HQ 560364 - Eligibility for duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, of moccasin-type footwear produced in the Dominican Republic; de minimis; beads. - United States International Trade Commision Rulings

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HQ 560364

May 6, 1997

CLA-2 RR:TC:SM 560364 JML

CATEGORY: CLASSIFICATION

John B. Pellegrini, Esq.
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, New York 10022-3219

RE: Eligibility for duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, of moccasin-type footwear produced in the Dominican Republic; de minimis; beads.

Dear Sir:

This is in response to your letter of March 12, 1997, in which you requested a binding ruling on behalf of Minnetonka Moccasin Co., Inc. ("Minnetonka"), regarding the eligibility of moccasin-type footwear for duty-free treatment under United States ("U.S.") Note 2(b), Chapter 98, Subchapter II, Harmonized Tariff Schedule of the United States ("HTSUS"). Although you did not submit a sample, you did provide a brochure from your client picturing and describing the subject merchandise.

FACTS:

Your client, Minnetonka, intends to import moccasin-type footwear from the Dominican Republic. The footwear is produced by Tonka Footwear Co., a related entity.

The article at issue is a women's leather moccasin called the "Thunderbird Boat Sole." There are two styles of moccasins under that model, consisting of either leather or suede uppers and rubber/plastic outsoles. On the uppers, there is a beaded design. The processes performed in the Dominican Republic consists of the following steps:

1. upper leather cut into component parts;

2. beads handsewn to plug (an upper component part);

3. upper components machine stitched (back closed, collar seams sewn and lace inserted, shawl sewn to plug, back sewn, and bottom closed with a zig-zag stitch);

4. soles attached to upper with glue;

5. sole and upper stitched;

6. sock lining glued in place;

7. plug hand laced to vamp;

8. completed shoe shaped by lasting.

You state that all of the materials, ingredients and components of the footwear are of U.S.-origin, with the exception of the beads used for the design on the uppers. Furthermore, the information provided indicates that the beads represent 0.9 percent of the total cost of the models with smooth leather uppers, and 1.1 percent of the total cost of the models with suede uppers.

Upon its completion, the footwear is to be sent directly to U.S. without entering the commerce of any foreign countries. The intended port of entry is Jacksonville, Florida.

ISSUE:

Whether the completed footwear is entitled to duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS.

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 specified products, which are assembled or processed in a Caribbean Basin Economic Recovery Act ("CBERA") beneficiary country ("BC") in whole of fabricated components or ingredients (except water) of U.S. origin.

Specifically, 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, enters the commerce of any foreign country other than a beneficiary country.

As used in this paragraph, the term "beneficiary country" means a country listed in general note 7(a).

Pursuant to General note 7(a), HTSUS, the Dominican Republic has been designated as a BC for CBERA purposes. Although U.S. Note 2(b)(i)(A) and (B) are separated by the word "or," it is our opinion that Congress did not intend to preclude duty-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.

The definition of the term "wholly of" pursuant to General Note 19(e)(i), HTSUS, while not identical to the term "in whole of" used under U.S. Note 2(b), is instructive in interpreting the latter term. See HRL 556013, dated June 17, 1991; HRL 557545, dated Dec. 13, 1993 "Wholly of" as defined in General Note 19(e)(i), HTSUS, means that goods are, except for negligible or insignificant quantities of some other material or materials, composed entirely of the named material. Furthermore, in determining which goods are composed "wholly of" certain materials, the de minimis concept shall be applied. See General Note 19(e), HTSUS.

Regarding the operations performed in the Dominican Republic, Customs is of the opinion that the assembly and processing of the U.S.-origin components, materials and ingredients that consists of cutting materials to component parts and stitching the cut pieces together, gluing and stitching the sole to the upper, attaching the decorative beads, and shaping the footwear by lasting, constitute the type of operations contemplated by Note 2(b). See Headquarters Ruling Letter ("HRL") 557735, dated May 27, 1994 and HRL 557545, dated December 13, 1993.

Further, we find that the presence of the foreign-origin decorative beads will not disqualify the footwear from duty-free treatment under Note 2(b). In HRL 556013, dated June 17, 1991, Customs determined that the presence of German-origin adhesive used to secure the string and cuff of enema tip assemblies did not preclude duty-free treatment under Note 2(b). In reaching its conclusion, Customs noted that the adhesive constituted only 1 percent of the total value the completed article. As such, Customs reasoned that the adhesive constituted only an insignificant portion of the completed article and would not preclude duty-free treatment under U.S. Note 2(b). Similarly, in a case involving footwear from the Dominican Republic, Customs held that the presence of a foreign-origin adhesive which represented merely 1 percent of the total value of the completed article represented only an insignificant or de minimis part of the total value of the completed footwear which did not defeat that product's eligibility for duty-free treatment under U.S. Note 2(b). See HRL 557545, dated Dec. 13, 1993 Considering the fact that the beads are decorative as opposed to functional in nature, coupled with your representations that they will constitute only between 0.9 and 1.1 percent of the cost of the footwear, we find that they are insignificant or de minimis materials which will not preclude the footwear from being considered to have been made "in whole of" U.S.-origin components, ingredients or materials.

If the other materials, components or ingredients shipped directly from the U.S. to the BC are of U.S.-origin and the completed footwear is shipped directly to the U.S. without entering into the commerce of any foreign country other than a BC, the footwear will be entitled to duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, assuming the documentation requirements set forth in Customs telex #9264071 dated September 28, 1990, are met (copy enclosed).

HOLDING:

On the basis of the information submitted, Customs is of the opinion that the moccasin-type footwear from the Dominican Republic is made "in whole of" materials of U.S.-origin, and is entitled to duty-free treatment under U.S. Note 2(b), Subchapter II, Chapter 98, HTSUS, upon compliance with the imported directly and documentation requirements of this provision.

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 officer handling the transaction.

Sincerely,

John Durant,
Director

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