CLA-02 RR: CR: SM 563246 AL
Category: Classification
Don M. Obert, Esq.
Follick & Bessich
33 Walt Whitman Road, Suite 204
Huntington Station, New York 11746
RE: Eligibility of certain woven cotton shorts produced in a Qualifying Industrial Zone
for duty-free treatment; General Note 18, HTSUS; General Note 3(a)(v), HTSUS; U.S. - Jordan Free Trade Agreement; U.S. – Israel Free Trade Agreement
Dear Mr. Obert:
This is in response to your request for a ruling, dated March 10, 2005, on behalf of Maliban U.S.A., Inc. ("Maliban"). Your request concerns the tariff classification and eligibility of certain woven cotton shorts produced in a Qualifying Industrial Zone for duty-free treatment under the U.S. - Jordan Free Trade Agreement ("JFTA") and General Note 3(a) (v), Harmonized Tariff Schedule of the United States ("HTSUS").
FACTS:
Maliban plans to import one style of girls' 100% woven cotton shorts with an incorporated polyester belt ("style 271632") into the United States from Ad-Dulayl Industrial Park, a designated Qualifying Industrial Zone ("QIZ") located in Jordan. According to your request, style 271632 is classifiable under subheading 6204.62.4065, Harmonized Tariff Schedule of the U.S. ("HTSUS").
Style 271632 is described as girls' 100% woven cotton shorts with a flat waistband with five belt loops, a front zipper with a metal hook closure that fastens left over right, two front pockets, two rear pockets and hemmed leg openings. The incorporated belt matches the shorts and is made of 100% polyester woven material. The belt is approximately 1 1/8 inches wide and includes two metal D-rings used as a closure. There are two narrow white trim bands that appear along the edge of the belt that are a little over 1/8 inches wide.
Based on the information provided, Maliban plans to wholly assemble style 271632 in a QIZ in Jordan from various component parts manufactured in Singapore, Hong Kong, Egypt and Israel. The incorporated belt is made in China.
ISSUE:
Whether certain woven cotton shorts wholly assembled in a QIZ are eligible for duty-free treatment under the JFTA and General Note 3(a) (v), HTSUS.
LAW and ANALYSIS:
Eligibility under the U.S. - Jordan Free Trade Agreement
Title I of the United States - Jordan Free Trade Area Implementation Act of 2001, Pub. L. No. 107-43, 115 Stat. 243., referred to as the Jordan Free Trade Area Implementation Act, seeks to promote trade opportunities between the U.S. and the Hashemite Kingdom of Jordan. The JFTA provides preferential treatment for eligible articles that are the growth, product, or manufacture of Jordan, meet the 35 percent value content requirement, and are imported directly into the U.S. The rules for determining whether an article is entitled to preferential treatment under the JFTA are provided for in General Note (GN) 18, to the HTSUS, as implemented by Presidential Proclamation 7512, dated December 7, 2001, 66 Fed. Reg. 64495, December 13, 2001.
GN 18 provides, in pertinent part, that:
(a) The products of Jordan described in Annex 2.1 of the Agreement between the United States of America and the Hashemite Kingdom of Jordan on the Establishment of a Free Trade Area, entered into on October 24, 2000, are subject to duty as provided herein. Products of Jordan, as defined in subdivisions (b) through (d) of this note, that are imported into the customs territory of the United States and entered under a provision for which a rate of duty appears in the "Special" sub-column followed by the "JO" in parentheses are eligible for the tariff treatment set forth in the "Special" sub-column, in accordance with sections 101 and 102 of the United States-Jordan Free Trade Area Implementation Act (Public Law 107-43, 115 Stat. 243).
(b) For purposes of this note, subject to the provisions of subdivisions (d) and (e), goods imported into the customs territory of the United States are eligible for treatment as "products of Jordan" only if -
(i) such goods are imported directly from Jordan into the customs territory of the United States, and
(ii) they are -
(A) wholly the growth, product or manufacture of Jordan, or
(B) new or different articles of commerce that have been grown, produced or manufactured in Jordan and meet the requirements of subdivision (c) of this note.
Subdivision (c)(i) of GN 18 provides reference to the meaning of what is "wholly the growth, product or manufacture of Jordan . . . ," which in this case, is not applicable. The 35 percent value content requirement is stipulated in subdivision (c)(ii) of GN 18, which states the following:
For purposes for subdivision (b) (ii) (8), goods are eligible for the tariff treatment provided in this note if the sum of -
(A) the cost or value of the materials produced in Jordan, plus
(B) the direct costs of processing operations performed in Jordan,
is not less than 35 percent of the appraised value of such article at the time it is entered. If the cost or value of materials produced in the customs territory of the United States is included with respect to an article to which this subdivision applies, an amount not to exceed 15 percent of the appraised value of the article at the time it is entered that is attributable to such United States cost or value may be applied toward determining the percentage referred to in this subdivision.
In determining whether a textile and apparel good is a product of Jordan, which is applicable in this case, we refer to subdivision (d) which states:
Textile and apparel articles.
(i) For purposes of this note, a textile or apparel article imported directly from Jordan into the customs territory of the United States shall be eligible for the tariff treatment provided in subdivision (a) of this note only if -
(A) the article is wholly obtained or produced in Jordan;
(B) the article is a yarn, thread, twine, cordage, rope, cable or braiding, and -
(1) the constituent staple fibers are spun in Jordan, or
(2) the continuous filament is extruded in Jordan;
(C) the article is a fabric, including a fabric classified in chapter 59 of the tariff schedule, and the constituent fibers, filaments or yarns are woven, knitted, needled, tufted, felted, entangled or transformed by any other fabric-making process in Jordan; or
(D) the article is any other textile or apparel article that is wholly assembled in Jordan from its component pieces.
Such textile and apparel articles not wholly obtained or produced in Jordan must comply with the requirements of this subdivision and of subdivision (c) (ii) of this note.
The woven cotton shorts, style 271632, classifiable under subheading 6204.62.4065, HTSUS, qualify as an apparel article. The "JO" symbol indicated in the "Special" sub-column for this subheading designates these articles as eligible for preferential tariff treatment under the JFTA, provided other requirements are met. The terms of GN 18(d)(i)(D) are applicable to textile or apparel merchandise ''wholly assembled" in Jordan from components of other countries other than Jordan. The term "wholly assembled" as used in subdivision (D) is not defined in the JFTA. However, guidance as to its scope and meaning can be found in section 102.21(b) (6), Customs Regulations.
A good is considered "Wholly Assembled" when ". . . all components, of which there must be at least two, preexisted in essentially the same condition as found in the finished good and were combined to form the finished good in a single country, territory, or insular possession." 19 CFR 102.21(b)(6). You have indicated that there are more than two component parts - fabric components, zippers, buttons, etc., that are being assembled along with the incorporation of the belt.
For classification purposes, the woven cotton shorts and belt are considered a "composite good" in which the shorts impart the essential character. As such, the country of origin of the shorts will determine the origin of the composite good and the country of origin of the accompanying belt is not determined separately. See Headquarters Ruling Letter ("HQ") 959342, dated July 18, 1996, in which CBP held that a dress, self-fabric belt, and shawl were considered a composite good and that the country of origin of the dress determined the country of origin for the composite good. See also HQ 959341, dated July 3, 1996.
The first issue to be addressed is whether the woven cotton shorts are considered to be "products of' Jordan. GN 18(a) states that subdivisions (b) through (d) of GN 18 define products of Jordan. Subdivision (d) of GN 18 is specific to textiles and apparel articles.
The woven cotton shorts are being assembled in the Ad-Dulayl Industrial Park located in Jordan. The Ad-Dulayl Industrial Park is also located in a designated QIZ area. A QIZ is defined in GN 3(a)(v)(G), HTSUS as ". . . any area that - - (1) encompasses portions of the territory of Israel and Jordan or Israel and Egypt; (2) has been designated by local authorities as an enclave where merchandise may enter without payment of duty or excise taxes; and (3) has been designated by the United States Trade Representative in a notice published in the Federal Register as a qualifying industrial zone." The Ad-Dulayl Industrial Park is located in the Jordanian portion of the designated QIZ. Accordingly, the woven cotton shorts will meet the "product of” requirement. See General Note 18(d)(i)(D), HTSUS.
The woven cotton shorts must also meet the terms of GN 18(c)(ii) which requires that the sum of the cost or value of the material produced in Jordan, plus the direct costs of processing operations performed in Jordan, not be less that 35 percent of the appraised value of such articles at the time they are entered. Based on the figures presented in your request, the sum of the cost or value of the materials produced in Jordan is zero; however, the direct costs of processing operations, i.e. Labor and processing operations, would exceed the 35 percent value content requirement. Whether the 35 percent value-content requirement will be met must await actual entry of the merchandise. Based on the information provided, the woven cotton shorts wholly assembled in the Ad-Dulayl Industrial Park located in Jordan would be eligible for duty free treatment under the JFTA
Eligibility under QIZ
In 1996, Congress amended the U.S. - Israel Free Trade Area Implementation Act of 1985 (19 U.S.C. § 2112 note) to provide the President additional proclamation authority with respect to products of the West Bank, Gaza Strip, or a qualifying industrial zone ("QIZ"). Subsequently, on November 13, 1996, the President issued Proclamation 6955 (published in the Federal Register on November 18, 1996 (61 FR 58761)). In Proclamation 6955, the President modified General Note 3(a) of the HTSUS to provide duty-free treatment to articles which are products of the West Bank, Gaza Strip or a QIZ, provided certain requirements are met.
Under General Note 3(a)(v), HTSUS, articles that are products of the West Bank, Gaza Strip or a QIZ and imported directly to the U.S. from one of those areas or Israel, qualify for duty-free treatment when they satisfy certain criteria. 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. In addition, the sum of the cost or value of materials produced in the QIZ, West Bank, Gaza Strip, or Israel plus the direct costs of processing operations performed in the West Bank, Gaza Strip, a QIZ or Israel, must be at least 35 percent of the appraised value of such articles when imported into the U.S.
By a notice published in the Federal Register on October 15, 1999, (64 FR 56015), pursuant to section 9 of the U.S. - Israel Free Trade Area Implementation Act and General Note 3(a)(v)(G)(3), HTSUS, the office of the United States Trade Representative designated the Ad-Dulayl Industrial Park as a QIZ. 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 Ad-Dulayl Industrial Park QIZ which meet all the conditions and requirements of General Note 3(a)(v), HTSUS, are entitled to duty-free treatment.
General Note 3(a)(v)(A) also prescribes that to qualify for duty-free treatment, the articles produced in a QIZ must be imported directly from a QIZ, Israel, West Bank, or the Gaza Strip. See General Note 3(a)(v)(B) for what constitutes "imported directly."
The first issue to be addressed is whether the woven cotton shorts are considered to be "products of' the Ad-Dulayl Industrial Park QIZ. To determine whether a textile or apparel article is considered to be a product of the QIZ, it is necessary to refer to the rule 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). See T.D. 98-62 (63 FR 34960). 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).
You provided the tariff classification for the woven cotton shorts at issue. They include headings 6201 to 6208. Assuming that the classification of the article is correct, the applicable rule of origin is stated in 19 CFR 102.21(e):
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.
In this case, the woven cotton shorts are not knit to shape and are produced by assembling two or more components as it was stated earlier when determining whether the shorts qualified under the JFTA. Because you state that the shorts will be wholly assembled in the Ad-Dulayl Industrial Park QIZ located in Jordan, under the applicable rule, the origin of the garments will be Jordan. Therefore, they will be considered "products of' the QIZ.
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% valuecontent 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 immediate article of commerce, which is then transformed a second time during production of the final article which is exported to CBP.
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), CBP 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 CBP 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. CBP 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, CBP 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), CBP reiterated that the section 10221 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 ("HQ") 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., HQ 559810, dated August 16, 1996, and HQ 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.
However, in this case, no "cutting into components" take place. Based on the information provided, the fabric components are pre-cut and then, imported into the QIZ where they are assembled into the final article. The foreign materials imported into the QIZ cannot be considered part of the cost or value of "materials produced" in the QIZ because a second substantial transformation has not taken place. Despite the fact that the foreign components imported into the QIZ cannot be considered part of the cost or value of materials produced, you indicated that the direct costs of processing alone would meet the 35 percent value-content requirement. Therefore, based on the information provided and having met the requirements, the woven cotton shorts wholly assembled in the QIZ located in Jordan would be eligible for duty-free treatment under GN 3(a)(v), HTSUS.
HOLDING:
Based on the information provided, the articles wholly assembled in the QIZ, as described above, will be considered a product of Jordan or the QIZ. Therefore, the articles will be entitled to duty-free treatment under the JFTA or General Note 3(a)(v), HTSUS, assuming that they are imported directly into the U.S. and the 35 percent value-content requirement is satisfied. Whether the 35 percent 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 and Border Protection officer handling the transaction.
Sincerely,
Myles B. Harmon, Director
Commercial Rulings Division