Eligibility of fishing tackle for duty-free treatment under the Caribbean Basin Economic Recovery Act

HQ H114560 October 26, 2010 OT:RR:CTF:VS H114560 BGK CATEGORY: Classification Barbara Gehringer Farris Customs Brokers, Inc. 10060 Amberwood Road Suite 2 Ft. Myers, Florida 33913 RE: Eligibility of fishing tackle for duty-free treatment under the Caribbean Basin Economic Recovery Act Dear Ms. Gerhringer: This is in response to your request for a binding ruling on behalf of New World Trade, Inc. concerning the eligibility of certain fishing tackle imported from Haiti for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA). FACTS: Fishing tackle, labeled rigs, drifters, harnesses, spinner baits, spoons, floats, jigheads, and floating jigs, are hand-assembled in Haiti from parts made in the United States (U.S.), Norway, and China. You submitted a bill of materials and samples for three of the tackle at issue: perch rig, drifter, and crawler harness. Per our telephone conversation of October 1, 2010, you also submitted the costs of labor, a description of the activities occurring in Haiti, and Bills of Lading from the Dominican Republic to the U.S. Assembly in Haiti includes a variety of operations, depending on the specific tackle. These can include painting (either by hand or spray paint), molding, assembly, and hand-tying. Looking at the submitted samples, we note that the assembly involves tying a hook, beads and other similar components together with a nylon string. The tackle is then packaged in Haiti and shipped to a free trade zone in the Dominican Republic, ready for shipment to the U.S. You state that the tackle leaves Haiti ready for direct shipment to the U.S., and at no time does any of the product enter into the commerce of the Dominican Republic. The goods do not undergo any repackaging or further work after leaving Haiti. ISSUE: Whether the fishing tackle is eligible for duty-free treatment under the CBERA. LAW AND ANALYSIS: Articles imported into the U.S. from Haiti may be eligible for preferential tariff treatment under the CBERA. Under the CBERA, 19 U.S.C. § 2701 et. seq., except as otherwise provided, any article which is the growth, product, or manufacture of a beneficiary country may be eligible for preferential tariff treatment if (1) the articles are imported directly from the beneficiary country, and (2) the cost or value of the material produced in the beneficiary country, plus the direct costs of processing operations performed in the beneficiary country, is not less than 35 percent of the appraised value of the article at the time it is entered into the U.S. The cost or value of materials produced in the U.S. may be applied toward the 35 percent value-content requirement in an amount not to exceed 15 percent of the imported article’s appraised value. All fishing tackle, including the tackle at issue, is described in heading 9507, Harmonized Tariff Schedule of the United States (HTSUS), all subheadings of which are eligible for CBERA treatment. Haiti is a beneficiary country pursuant to 19 U.S.C. § 2702(b) and General Note 7(a), HTSUS. The first issue involved in this case is whether the imported fishing tackle is a “product of” Haiti. The “product of” requirement means that to receive duty-free treatment, an article either must be made entirely of materials originating in the beneficiary country, or if made of materials imported into the beneficiary country, those materials must be substantially transformed in the beneficiary country into a new and different article of commerce. See 19 C.F.R. § 10.195(a). A substantial transformation occurs “when an article emerges from a manufacturing process with a name, character, or use which differs from those of the original material subjected to the process.” Texas Instruments Inc. v. United States, 681 F.2d 778 (1982). In Headquarters Ruling Letter (HRL) W563367, it was determined that fishing rigs composed of hooks, beads, tubes, spinner blades and clevises of various origins underwent a substantial transformation through the assembly process because the hooks lost their identity and became “part of a new article of commerce commonly known as a rig[,]” and were eligible for preferential tariff treatment under the Generalized System of Preferences (GSP). However, it was also determined that fish hooks that were assembled into snelled hooks did not undergo a substantial transformation because the assembly operations were minimal and simple. In this case, the tackle is more similar to the rigs in HRL W563367 because it is also composed of fishing line, hooks, blades, clevises, and beads. The tackle in this case also undergoes similar operations to the rigs in HRL W563367, including painting, assembly, and hand-tying. We find that finished fishing tackle has a different name, character, and use than its individual components, such as hooks and beads. Hooks, blades, fishing line, clevises or beads alone would be insufficient for the purpose of catching a fish, and could serve many different purposes. Therefore, we find that the three samples of fishing tackle, as submitted, are a product of Haiti. The second issue involved in this case is whether the fishing tackle is imported directly from Haiti, the beneficiary country, into the customs territory of the U.S., as required by 19 U.S.C. § 2703(1)(A). “Imported directly” is defined in 19 C.F.R. § 10.193 as: (a) Direct shipment from any beneficiary country to the U.S. without passing through the territory of any non-beneficiary country; or (b) If the shipment is from any beneficiary country to the U.S. through the territory of any non-beneficiary country, the articles in the shipment do not enter into the commerce of any non-beneficiary country while en route to the U.S. and the invoices, bills of lading, and other shipping documents show the U.S. as the final destination; or (c) If the shipment is from any beneficiary country to the U.S. through the territory of any non-beneficiary country, and the invoices and other documents do not show the U.S. as the final destination, the articles in the shipment upon arrival in the U.S. are imported directly only if they: (1) Remained under the control of the customs authority of the intermediate country; (2) Did not enter into the commerce of the intermediate country except for the purpose of sale other than at retail, and the port director is satisfied that the importation results from the original commercial transaction between the importer and the producer or the latter's sales agent; and (3) Were not subjected to operations other than loading and unloading, and other activities necessary to preserve the articles in good condition. In this case, the packaged tackle will be shipped from Haiti to a free trade zone in the Dominican Republic, ready for direct shipment to the U.S. The goods are shipped to the U.S. along with goods made and packaged in the Dominican Republic, but are not repackaged themselves and never enter the commerce of the Dominican Republic. As the goods are not imported directly from Haiti, they do not qualify as “imported directly” under subsection (a) of 19 C.F.R. § 10.193. If the invoices, bills of lading, and other shipping documents from the beneficiary country show the U.S. as the final destination, the tackle will qualify as being imported directly under subsection (b) because they never enter the commerce of the non-beneficiary country, the Dominican Republic. However, in the bills of lading submitted, the Dominican Republic is listed as the point of origin. Therefore, the goods cannot qualify as being imported directly under 19 C.F.R. § 10.193(b). If the shipping documents do not show the U.S. as the final destination, the goods must qualify under subsection (c) to qualify as being imported directly. This means the goods must remain under the control of the customs authority of the Dominican Republic, not enter the commerce of the Dominican Republic, and not undergo any operations other than loading and unloading in the Dominican Republic. The port director must also be satisfied that the importation is a result of the original commercial transaction between the importer and the producer, or their agent. Provided the elements of 19 C.F.R. § 10.193(c) are satisfied, the fishing tackle will qualify as being imported directly, even though the shipment stops in the Dominican Republic before coming to the United States. In interpreting a similar definition of “imported directly” for purposes of eligibility for GSP preferential treatment, Customs determined that as long as the free trade zone met the applicable definition for free trade zones in the GSP regulations, which required the region be “declared and secured by or under government authority”, the goods would be considered under the control of the customs authority while in the free trade zone. HRL 555039 (citing 19 C.F.R. § 10.175(c) (1989)). The goods in HRL 555039 were exported from a beneficiary country to a free trade zone in a non-beneficiary country to be consolidated with other goods. That is also the situation here. While no such definition is given for free trade zones in the CBERA regulations, provided the free trade zone is considered to be declared and secured by or under government authority, 19 C.F.R. § 193(c)(1) will be satisfied. The fishing tackle is not subjected to any operations in the Dominican Republic and never enters the commerce of the Dominican Republic. Provided the free trade zone is a qualifying free trade zone and the port director is satisfied, to the extent necessary under 19 C.F.R. § 10.193(c)(2), the fishing tackle will qualify as being imported directly. The third issue involved in this case is whether the fishing tackle satisfies the 35 percent value-content requirement. Under 19 U.S.C. § 2703(a)(1)(B), in addition to being imported directly, the goods must satisfy the 35 percent value-content requirement to be eligible for preferential treatment under the CBERA. [T]he sum of (i) the cost of the value of the materials produced in a beneficiary country or two or more beneficiary countries, plus (ii) the direct costs of processing operations performed in a beneficiary country or countries is not less than 35 per centum of the appraised value of such article at the time it is entered. 19 U.S.C. § 2703(a)(1)(B). Up to 15 percent of the 35 percent value-content requirement may be satisfied with goods produced in the customs territory of the U.S. 19 U.S.C. § 2703(a)(1). If an article consists of materials that are imported into a beneficiary country, other than those of U.S. origin accounting for up to 15 percent, as in the instant case, the cost or value of these materials may be counted toward the 35 percent value-content requirement only if they undergo a double substantial transformation in the beneficiary country. See 19 C.F.R. § 10.196(a)(2). Materials imported into the beneficiary country must first be substantially transformed into a new and different article of commerce which becomes “material produced”, and these materials produced in the beneficiary country must then be substantially transformed into a new and different article of commerce (the final article). This intermediate product must be a distinct article of commerce. None of the materials in this case undergo a double substantial transformation; therefore, the materials imported into Haiti that are not of U.S. origin may not be counted toward the 35 percent requirement. However, the materials of U.S. origin may be counted toward the 35 percent requirement up to 15 percent. In addition, the direct costs of production in Haiti may count toward the 35 percent value-content requirement. HOLDING: The fishing tackle is a product of Haiti for purposes of eligibility for CBERA preferential-treatment. The fact that the tackle stops in the Dominican Republic before being shipped to the U.S. will not disqualify the goods from being imported directly as long as the free trade zone qualifies as being under the authority of the government of the Dominican Republic and the port director is satisfied to the extent required under 19 C.F.R. § 10.193(c)(2). In addition, the tackle must satisfy the 35 percent value-content requirement at the time of entry to be eligible for CBERA preferential-treatment. U.S. origin materials imported into Haiti may count toward the 35 percent value-content requirement in an amount not to exceed 15 percent of the imported article’s appraised value. Provided the 35 percent value-content requirement is satisfied at the time of entry, the fishing tackle may receive preferential treatment under the CBERA. 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 Customs officer handling the transaction. Sincerely, Monika R. Brenner Chief, Valuation & Special Programs Branch