HQ 557149

November 22, 1993

CLA-2 CO:R:C:S 557149 BLS

CATEGORY: Classification

Steven S. Weiser, Esq.

Arthur W. Bodek, Esq.

Siegel, Mandell & Davidson, P.C.

1515 Broadway

New York, New York 10036

RE: United States-Israel FTA; substantial transformation;

denim jeans; textile articles; assembly; imported

directly; entry into the commerce; manipulation;

19 CFR 10.214, 12.130; HRL 556104, 555489, 555398, 071575

Dear Mssrs. Weiser & Bodek:

This is in reference to your letter dated February 10, 1993,

and subsequent correspondence, requesting a ruling as to the

eligibility of certain women\'s denim jeans imported from Israel for

duty-free treatment under the United States-Israel Free Trade

Implementation Act of 1985 (\"Israel FTA\"). See, General Note

3(c)(vi), Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

Your client, Liz Claiborne, Inc. (\"LCI\"), is contemplating the

importation of two women\'s 100% cotton woven denim jeans from

Israel, style nos. 261001 and 9035402. Each garment features a fly

front with zipper closure, a button closure at the waistband, two

rear patch pockets, two scoop front pockets and a coin pocket

within the right scoop pocket; each front pocket is reinforced by

means of a single metal rivet. As noted above, each garment is

identical in every material respect other than fabric weight.

Style no. 2610001 is constructed of a 12 ounce denim fabric while

Style no. 9035402 is constructed of a 14 ounce denim fabric.

The components of each of the garments (exclusive of trim)

will be manufactured from greige fabric woven in Israel from

Israeli origin yarns. The Israeli origin fabric will be dyed and

precisely cut to size and shape in Israel to form each of the

numerous components of each garment. At least fourteen distinct

components for each style will be produced in Israel.

The various components cut to size and shape in Israel, from

fabric woven and dyed in Israel, will be sent to China for

assembly. In China, the various garment components produced in

Israel will be joined together by means of simple machine-sewing

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operations such as joining and setting the leg components, setting

the belt loops, sewing the crotch, etc. Moreover, certain trim

articles and packing materials, of Chinese or Hong Kong origin,

will also be attached to (or used to pack) the subject garments.

Such articles are limited to pocket linings, buttons, zippers,

rivets, leather patches, labels, hangtags, polybags and cartons.

With the exception of the pocket linings, all of the trim articles

and packing materials will be acquired by the Chinese assembler of

the subject garments in a finished condition ready to be affixed

to the garments. It is understood that the pocket linings are to

be cut in China from Chinese or Hong Kong origin fabric.

After the finished garments have been assembled from the

numerous components cut to size and shape in Israel (and the

foreign origin trim articles), they will be stone-washed, pressed,

inspected and packaged for shipment back to Israel. Upon arrival

in Israel, the shipment will be unladen from the vessel and cleared

through Israeli Customs. The complete shipments will then be

transported (not in bond) to the premises of the Israeli

manufacturer (i.e.), the Israeli cutting facility), a distance in

excess of fifty miles, which is neither a bonded location nor

otherwise under the control of the local Customs authorities. The

contemplated contract between LCI and the Israeli cutter will

require that each shipment of Style nos. 2610001 and 9035402 be

subjected to a commercial inspection, and that inspection

certificates be issued in connection therewith (i.e., a separate

inspection certificate will be issued for each shipment). Such

inspections are to be performed by employees of the Israeli

manufacturer prior to direct shipment of the merchandise to the

United States.

The inspection to be performed will be consistent with common

commercial practice (and with the contract between LCI and the

Israeli manufacturer). With respect thereto, each shipment will

be examined in accordance with Military Standard 105-D, which you

believe to be perhaps the most widely accepted statistical sampling

plan in the world today. Such standard provides for the physical

examination of a given number of units for each lot size in order

to effect a commercial inspection of the entire lot. The precise

number of units which will be examined will be primarily dependent

upon two factors: 1) the size of the shipment; and 2) the results

observed of the garments initially examined. For example, if the

lot size is between 501 and 1,200 garments, 50 units will be

examined. If the defects number two or less, the shipment will be

accepted. If three or four defective units are found, then an

additional 50 units must be physically examined. If, after

examining the second 50 units, a total of 6 or fewer units (of the

100 units) are found to be defective, the entire shipment is to be

accepted. Conversely, if 7 or more units are found to be

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defective, then the entire shipment is subject to rejection.

The inspection itself will be a full quality assurance

inspection. Specifically, each garment examined will be removed

from its shipping container, separated from its individual

packaging, unfolded and laid out on a table. Each such garment

will then be physically examined for size specifications, color,

quality workmanship, fabric shading, etc. The inspection (both in

terms of number of units examined as well as degree of examination)

will be the same as that utilized by LCI in connection with its own

purchases of apparel articles. In addition, you advise that it is

LCI\'s intention to submit, in connection with each entry of the

merchandise covered by the ruling application, a written

certification that such goods have been inspected in Israel

pursuant to Military Standard 105-D prior to their direct shipment

from Israel to the United States. Such certification will appear

in substantially the following format:

This is to certify that all goods

covered by this invoice have been

inspected in Israel pursuant to

Military Standard 105-D.

The Israeli manufacturer will be contractually liable to LCI

for any defective goods it delivers. While LCI is not privy to any

contractual arrangements between the Israeli menufacturer and the

Chinese assembler, in accordance with normal commercial

transactions, it is contemplated that claims would be made by the

Israeli manufacturer against the Chinese assembler with respect to

any unacceptable merchandise.

ISSUES:

1\) Whether the imported articles will be classifiable under

an Israeli FTA-eligible provision.

2\) Whether the imported garments will be considered a product

of Israel.

3\) Whether the articles will be \"imported directly\" to the

U.S. from Israel.

4\) Whether the imported articles will satisfy the value-

content requirements of the statute.

LAW AND ANALYSIS:

Under the Israel FTA, eligible articles the growth, product,

or manufacture of Israel which are imported directly to the U.S.

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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 3(c)(vi), HTSUSA.

1\) Classification

In our opinion, the garments are properly classifiable under

subheading 6204.62.40, HTSUS, \"Women\'s other cotton woven trousers

bib and brace overalls, breeches and shorts\", an Israel FTA-

eligible provision.

2\) Product of Israel

Section 12.130, Customs Regulations (19 CFR 12.130) is

concerned with the country of origin of textiles and textile

products. Pursuant to 19 CFR 12.130(b), a textile or textile

product is considered to be a product of the country where it last

underwent a substantial transformation (\"S.T.\"). A textile or

textile product is considered to have undergone an S.T. if it has

been transformed by means of substantial manufacturing or

processing operations into a new or different article of commerce.

The following will be considered in determining whether

merchandise has been subjected to substantial manufacturing or

processing operations: 1) the physical change in the material or

article; 2) the time involved; 3) the complexity of the operations;

4\) the level or degree of skill and/or technology required; 5) the

value added to the article in each country or territory. Any one

or a combination of these factors may be determinative and other

factors may also be considered. 19 CFR 12.130(d).

Examples of processes which generally will result in an S.T.

and those which usually will not are set forth in 19 CFR 12.130(e).

Thus, the cutting of fabric into parts and the assembly of those

parts into the completed article in a foreign country will usually

result in an S.T. of the fabric so as to confer country of origin

status. Also considered to be an S.T. would be a substantial

assembly by sewing and/or tailoring of all cut pieces of apparel

articles which have been cut from fabric in another foreign

territory or country, or insular possession into a completed

garment (e.g., the complete assembly and tailoring of all cut

pieces of suit-type jackets, suits, and shirts.) (19 CFR

12.130(e)(1).)

However, operations which ordinarily will not transform an

article into a product of a foreign country include (1) trimming

and/or joining together by sewing, looping, linking, or other means

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of attaching otherwise knit-to-shape component parts produced in

a single country, even when accompanied by other processes (e.g.,

washing, drying, mending, etc.) normally incident to the assembly

process; and (2) one or more finishing operations on yarns,

fabrics, or other textile articles, such as showerproofing,

superwashing, bleaching, decating, fulling, shrinking, mercerizing,

or similar operations. (19 CFR 12.130(e)(2)(iii) and (iv)).

In HRL 556104, dated September 10, 1991, cotton fabric was cut

into panels and then sewn together to form men\'s trousers. The

sewing operation included hemming, lock stitching, fashioning

pockets, and applying buttons and zippers. The issue was whether

the trousers should be accorded duty-free treatment under General

Note 3(a)(iv), HTSUS. We found that 19 CFR 12.130(e)(1)(v) was not

applicable to the assembly operation involved, as the sewing, etc.

was not as substantial, complex or meaningful as the assembly of

suit-type jackets, suits, or shirts. (However, we held in that

case that the overall processing operation, which included cutting

the foreign fabric into components, and assembly of the trouser

panels, resulted in an S.T. of the foreign fabric.) (See, also, HRL

555489, dated May 14, 1990, sewing together of foreign glove parts

is insufficient to substantially transform the glove components

into a product of the Philippines.)

There is no question as to whether the pre-cut component parts

of the denim jeans are the product of Israel upon exportation to

China; the components themselves are cut from Israeli fabric woven

from Israeli yarn. Furthermore, based on the cited regulations and

prior rulings, we find that the further processing in China does

not transform the pre-cut components into a product of that

country, as such operations are not substantial, complex, or

meaningful, but are the type of simple assembly and finishing

operations encompassed by 19 CFR 12.130(e)(2)(iii) and (iv).

Neither will the presence of the trim items of Hong Kong or Chinese

origin preclude treatment of the imported jeans as a product of

Israel assuming all other legal requirements are satisfied.

Accordingly, we find that the imported articles are considered

products of Israel for purposes of determining their eligibility

for duty-free treatment under the Israel FTA.

3\) \"Imported Directly\"

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;

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\(b\) 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 enroute 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.

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We have held for purposes of the Generalized System of

Preferences (GSP) that merchandise is deemed to have entered the

commerce of an intermediate country if manipulated (other than

loading or unloading), offered for sale (whether or not a sale

actually takes place), or subjected to a title change in the

country. See HRL 071575, dated November 20, 1984. The definition

of \"imported directly\" under the GSP is very similar to that under

the FTA. See section 10.175, Customs Regulations (19 CFR 10.175).

In the instant case, the fabric components will be sent to

China from Israel for assembly by machine-sewing, attachment of

certain trim articles, and for stone-washing, pressing, inspection

and packaging. It is apparent that these operations constitute a

manipulation of the merchandise, and accordingly, the merchandise

is deemed to have entered the commerce of China. Therefore, the

merchandise will be considered to be \"imported directly\" from

Israel only if, upon its return from China, it re-enters the

commerce of, and then is directly shipped from, Israel to the U.S.

In HRL 555398, dated December 12, 1989, a certain spice grown

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in India was sent to Singapore for processing. The processed

shipment was placed on board a vessel which then proceeded to

India, en route to the U.S. The shipment did not leave the vessel

while it was docked in India. We held in that case that the

shipment was considered to have been \"imported directly\" from

Singapore, not India. In this regard, we noted that the word

\"from,\" as commonly used, indicates a starting point, a point or

place of where an actual physical movement has its beginning, or

the place of origin. See Webster\'s Third International Dictionary

(Unabridged), 913 (1971). We pointed out that since the

merchandise did not leave the vessel in India, and had no

connection with that country, other than being aboard a vessel that

transited its port, the shipment was considered to have been

\"imported directly\" from Singapore, and not India. We also stated

the following:

\"We believe that this result is consistent

with the statute and Customs Regulations.

To accept your claim would render the statutory

direct shipment requirement meaningless, for it

would allow merchandise to be \"imported directly\"

from the last foreign port at which the trans-

porting vessel stops before reaching the U.S.

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Customs Regulations clearly contemplate that if

an article is merely transshipped through a country,

it is not \"imported directly\" from that country, but

from the country from which the shipment originates.

\.... To find that the merchandise is \"imported

directly\" from the country through which the

merchandise is merely transshipped would be, at

best, inconsistent with the Customs Regulations

defining the term.\"

Accordingly, in order to be \"imported directly\" from Israel,

the shipment upon its return from China (the country from which

this shipment originated) must enter the commerce of Israel, i.e.,

it must be manipulated in Israel. As noted, above, you have

advised that after assembly of the jeans in China, the shipment

will be returned to Israel, removed from the vessel and brought to

the manufacturer\'s facility, where cartons will be opened and

sample garments inspected, pursuant to contractual arrangement and

commercial practice, as described. If the shipment passes the

inspection, the samples will be repacked, the cartons sealed, and

the shipment returned to the dock to be loaded aboard a vessel for

shipment to the U.S. You have also advised that LCI will

submit, in connection with each entry of merchandise covered by the

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ruling request a written certification on each invoice that all

goods covered by the invoice have been inspected pursuant to the

commercially accepted statistical sampling procedure, \"Military

Standard 105-D.\"

Under these facts, we find that there will be a manipulation

of the merchandise and therefore an entry into the commerce of

Israel of all the goods in each shipment. Therefore, these

articles will be considered to have been \"imported directly\" from

Israel into the U.S.

HOLDING:

Based on the information provided, we find that:

1\) The imported articles will be classifiable under

subheading 6204.62.40, HTSUS, an Israel FTA eligible

classification.

2\) Upon importation into the U.S., the imported garments

will be considered a product of Israel.

3\) The imported articles will be considered to be \"imported

directly\" from Israel into the U.S. on condition that upon return

to Israel from China a) the goods are inspected in accordance with

the statistical sampling procedure known as Military Standard 105-

D, and b) a statement is included on each invoice that the

merchandise covered by the invoice has been inspected pursuant to

Military Standard 105-D.

4\) The imported articles will qualify for duty-free treatment

under the Israel FTA, provided the sum of a) the cost or value of

the materials produced in Israel, plus b) the direct costs of

processing operations performed in Israel is not less than 35

percent of the appraised value of the articles at the time of

entry. Whether the 35 percent test is met must await actual entry

of the merchandise.

Sincerely,

John Durant, Director

Commercial Rulings Division