• HQ H088136
• Mar 01, 2011

• Type : • HTSUS :
•  Related:   20004; 224661; 229970; 22378; 230942; 967814; H048148   

CON-9-04
OT:RR:CTF:ER H088136 CLO


Mr. David E. Cohen
Sandler, Travis & Rosenberg, P.A.
Attorneys At Law
1300 Pennsylvania Avenue, NW
Suite 400
Washington, D.C. 20004 USA

Re: Request for a Ruling on the Importation of Soiled Laundry under a Temporary Importation Bond.

Dear Mr. Cohen:

This is in response to your prospective ruling request dated December 14, 2009, on behalf of G&K Services Canada, Inc., regarding the entry procedures for importation of soiled laundry under a temporary importation bond. FACTS: G&K is considering importing soiled laundry from Vancouver, B.C., Canada into the United States. The soiled laundry will be shipped to its related laundry processing facility in Seattle, WA for processing and then returned to Canada. The articles consist of wearing apparel uniforms and textile products. These articles are owned by G&K and provided to its customers for use as a part of its rental or facility service programs. Some of the articles are sourced in Canada and some were previously imported into Canada. The articles will be imported on a regular and continuing basis as frequently as one shipment each weekday. The goods will generally be processed quickly and some will have a turnaround time as quick as 48 hours. G&K also explained that all articles will be returned to Canada. At the time the goods are exported, the exact quantities can only be estimated because the soiled garments are placed in large bins without counting due to sanitary reasons. Thus, the export commercial invoices will indicate the product group, i.e., wearing apparel or textile articles, to be entered as commingled goods at the classification and rate of duty applicable to the article with the highest duty rate in each product group. The soiled weight and total quantity of bins by product group will also be on the invoice. The equipment for sorting the goods is at the Seattle laundry facility and that facility will typically be able to provide an exact count and description of the articles to permit G&K to amend and complete the entry summary within 48 hours of receipt of the laundry. The contemplated processing operations for the two product groups are as follows: Rental Uniforms: G&K provides a rental uniforms service to its Canadian customers. Each garment is identified by label with the employee’s name. The soiled garments will be picked up weekly from the various customer locations and shipped in bulk to the laundry facility in Seattle where each item will be laundered, inspected for excessive wear or damage, and sorted into delivery routes by customer location and employee. The garments will be returned to Canada and delivered to the appropriate customers within a week. Non-Personalized Goods: Non-personalized merchandise includes mats, wipers, roll towels, aprons, etc. These articles are not specifically identified and are shipped in bulk. Upon receipt at the Seattle facility, the articles will be laundered and sorted by type, color and size and returned to Canada. Most articles will be returned within a short time span. However, certain seasonal articles, such as mats may be held at the end of the season for up to six months before being returned to regular use. ISSUES

1. Whether laundry that is imported into the United States and is unpacked, cleaned, sorted, repackaged and re-exported to Canada can be entered under a temporary import bond (“TIB”).

2. Whether laundry that is exported to Canada after being sorted and cleaned is subject to the limitations of the NAFTA drawback rule.

3. Whether G&K can amend the entry once the laundry has been released from CBP’s custody to reflect the correct quantity of specific articles entered, rather than remaining classified as commingled goods.

LAW AND ANALYSIS:

Whether the soiled laundry can be entered under a TIB.

Pursuant to General Note 1, Harmonized Tariff Schedule of the United States ("HTSUS"), all merchandise imported into the United States is subject to duty unless specifically exempted. Under subheading 9813.00.05, HTSUS, articles to be repaired, altered or processed (including processes that result in articles manufactured or produced in the United States), may be entered temporarily free of duty, under a

temporary import bond (“TIB”) for exportation within one year from the date of importation. This period may be extended for additional periods, which when added to the initial period do not exceed three years. See U.S. Note 1(a) of Subchapter XIII, Chapter 98, HTSUS. In order to qualify under this provision, the merchandise imported may not be imported for the purpose of sale or sale on approval. Additionally, in order to satisfy the requirements for the TIB, the imported article must be timely exported.

In order to qualify for entry under a TIB, the cleaning of the laundry would need to constitute a repair, alteration or processing. The ruling request only indicated that the laundry would be cleaned and did not mention any repairs or alterations that would be done to the laundry. Therefore, the issue is whether cleaning the laundry would constitute “processing.” In HQ 224661, CBP explained that the “processing can be a relatively minor procedure or extensive enough to be considered a manufacture or production.” See HQ224661 (Jan. 11, 1994). Thus, the term is broad and would encompass minor processing, such as laundering the clothes. CBP previously relied upon the following definition of the word process:

process ... to subject to a particular method, system, or technique of preparation, handling, or other treatment designed to effect a particular result: put through a special process: (1) to prepare for market, manufacture, or other commercial use by subjecting to some process ... (2) to make usable by special treatment .… See HQ 229970 (Aug. 11, 2003) (relying upon the definition in Webster’s Third New International Dictionary (unabridged, 1966)). The above described “cleaning and sorting” that each item will undergo along with being inspected for excessive wear, and damage are put through a process that would be considered a “processing” of the soiled laundry. See, e.g., HQ22378 (Mar. 18, 1992) (finding that entry under a TIB was not available for cleaning blouses because it was only done as necessary and there was no intent to do so at the time of import).

Finally, you indicate that the merchandise would not be sold in the United States, but would instead be re-exported within a short a short period of time except for certain seasonal articles that may be held for up to six months before being re-exported to Canada. Therefore, the facts of the operation as you set forth in your ruling request would satisfy the requirements for entry under a TIB under 9813.00.05, HTSUS.

Whether laundry that is exported to Canada after being sorted, cleaned and repackaged is subject to the limitations of the NAFTA drawback rule.

If G&K imports the soiled laundry under a TIB and then exports it to Canada after it is sorted and cleaned, the NAFTA drawback rule must be considered. Section 203 of the North American Free Trade Agreement (NAFTA) Implementation Act, Pub. L. 103-182; 107 Stat. 2057, 2086; 19 U.S.C. § 3333, provides that all goods imported into the United States are subject to the NAFTA drawback restrictions, i.e. the "lesser of” duty rule, unless a specific exception applies. The “lesser of” duty rule is provided in U.S. Note 1(c), Chapter 98, Subchapter XIII, HTSUS (as amended by Presidential Proclamation 6780, 60 FR 15,845, 15,843 (Mar. 27, 1995) (hereinafter “‘lesser of’ duty rule”):

For purposes of this subchapter, if an article imported into the United States under heading 9813.00.05 is withdrawn for exportation to the territory of Canada or of Mexico, the duty assessed shall be waived or reduced in an amount that does not exceed the lesser of the total amount of the duty on the article that would have been payable upon importation under chapters 1 through 97, inclusive of the Harmonized Tariff Schedule of the United States or the total amount of customs duties paid to Canada or Mexico on the exported article, unless such article is covered by section 203(a)(1) through 203(a)(8), inclusive, of the NAFTA Implementation Act. The amount of duties or refunds calculated on such articles pursuant to this note shall be adjusted to take into account any subsequent claim for preferential tariff treatment made to another NAFTA country. This note shall apply to shipment to Canada on or after January 1, 1996, and to Mexico on or after January 1, 2001.

Further, CBP’s regulation, 19 C.F.R. §181.53(a)(2)(i)(A), explains that when “a good is imported in the United States pursuant to a duty-deferral program and is subsequently withdrawn from the duty-deferral program for exportation to Canada or Mexico . . . and provided that the good is a ‘good subject to NAFTA drawback’ within the meaning of 19 U.S.C. 3333 . . . the documentation required to be filed under this section in connection with the exportation of the good shall . . . constitute an entry or withdrawal for consumption and the exported good shall be subject to duty. . .” Therefore, unless it falls within one of the exceptions of 19 USC §3333, a consumption entry would need to be filed and duties would be owed for this soiled laundry upon exportation back to Canada. Section 3333 of Title 19 of the U.S. Code provides several exceptions to the “lesser of” duty rule, two of which may be applicable to the laundry at issue in this case.

First, the laundry may fall within an exception if it qualifies as originating under the NAFTA rules of origin. Under 19 U.S.C. §3333(a)(5), a good that qualifies under the NAFTA rules of origin and is exported to a NAFTA country is not a good subject to the limitations of NAFTA drawback. See, e.g., HQ 230942 (June 6, 2005). In the request for a ruling, G&K did not explain whether these were originating goods under NAFTA rules of origin, it only explained that some of the articles are sourced in Canada and some were originally imported into Canada. To the extent that G&K is able to establish that these articles are originating goods under NAFTA, they would fall within an exception to the “lesser of” duty rule and an entry for consumption under 19 C.F.R. §181.53(a)(2)(i)(A) would not be required.

Second, even if the soiled laundry does not qualify as originating under the NAFTA rules of origin, it may still fall within an exception of the “lesser of” duty rule if the laundry is determined to be exported to Canada in the same condition as when it was imported. Under 19 U.S.C. § 3333(a)(2), an exception to the “lesser of” duty rule applies to:

(2) A good exported to a NAFTA country in the same condition as when imported into the United States. For purposes of this paragraph—

(A) processes such as testing, cleaning, repacking, or inspecting a good, or preserving it in its same condition, shall not be considered to change the condition of the good, . . . 19 U.S.C. § 3333(a)(2). Subsection(b)(1) of § 181.45 of CBP’s regulations, provides that for purposes of this subpart:

. . . a reference to a good in the "same condition" includes a good that has been subjected to any of the following operations provided that no such operation materially alters the characteristics of the good: (i) Mere dilution with water or another substance; (ii) Cleaning, including removal of rust, grease, paint or other coatings; (iii) Application of preservative, including lubricants, protective encapsulation, or preservation paint; (iv) Trimming, filing, slitting or cutting; (v) Putting up in measured doses, or packing, repacking, packaging or repackaging; or (vi) Testing, marking, labeling, sorting or grading. When assessing whether an operation materially alters the characteristic of the good CBP has looked to whether the function of the good remains the same before and after processing. See, e.g., HQ H048148 (May 5, 2009). G&K explained in its ruling request that it is bringing soiled articles into the United States to undergo a sorting and cleaning processes. Cleaning the laundry is specifically enumerated as a type of operation that would not materially alter the characteristic of the good. Both before and after the sorting and cleaning processes, the laundry still serves the same function. Therefore, even if the laundry does not qualify as originating in Canada under the NAFTA rules of origin, it would still be excepted from the “lesser of” duty rule as it is exported to Canada in the same condition as it entered the United States. Thus, a consumption entry would not have to be filed and duties would not be owed when the goods are re-exported to Canada after having been imported into the United States under a TIB. Whether G&K can amend the entry once the laundry has been released from CBP’s custody to reflect the actual quantity of specific articles entered.

  The bond for a TIB is set at double the duties that would accrue had the articles been entered under a consumption entry. See 19 C.F.R. §10.31(f). However, G&K explains that it is unable to determine the actual duties that would have otherwise been owed because it does not itemize the laundry at the time of entry. Specifically, G&K explained that the quantity can only be estimated and the export commercial invoices will only indicate the product group, i.e., wearing apparel or textile articles. The soiled weight and total quantity of bins by product group will also be on the invoice. This commingled merchandise will include both items sourced in Canada as well as items manufactured in other countries and imported into Canada. Additionally, although all articles will show some sign of wear, the extent of that wear will vary. G&K proposes to enter these goods as commingled merchandise at the classification and rate of duty applicable to the article with the highest duty rate in each product group and subsequently file a corrected entry summary within 48 hours after the laundry facility receives the laundry. This proposal, however, is not consistent with how the HTSUS directs that commingled goods must be treated.

General Note 3(f)(i), HTSUS, states that:

Whenever goods subject to different rates of duty are so packed together or mingled that the quantity or value of each class of goods cannot be readily ascertained by customs officers (without physical segregation of the shipment or the contents of any entire package thereof) . . . the commingled goods shall be subject to the highest rate of duty applicable to any part thereof unless the consignee or his agent segregates the goods pursuant to subdivision (f)(ii) hereof [emphasis added].

Thus, G&K is correct that these would properly be considered commingled goods because there are different types of clothing items and other materials, with varying degrees of wear. The proper classification for a given item could only be determined if the package was physically segregated. Therefore, the highest rate of duty would be applicable for these goods. With respect to which rate of duty might be applicable we note that given that the extent of wear for the clothing will vary, classification under 6309.00.0010, HTSUS, which covers worn clothing and other worn textile articles, would not be applicable because not all of the items in a package would necessarily show signs of appreciable wear. See 6309.00.0010, HTSUS, Note 3 (requiring that the items “show signs of appreciable wear”); and HQ 967814 (Oct. 13, 2005) (holding that the required segregation of the qualifying items must be made prior to release from CBP’s custody).

G&K Services proposes to file an entry summary with the exact description of the merchandise within 48 hours after the Seattle laundry facility receives the items. Although, 19 C.F.R §142.12(b) requires that an entry summary be filed within 10 working days after the time of entry, it would not be possible to change the status of the goods as “commingled.” General Note 3(f)(ii), HTSUS, explains that:

Each such segregation shall be accomplished under customs supervision, and the compensation and expenses of the supervising customs officers shall be reimbursed to the Government by the consignee under such regulations as the Secretary of the Treasury may prescribe.

CBP explained in HQ 967814 that when importing worn clothing that is commingled, if the importer wishes to segregate the goods for classification, it must do so prior to CBP’s release of the goods. In that case, the importer wanted to classify commingled worn clothing under 6309.00.0010 and if anything did not qualify under that classification, it would segregate those items and submit a corrected entry within 90 days. However, segregation of commingled goods is required to be “accomplished under customs supervision, and the compensation and expenses of the supervising customs officer shall be reimbursed to the Government by the consignee. . . .” See General Note 3(f)(ii), HTSUS. Therefore, CBP directed that if the importer wished to have the qualifying goods classified under 6309.00.0010, it must segregate them under CBP’s supervision and prior to the release of the goods. Therefore, G&K Services would not be permitted to file an entry summary after release of the goods to segregate and reclassify them. Additionally, the instructions to the Entry Summary Form, CBP Form 7501, explains that when a unit of measure is specified in the HTSUS, G&K must report the net quantity in the specified unit of measure, and show the unit of measure after the net quantity figure. Therefore, reporting the soiled weight may not be sufficient depending on which HTSUS number is applicable for these commingled goods.

HOLDING

The process described above of unpacking, sorting, cleaning and repacking worn clothing and other items satisfies the requirements for entry under a TIB under 9813.00.05, HTSUS. Moreover, if they are either 1) originating goods pursuant to NAFTA’s rules of origin or 2) are exported in the same condition that they were imported

from Canada they would not be subject to fthe NAFTA duty drawback restrictions. Finally, because the articles would be entered as “commingled,” the highest rate of duty would apply to the entire package unless segregation occurs pursuant to General Note 3(f)(ii), HTSUS prior to release of the goods from CBP’s custody.


Sincerely,

Myles B. Harmon, Director
Commercial and Trade Facilitation Division