HQ 556361: Applicability of duty exemption under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS, to footwear and footwear uppers produced in the Dominican Republic; CSD 89-27(4), 555742, 067823, 555886

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                         HQ 556361

                       December 11, 1991

CLA-2 CO:R:C:S 556361 SER

CATEGORY: Classification

Mr. Laverne L. Leese
Littonian Shoe Company
P.O. Box 95
Littlestown, PA 17340

RE:  Applicability of duty exemption under U.S. Note 2(b),
     subchapter II, Chapter 98, HTSUS, to footwear and footwear
     uppers produced in the Dominican Republic; CSD 89-27(4),
     555742, 067823, 555886

Dear Mr. Leese:

     This is in reference to your letter of June 21, 1991,
requesting a ruling on the eligibility for duty-free treatment
under U.S. Note 2(b), subchapter II, Chapter 98, Harmonized
Tariff Schedule of the United States (HTSUS), of footwear and
footwear uppers produced in the Dominican Republic.

FACTS:

     The footwear at issue is produced from greige goods of
either U.S. or foreign origin.  In the U.S., the greige goods are
either bleached and dyed, or bleached, dyed and printed.  Next,
two pieces of this fabric are joined together through a
laminating process involving a latex bonding material, heat and
pressure.  After the lamination process, the fabric is cut to
shape in the U.S. and shipped to the Dominican Republic for
completion of the footwear.

     In the Dominican Republic, the manufacture of the footwear
involves applying a thin layer of plastic to the toe area of the
vamp.  The fabric components are then sewn together to form the
shoe upper, eyelets are inserted, and the upper is attached to a
last.  U.S.-origin thermoplastic pellets are melted, formed, and
then joined with the upper in an injection molding machine to
form the final article.

     The footwear uppers are also manufactured from either U.S.-
origin or imported greige goods.  In the U.S., the greige goods
are bleached, dyed and printed.  Two layers of these greige goods
are then laminated together using a latex adhesive, pressure and
heat.  The laminated fabric is then cut to shape.  These fabrics
and the other necessary components, all of U.S. origin, are
shipped to the Dominican Republic for completion of the footwear
uppers.
                               -2-

     In the Dominican Republic, the laminated fabric is sewn
together, a thin layer of plastic is applied to the toe area of
the forward section of the upper, the different fabric components
are sewn together, and the eyelets are then inserted.  The
completed uppers are then exported to the U.S., where they are
manufactured into completed footwear.

ISSUES:

     Whether the footwear and footwear uppers are entitled to
duty-free treatment under U.S. Note 2(b), subchapter II, Chapter
98, HTSUSA.

LAW AND ANALYSIS:

     Section 222 of the Customs and Trade Act of 1990 (P.L. 101-
382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS,
("Note 2(b)") to provide for duty-free treatment of articles,
other than certain specified products, which are assembled or
processed in a Caribbean Basin Initiative beneficiary country
(BC) wholly of fabricated components or ingredients (except
water) of U.S. origin.  This amendment was effective with respect
to goods entered on or after October 1, 1990.

     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, nor the article itself, before importation
            in the United States, enters the commerce of any
            foreign country other than a beneficiary country.

     As used in this paragraph, the term "beneficiary country"
     (BC) means a country listed in General Note 3(c)(v)(A),
     HTSUS.

                               -3-



  1. Eligibility of Footwear and Footwear Uppers

     As stated above, Note 2(b) specifies four categories of
products which are excluded from duty-free treatment under this
provision: textile articles; apparel articles; petroleum; and
certain petroleum products.  Therefore, the first issue presented
concerns whether the footwear and footwear uppers are included in
the "textile and apparel article" exclusion for purposes of Note
2(b) and, therefore, precluded from receiving duty-free treatment
under this provision.

     In Headquarters Ruling Letters (HRLs) 555742 dated November
5, 1990, and 555788 dated September 9, 1991, we held that
footwear and footwear uppers are not considered textile or
apparel articles, and, therefore, are eligible for duty-free
treatment under this subheading.

  2. Country of Origin of Fabric Sent to the Dominican Republic

     To qualify for Note 2(b) duty-free treatment, an eligible
article must be assembled or processed in a BC entirely of
components or ingredients that are a "product of" the U.S.  A
"product of" the U.S. is an article manufactured within the
customs territory of the U.S.  Foreign-made articles or materials
may become products of the U.S. if they undergo a process of
manufacture in the U.S. which results in their substantial
transformation.  See, for example, sections 10.12(e) and
10.14(b), Customs Regulations (19 CFR 10.12(e) and 10.14(b)).

     Section 12.130, Customs Regulations (19 CFR 12.130), governs
the determination of the country of origin of textiles or textile
products.  According to 19 CFR 12.130(b), a textile or textile
product will be considered to have undergone a substantial
transformation if it has been transformed by means of substantial
manufacturing or processing operations into a new and different
article of commerce.  A new and different article of commerce
will usually result from a manufacturing or processing operation
if there is a change in:  1) commercial designation or
identification; 2) fundamental character; or 3) commercial use.
19 CFR 12.130(d)(1).

     In determining whether merchandise has undergone substantial
manufacturing or processing operations, we consider the
following: (1) Physical change in the material or article; (2)
Time involved in manufacturing or processing; (3) Complexity of
the operations; (4) Level or degree of skill and/or technology
required; and (5) Value added to the material or article. 19 CFR
12.130(d)(2).


                               -4-



     In this case, imported foreign-made greige goods (textile
products for purposes of 19 CFR 12.130) are bleached, dyed
and/or printed in the U.S.  Two layers of the fabric are then
laminated together through the use of a latex adhesive, heat and
pressure.  After the lamination process, the fabric is then cut
to shape in the U.S.

     According to 19 CFR 12.130 (e)(1)(iv), a textile article or
material usually will be a product of a particular country if the
cutting of the fabric into parts and the assembly of those parts
into the completed article have occurred in that country.
Customs has consistently ruled that cutting-to-shape operations
constitute a substantial transformation if the cutting creates
defined patterns or shapes suitable for use as components in an
assembly operation.  See HRLs 555742, 555788, 067823 dated June
2, 1982, 1991, and C.S.D. 89-27(4) (HRL 554929 dated November 3,
1988).  Therefore, the foreign greige goods which are imported
into the U.S. and subsequently cut into various shapes necessary
to construct the footwear and footwear uppers are substantially
transformed into "products of" the U.S.

  3. Assembly and Processing in the Dominican Republic

     The operations to be performed in the Dominican Republic in
the production of the footwear and footwear uppers consist
primarily of: sewing the laminated fabric components together;
applying a thin layer of plastic to the toe area of the vamp;
sewing different fabric components together; and inserting the
eyelets.  The footwear is completed by securing the upper to a
last and applying thermoplastic, formed by injection molding, to
the uppers.

     We have previously held that operations similar to those
described above are encompassed by Note 2(b). See HRL 555742.
Therefore, if, in fact, all materials are of U.S. origin, the
footwear and footwear uppers are shipped directly to the U.S.
without entering into the commerce of any foreign country other
than a BC, and the applicable documentation requirements are
satisfied, the footwear uppers will be entitled to duty-free
treatment under this provision.



                               -5-



HOLDING:

     On the basis of the information submitted, we conclude that
the footwear and footwear uppers made in the Dominican Republic
wholly from materials of U.S. origin are entitled to duty-free
treatment under Note 2(b), upon compliance with the
documentation requirements set forth in Headquarters telex
9264071 dated September 28, 1990 (copy enclosed).

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division
Enclosure