CLA-2 CO:R:CV:V BJO
Mr. Jose C. Pegarido
Business Service Consultant International
P.O. Box 2258
Agana, Guam 96910
RE: Duty-Free Treatment of Shopping Bags Imported from the
Northern Mariana Islands
Dear Mr. Pegarido:
This is in response to your letter of April 19, 1989, in
which you request a ruling that shopping bags imported into the
U.S. from the Northern Mariana Islands will receive duty-free
treatment under General Note 3(a)(iv), Harmonized Tariff Schedule
of the United States (HTSUS).
FACTS:
The shopping bags will be produced in the Northern Mariana
Islands from "semi-finished polymesh" imported in rolls. Workers
will "hot-cut" the rolls into necessary lengths. It appears that
the cut lengths will then be folded in half, and the edges
machine sewn to form a bag. Some style bags apparently will
require further tailoring, such as the addition of a liner, and
cuffing on the top or bottom of the bag. It further appears that
some style bags will have a drawn string attached, and that some
will have a label attached. The finished bags will then be
packaged for shipment.
You state that the cost to import one ton of the polymesh
material will be $2,250, that 25,000 bags will be made from a ton
of the imported material, that the cost per bag of the imported
material will be $0.12, and that the cost of the finished bag
will be $0.34.
ISSUE:
Whether shopping bags produced in the Northern Mariana
Islands as described above from imported rolls of polymesh are
eligible for duty-free treatment under General Note 3(a)(iv),
HTSUS.
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LAW AND ANALYSIS:
Under General Note 3(a)(iv), HTSUS, goods imported from an
insular possession may enter the customs territory of the United
States free of duty if they are manufactured or produced in the
possession, do not contain foreign materials which represent more
than 70 percent of their total value (or more than 50 percent
with respect to goods described in section 213(b) of the
Caribbean Basin Economic Recovery Act), and come directly to the
customs territory of the United States from the possession.
Customs has ruled that the Northern Mariana Islands are an
insular possession for purposes of General Note 3(a)(iv), HTSUS.
See HQ 071005, dated March 7, 1983. Accordingly, the shopping
bags may receive duty-free treatment if all requirements of
General Note 3(a)(iv), HTSUS, are met.
Customs has also ruled that goods which are composed of
materials produced outside the insular possession, as here, are
considered manufactured or produced in the possession only if the
processing operations in the possession substantially transform
the imported materials. See e.g. HQ 554524, dated April 20, 1987.
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." See The Torrington Co., v. United States, 764 F.2d
1563, 1568 (Fed. Cir. 1985).
The materials imported into the Northern Mariana Islands
will clearly undergo a substantial transformation. As a result
of the cutting and tailoring operations, the rolls of imported
polymesh material will be converted into shopping bags, an
article with a new name, use, and identity. The polymesh rolls
are, essentially, a raw material and possess nothing in character
which indicates the final product. See Torrington at 1568. The
shopping bags therefore will be considered the product or
manufacture of the Northern Mariana Islands for purposes of
General Note 3(a)(iv).
Assuming that the final appraised value of the shopping
bags, as determined in accordance with 19 U.S.C. 1401a, will be
$0.34 per bag, and that the total cost of foreign materials will
be $0.12 per bag, as your cost data indicate, the General Note
3(a)(iv) limitation on foreign content will be met. The cost
data submitted indicate that the value of foreign materials will
comprise only 35% of the total value of the shopping bags.
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CONCLUSION:
The shopping bags produced in the Northern Mariana Islands
as described above from imported rolls of polymesh material will
be entitled to duty-free entry if they are shipped directly to
the U.S., and if not more than 70% of the final appraised value
of the bags will be attributable to the costs of foreign
material, as your cost data suggest.
Sincerely,
John Durant, Director
Commercial Rulings Division