CLA-2 CO:R:C:S 557545 WAS
Stephen M. Zelman & Associates
845 Third Avenue
New York, N.Y. 10022
RE: Eligibility of certain footwear from the Dominican Republic
for duty-free treatment under U.S. Note 2(b), subchapter II,
Chapter 98, HTSUS; de minimis
Dear Mr. Zelman:
This is in response to your letter of August 16, and 19,
1993, on behalf of Carter Footwear, Inc., in which you request a
ruling on the applicability of duty-free treatment for certain
textile upper/rubber plastic sole footwear to be produced in the
Dominican Republic, pursuant to section 222 of the Customs and
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:
U.S.-origin laminated fabric is either (1) shipped in rolls
to the Dominican Republic where it is cut to appropriate shapes
or (2) is first cut in the U.S. before being shipped to the
Dominican Republic. The remaining materials necessary for the
production of the finished footwear (including thermoplastic in
pellet form, foam midsole, thread, bindings, eyelets, plastic,
cord and adhesive materials) are all of U.S.-origin.
In the Dominican Republic, the laminated fabric is cut to
shape (unless previously cut in the U.S.) and a thin layer of
plastics is applied to the toe area of the vamp (the forward
section of the shoe upper). The fabric components are then sewn
together to form the shoe upper and eyelets are inserted. The
upper is secured to the last, thermoplastic pellets are
simultaneously melted, formed, and joined to the upper in an
injection molding machine, adhesive is applied to the bottom of a
foam inner sole, and the inner sole is finally attached to the
interior of the outer sole.
You state that at the present time, all of the ingredients
of the adhesive, which is used to join the inner sole to the
outer sole, are produced in the U.S. However, the Dominican
supplier of the adhesive has advised that, in the future, it
wishes to purchase the ingredients of the adhesive from a third
country.
You state that the amount of adhesive used per pair or per
shipload is "miniscule." In your calculation, forty gallons of
adhesive, with a total value of approximately $275.00, is all
that is required in the manufacture of between 15,000 and 18,000
pair of shoes having a value of approximately $1.40 to $1.50 per
pair. You state that the value of the adhesive comprises
approximately one percent of the value of the finished footwear.
Moreover, you claim that the adhesive is not visible on the
outside of the shoe and does not enhance the appearance of the
finished shoe in any way.
ISSUE:
Whether the footwear which is produced in the Dominican
Republic from U.S. materials and foreign adhesive as described
above, is eligible for duty-free treatment under Note 2(b).
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
textile and apparel articles, and petroleum and petroleum
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. This amendment was effective with respect to goods
entered on or after October 1, 1990.
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 stated in this paragraph, the term "beneficiary country"
means a country listed in General Note 3(c)(v)(A).
Although Note 2(b)(i)(A) and (B) are separated by the word
"or", it is our opinion that Congress did not intend to preclude
free treatment under this provision to an article which is
created in a BC both by assembling and processing U.S. fabricated
components and by processing U.S. ingredients.
Pursuant to General Note 3(c)(v)(A), HTSUS, the Dominican
Republic has been designated as a BC for CBERA purposes. We have
previously held that footwear and parts of footwear are eligible
articles under Note 2(b), regardless of whether they are subject
to textile agreements. See T.D. 91-88, 25 Cust. Bull. 45 (1991).
Customs has followed this position on footwear and parts of
footwear in HRL's 555742 dated November 5, 1990, and 555788 dated
September 9, 1991. These rulings allowed duty-free treatment
under Note 2(b) to footwear and footwear uppers made, at least in
part, of textile materials.
In regard to the operations performed in the Dominican
Republic, we believe that the assembly and processing of the U.S.
materials and ingredients, which consist of cutting laminated
fabric to shape, molding components, assembling the cut pieces,
and assembling the bottom of a foam inner sole and attaching the
inner sole to the interior of the outer sole, are encompassed by
the operations specified in Note 2(b).
In HRL 556013 dated June 17, 1991, we found that enema tip
assemblies which were made with predominantly U.S. materials and
adhesive of German-origin, which was used to secure the string
ends and cuff of the enema tip assemblies, were eligible for
duty-free treatment under Note 2(b). We stated in HRL 556013
that:
[b]ased on the information you submitted, the cost of the
adhesive represents approximately one percent of the total
cost of the completed article. General Note 7(e)(i), HTSUS,
states that, for purposes of the tariff schedule, the term
"'wholly of' means that the goods are, except for negligible
or insignificant quantities of some other material or
materials, composed completely of the named material." It
is our determination that although the enema tip assemblies
are not made of 100% U.S. components and ingredients, the
adhesive constitutes merely an insignificant portion of the
entire article and, therefore, the presence of the foreign
adhesive would not preclude application of duty-free
treatment under Note 2(b).
We are of the opinion that the instant case is analogous to
HRL 556013. Like the adhesive in HRL 556013, the adhesive of
non-U.S. origin in this case constitutes one percent of the value
of the completed footwear, and represents merely an insignificant
or de minimis amount in comparison to the value of the completed
footwear. Therefore, the footwear is considered "wholly of" U.S.
materials, and the presence of the non-U.S. adhesive does not
defeat eligibility for duty-free treatment under Note 2(b).
Accordingly, the footwear at issue will be eligible for duty-free
treatment under Note 2(b), provided that the merchandise is
imported directly into the U.S. without entering into the
commerce of any foreign country other than a BC, and the
applicable documentation requirements are satisfied.
HOLDING:
On the basis of the information submitted, we are of the
opinion that the footwear is made in the Dominican Republic
"wholly of" materials of U.S. origin, and is entitled to duty-free treatment under Note 2(b), upon compliance with the imported
directly and documentation requirements of this provision. The
documentation requirements are set forth in Headquarters telex
9264071 dated September 28, 1990, a copy of which has been
enclosed with this letter.
Sincerely,
John Durant, Director
Commercial Rulings Division