HQ 555488: Duty-free entry of sweaters

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 555488

                        November 7, 1989


CLA-2 CO:R:C:G  555488 DSN

CATEGORY:  Classification

Donna L. Shira, Esquire
Sharretts Paley Carter & Blauvelt, P.C.
67 Broad Street
New York, New York 10004

RE:  Duty-free entry of sweaters

Dear Ms. Shira:

     This is in response to your request of February 22, 1989,
for a ruling on behalf of Charming Shoppes, Inc., regarding
whether the cost or value of certain material used in the
production of sweaters in the Dominican Republic is properly
included within the 35% local-content requirement for purposes of
the Caribbean Basin Economic Recovery Act (CBERA) (19 U.S.C.
2701-2706).

FACTS:

     According to your submission, the finished merchandise will
be women's sweaters consisting of 55% ramie and 45% cotton.  The
yarn used to construct the sweaters will be imported into the
Dominican Republic from Hong Kong or Taiwan.  In the Dominican
Republic, the yarn will be knitted into sweater panels.  The
panels are then linked, finished, washed and pressed.

     You state that your client does not know the actual cost of
the materials and processing involved in the production of the
sweaters.  However, you conclude that without the inclusion of
the yarn cost, the sweaters' local content will be lower than 35%
of the appraised value.  You assert that the imported yarn should
be included within the 35% local content for purposes of CBI.

ISSUE:

     Whether the cost or value of the imported yarn may be
included within the 35% value-content requirement for purposes of
the CBERA.

LAW AND ANALYSIS:

     Under the CBERA, eligible articles the growth, product or
manufacture of designated beneficiary countries (BC's) may
receive duty-free treatment if such articles are imported
directly to the U.S. from a BC, and if the sum of (1) the cost or
value of the material produced in a BC or BC's, plus (2) the
direct cost of processing operations performed in a BC or BC's,
is not less than 35% of the appraised value of the article at the
time it is entered into the U.S.  See 19 U.S.C. 2703(a).  The
CBERA further provides that the cost or value of materials
produced in the customs territory of the U.S. may be applied
toward the 35% value-content minimum in an amount not to exceed
15% of the imported article's appraised value.

     The Dominican Republic is a BC.  Without a sample, we cannot
determine definitely the classification of the sweaters under the
Harmonized Tariff Schedule of the United States (HTSUS).
However, based on your description, the sweaters would be
classified under subheading 6110.90.0042, HTSUS, which provides
for sweaters, knitted or crocheted, of other textile materials,
women's or girls', other, other, other, CBERA eligible.  You
state that the sweaters will be imported directly from the
Dominican Republic to the U.S.  Accordingly, if the sweaters are
a product of the Dominican Republic (or other BC or BC's) and the
35% value-content minimum is met, the sweaters will be entitled
to duty-free treatment under the CBERA.

     Materials grown or produced in a non-BC, such as Hong Kong
or Taiwan, which are substantially transformed in any BC into a
new and different article of commerce which is then used in any
BC in the production of a new or different article, are
considered materials produced in a BC, and the cost or value of
the substantially transformed materials may be counted toward the
35% value-content minimum.  See 19 CFR 10.196.  A substantial
transformation occurs when an article emerges from a process with
a new name, character, or use different from that possessed by
the article prior to processing.  See Texas Instrument, Inc. v.
United States, 69 CCPA 152, 681 F.2d 778 (1982).

     The yarn imported into the Dominican Republic from Hong Kong
or Taiwan undergoes the required double substantial
transformation.  The yarn is first substantially transformed by
knitting into sweater panels, which have a different name,
character, and use than that possessed by the yarn.  The sweater
panels are then substantially transformed again in the Dominican
Republic when they are linked together to form sweaters, and are
then finished, washed and pressed.  Comparable operations have
previously been held to result in a double substantial
transformation.  See Headquarters Ruling Letters 555113 dated
October 24, 1989, and 054461 dated January 23, 1978.
Accordingly, the cost or value of the yarn may be included as
part of the 35% value-content requirement.

HOLDING:

     The cost or value of the yarn to be imported into the
Dominican Republic and used in the production of sweaters may be
included in the CBERA 35% value-content computation.

                              Sincerely,




                              John Durant, Director
                              Commercial Rulings Division