HQ 561565 - Applicability of U.S. Note 2(b), subchapter II Chapter 98, HTSUS, to footwear imported from the Dominican Republic - United States International Trade Commision Rulings

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HQ 561565

January 18, 2000

CLA-2 RR:CR:SM 561565 RSD

CATEGORY: CLASSIFICATION

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

RE: Applicability of U.S. Note 2(b), subchapter II Chapter 98, HTSUS, to footwear imported from the Dominican Republic

Dear Mr. Pellegrini:

This is in reference to your letter dated November 1, 1999, requesting a ruling concerning the applicability of U.S. Note 2(b), subchapter II, Chapter 98, of the Harmonized Tariff Schedule of the United States (HTSUS) to men’s and women’s footwear with leather uppers and rubber/plastic outsoles that will be imported from the Dominican Republic. You have enclosed photographs of the footwear and samples of the trademark labels for our consideration. As you have requested, the cost information contained in your letter will be given confidential treatment.

FACTS:

The subject merchandise consists of men’s and women’s footwear imported from the Dominican Republic. The Recreational Footwear Company will manufacture the footwear in the Dominican Republic. The footwear contains leather uppers and rubber/plastic outsoles, and some of the footwear has a waterproof lining. All of the materials, components and ingredients, with three exceptions, are of U.S. origin. The exceptions are a metal lace keeper with the trademark of the waterproof lining, a metal label with the trademark of the waterproof lining, and a polyurethane label with the company’s trademark. All processing performed on the footwear, including the cutting, the sewing, the lasting etc., will be performed in the Dominican Republic.

The kind of footwear to which the trademark label will be affixed is described as three-eyelet moccasin type shoes. The lining trademark label and the metal lace keepers will be affixed to footwear manufactured with the waterproof lining; principally the over-the-ankle footwear but also the oxford-height footwear. It is possible that the labels and lace keepers may be affixed to other varieties of footwear as well.

The polyurethane trademark label represents about .23 percent of the total cost of the footwear to which it is attached. The lace keeper and metal label with the lining trademark represent not more than .03 percent of the total cost of the footwear bearing these items.

ISSUE:

Whether based on the above description, 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 Headquarters Ruling Letter (HRL) 556013, dated June 17, 1991, and HRL 557545, dated December 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 whether 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, we believe that the assembly and processing of the U.S.-origin components and materials consisting of cutting materials and parts, sewing, and shaping the footwear by lasting constitute the type of operations contemplated by Note 2(b). See HRL 557735, dated May 27, 1994 and HRL 557545, dated December 13, 1993.

Accordingly, we must determine whether the presence of the non-U.S. origin lace keepers and metal and polyurethane trademark labels would disqualify the completed footwear from duty-free treatment under Note 2(b). In HRL 556013, we found that enema tip assemblies, which were made with U.S. materials as well as adhesive of German origin, which was used to secure the string ends and cuff of the enema tip assemblies, were eligible for duty-free treatment under Note 2(b). In reaching this conclusion, Customs noted that the adhesive constituted only 1 percent of the total value of 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 HRL 557545, dated December 13, 1993, a case also involving footwear from the Dominican Republic, Customs held that the presence of a foreign-origin adhesive which represented only 1 percent of the total value of the completed article was 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).

In HRL 560364, May 6, 1997, all of the materials used to make footwear in the Dominican Republic were of U.S. origin except for beads that were used for a design on the uppers. We concluded that because the beads were decorative as opposed to functional in nature and constituted only 0.9 to 1.1 percent of the cost of the footwear, they were insignificant or de minimis materials which would not preclude the footwear from being considered to have been made “in whole of” U.S.-origin components, ingredients or materials.

In HRL 557735 dated May 24, 1994, non-U.S. origin items such as binding ribbons, thread, and elastic were supplied to a Dominican factory to make footwear. Customs stated in the ruling that we have generally held that the presence of foreign-origin material will not defeat eligibility under Note 2(b) where the cost of the foreign material does not represent more than one percent of the total cost of the completed article and the foreign material is not an integral component of the completed article. However, we stated that we could not conclude that the functional foreign materials such as thread, binding ribbon, and elastic which were used to produce the footwear upper were not integral components of the footwear. Indeed, we noted that under the circumstances presented, only one component of the upper would be of U.S.-origin, i.e. the fabric. Therefore, we found that the presence of the foreign-origin thread, binding ribbon, and elastic in the footwear would preclude eligibility for duty-free entry under Note 2(b).

In this instance, the footwear can be worn without the metal lace keepers and the trademark labels, as these items are attached to the footwear simply to notify consumers of the brand name or trade name of the product. Accordingly, because the lace keepers and the metal and polyurethane trademark labels are not necessary to the function of the footwear, we believe that they are not integral components of the finished footwear. Based on your representations that the trademark labels and the lace keepers will constitute only between .03 and .23 percent of the cost of the finished 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 Note 2(b).

HOLDING:

On the basis of the information submitted, we are of the opinion that the footwear is made in the Dominican Republic "wholly of" materials of U.S. origin, and is entitled to duty-free treatment under Note 2(b), upon compliance with the imported directly and documentation requirements of this provision. The documentation requirements are set forth in Headquarters telex 9264071 dated September 28, 1990.

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
Commercial Rulings Division

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