T.C. PRIME MINISTRY PERMANENT UNDERSECRETARY OF FOREIGN TRADE TEXTILE AND READY-MADE CLOTHING ASSOCIATIONS OF ISTANBUL

B.02.1.DTM.5.10.01.14.211/13428 10 September 2002

CIRCULAR TO TE TEXTILE AND READY-MADE CLOTHING ASSOCIATIONS OF ISTANBUL

2002/53

Due to the quota tightness happened in the export to the USA on certain ready-made clothing products it became necessary to clarify questions asked by our members often regarding the determination of the origin country from the perspective of the quoato application of the USA.

As known, for the determination of the country of origin in ready-made clothing the USA accepts the country where the goods get basic changes, i.e. where important sewing process are made as the country of origin from the date of 1 july 1996.

The only exceptions for this rule is Israel. The USA accepts the cutting of the fabrics as the basic change for Israel.
With this regard, ready-made clothing products that are produced in more than one country after being cut in Israel gain the Israel origin and the products are excluded from the comprise of the quato restrictions when entering the USA.

In other words, without regarding the country of origin for the fabrics and the country where the sewing process was made, for ready-made clothing products that are produced with fabrics which were cut in Israel the country of origin becomes Israel from the perspective of quato restrictions and is not subject to quato and visa applications for export to the USA. However, there is no difference regarding customs taxes for these products when entering the USA.

In the website (http://rulings.customs.gov) where the customs binding ruling that was prepared in the past by USA customs offices directed towards the determination of the ready-made clothing products that are produced in more than one country and exported to the USA, some practice samples and the summarized translation of the explanations related to the legal basis of some decisions published previously by attribution to the existing free Trade Agreement between USA and Israel is presented below.

Studying these decisions carefully, it is seen that in case the fabric cutting process for the ready-made clothing products, which cause quato difficulties on export to the USA, is made in Israel the possibility of export to the USA without quato will arise.

On the other side, it is recommended to our companies that are planning to export products to the USA in this shape outside the quato restriction comprise, to obtain binding decisions from the USA customs offices to avoid any problems at the USA customs.

COUNTRY OF ORIGIN: From 1 july 1996 the Customs Law dated 5 September 1995 with number 102.21 is applied in the USA for the determination of the origin country of textile and ready-made clothing products. And this law is based on the Uruguay Round Agrement that was signed by the USA President in 1994.
USA-ISRAEL FTA EXPECTION: Following decision takes place in section 334(b)(5) of the Uruguay Round Agreement on which the USA law is arranged towards the deternmination of the origin country is based.

"This section regarding the customs laws and the application of amount restrictions, will not apply to products with country origins that have the Free Trade Agreement with the USA being in force before 1st of January 1987. With this objective, as long as it is not changed with the mutual agreement of the FTA parties the rules that were applied before this agreement will be valid.

The only country where this decision can be applied is Israel. In this case, the rules that are used for the determination of the origin country of textile and ready-made clothing as of the 1st of July 1996, are not applied for Israel, this situation is officially published in the Federal Register dated 31 July 1996 with Vol. No. 61, 148.
In this frame the country where the goods pass through important changes for ready-made clothing products which production was made in more than one country is accepted as the country of origin and according to the above stated exceptional decision being different from the existing origin rules, the regulation that is accepted the cutting of the fabric to be an important change is applied for Israel.

DIRECT IMPORT FROM ISRAEL: In the General mark no. 8 of the USA Tariff Schedule, it is stated that a `special` customs tax will be applied in case the products are important directly from Israel to the USA customs zone and the processes made in Israel create 35% VAT according to USA-Israel FTA, in case they are not sent directly from Israel and the 35% VAT criterion is not provided these products are not subject to the `special` customs tax rate.

"Being sent directly from Israel to USA " states that that the processes like classification, quality control.packaging etc.are made in Israel and exported to the USA.

CONCLUSION: In the frame of international textile agreement there is no quota restriction or visa application for Israel products by the USA. In this case ready made clothing products that are produced in more than one country after fabric being cut in Israel earn the Israel origin and the products stay outside the quota restriction comprise ,however due to that these products are not imported directly from Israel to the USA the special customs tax rate is not applied.

EXAMPLES

EXAMPLE 1:For USA Blinding Decision see (NY E89304) .

• Cotton-Artificial / Synthetic ladies trousers

The fabric that is weaved in Taiwan Hong Kong ,China or Spain is sent to Israel without the pattern on the fabric being marked.In Isarel the fabric is cut into parts that form a complete pair of trousers when brought together .The cut parts are sent to Sri Lanka where they are sewn together and became finished trousers.After being washed ,ironed and packed in Sri Lanka they are sent to USA.

The products in question are of Israel origin ,no quota restriction is applied, however since they are not exported from Israel directly they cannot take use of the special customs tax application.

EXAMPALE II:For USA blinding Decision see (NY F86326)

• Cotton weaved(denim) men s trousers and shorts

İsrail’den başka bir ülkede dokunmuş kumaş işaretlenmemiş halde İsrail’e gönderilerek, burada pantolon ve şortları oluşturacak parçalar halinde kesilir. Kesilen parçalar biraraya getirilerek ABD’ne ihraç edilmek üzere Çin’e veya başka bir ülkeye gönderilir.

Bahsi geçen ürünler ABD Menşe Kuralları’nın ABD-İsrail STA istisnası hükümleri çerçevesinde İsrail’de önemli değişim (substantial transformation) görmüştür, İsrail menşelidir. Kota kısıtlaması uygulanmamaktadır ancak direk olarak İsrail’den ihraç edilmediği için özel gümrük vergisi uygulamasından yararlanmamaktadır.

EXAMPLE III; (For USA Blinding Decision see NY F86333. (NY F86333)

• Cotton SSE knitting man s shirt ,t-shirt, pullover

The fabric that is produced by being knitted in China or another country is sent to Israel and cut there and the cut panels are sent are sent back to China or another country ,fitted together and finishing processes are made and exported to the USA

The products in question are of Israel origin ,no quota restriction is applied ,however since they are not exported from Israel directly they cannot benefit from the special customs tax application

EXAMPLE IV: (For USA Blinding decision see (HQ 557892)

• Cotton women (denim )trousers ,jacket ,shirt and short

İAfter the fabric that is produced in Israel ,it s sent to a third country to be fitted together with a simple stitching process and washed.The finished product is sent black to Israel and exported from Israel to the Israel to the USA WITHOUT ANY FURTHER PRODUCTION PROCESSES.

The products in question are of Israel origin quota restriction is not applied.However ,since the products in question do not provide tehe criterion enter the commerce of Israel according to another decsion existing I the USA –ISRAEL FTA IT NOT ACCEPTED TO BE EXPORTED FROM Israel directly to the USA and can not benefit from the special customs tax application.

EXAMPLE V :(For USA Blinding Decision see (HQ 557892)

• Cotton women ( denim) trousers, jacket shirt and short

The fabric produced in a third country is sent to Israel and cut there The cut parts are sent to a third country where the parts are fitted together and sent back to Israel. Washing Ironing packing and quality control processes are made and the finished product is exported to the USA.

The products in question are of Israel origin quota restriction is not applied. Since they were exported to the USA after the washing ironing packing and quality control processes were made in Israel they are accepted to be exported from Israel . In this case they will benefit from the special customs tax application with the condition that the portion of the product that is Israel and the created VAT (Israeli input) is not less than 35% within the total cost of the product or its value.