CLA-2-62:RR:NC:3:353 C87902
Mr. Stephen M. Zelman
Stephen M. Zelman & Associates
888 Seventh Avenue
New York, NY 10106
RE: Welder's top and pants from Israel; U.S.-Israel Free Trade Area
Agreement; 35% value-content requirement.
Dear Mr. Zelman:
In your letter dated May 18, 1998, on behalf of Sportsmed International,
Inc., you requested a ruling regarding the 35% value-content requirement under
the U.S. Israel Free Trade Area Agreement (FTA). A sample of the welder's top
and pants were provided and are being returned as requested.
The subject merchandise consists of two items, a welder's top or
garment and a welder's overall or pants. The items are made of green heavy
weight woven 100% cotton fabric. The fabric has been treated with a chemical
flame retardant known as "Proban". The garments are stated to be specially
designed for a welder and will be marketed as garments for a welder. Because of
the flame retardant treatment, the garments will not ignite when exposed to
sparks generated during the welding process.
Ruling NY C80110, dated October 29, 1997, classified the welder's top under
subheading 6211.32.0081. Ruling NY C86792, dated April 30, 1998, classified
the welder's pants under subheading 6211.32.0081.
The manufacturing operations for the welder's top and pants are as follows:
The fabric is produced and treated with the flame retardant in a third country.
The fabric is imported into Israel in rolls where the fabric is cut to shape
into panels, pockets and collars for the top, and panels, pockets, belt loops
and waistbands for the pants. The components are then assembled by sewing and
hemming.
Ruling NY C86792, dated April 30, 1998, determined that the welder's top
and pants were products of Israel. You now ask whether the value of the fabric
imported into Israel, which is cut to shape and assembled into the welder's top
and pants, can be included in the 35% value-content requirement under the U.S.
Israel Free Trade Area Agreement.
Under the Israel FTA, eligible articles the growth, product, or manufacture
of Israel which are imported directly to the United States from Israel qualify
for duty-free treatment, provided the sum of 1) the cost or value of materials
produced in Israel, plus 2) the direct costs of processing operations performed
in Israel is not less than 35 percent of the appraised value of the article at
the time it is entered. See General Note 8(b), Harmonized Tariff Schedule of
the United States (HTSUS).
Articles are considered "products of" Israel if they are made entirely of
materials originating there or, if made from materials imported into Israel,
they are substantially transformed into a new or different article of commerce.
A substantial transformation occurs when an article emerges from a process
with a name, character, or use different from that possessed by the article
prior to processing. Sections 12.130(d) and (e), Customs Regulations (19 C.F.R.
§12.130(d) and (e)), set forth criteria for determining whether a textile or
textile article has been substantially transformed. 19 C.F.R. §12.130(e)(1)(iv)
states that an article or material will be a product of the country where the
fabric is cut into parts and those parts are assembled into the completed
article. In this case, the cutting of the welder's garments components in
Israel from the foreign fabric into panel components and the assembly of these
components substantially transforms the fabric into "products of" Israel for
purposes of the Israel FTA.
If an article is produced or assembled from materials which are imported into
Israel, the cost or value of those materials may be counted toward the 35%
value-content minimum as "materials produced in Israel" only if they are
subjected to a double substantial transformation in Israel. This is consistent
with Customs and the courts' interpretation of "materials produced" under the
Generalized System of Preferences (GSP) (19 U.S.C. §2461-2466) and the Caribbean
Basin Economic Recovery Act (CBERA) (19 U.S.C. §2701-2706).
In determining whether the 35% value-content requirement is satisfied, the
cost or value of the cut to shape component pieces in Israel may be included in
the 35% computation only if the foreign fabric imported into Israel undergoes
the requisite double substantial transformation. This means that for purposes
of the 35% value-content requirement, the foreign material is substantially
transformed in Israel and this different product is then transformed into yet
another new and different product which is exported to the United States.
Customs has held that, for purposes of the GSP, an assembly process will
not work a substantial transformation unless the operation is complex and
meaningful. Whether an operation is complex and meaningful depends on the
nature of the operation. It is necessary to consider the time, cost, and skill
involved, the number of components assembled, the number of different
operations, attention to detail and quality control. It would appear that this
assembly procedure does not achieve the level of complexity contemplated.
However, the court has held that in situations where all the processing is
accomplished in one GSP beneficiary country, the likelihood that the processing
constitutes little more than a pass-through operation is greatly diminished.
Consequently, if the entire processing operation performed in the single country
is significant, and the intermediate and final articles are distinct articles of
commerce, then the double substantial transformation requirement will be
satisfied.
We must next determine whether each of the components used to produce the
welder's top and pants will undergo a double substantial transformation in
Israel. Applying these principles to the processing of the foreign fabric in
Israel, we believe that the double substantial transformation requirement is
satisfied with respect to the fabric. The cutting to shape of the imported
fabric will transform it into new and different articles of commerce. We
believe that the cut to shape components are considered to be intermediate
articles of commerce which are ready to be put into the stream of commerce where
they can be bought and sold. The assembly operation of sewing the component
parts into a finished welder's top and pants is not complex enough to constitute
a substantial transformation by itself. Nevertheless, the overall processing
operations (i.e., cutting and sewing) performed in Israel are substantial. For
this reason, and in view of the production in Israel of distinct articles of
commerce in the form of a welder's top and pants, the double substantial
transformation requirement is satisfied. Further, this is not the type of
minimal, "pass-through" operation that should be disqualified from receiving
duty-free treatment under the Israel FTA.
In addition, to be eligible for entry pursuant to the Israel FTA, the
articles must be "imported directly" from Israel. Annex 3, paragraph 8, of the
Israel FTA defines the words "imported directly," as follows:
(a) Direct shipment from Israel to the U.S. without
passing through the territory of any intermediate
country;
(b) If shipment is through the territory of an
intermediate country, the articles in the shipment do not enter into
the commerce of any intermediate country while en route to the U.S., and the
invoices, bills of lading, and other shipping documents, show the United States
as the final destination;
(c) If shipment is through an intermediate country and the
invoices and other documentation do not show the U.S. as the final destination,
then the articles in the shipment, upon arrival in the U.S., are imported
directly only if they:
(i) remain under control of the customs authority
in an intermediate country;
(ii) do not enter into the commerce of an
intermediate country except for the purpose of a sale other than
at retail, provided that the articles are imported as a result of the original
commercial transaction between the importer and the producer or the latter's
sales agent;
(iii) have not been subjected to operations other
than loading and unloading, and other activities necessary to
preserve the article in good condition.
The "imported directly" requirement will be satisfied for goods shipped
directly from Israel to the United States. In the event that the shipment is
transshipped through another foreign port before arriving in the United States,
the requirements of paragraphs (b) or (c) above will be triggered and must be
satisfied in order to be entered in accord with the Israel FTA.
Based on the information provided, the imported articles will be considered
"products of" Israel. We are unable to state definitively whether the welder's
top and pants will or will not satisfy the 35% value content requirement. A
detailed breakdown of the direct costs of processing and an estimate of the
appraised value of the sweatshirts at the time of entry into the United States
will be necessary to determine whether this requirement is met under these
circumstances. However, the value of the material used to make the welder's top
and pants may be used as "materials produced in Israel" to satisfy this
require-ment since it will undergo the requisite double substantial
transformation.
The holding set forth above applies only to the specific factual situation
and merchandise identified in the ruling request. This position is clearly set
forth in section 19 C.F.R. §177.9(b)(1). This sections states that a ruling
letter, either directly, by reference, or by implication, is accurate and
complete in every material respect.
This ruling is being issued under the provisions of Part 177 of the Customs
Regulations (19 C.F.R. 177). Should it be subsequently determined that the
information furnished is not complete and does not comply with 19 C.F.R.
§177.9(b)(1), the ruling will be subject to modification or revocation. In the
event there is a change in the facts previously furnished, this may affect the
determination of country of origin. Accordingly, if there is any change in the
facts submitted to Customs, it is recommended that a new ruling request be
submitted in accordance with 19 C.F.R. §177.2.
A copy of the ruling or the control number indicated above should be
provided with the entry documents filed at the time this merchandise is
imported. If you have any questions regarding the ruling, contact National
Import Specialist Kenneth Reidlinger at 212-466-5881.
Sincerely,
Robert B. Swierupski
Director,
National Commodity
Specialist Division