Duty-free entry of sweaters

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