HQ 0555382 - Duty-Free Treatment of Shopping Bags Imported from the Northern Mariana Islands - United States International Trade Commision Rulings

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HQ 555382
October 4, 1989
CLA-2 CO:R:CV:V BJO

CATEGORY: CLASSIFICATION

Mr. Jose C. Pegarido
Business Service Consultant International P.O. Box 2258
Agana, Guam 96910

RE: Duty-Free Treatment of Shopping Bags Imported from the Northern Mariana Islands

Dear Mr. Pegarido:

This is in response to your letter of April 19, 1989, in which you request a ruling that shopping bags imported into the U.S. from the Northern Mariana Islands will receive duty-free treatment under General Note 3(a)(iv), Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The shopping bags will be produced in the Northern Mariana Islands from "semi-finished polymesh" imported in rolls. Workers will "hot-cut" the rolls into necessary lengths. It appears that the cut lengths will then be folded in half, and the edges machine sewn to form a bag. Some style bags apparently will require further tailoring, such as the addition of a liner, and cuffing on the top or bottom of the bag. It further appears that some style bags will have a drawn string attached, and that some will have a label attached. The finished bags will then be packaged for shipment.

You state that the cost to import one ton of the polymesh material will be $2,250, that 25,000 bags will be made from a ton of the imported material, that the cost per bag of the imported material will be $0.12, and that the cost of the finished bag will be $0.34.

ISSUE:

Whether shopping bags produced in the Northern Mariana Islands as described above from imported rolls of polymesh are eligible for duty-free treatment under General Note 3(a)(iv), HTSUS.

LAW AND ANALYSIS:

Under General Note 3(a)(iv), HTSUS, goods imported from an insular possession may enter the customs territory of the United States free of duty if they are manufactured or produced in the possession, do not contain foreign materials which represent more than 70 percent of their total value (or more than 50 percent with respect to goods described in section 213(b) of the Caribbean Basin Economic Recovery Act), and come directly to the customs territory of the United States from the possession.

Customs has ruled that the Northern Mariana Islands are an insular possession for purposes of General Note 3(a)(iv), HTSUS. See HQ 071005, dated March 7, 1983. Accordingly, the shopping bags may receive duty-free treatment if all requirements of General Note 3(a)(iv), HTSUS, are met.

Customs has also ruled that goods which are composed of materials produced outside the insular possession, as here, are considered manufactured or produced in the possession only if the processing operations in the possession substantially transform the imported materials. See e.g. HQ 554524, dated April 20, 1987. A substantial transformation occurs "when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process." See The Torrington Co., v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).

The materials imported into the Northern Mariana Islands will clearly undergo a substantial transformation. As a result of the cutting and tailoring operations, the rolls of imported polymesh material will be converted into shopping bags, an article with a new name, use, and identity. The polymesh rolls are, essentially, a raw material and possess nothing in character which indicates the final product. See Torrington at 1568. The shopping bags therefore will be considered the product or manufacture of the Northern Mariana Islands for purposes of General Note 3(a)(iv).

Assuming that the final appraised value of the shopping bags, as determined in accordance with 19 U.S.C. 1401a, will be $0.34 per bag, and that the total cost of foreign materials will be $0.12 per bag, as your cost data indicate, the General Note 3(a)(iv) limitation on foreign content will be met. The cost data submitted indicate that the value of foreign materials will comprise only 35% of the total value of the shopping bags.

CONCLUSION:

The shopping bags produced in the Northern Mariana Islands as described above from imported rolls of polymesh material will be entitled to duty-free entry if they are shipped directly to the U.S., and if not more than 70% of the final appraised value of the bags will be attributable to the costs of foreign material, as your cost data suggest.

Sincerely,

John Durant, Director

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