CLA-2 CO:R:C:S 557735 WAS
Ms. Catherine DeBease
Conversations de Chaussures
14 N. Park Street
Watertown, MA 02172
RE: Applicability of U.S. Note 2(b), subchapter II, Chapter 98,
HTSUS, to footwear from the Dominican Republic
Dear Ms. DeBease:
This is in reference to your letter dated November 5, 1993,
requesting a ruling on the applicability of U.S. Note 2(b),
subchapter II, Chapter 98, Harmonized Tariff Schedule of the
United States (HTSUS) ("Note 2(b)"), to textile footwear from the
Dominican Republic.
FACTS:
You state that you plan on producing a fabric footwear line
in the Dominican Republic. You claim that you previously
manufactured these shoes in Thailand and intend to transfer
operations to the U.S., while using a stitching facility in the
Dominican Republic to process the footwear upper. You state that
the operations to be performed in the Dominican Republic are as
follows: All upper fabrics will be combined in the U.S. and will
arrive on rolls in the Dominican Republic. In the Dominican
Republic, the fabric will be cut into patterns, stitched and
assembled into the footwear upper. In addition, the socklining
for the footwear will be cut in the Dominican Republic. These
components will be shipped to the U.S.
The operations to be performed in the U.S. are as follows:
Materials will be cut for the midsole, heel padding and arch in
the U.S. Finally, the unassembled components will be glued
together, the sole will be laid, the sock will be inserted into
the lining, and the footwear will be marked. You also state that
any pattern or mold work involved in the production of the
footwear will take place in the U.S.
In addition, you state that additional materials such as
binding ribbon, thread and elastic may be supplied to the factory
in the Dominican Republic to complete the upper.
Finally, under another proposed scenario, you state that the
outsole may be produced in the Dominican Republic, and both the
upper and socklining components will be shipped to the U.S. for
final assembly.
ISSUE:
Whether the footwear and footwear parts which are produced
in the Dominican Republic from U.S. materials as described above,
are 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). 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 fabric to
shape, stitching the components together, and assembling the
upper and socklining, are encompassed by the operations specified
in Note 2(b).
In regard to your question concerning whether duty-free
treatment under Note 2(b) will be affected when items such as
binding ribbons, thread and elastic are supplied to the Dominican
factory, HRL 556013 dated June 17, 1991, is relevant. For
purposes of this proposed scenario, we assume that the items
which will be supplied to the Dominican Republic factory are not
of U.S. origin. In HRL 556013, we found that enema tip
assemblies, which were made with U.S. materials as well as
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 have generally held that the presence of foreign-origin
materials will not defeat eligibility under this provision where
the cost of the foreign materials does not represent more than
one percent of the total cost of the completed article and the
foreign material is not an integral component of the completed
article. See HRL 556013; HRL 556745 dated October 23, 1992.
Based upon the limited facts presented, we cannot conclude that
functional foreign materials such as thread, binding ribbon and
elastic which are used to produce the footwear upper are not
integral components of the footwear. Indeed, it appears that
under these circumstances, only one component of the upper would
be of U.S.-origin, i.e., the fabric. Therefore, we find that the
presence of foreign-origin thread, binding ribbon and elastic
would preclude eligibility for free entry under Note 2(b).
You also propose to produce the outsoles in the Dominican
Republic, and then ship the upper, socklining and outsoles to the
U.S. for final assembly. We are assuming, based on the
information you have presented, that the outsole is made in the
Dominican Republic with foreign materials and is imported into
the U.S. along with the upper and socklining. Under these
circumstances, as the imported unassembled footwear are not made
wholly of U.S. components, as required by Note 2(b), none of the
footwear parts, including the upper and socklining, is entitled
to Note 2(b) treatment.
HOLDING:
On the basis of the information submitted and assuming that
all materials from which the footwear uppers and socklinings are
made are in fact of U.S.-origin, we conclude that the footwear
uppers and socklinings made in the Dominican Republic wholly from
materials of U.S. origin are entitled to duty-free treatment
under Note 2(b), upon compliance with the imported directly
requirement under Note 2(b) and the documentation requirement set
forth in Headquarters telex 9264071 dated September 28, 1990.
If, however, non-U.S. origin binding ribbons, thread and
elastic are used to produce the footwear upper, duty-free
treatment under Note 2(b) for the upper will be precluded.
Finally, in regard to the outsole, because the imported
unassembled footwear is not made wholly of U.S. components, as
required by Note 2(b), none of the footwear parts, including the
upper and socklining, is entitled to duty-free treatment under
Note 2(b).
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure