HQ 556693: CBERA; U.S. Note 2(b), subchapter II, Chapter 98, HTSUS; Molding; Winding; Substantial Transformation; Softballs; Trade Embargo Against Haiti; Assembly; Sewing; Winding

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 556693

                         August 28, 1992

CLA-2 CO:R:C:S 556693 RAH

CATEGORY:  Classification

TARIFF NO.: 9802.00.80

Mr. John F. Furlong
Vice President Operations
Dudley Sports
30 East Park Avenue
Sellersville, PA 18960

RE: CBERA; U.S. Note 2(b), subchapter II, Chapter 98, HTSUS;
    Molding; Winding; Substantial Transformation; Softballs;
    Trade Embargo Against Haiti; Assembly; Sewing; Winding    

Dear Mr. Furlong:

     This is in response to your letters of April 29, 1992, and
August 26, 1992, regarding the tariff status of softballs made or
assembled in Haiti.

FACTS:

     The softballs are divided into three groups.  All the
softballs are made or assembled in Haiti at your wholly-owned
subsidiary, Dudley Sports Haiti, S.A.  Group 1 (models WT-12, WS-
11 and WS-11) is manufactured using 100 percent U.S. components. 
Group 2 (models SB-12, P-12) and group 3 (models SB-12, P-12) are
manufactured in Haiti using some foreign materials.  The foreign
material in group 2 is granulated raw cork (processed in the U.S.
from Portuguese-origin cork).  The foreign material in group 3 is
a cork slug molded in China which needs further processing in
Haiti to become a finished softball center.

     The group 1 softball centers are made in the United States
from U.S materials and shipped to Haiti for hand sewing and
further processing into finished softballs.

     The manufacturing process for group 2 is described in
detail.  Granulated raw cork (of portuguese origin) is shipped
from the United States to Haiti in burlap sacks.  The granulated
cork is unloaded and a specific amount is dumped into mixers.  A
binder or glue-like substance made and shipped from the United
States is added to the mix to create a substance resembling
dough.  The dough is manually inserted into pressing machine
molds.  The molds consist of 2 half spheres of metal, which - 2 -

press the dough under 10 tons of pressure for over one minute. 
The product contained in the molds is manually placed on steel
racks.  The racks of the product in molds are then manually
removed and placed in a specially designed cool-down room for at
least 40 minutes.  The molds are manually opened and raw cork
slugs are removed.  The cork slugs are placed in a deflashing
machine which removes the equator from the slugs.  All cork slugs
are then manually inspected for proper size and weight.  The cork
slugs are then wound by a first stage winding machine with U.S.
poly/cotton yarn and then checked for proper size and weight. 
The product is placed in holding bins and then moved to another
machine for winding with finishing yarn.  U.S. finishing yarn is
a blend of cotton/polyester and is applied for a specific amount
of time and once again checked for proper size and weight.  The
product then is submerged in a pre-mixed U.S. made water based
latex solution for one minute.  After removal from the latex dip,
the product is put on racks to dry for a minimum of 48 hours. 
After drying, the product is checked for proper size and weight. 
     
     The cores enter the stitching rooms where U.S.-cut-to-shape
leather or synthetic covers will be applied.  All leather covers
are placed in a wet-up cloth for a minimum of six hours to help
soften the leather for hand sewing and to ensure proper fit. 
Professional hand stitchers unwrap the cover and glue it to the
core.  The covers are manually stitched to the centers with U.S.
nylon or cotton sewing thread.  Six weeks of instructions are
required to train each ball stitcher.  After 12 balls are
stitched, they are inspected for cosmetic blemishes.  All leather
covered balls are placed in drying bins for at least 48 hours. 
The balls are then manually placed in rolling machines for 45
seconds to achieve desired seam height.  Each ball is manually
cleaned and inspected and put into two categories--good quality
or cosmetic blemished balls.  The Dudley name is marked on the
good quality balls and the cosmetic blemished ones are packed
blank to be sold in the United States.  All softballs are then
loaded into containers for shipment to the United States. 

     In manufacturing the group 3 model softballs, the slugs are
not manufactured in Haiti but are shipped directly from China to
Haiti.  Thereafter, the process of manufacturing the softballs
from the Chinese slugs is the same as that described for the
group 2 softballs.
 
ISSUES:

     (1)  Whether the softballs manufactured in Haiti are
eligible for duty-free treatment under U.S. Note 2(b), subchapter
II, Chapter 98, Harmonized Tariff Schedule of the United States
(HTSUS), or the Caribbean Basin Economic Recovery Act (CBERA).
                              - 3 -

     (2)  Whether the U.S.-origin materials used to make the
group 3 softballs qualify for a duty exemption under subheading
9802.00.80, HTSUS, when imported into the United States as part
of finished softballs.  

LAW AND ANALYSIS:

     On March 31, 1992, the Department of the Treasury
promulgated the Haitian Transactions Regulations in consultation
with the Department of State to implement the President's
Executive Orders of October 4, 1991, declaring a national
emergency with respect to Haiti and ordering a trade embargo
against Haiti as of October 28, 1991.  Except as otherwise
provided, no goods or services of Haitian origin, other than
publications and other informational materials may be imported
into the United States and no such articles may be exported from
the United States either directly or indirectly to Haiti.  31 CFR
580.205(a) and 580.206.  One exception to the trade embargo is
for importations from and exportations to assembly/production
operations in Haiti, under special license.  In order to
determine if you qualify for such a license, you may contact:

               R. Richard Newcomb, Director
               Office of Foreign Assets Control
               Department of the Treasury
               1500 Pennsylvania Avenue N.W.
               Washington, D.C.  20220              

For purposes of this ruling we will assume that you qualify for a
special license which will permit the importation of the
softballs into the United States from Haiti.

     With regard to group 1, you state that the softballs are
manufactured in Haiti completely of U.S. components.  Section 222
of the Customs and Trade Act of 1990 (Public Law 101-382) amended
U.S. Note 2, subchapter II, Chapter 98, HTSUS ("Note 2(b)"), to
provide for the duty-free treatment of articles (other than
textile and apparel articles, petroleum and petroleum products)
which are assembled or processed in a CBERA 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.
                              - 4 -

     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 into
          the United States, enters the commerce of any foreign
          country other than a beneficiary country.

     As stated in this paragraph, the term "beneficiary
     country" means a country listed in General Note
     3(c)(v)(A).     
               
     Pursuant to General Note 3(c)(V)(A), HTSUS, Haiti has been
designated as a BC for CBERA purposes.  In regard to the Group 1
baseballs, you state that 100 percent U.S. components and
ingredients are used during the manufacturing operation in Haiti. 
Moreover, the processes you describe for manufacturing the group
1 softballs in Haiti are encompassed by the operations permitted
in Note 2(b).  Accordingly, the group 1 softballs will be
entitled to duty-free treatment under U.S. Note 2(b), assuming
the direct shipment and applicable documentation requirements are
satisfied.    

     You further contend that the baseballs manufactured in group
2 and 3 are eligible for duty-free treatment under the CBERA. 
Under the CBERA, eligible articles the growth, product or
manufacture of BC's, may enter the U.S. free of duty if such
articles are imported directly to the U.S. from the BC, and if
the sum of (1) the cost or value of the materials produced in a
BC or BCs, plus (2) the direct cost of processing operations
performed in a BC or BCs, is not less then 35 percent of the
appraised value of the article at the time it is entered into the
United States.  See, 19 U.S.C. 2703(a).  The cost or value of
materials produced in the U.S. may be applied toward the 35 - 5 -

percent value-content minimum in an amount not to exceed 15
percent of the imported article's appraised value.  See, section
10.195(c), Customs Regulations (19 CFR 19.195(c)). 

     If an article is comprised of materials that are imported
into the BDC, the cost or value of those materials may be
included in calculating the 35 percent value-content requirement
only if they undergo a "double substantial transformation" in the
BDC.  See, section 10.177(a), Customs Regulations (19 CFR
10.177(a)); Azteca Milling Co. v. United States, 703 F. Supp. 949
(CIT 1988), aff'd, 890 F.2d 1150 (1989).  That is, the cost or
value of the granulated raw cork exported to Haiti for use in
producing the group 2 softballs may be counted towards the 35
percent value-content requirement only if it is substantially
transformed in Haiti into a new and different intermediate
article of commerce which is, itself, substantially transformed
when used in the production of the final article (softballs).  A
substantial transformation occurs "when an article emerges from a
manufacturing process with a new name, character, or use which
differs from that of the original material subjected to the
process."  The Torrington Company v. United States, 764 F.2d
1563, 1568 (Fed. Cir. 1985).  

     Based on the information submitted, we are unable to
conclude that the cork slugs manufactured from granulated raw
cork are a separate and distinct intermediate article of
commerce.  It appears they are merely "materials in process,
advancing toward the finished product [softballs]."  See, Azteca
Milling Co. v. United States, supra at 1160, and F.F. Zuniga v.
United States, No. 79-11-01684, Ct. Int'l Trade, June 11, 1992,
appeal filed.  Accordingly, we find that the cost or value of the
raw granulated cork may not be counted toward the 35 percent
value-content requirement.  

     Nevertheless, we find that the overall manufacturing process
described for the group 2 and 3 softballs constitutes a
substantial transformation and clearly creates a new and
different article of commerce with a new name, character and use.
Accordingly, because the group 2 and 3 baseballs are considered
"products of" Haiti, they are eligible for duty-free treatment
under the CBERA, provided the 35 percent value-content
requirement is satisfied.  

                              - 6 -

     In the event the group 3 softballs do not qualify for CBERA
duty-free treatment, you ask whether they will be eligible for a
partial duty exemption under subheading 9802.00.80, HTSUS.  In
that regard, subheading 9802.00.80, HTSUS, provides a partial
duty exemption for:

     [a]rticles assembled abroad in whole or in part of
     fabricated components, the product of the United
     States, which (a) were exported in condition ready for
     assembly without further fabrication, (b) have not lost
     their physical identity in such articles by change in
     form, shape, or otherwise, and (c) have not been
     advanced in value or improved in condition abroad
     except by being assembled and except by operations
     incidental to the assembly process, such as cleaning,
     lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be
satisfied before a component may receive a duty allowance.  An
article entered under this tariff provision is subject to duty
upon the full cost or value of the imported assembled article,
less the cost or value of the U.S. components assembled therein,
upon compliance with the documentary requirements of section
10.24, Customs Regulations (19 CFR 10.24).

     Section 10.14(a), Customs Regulations (19 CFR 10.14(a)),
states in part that:

     [t]he components must be in condition ready for
     assembly without further fabrication at the time of
     their exportation from the United States to qualify for
     the exemption.  Components will not lose their
     entitlement to the exemption by being subjected to
     operations incidental to the assembly either before,
     during, or after their assembly with other components.

     Section 10.16(a), Customs Regulations (19 CFR 10.16(a)),
provides that the assembly operation performed abroad may consist
of any method used to join or fit together solid components, such
as welding, soldering, riveting, force fitting, gluing,
lamination, sewing, or the use of fasteners.

     Operations incidental to the assembly process are not
considered further fabrication operations, as they are of a minor
nature and cannot always be provided for in advance of the 
assembly operations.  However, any significant process, operation
or treatment whose primary purpose is the fabrication,
completion, physical or chemical improvement of a component
precludes the application of the exemption under subheading
9802.00.80, HTSUS, to that component.  See, 19 CFR 10.16(c).
                              - 7 -

     Under the facts presented, we find that all three
requirements of subheading 9802.00.80, HTSUS, will be satisfied
with respect to the group 3 softballs.  Foreign despooling and
winding operations have been considered by the courts within the
context of item 807.00, Tariff Schedules of the United States
(the predecessor to subheading 9802.00.80, HTSUS), and been found
to constitute assembly steps rather than a "further fabrication." 
See, General Instrument Corporation v. United States, 61 CCPA 86,
C.A.D. 1128, 499 F.2d 1318, 1320 (1974), rev'g, 70 Cust. Ct. 151,
C.D.4421359 F. Supp. 1390 (1973).  Moreover, the methods by which
the pre-cut leather or synthetic cover is joined to the center--
gluing and sewing--are specifically enumerated in 19 CFR 10.16(a)
as acceptable assembly operations.  Therefore, in regard to the
group 3 softballs, allowances in duty may be made under
subheading 9802.00.80, HTSUS, for the cost or value of the U.S.
fabricated components incorporated into the softballs (yarn,
thread and pre-cut leather or synthetic covers).  

HOLDING:

     Softballs manufactured in Haiti entirely of U.S. components
and ingredients will receive duty-free treatment under U.S. Note
2(b), subchapter II, Chapter 98, HTSUS, upon entry into the
United States, assuming the direct shipment and documentation
requirements are satisfied.  Moreover, the manufacture of
baseballs from Chinese-origin cork slugs and cork slugs
manufactured in Haiti from granulated raw cork and other U.S.
components, as discussed above, substantially transforms these
imported components into "products of" Haiti.  Accordingly, the
softballs will receive duty-free treatment under the CBERA when
entered into the United States, provided the 35 percent value-
content requirement and documentary requirements are satisfied. 
Finally, the assembly of the softballs in group 3 by winding yarn
around the cork slugs, gluing and sewing a leather or synthetic
cover thereto constitutes an acceptable assembly operation under
subheading 9802.00.80, HTSUS.  Therefore, if the group 3
softballs do not satisfy the CBERA 35 percent value-content
requirements, they nevertheless will be entitled to a duty
allowance under subheading 9802.00.80, HTSUS, for the cost or
value of the U.S.-origin yarn, thread, and leather or synthetic
covers, upon compliance with the documentary requirements of 19
CFR 10.24.  

                                   Sincerely,



                                   John Durant, Director