign fabric may be counted towards satisfying the 35% value-content requirement under General Note 3(a)(v), HTSUS.
Similarly, we find in this case that cutting foreign fabric in the Irbid QIZ to make outerwear components and assembling those components by sewing to create finished coats results in a double substantial transformation of the fabric. Therefore, the cost or value of the foreign fabric may be considered as part of the cost or value of “materials produced” in the QIZ for purposes of satisfying the 35% value-content requirement under General Note 3(a)(v), HTSUS.
Please note that a claim for special tariff treatment under General Note 3(a)(v), HTSUS, is made by inserting the symbol “N” prior to the appropriate HTSUS subheading on the Customs Form 7501, Entry Summary. See General Statistical Note 3(d), HTSUS.
HOLDING:
Based on the information provided, the outerwear garments assembled in the Irbid QIZ as described above will be considered “products of” the QIZ. In addition, as the foreign fabric which is cut into components in the QIZ and assembled there to create the finished garments undergoes a double substantial transformation, the fabric’s cost or value may be counted towards satisfying the 35% value-content requirement. The cost of the trim and lining material of U.S. origin which is assembled into the garments may also be applied toward the 35% value-content requirement in an amount not to exceed 15% of the articles’ appraised value. Therefore, the garments will be entitled to duty-free treatment under General Note 3(a)(v), HTSUS, assuming that they are imported directly from a QIZ, the West Bank, Gaza Strip, or Israel, and the 35% value-content requirement is satisfied. Whether the 35% value-content requirement will be met must await actual entry of the merchandise.
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
Commercial Rulings Division