[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and entered, or withdrawn from warehouse, for consumption on and after 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goods entered, or withdrawn from warehouse, for consumption, on and 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