[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40076-40077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19424]
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DEPARTMENT OF THE TREASURY
[T.D. 96-58]
Determination of Origin of Textile Goods Processed in Israel
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: General statement of policy.
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SUMMARY: This document gives notice of Customs interpretation and
application of section 334(b)(5), Uruguay Round Agreements Act (Pub. L.
103-465), which became effective July 1, 1996. That section excepts
from the rules of origin governing textiles and textile products
established in sections 334(b)(1) through 334(b)(4) goods which, under
rulings and administrative practices in effect immediately before the
enactment of section 334 (December 8, 1994), would have originated in,
or been the growth, product, or manufacture of Israel.
Section 334, and its legislative history, require maintaining the
status quo ante for goods processed in Israel. Accordingly, if, under
the rulings and administrative practices in effect prior to December 8,
1994, a good would have been the growth, product, or manufacture of
Israel, without regard to the applicability of the United States--
Israel Free Trade Agreement, it will continue to be the growth,
product, or manufacture of Israel. If a good would not have been
determined to be the growth, product, or manufacture of Israel under
the rulings and administrative practices in effect prior to December 8,
1994, that determination would still apply to goods processed in Israel
and entered, or withdrawn from warehouse, for consumption on and after
July 1, 1996.
EFFECTIVE DATE: July 1, 1996. This statement of policy shall apply to
goods entered, or withdrawn from warehouse, for consumption, on and
after July 1, 1996.
FOR FURTHER INFORMATION CONTACT: Phil Robins, Office of Regulations and
Rulings, U.S. Customs Service, (202) 482-7029.
SUPPLEMENTARY INFORMATION:
Background
On December 8, 1994, the President signed into law the Uruguay
Round Agreements Act (Pub. L. 103-465). Section 334 of the Act
establishes rules of origin for textiles and textile products. In order
to implement section 334, Customs published a notice of proposed rule
making (60 FR 27378, dated May 23, 1995), and, after receiving comments
thereon, promulgated Sec. 102.21, Customs Regulations (19 CFR 102.21)
(60 FR 46188, dated September 5, 1995).
Section 102.21(a) specifically states that the rules in Sec. 102.21
shall not apply ``for purposes of determining whether goods originate
in Israel or are the growth, product, or manufacture of Israel.'' The
basis for the Israeli exception is section 334(b)(5) of the Uruguay
Round Agreements Act which states:
This section shall not affect, for purposes of the customs laws
and administration of quantitative restrictions, the status of goods
that, under rulings and administrative practices in effect
immediately before the enactment of this Act, would have originated
in, or been the growth, product, or manufacture of, [sic] a country
that is a party to an agreement with the United States establishing
a free trade area, which entered into force before January 1, 1987.
For such purposes, such rulings and administrative practices that
were applied, immediately before the enactment of this Act, to
determine the origin of textile and apparel products covered by such
agreement shall continue to apply after the enactment of this Act,
and on and after the effective date described in subsection (c),
unless such
[[Page 40077]]
rulings and practices are modified by the mutual consent of the
parties to the agreement. (emphasis added)
Israel is the only country which qualifies under the terms of section
334(b)(5).
The rulings and administrative practices in effect prior to
December 8, 1994, were derived from the provisions of Sec. 12.130,
Customs Regulations (19 CFR 12.130). Section 12.130 states that the
country of origin of a good processed in more than one country is the
country in which the last substantial transformation occurs.
Section 334(b)(5) is comprised of two sentences. The first sentence
clearly states that the status of goods shall not be affected if, prior
to December 8, 1994, those goods were considered to originate in
Israel, or were the growth, product, or manufacture of Israel. While
there is reference in that sentence to a free trade agreement, the
language appears to have been carefully structured and contains no
requirement that the goods which are the subject of that exception must
themselves be eligible for duty preference under the terms of the
agreement.
The second sentence elaborates on, and clarifies the wording of the
first sentence. It makes clear that in determining the origin of goods
covered by the agreement, Customs shall continue to apply ``such
rulings and administrative practices that were applied immediately
before the enactment of this Act to determine the origin of textile and
apparel products covered by such agreement.''
Reading the two sentences together, it appears to Customs that
Congress, in enacting section 334(b)(5), intended that Israel maintain
its status quo ante in regard to country of origin determinations for
goods processed in that country.
Section 102.21(a), Customs Regulations, is clear on its face that
the textile origin rules contained in that section will not be applied
to determine whether goods originate in, or are the growth, product, or
manufacture of Israel. Thus, if a good is determined not to be a
product of Israel under the rulings and administrative practices in
effect prior to December 8, 1994, applying the rules in Sec. 102.21
cannot result in Israel being the country of origin of the good.
Example
The following example is set forth to illustrate how this position
will be implemented in the application of the rules contained in
Sec. 102.21:
Fabric produced in country A is cut in country B into components
for a simple shirt. Those components are assembled into the
completed shirt in Israel by sewing. Under the rulings and
administrative practices in effect prior to December 8, 1994, Israel
would not be the country of origin because Customs has a long line
of administrative rulings holding that the cutting of garment
components constitutes a substantial transformation, while the
assembly of those components into a simple garment does not. Since
Israel cannot be the country of origin under the rulings and
administrative practices in effect prior to December 8, 1994,
Customs must apply Sec. 102.21 to determine the proper country of
origin. However, Sec. 102.21(a) precludes a finding that Israel is
the country of origin.
(a) Section 102.21 requires that the General Rules, found in
Sec. 102.21(c), be applied in sequential order. Section 102.21(c)(1)
states that the country of origin of a good is the single country,
territory, or insular possession in which the good was wholly
obtained or produced. Since the shirt in the above example was not
wholly obtained or produced in a single country, that section is not
applicable.
(b) Section 102.21(c)(2) requires that the good comply with the
applicable tariff shift rule in Sec. 102.21(e). The applicable
tariff shift rule for the shirt in the above example is a change to
the heading in which that garment is classified from any other
heading, provided that the change is the result of the garment being
wholly assembled in a single country, territory, or insular
possession. The shirt in the above example meets this requirement
because it was wholly assembled in Israel. However, as noted above,
Sec. 102.21(a) provides that the rules in Sec. 102.21 cannot be used
to determine if goods originate in, or are the growth, product, or
manufacture of Israel. Accordingly, if the application of a rule in
Sec. 102.21 results in Israel being the country of origin of a good,
that result is invalid and Customs will by-pass that rule and
proceed to the next rule in order.
(c) The next two rules were inserted into the general rules as a
precautionary measure in case the tariff shift rules in
Sec. 102.21(e) inadvertently failed to carry out the express
statutory requirements of section 334. Section 102.21(c)(3)(i) is
concerned with knit to shape goods. Since the subject shirt is not
knit to shape, Sec. 102.21(c)(3)(i) is not applicable. Section
102.21(c)(3)(ii) provides that, except for certain goods
classifiable under specifically enumerated tariff provisions, and
except for knit to shape goods, a good is the product of the single
country, territory, or insular possession in which it was assembled.
As in the preceding paragraph, since the application of
Sec. 102.21(c)(3)(ii) would result in Israel being the country of
origin of the shirt, that rule cannot be used to determine the
origin of the good and Customs must proceed to the next rule.
(d) The next two rules, Secs. 102.21(c)(4) and 102.21(c)(5), are
commonly referred to as ``multicountry'' rules. They are designed to
insure that a single country of origin is determinable for each good
imported into the United States. Section 102.21(c)(4) provides that
if a single country of origin cannot be determined by the
application of the preceding rules, then the country of origin of a
good will be the single country, territory, or insular possession in
which the most important assembly or manufacturing process occurred.
In the example, this occurs in Israel, where the garment was wholly
assembled. However, since the application of the rules in
Sec. 102.21 cannot result in Israel being the country of origin,
Customs will determine the origin of the shirt in the example by use
of Sec. 102.21(c)(5), the second (and last) multicountry rule.
(e) Section 102.21(c)(5) provides that if a single country of
origin cannot be determined by any of the preceding rules, the
country of origin will be the last country, territory, or insular
possession in which an important assembly or manufacturing process
occurred. Since (1) every good imported into the United States must
have a country of origin, (2) Sec. 102.21(c)(5) is the last rule
which can be used to determine origin, and (3) the rules in
Sec. 102.21 cannot result in Israel being the country of origin,
Customs believes that, when using Sec. 102.21 to determine the
proper country of origin of goods subjected to an assembly or
manufacturing process in Israel, the process or, processes,
performed in Israel should not be considered. Under the given facts,
Country B is the country of origin because, when excluding the final
assembly operation in Israel, the cutting of the fabric in Country B
is the last important manufacturing process in the production of the
shirt.
Conclusion
After a careful analysis of the clear wording of section 334(c)(5)
of the Uruguay Round Agreements Act and what Customs believes to have
been the intent of Congress in enacting that section, i.e., to maintain
Israel's status quo, and considering the wording of Sec. 102.21(a),
Customs Regulations, which was promulgated pursuant to the authority of
section 334, Customs has concluded that in determining whether goods
originate in, or are the growth, product, or manufacture of Israel,
Customs will first apply the rulings and administrative practices in
effect prior to December 8, 1994. If that determination results in
Israel not being the country of origin of the goods, then Customs will
apply the rules in Sec. 102.21 to determine the country of origin, with
no consideration being given to assembly or manufacturing processes
performed in Israel.
Dated: July 25, 1996.
Stuart P. Seidel,
Assistant Commissioner, Office of Regulations and Rulings.
[FR Doc. 96-19424 Filed 7-30-96; 8:45 am]
BILLING CODE 4820-02-P