CLA-2 CO:R:C:M 953017 DFC

Steven P. Florsheim, Esq
Grunfeld, Desiderio, Lebowitz & Silverman
Counselors at Law
12 East 49th Street
New York, New York 10017

RE: Footwear; Uppers, sheepskin; Formed uppers, Unformed uppers; Uniroyal v. United States, 3 CIT 220 (1982); Substantial transformation

Dear Mr. Florsheim:

In a letter dated October 2, 1992, on behalf of Ugg International, Inc., you inquired as to the tariff classification under the Harmonized Tariff Schedule of the United States (HTSUS), of parts of shearling boots which will be produced in either Australia or New Zealand. You also made inquiry as to the proper country of origin marking of the merchandise. Samples were submitted for examination.

FACTS:

The importations will consist of the following footwear parts:

1. an open bottomed upper [sample no. 1],

2. a boot upper with an insole assembly attached by stitching [sample no. 2]; and

3. an insole assembly [sample no. 3] which will be attached to sample no. 1 after importation.

The uppers involved are made by sewing together pieces of shearling cut from entire sheepskins. The flesh side of the shearling forms the outer surface of the uppers and the wool side forms the inner surface of the uppers. The insole assembly is made from a cut piece of shearling to which a cardboard-like material is attached by stitching.

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It is your position that the open bottomed upper [sample no. 1] and the boot upper with an insole assembly attached by stitching [sample no. 2] are unformed uppers which are properly classifiable under subheading 6406.10.90, HTSUS, as uppers and parts thereof, other than stiffeners, other, other, other, other. It is also your position that the insole assembly [sample no. 3] is classifiable under subheading 6406.99.90, HTSUS, as parts of footwear, other, other.

ISSUE:

Is the boot upper with no sole components attached [sample no. 1] and the boot upper with an insole assembly attached by stitching [sample no. 2] considered unformed uppers for tariff purposes?

Should the uppers and the insole assembly be granted an exemption from individual marking pursuant to 19 C.F.R. 134.35?

LAW AND ANALYSIS:

Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1 provides that "classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided such headings or notes do not otherwise require, according to [the remaining GRI's taken in order]." In other words, classification is governed first by the terms of the headings of the tariff and any relative section or chapter notes.

Additional U.S. Note 4 to Chapter 64, HTSUS, which is pertinent here, reads as follows:

Provisions of subheading 6406.10 for "formed uppers" cover uppers, with closed bottoms, which have been shaped by lasting, molding or otherwise but not by simply closing at the bottom.

Inasmuch as the upper represented by sample no. 1 is an open bottomed upper, it is considered an unformed upper for tariff purposes classifiable under subheading 6406.10.90, HTSUS, as uppers and parts thereof, other than stiffeners, other, other, other, other. The applicable rate of duty for this provision is 9% ad valorem.

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You assert that the boot upper with an insole assembly attached by stitching [sample no.2] "does not meet the second requirement for a 'formed upper' under U.S. note 4 because it has not been 'shaped by lasting, molding or otherwise.' The upper was constructed merely by cutting and sewing together pieces of sheepskin leather. The bottom of the upper was closed by merely stitching on an insole assembly, which consists of a piece of shearling stitched to a cardboard-like material. The upper is not given its complete and final shape until it is lasted and an outer sole attached, subsequent to importation."

It is our observation that the boot upper with an insole assembly attached by stitching [sample no. 2] has already attained it final shape. Specifically, a "stitch-out" of the upper to a cardboard insole previously stitched (except for its edge area) to a shearling sock is not a "simple closing" within the meaning of Additional U.S. Note 4 to Chapter 64, supra. Consequently, the boot upper represented by sample no. 2 is classifiable under subheading 6406.10.50, HTSUS, as uppers and parts thereof, other than stiffeners, formed uppers, other, other. The applicable rate of duty for this provision is 37.5% ad valorem.

The insole assembly [sample no. 3] is classifiable under subheading 6406.99.90, HTSUS, as parts of footwear, other, other. The applicable rate of duty for this provision is 18% ad valorem.

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304) requires that:

Except as hereinafter provided, every article of foreign origin (or its container, as provided in subsection (b) hereof) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States 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. The ultimate purchaser is defined in section 134.1 (d), Customs Regulations (19 CFR 134.1(d)), as generally the last person in the United States who will receive the article in the form in which it was imported. If the imported article will be used in manufacture, the manufacturer may be the ultimate purchaser if he subjects the imported article to a process which results in a substantial transformation of the article. In such case, the article itself is excepted from marking pursuant to section 134.35, Customs Regulations (19 CFR 134.35), and only the

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outermost container of the imported article must be marked.

A substantial transformation occurs when articles lose their identity and become new articles having a new name, character or use. United States v. Gibson-Thomsen Co., 27 CCPA 267 at 270 (1940), National Juice Products Association v. United States, 10 CIT 48, 628 F. Supp. 978 (1986), Koru North America v. United States, 12 CIT 1120, 701 F. Supp. 229 (1988).

Clearly, the unformed upper [sample no. 1] and the insole assembly [sample no. 3] are substantially transformed by the manufacturing process performed in the United States subsequent to importation into a new article having a new name, character or use (e.g., unformed upper to completed footwear and insole assembly to completed footwear). Inasmuch as the importer substantially transforms the unformed upper and the insole assembly, the importer is the last person in the United States to receive the article in the form in which it was imported. Thus, the importer qualifies as an "ultimate purchaser, pursuant to 19 CFR 134.1(d) and 19 CFR 134.35. Consequently, the subject unformed upper and insole assembly are excepted from individual marking since, according to 19 U.S.C. 1304(a)(3)(D), the marking of the container of such article will reasonably indicate the country of origin of the unformed upper and the insole assembly to the ultimate purchaser. The case of Uniroyal Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff'd, 702 F.2d 1022 (Fed Cir. 1983), controls the marking of the boot upper with an insole assembly attached by stitching [sample no. 2]. In this case the Court examined whether the addition of an outsole in the United States to imported uppers lasted in Indonesia changed the fundamental character of the imported article. After carefully examining both the imported upper and the finished shoe, the court concluded that the imported upper did not lose its distinct identity in the finished shoe, and to the contrary was the very essence of the completed shoe. This was so even though the imported upper could not be sold at retail without the rubber outsole being attached, and even though following attachment of the rubber outsole the shoe was called by a different name, a deck shoe, rather than an upper or a moccasin.

Following Uniroyal, supra, it is our view that the attachment of an outer sole in the United States to sample no.2 does not constitute a substantial transformation within the meaning of (19 CFR 134.35). Therefore, sample no. 2 will have to be individually marked "Made in Australia" or "New Zealand.

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HOLDING:

The open bottomed upper [sample no.1] is classifiable under subheading 6406.10.90, HTSUS.

The insole assembly [sample no. 3] is classifiable under subheading 6406.99.90, HTSUS.

The boot upper with an insole assembly attached by stitching [sample no. 2] is classifiable under subheading 6406.10.50, HTSUS.

Ugg International is the ultimate purchaser in the U.S. of the open bottomed upper [sample no. 1] and the insole assembly {sample no. 3.] which are excepted from the requirements of individual marking pursuant to 19 CFR 134.35. Only the outermost container in which these parts are contained must be marked with the appropriate country of origin. The boot upper with an insole assembly attached by stitching [sample no.2] will have to be individually marked "Made in Australia" or "New Zealand."


Sincerely,


John Durant, Director
Commercial Rulings Division