Importing QIZ Garments - United States Fashion … to the United States where ... as a cost of...
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Importing QIZ Garments USA-ITA New York September 14, 2010 Copyright © 2010 Jonathan M. Fee All Rights Reserved ALSTON&BIRD LLP
Transcript of Importing QIZ Garments - United States Fashion … to the United States where ... as a cost of...
Importing QIZ Garments
USA-ITANew YorkSeptember 14, 2010Copyright ©
2010 Jonathan M. Fee All Rights Reserved
ALSTON&BIRD
LLP
QIZ Overview
•
QIZ qualifying articles are governed by Section 7 of the U.S.-Israel Free Trade Area Implementation Act (IFTA Act) and Presidential Proclamation 6955 (incorporated in HTSUS General Note 3(a)(v))
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They are further governed by Protocols between Israel and Jordan and between Israel and Egypt
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Purposes include promoting the peace process and stimulating the economies and increasing employment in the participating countries
US Requirements
•
The article is a “new and different article of commerce”
produced in
the QIZ•
It is “imported directly”
into the
United States•
The sum of –
(A) the cost or value
of materials produced in West Bank, Gaza Strip, Israel or a QIZ, plus (B) the direct cost of processing operations performed in West Bank, Gaza Strip, Israel or a QIZ –
is not
less than 35 percent of the article’s US entered value
US Materials in QIZ Articles
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US materials up to 15 percent of the article’s US entered value can be used to satisfy the 35 percent requirement
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For example, the QIZ manufacturer could use US buttons, thread or any other US origin components of as much as 15 percent of the article’s value to meet the 35 percent value requirement
Israel-Jordan Protocol Requirements
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The Jordanian manufacturer in the QIZ must contribute one third (11.7 percent) of the 35 percent content requirement
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The Israeli manufacturer must contribute only 8 percent
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The remainder of the 35 percent can come from West Bank, Gaza Strip, Israel or the QIZ
Israel-Egypt Protocol Requirements
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The Egyptian manufacturer in the QIZ must contribute one third (11.7 percent) of the 35 percent content requirement
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The Israeli manufacturer must contribute only 10.5 percent
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The remainder of the 35 percent can come from West Bank, Gaza Strip, Israel or the QIZ
Alternative Protocol Requirements
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The QIZ manufacturer and the Israeli manufacturer each must contribute at least 20 percent of the total cost of production, excluding profits, even if the costs cannot be considered as part of the 35 percent content requirement
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For this purpose, costs may include originating materials, wages and salaries, design R&D, depreciation of capital investment, overhead including marketing expenses, etc.
Participating Factories
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QIZ joint committees, comprising representatives from Israel and Jordan and Israel and Egypt, provide lists of QIZ companies whose products are eligible for QIZ treatment
•
Current lists can be viewed at:•
www.jordanecb.org/pdf/List_of_Q
IZ_Manufactuers.pdf
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http://www.qizegypt.gov.eg/image
s/attachment.ashx.pdf
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Neither CBP nor USTR confirms these lists
Difference in Enforcement
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Israel and Jordan, and Israel and Egypt, monitor and enforce the protocol rules
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CBP monitors and enforces the HTSUS rules
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CBP will not request documentation supporting the QIZ manufacturer’s or the Israeli manufacturer’s share of costs under the protocol, relying instead on assurances from the QIZ committees
“New or Different Articles”
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This language means the articles must be “substantially transformed”
in the QIZ
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See 102.21 of the Customs Regulations
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Garments of cut components that are wholly assembled in a QIZ and garments of knit to shape components that are knit to shape in a QIZ will generally be considered substantially transformed there
Cost of Materials Produced
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Manufacturer’s actual cost•
When not already included in actual cost, the freight, insurance, packing and all other costs incurred in transporting the material to the manufacturer
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Actual cost of waste or spoilage, less recoverable scrap
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Taxes or duties imposed by West Bank, Gaza Strip or QIZ if not remitted on exportation
Value of Materials Furnished for Free
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Expenses (including general expense) incurred in growth, production or manufacture
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An amount for profit•
Freight, insurance, packing and all other costs incurred in transporting the material to the manufacturer
Cost of Processing Includes
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Actual labor, including fringe benefits, on-the-job training and costs of engineering, supervisory, quality control and similar personnel
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Dies, molds, tooling and depreciation on machinery and equipment
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Research, development, design, and engineering
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Inspection and testing
Cost of Processing Doesn’t Include
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Profit•
General expenses of doing business which are either not allocable to the article or are not related to the manufacture of the article, such as administrative salaries, casualty and liability insurance, advertising, and salesmen’s salaries, commissions or expenses
“Double Substantial Transformation”
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Materials imported into the QIZ may be included in the 35 percent requirement if they undergo a “double substantial transformation”
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They must be substantially transformed in the QIZ (or West Bank, Gaza Strip or Israel) into new and different intermediate articles of commerce, and then transformed a second time in production of the finished article
Example
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Chinese cotton knit fabric with a cost of $4000 is imported into Israel where it is cut at a cost of $1000
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The cut components are sent to an Egyptian QIZ where they are assembled by sewing into men’s knit polo-style shirts at a cost of $2000 with US buttons and thread with a cost of $200.
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The finished shirts are exported directly to the United States where they are entered with a value of $10,000
Example Result
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Without double substantial transformation, the shirt would not meet the 35 percent value requirement, because the sum of the Israel processing plus the Egypt QIZ processing plus the US buttons and thread is only 32 percent
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But the Chinese fabric is substantially transformed into cut parts in Israel and transformed again into shirts in the QIZ
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With the Chinese fabric, the cost of Israeli materials is $5000, and the relevant percentage becomes 72 percent, well above the required percentage
Another Example
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In a 2007 CBP ruling (HQ HO12418), zippers assembled in Israel for use in QIZ garments were not considered substantially transformed and their cost could not be counted toward the 35 percent
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The zipper assembly cost, however, could be counted toward the 35 percent as a cost of processing the garment
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But the packing and freight to move the assembled zippers to the QIZ were not counted because they did not relate to materials produced in the QIZ or Israel
Old Origin Rules and T.D. 98-62
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Israel apparel is subject to the pre-Uruguay Round non-
preferential origin rules in effect prior to December 8, 1994
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Under these old rules, for example, a t-shirt cut in Israel and sewn in Jordan would be considered a product of Israel
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But T.D. 98-62 says that the new rules (e.g., Section 102.21) apply to textiles and apparel processed in QIZs
Entry Process
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The US importer claims the QIZ duty preference with the special program indicator “N”
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No certificate of origin or similar form is required, but the importer making the claim is “deemed”
to
certify that the articles meet the conditions for duty exemption
Declaration Upon CBP’s Request
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Description of articles, quantities, numbers and marks on packages, invoice numbers and bill of lading
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Description of materials and cost of materials
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Description of operations and cost of operations
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Description of foreign materials that are processed sufficiently to become materials produced in West Bank, Gaza Strip, a QIZ or Israel
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Description of foreign materials that are not substantially transformed
Recordkeeping and Documentation
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Assurances that the factory is designated as a QIZ factory
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Bill of materials or other worksheet showing satisfaction of the 35 percent value requirement
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Description of all manufacturing processes, particularly where double substantial transformation will be claimed
Recordkeeping and Documentation
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Invoices and bills of lading showing cost and movement of materials produced in West Bank, Gaza Strip, QIZ and Israel and foreign materials
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(Consider) yarn or fabric affidavits as needed to support 35 percent value requirement
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Production (cutting and sewing) records
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All documents should be in English or be prepared to furnish English translations
Jordan QIZ vs. Jordan FTA
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This is the tenth year of the Jordan FTA, during which all eligible textiles and apparel became duty free
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As with QIZs, garments of cut components that are wholly assembled in Jordan and garments of knit to shape components that are knit to shape in Jordan will generally qualify (see 102.21 of the Customs Regulations)
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As with QIZs, garments must meet 35 percent value content requirement
Jordan QIZ vs. Jordan FTA
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Israeli contribution required for QIZs
by Protocol•
Israeli contribution not counted toward 35 percent under FTA
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FTA production theoretically allowed anywhere in Jordan
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Both are subject to MPF•
QIZs
allow duty free entry of equipment
•
QIZs
allow non-tariff advantages; e.g., repatriation of profits and capital and tax incentives
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Will Jordan allow both QIZ production and FTA production in QIZs?
