OT:RR:CTF:VS H301722 EGJ
Port Director
U.S. Customs & Border Protection
301 E. Ocean Blvd., Suite 1400
Long Beach, CA 90802
RE: Application for Further Review of Protest Nos. 2704-17-103878 and 2704-17-102738; Eligibility for Preference under the U.S.-Peru TPA; athletic socks
Dear Port Director:
This is in response to the Application for Further Review (AFR) of Protest No. 2704-17-103878, which was filed by Lexon Insurance Company (the surety), regarding the eligibility of imported athletic socks for preferential tariff treatment under the U.S.- Peru Trade Promotion Agreement (PTPA). We have consolidated our consideration of the surety’s AFR and Protest together with Protest No. 2704-17-102738, which was filed by Phillip’s Hosiery Co. (the importer), as both protests cover the same entries of merchandise.
FACTS:
Between May 3, 2016, and January 3, 2017, the importer made 26 entries of its athletic socks, claiming preferential tariff treatment under the PTPA. All of the socks are a blend of 89% cotton, 7% polyester, 2% elastic and 2% acrylic material. For the majority of entries, all of the yarns and thread used in the socks were produced in either the U.S. or Peru. The yarns and thread were shipped to the Peruvian manufacturer, who knit the socks to shape, sewed closed the toes, and shipped the finished socks to the United States.
However, during a run time between July 13, 2016, and August 26, 2016, the Peruvian manufacturer used Chinese origin sewing thread to close up the toes on some of its athletic socks. The importer notes that the Chinese sewing thread would often break, and so the Peruvian manufacturer stopped using it altogether. Often, the sewing machine operator would replace the Chinese origin thread after it broke with U.S. origin thread in the sewing machine.
As a result, the importer cannot state with certainty which of its sock styles included the Chinese origin thread. However, based upon the run dates for the thread, the importer has estimated that socks with this thread are only included in three of the entries at issue. The importer has numbered these three entries as shipment #23 (approximately 30% with Chinese thread), shipment #24 (approximately 80% with Chinese thread), and shipment #26 (approximately 30% with Chinese thread).
U.S. Customs and Border Protection (CBP) performed verifications on the subject entries. The importer provided CBP with purchase orders and invoices from the Chinese sewing thread manufacturer, as well as from the U.S. and Peruvian yarn and thread manufacturers. CBP denied preferential treatment under the PTPA and rate advanced all 26 entries. In response, both the surety and the importer filed a protest and an AFR.
To support its claims for preferential tariff treatment under the PTPA for the majority of the entries, the importer has provided the following documentation:
A summary chart for all the entries, setting forth the entry numbers and listing the types of thread used in each entry;
A summary chart for each of the Peruvian manufacturer’s purchases of U.S. sewing thread covering three years (2014 – 2016), including invoice numbers, invoice dates, weight purchased, purchase price and date of receipt;
A summary chart covering three years (2014 – 2016) of the Peruvian manufacturer’s total annual purchases of U.S. sewing thread, setting forth the weight purchased every year, the annual purchase price of the thread and the weekly average in kilograms of thread utilized by the manufacturer each week;
A summary chart of the manufacturer’s single purchase of Chinese origin thread, including the invoice number, invoice date, weight, purchase price and the date of receipt (May 27, 2016);
Invoices for all of the manufacturer’s purchases of U.S. sewing thread from January 14, 2014, through November 3, 2016;
Photographs of boxes of the U.S. sewing thread at the manufacturer’s facility, date stamped 3/24/2017;
The invoice for the manufacturer’s single purchase of Chinese origin thread;
Photographs of boxes of the Chinese sewing thread at the manufacturer’s facility, date stamped 3/24/2017;
Summary charts indicating the amount of Chinese sewing thread used in production and the amount left over which will never go into production;
The following documents for three of the entries of socks containing Chinese sewing thread: summary of production with processes and production dates (knitting, sewing, bleaching/dyeing, boarding, packing and boxing), purchase orders, invoices, payments and transportation documents for all yarn and thread, and a summary of the employees for those production dates and processes; and
The following documents for three sample entries of socks containing yarn and thread solely of U.S. and Peruvian origin: summary of production with processes and production dates (knitting, sewing, bleaching/dyeing, boarding, packing and boxing), purchase orders, invoices, payments and transportation documents for all yarn and thread, and a summary of the employees for those production dates and processes.
The importer asserts that the Chinese sewing thread was only used in three entries of the subject athletic socks, and that all the other entries of socks solely consisted of U.S. and Peruvian origin yarn and thread.
ISSUE:
Whether the imported athletic socks are eligible for preferential tariff treatment under the United States- Peru Trade Promotion Agreement.
LAW AND ANALYSIS:
The subject entries liquidated between March 3 and April 7, 2017. On June 1, 2017, a computer generated Formal Demand was sent to the surety. On November 28, 2017, the surety timely filed the instant Protest and AFR. 19 U.S.C. §1514(c)(3). We note that the matter is protestable as a decision on classification. 19 U.S.C. §1514(a)(2). The surety’s AFR satisfies application criteria because the surety alleges that classification of the subject merchandise raises questions of fact which have not been ruled upon by CBP. 19 C.F.R. § 174.24(b). Namely, the surety asserts that the instant athletic socks qualify for duty free treatment under the PTPA.
The United States and Peru signed the PTPA on April 12, 2006. On December 14, 2007, the PTPA became law and entered into force on February 1, 2009. See The U.S.-Peru TPA Implementation Act (Pub. L. 110-138, 121 Stat. 1455 (19 U.S.C. 3805, note)). The PTPA was implemented in General Note (“GN”) 32, of the Harmonized Tariff Schedule of the United States (“HTSUS”).
GN 32(b), HTSUS, provides that a good imported into the customs territory of the United States is eligible for treatment as an originating good under the terms of this note if—
the good is a good wholly obtained or produced entirely in the territory of Peru, the United States, or both;
the good was produced entirely in the territory of Peru, the United States, or both, and—
each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or
the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note;
and the good satisfies all other applicable requirements of this note; or
(iii) the good was produced entirely in the territory of Peru, the United States, or both, exclusively from materials described in subdivision (b)(i) to b(ii) of this note.
The regulations applicable to the PTPA are contained in 19 C.F.R. § 10.901 to 10.934. Section 10.926 specifically addresses “Verification and justification of claim for preferential tariff treatment.” With regard to verification of a claim by a port, the regulation references different methods by which verification may be conducted, including written requests for information.
In reviewing documents submitted to support a claim for preferential tariff treatment under a Free Trade Agreement or other tariff preferential program, we consider the guidance issued to CBP field personnel and the importing community by CBP Headquarter offices in the form of memorandum and Textile Book Transmittals (TBTs). This guidance includes the February 10, 2009, memorandum entitled “U.S.-Peru Trade Promotion Implementation Instructions,” issued by the Executive Director, Trade Policy and Programs, Office of International Trade; TBT-07-019, “Documents Used to Verify Free Trade Agreement and Legislated Trade Program Claims for Textiles and Wearing Apparel,” issued by the Executive Director, Trade Policy and Programs, Office of International Trade on October 10, 2007; and TBT-11-004, “Additional Documents Used to Verify Free Trade Agreement and Legislated Program Claims for Textiles and Wearing Apparel,” issued by the Executive Director, Trade Policy and Programs, Office of International Trade on March 31, 2011.
In TBT-07-019 on p. 2 of “Documents Used to Verify Free Trade Agreements,” the following documentation requirements are set forth:
Documents to Support Claims Involving Agreements/Groupings Requiring
Regional Yarn or Fabric
Records demonstrating that a party to the transaction sourced regionally formed yarn, fabric, or cut or knit-to-shape components clearly dedicated to the final imported merchandise. Such records include purchase orders, invoices, delivery notices, etc. These documents should demonstrate a direct correlation of the materials or components to the finished good by way of style numbers, fabric type and construction, or other means.
Transportation and export records (e.g., bills of lading) from the regional country of origin of the yarn or fabric to the regional country of final production.
Entry documents showing movement of the inputs into the regional country of final production.
Documents showing movement and delivery of inputs within the regional country of final production.
For the three sample entries of socks which solely consisted of U.S. and Peruvian origin yarn and thread, we received a summary of production with processes and production dates (knitting, sewing, bleaching/dyeing, boarding, packing and boxing), purchase orders, invoices, payments and transportation documents for all yarn and thread, and a summary of the employees for those production dates and processes. Based upon all of the documentation submitted, we are satisfied that the corresponding athletic socks were wholly produced in Peru from U.S. and Peruvian origin yarn and thread. Accordingly, we find that the athletic socks in the corresponding protested entries are eligible for preferential tariff treatment under the PTPA.
For the three entries of socks which include Chinese origin sewing thread, we note that it is undisputed that the socks are classified under heading 6115, of the Harmonized Tariff Schedule of the United States (HTSUS), which provides, in pertinent part, for “socks.” It is also undisputed that the 100% nylon sewing thread from China is classified in heading 5401, HTSUS, which provides for “sewing thread of manmade filaments, whether or not put up for retail sale.” Chapter Rule 4 to Chapter 61, GN 32(n), states that “Notwithstanding chapter rule 2 to this chapter, a good of this chapter containing sewing thread of heading 5204 or 5401 shall be considered originating only if such sewing thread is both formed and finished in the territory of Peru, the United States, or both.”
The three entries containing socks with Chinese sewing thread include a number of different styles of athletic socks. As stated above, the importer cannot determine which styles contain the Chinese sewing thread and which socks do not. As we cannot distinguish between the originating and nonoriginating socks in each entry, we must deny preferential tariff treatment under the PTPA for the entire entry.
HOLDING:
The Protest should be allowed in part and denied in part as follows. For the 23 entries which contained athletic socks which solely consisted of U.S. and Peruvian origin yarn and thread, the socks are eligible for preferential treatment under the PTPA and the Protest should be allowed.
For the three entries which contained Chinese origin sewing thread, the Protest should be denied.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division