Ruling Request on Eligibility for Preferential Treatment under DR-CAFTA for Certain Finished Sandals Produced in the Dominican Republic from Non-originating Materials

HQ H024760 May 30, 2008 CLA-2 OT:RR:CTF:TCM H024760 JER CATEGORY: Classification TARIFF NO.: 6404.19.3580 Sandra Tovar CST, Inc. 500 Lanier Avenue, W., Suite 901 Fayetteville, GA 30214 RE: Ruling Request on Eligibility for Preferential Treatment under DR-CAFTA for Certain Finished Sandals Produced in the Dominican Republic from Non-originating Materials Dear Ms. Tovar: This is in response to your letter, dated February 11, 2008, on behalf of Margarita International Trading (“Margarita Int’l.”), concerning your request for a ruling on the eligibility for preferential treatment under the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (“DR-CAFTA”) concerning certain finished sandals produced by Margarita Int’l. in the Dominican Republic from non-originating materials. You submitted a list of the processes involved in the production of the subject sandal which are performed in the Dominican Republic. FACTS: The merchandise at issue consists of an outer sole of rubber/plastic and an upper consisting of textile materials with adjustable straps which are designed to fit around the heel, instep and ankle. Another strap connects the hindfoot straps to the midfoot and top of forefoot. The straps secure the footwear to the foot by means of hook and loop closures. The insole is made up of molded ethyl vinyl acetate (EVA). A brand name company appears on the top of the strap closures and on the bottom of the sandal. According to your submission, the textile upper and the insole made up of molded EVA will be imported into the Dominican Republic from China. The outer sole will also be imported into the Dominican Republic, but from an unspecified country. You state that the footwear to be assembled in the territories of DR-CAFTA parties would be eligible for preferential treatment under the DR-CAFTA provided the completed sandal meets the criteria set forth in General Note 29 to Chapter 64, of the Harmonized Tariff Schedule of the United States (“HTSUS”). In your submission you claim that the subject finished sandal is classifiable under subheading 6404.19.3580, HTSUS, or alternatively, 6404.19.4030, HTSUS and inquire whether it is eligible for preferential (duty free) treatment under the DR-CAFTA. ISSUE: Whether the subject finished sandal is eligible for preferential (duty free) treatment under the DR-CAFTA when the sandal is assembled in the Dominican Republic from non-originating materials? LAW AND ANALYSIS: Merchandise is classifiable under the HTSUS in accordance with the General Rules of Interpretation (GRIs). The systematic detail of the HTSUS is such that virtually all goods are classified by application of GRI 1, that is, according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. General Note (GN) 29 of the HTSUS contains the DR-CAFTA rules. GN 29(a), HTSUS, states, in relevant part: Goods for which entry is claimed under the terms of the Dominican Republic-Central America-United States Free Trade Agreement are subject to duty as set forth herein. For the purposes of this note -- originating goods or goods described in subdivision (a)(ii), subject to the provisions of subdivisions (b) through (n) of this note, that are imported into the customs territory of the United States and entered under a provision -- (A) in chapters 1 through 97 of the tariff schedule for which a rate of duty appears in the “Special” subcolumn of column 1 followed by the symbol “P” or “P+” in parentheses, or in chapter 98 or 99 of the tariff schedule where rate of duty or other treatment is specified, are eligible for the tariff treatment and quantitative limitations set forth therein in accordance with sections 201 through 203, inclusive, of the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (Pub. L. 109-53; 119 Stat. 462)[.] * * * GN 29(b), HTSUS, sets forth criteria for determining whether a good (other than agricultural goods provided for in GN 29(a)(ii)) is an originating good for purposes of the DR-CAFTA. GN 29(b), HTSUS, states, in relevant part: For the purposes of this note, subject to the provisions of subdivisions (c), (d), (m) and (n) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good under the terms of this note if -- (i) the good is a good wholly obtained or produced entirely in the territory of one or more of the parties to the Agreement; (ii) the good was produced entirely in the territory of one or more of the parties to the Agreement, and -- each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note; and the good satisfies all other applicable requirements of this note; or (iii) the good was produced entirely in the territory of one or more of the parties to the Agreement exclusively from originating materials. * * * GN 29(n), to Chapter 64, HTSUS, (19 U.S.C. §1202) states in pertinent part that: Notwithstanding the tariff classification rules for goods of chapter 64 set forth below, with respect to goods of chapter 64 falling in the following tariff provisions enumerated in this rule for which a rate of duty followed by the symbol “P” in parentheses appears in the “Special” subcolumn rate of duty column 1, an importer may claim preferential treatment under this note for a good of chapter 64 that meets any tariff classification rule for such good set forth in general note 12, 17, 25, 26 or 28 of the tariff schedule: 1. A change to subheadings 6401.10 or 6401.91 or tariff items 6401.92.90, 6401.99.30, 6401.99.60, 6401.99.90, 6402.30.50, 6402.30.70, 6402.30.80, 6402.91.50, 6402.91.80, 6402.91.90, 6402.99.20, 6402.99.80, 6402.99.90, 6404.11.90 or 6404.19.20 from any other heading outside 6401 through 6405, except from subheading 6406.10, provided that there is a regional value content of not less than 55 percent under the build-up method. 2. A change to any other tariff item of chapter 64 from any other subheading. Regarding eligibility under the DR-CAFTA, on August 5, 2004, the governments of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States signed the Dominican Republic-Central America-United States Free Trade Agreement (“Agreement”). The U.S. Congress approved the Agreement with the enactment on August 2, 2005, of the DR-CAFTA, Pub. L. 109-53, 119 Stat. 462 (19 U.S.C. 4001 et seq.). The Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the United States are currently parties to the Agreement. According to your submission, production of the subject merchandise begins with non-originating uppers and insoles from China and non-originating outer soles from an unspecified country. You state that the production processing which is performed in the Dominican Republic includes the following activities: Buff outsoles to remove residues Clean outsoles with solvent Cement & last the upper Cement upper to insole Heat activate insole Mark outsole outline Cement outsole Heat activate outsole and upper Vertical press Horizontal press Vacuum press Cement upper to outsole Clean & pack sandal  Because the subject merchandise is assembled in the Dominican Republic from non-originating components, the provisions of GN 29(a)(i)(A), GN 29(b)(ii)(A) and GN 29(n) apply. Specifically, the subject sandal will have to satisfy the tariff change rule of GN 29(n), Chapter 64, HTSUS, Rule1 or Rule 2, which state that: 1. A change to subheadings 6401.10 or 6401.91 or tariff items 6401.92.90, 6401.99.30, 6401.99.60, 6401.99.90, 6402.30.50, 6402.30.70, 6402.30.80, 6402.91.50, 6402.91.80, 6402.91.90, 6402.99.20, 6402.99.80, 6402.99.90, 6404.11.90 or 6404.19.20 from any other heading outside 6401 through 6405, except from subheading 6406.10, provided that there is a regional value content of not less than 55 percent under the build-up method. 2. A change to any other tariff item of chapter 64 from any other subheading. In the first scenario, the tariff classification of the finished sandal does not undergo a change to a subheading provided for in Rule 1 of GN 29(n), to Chapter 64, HTSUS. The non-originating components include textile straps which are classifiable in subheading 6406.10.90, HTSUS, an outer sole, classifiable in subheading 6402.20.00, HTSUS, and the insole which is classifiable in subheading 6406.99.30.60. As stated above, the non-originating components undergo production processes which include: buffing, cleaning, assembling and packaging. However, the finished sandal is classifiable in subheading 6404.19.3580, HTSUS which does not appear in Rule 1 of GN 29(n), to Chapter 64, HTSUS. Accordingly, Rule 1 is not applicable. In the second scenario, the merchandise will be eligible for preferential treatment under the DR-CAFTA provided the assembly of non-originating components constitutes a change to a tariff item of Chapter 64. Under the present facts, the non-originating textile straps, outer sole, and insole once processed and assembled in the Dominican Republic undergo a change in classification to a tariff item of Chapter 64. Under Rule 2 of GN 29 (n) the non-originating materials which are classifiable in subheading(s) 6406.10.90, HTSUS, (textile straps), 6402.20.00, HTSUS, (outer sole) and 6406.99.30.60, HTSUS (insole), each undergo a tariff change to another tariff item of Chapter 64, HTSUS. Specifically, the completed sandal is classifiable in subheading 6404.19.3580, HTSUS. In New York Ruling Letter (“NY”) J88187, dated September 12, 2003, and in NY PD E87277, dated October 12, 1999, CBP classified open toed, open heel sandals in subheading 6404.19.35, HTSUS, which provides for, “[f]ootwear with outer soles of rubber, plastic,…and uppers of textile materials: with open toes or open heels.” In each of these decisions, the outer sole was made of rubber/plastic and had straps made of textile material which were secured or cemented to the sole. The instant merchandise has substantially similar features and thus is classifiable as a footwear item of Chapter 64, HTSUS. Accordingly, Rule 2 is applicable. In addition, GN 29(a)(i)(A), HTSUS, may be applicable, provided the subheading for the subject merchandise falls under a special rate of duty in the tariff schedule followed by the symbol “P” or “P+” in parentheses. For purposes of GN 29(a)(i)(A), HTSUS, the goods must be originating (pursuant to GN 29(b)) or goods described in subdivision (a)(ii) of the this provision. Originating goods for purposes of this provision are goods “wholly obtained or produced entirely in the territory of one of the parties to the Agreement, and each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note…” or, “(iii) the good was produced entirely in the territory of one of the parties to the Agreement exclusively from originating materials.” Under our facts, the finished goods are produced entirely in the Dominican Republic from non-originating materials. As such, the finished sandals are goods pursuant to GN 29 (b)(ii)(A) and therefore meet the criteria of this provision. Based on the submitted information, we find that the subject sandal qualifies for preferential (duty free) treatment under the DR-CAFTA. First, the classification of the goods resulted in a change [in classification] to a tariff item of Chapter 64 pursuant to Rule 2 of GN 29(n), to Chapter 64, HTSUS. Second, pursuant to GN 29 (n) to Chapter 64, HTSUS, goods of Chapter 64 falling in the tariff provisions enumerated in Rule 1 and Rule 2 for which a rate of duty followed by the symbol “P” appearing in the “Special” subcolumn, are eligible for preferential treatment. The HTSUS subheading at issue receives a “Special” rate of duty as indicated by the presence of the symbol “P” appearing in parentheses following the “Special” rate of duty subcolumn. HOLDING: The finished sandal assembled in the Dominican Republic from non-originating materials is eligible for preferential (duty free) treatment under the DR-CAFTA. It is classifiable under subheading 6404.19.3580, HTSUS, which provides for: “Footwear with outer soles of rubber, plastic, leather or composition leather and uppers of textile materials: Other: Footwear with open toes or heels; Other.” The column one, general rate of duty is 37.5% ad valorem. The subcolumn special rate of duty is free. 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 CBP officer handling the transaction. Sincerely, Gail A. Hamill, Chief Tariff Classification and Marking Branch