CLA-2 RR:CR:TE 961941 SS
Port Director
U.S. Customs Service
200 East Bay Street
Charleston, SC 29401-2611
RE: Decision on Application for Further Review of Protest No. 1601-96-100076; subheading 5201.00.18, HTSUS; cotton, not carded or combed; Additional U.S. Note 5 to Chapter 52; subheading 9904.52.08, HTSUS; U.S. Note 1 to Subchapter IV of Chapter 99
Dear Sir:
This is a response to the Application for Further Review (“AFR”) of Protest No. 1601-96-100076, filed by Tuscararo Yarns, Inc. (“Protestant”), protesting the decision of Customs to liquidate certain merchandise with a tariff classification under subheading 5201.00.18 paired with subheading 9904.52.08 of the Harmonized Tariff Schedule of the United States (“HTSUS”).
We note the Protest and AFR were initially denied by the Port for being untimely filed. Protestant filed a request for review of the denial of the Protest and AFR pursuant to 19 U.S.C. 1515(c) on May 6, 1996. The denial of the AFR was set aside and the denial of the Protest was voided by this office by letter dated June 7, 1996. The Port Director was directed to process the AFR in accordance with the applicable Customs Regulations and instructions.
It appears that the Protest was sent to Headquarters in August 1996, but was never received. After reconstructing the Protest, the Port again forwarded the Protest to Headquarters on May 8, 1998. The protest was finally received by Headquarters on May 12, 1998.
FACTS:
The merchandise in question consists of 64,170 kg of cotton, not carded or combed, having a staple length of less than 28.575 mm. The cotton was grown in Mexico and processed by dyeing in Italy. On May 10, 1995, Protestant filed an entry for the 64,170 kg of cotton. The entry summary claimed subheading 5201.00.18, HTSUS, as the proper classification but listed an
applicable duty rate of “Free”. The applicable duty rate for 5201.00.18, HTSUS, is $0.36 per
kilogram. The applicable duty rate for 5201.00.14, HTSUS, is “Free”. Thus, it is clear from the duty rate claimed and the Protest submission, that Protestant claims 5201.00.14, HTSUS, as the correct classification. Protestant also paired the classification with 9906.52.05, HTSUS, which also has an applicable duty rate of “Free”.
On December 1, 1995, Customs reclassified the merchandise and liquidated the entry under subheading 5201.00.18, HTSUS, paired with 9904.52.08, HTSUS. Customs position was based on the belief that Additional U.S. Note 5(a) to Chapter 52 excluded products from Mexico from subheading 5201.00.14, HTSUS.
The Protestant timely filed this Protest seeking reliquidation of the entry. The Protestant contends that Additional U.S. Note 5(a) to Chapter 52 cannot be interpreted to exclude this merchandise from subheading 5201.00.14, HTSUS, because such an interpretation would contradict the Uruguay Round Agreements Act and be inconsistent with the principles of NAFTA.
ISSUES:
I. What is the proper classification for the subject merchandise?
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied. GRI 6 requires that the classification of goods in the subheadings of headings shall be determined according to the terms of those subheadings, and any related subheading notes and mutatis mutandis, to the GRIs.
This matter is governed primarily by GRI 6, in that the choice in classification is between two subheadings. Subheadings 5201.00.14 and 5201.00.18, HTSUS, both cover cotton that has not been carded or combed and has a staple length under 28.575mm. Subheading 5201.00.14 covers cotton that is described in Additional U.S. Note 5 to Chapter 52 (“U.S. Note 5") and entered pursuant to its provisions. Subheading 5201.00.18 is a residual provision that covers cotton that is not classified in 5201.00.14 or the preceding subheadings. Accordingly, classification in this case depends on whether or not the cotton meets the description contained in U.S. Note 5.
U.S. Note 5 established an “in-quota” quantity within a tariff-rate quota system for cotton, not carded or combed having a staple length under 28.575 mm. Under the Uruguay Round Agreements Act various absolute quotas were replaced by tariff-rate quotas (“TRQs”). TRQs are a two-tier tariff system under which a specified “in-quota” quantity of an article enters at a lower “in-quota” tariff rate, and “over-quota” quantities enter at a substantially higher “over quota” rate. U.S. Note 5(a) provides as follows:
“Except as provided in this subdivision, the aggregate quantity of cotton, not carded or combed, the product of any country or area including the United States, having a staple length under 28.575 mm (1-1/8 inches) . . . entered under subheading 5201.00.14 during the period from January 1 to September 19, 1995, inclusive shall not exceed the remaining quantity available, if any, from the quota amount specified below in this subdivision applicable to such goods during the quota period that began on September 20, 1994; and at the close of September 19, 1995, such quota period shall be considered terminated.”
U.S. Note 5(a) then lists numerous countries and the quantity each is allowed to import into the United States. Mexico is not listed in the list of countries. However, there is a provision for “Other” countries. “Other” lists “None” as the quantity that can be imported under the note. Since the cotton is from Mexico and U.S. Note 5(a) does not allow the entry of any cotton from Mexico under the note, the cotton cannot be classified under subheading 5201.00.14, HTSUS. The cotton simply does not meet the description contained in U.S. Note 5. Accordingly, the proper classification is under the residual subheading 5201.00.18, HTSUS.
In classifying merchandise under Heading 5201, HTSUS, footnote 1 directs us to three subchapters of Chapter 99 which deal with temporary modifications established pursuant to trade legislation. Two of the subchapters are clearly inapplicable. We find that a determination as to the applicability of the remaining subchapter is not necessary at this time.
Subchapter III, which includes subheading 9903.52, HTSUS, deals with special import quotas for upland cotton. Since the cotton at issue is not upland cotton, the subchapter is inapplicable.
Subchapter VI, which includes subheading 9906.52, HTSUS, provides for special duty rates for goods of Mexico entered under the terms of General Note 12 to the HTSUS. General Note 12 to the HTSUS deals with the North American Free Trade Agreement (“NAFTA”). Goods which are entered under the terms of General Note 12 to the HTSUS are referred to as “originating goods”. Since all parties agree that the cotton at issue is not “originating”, an analysis under General Note 12, which sets forth the NAFTA rules of origin, is unnecessary. The cotton simply does not qualify for NAFTA treatment as an “originating” good. Thus, Subchapter VI is also inapplicable.
Subchapter IV, which includes subheading 9904.52, HTSUS, deals with safeguard measures which allow the imposition of additional duties based upon the value of the cotton. Since subheading 9904.52, HTSUS, expressly covers cotton provided for in subheading 5201.00.18, HTSUS, the Port paired the classification with subheading 9904.52.08, HTSUS, which provides for cotton valued at $1.35.kg or more. Although the subchapter generally imposes additional duties, subheading 9904.52.08, HTSUS, does not impose an additional duty. In reviewing U.S. Note 1 to Subchapter IV (“U.S. Note 1"), it appears that goods of Mexico are exempted from the provisions of the subchapter. U.S. Note 1 does not specifically state whether or not the goods must be “originating” goods of Mexico to be exempted. As stated above, the subject cotton is not an “originating” good of Mexico, however, all parties also agree that the merchandise is a product of Mexico under traditional origin rules. Thus, there is an issue as to whether or not the merchandise is excluded from the provisions of Subchapter IV. Due to the fact that U.S. Note 1 does not use typical NAFTA language, such as “goods of Mexico, entered under the terms of general note 12 to the tariff schedule” or “originating goods of Mexico”, it is arguable that the note was intended to exempt both “originating” and “nonoriginating” goods from the provisions of the subchapter. However, we also note the reference in the U.S. Note 1 to “goods of Canada and Mexico” which implies that the note is referring only to “originating” goods. The International Trade Commission Office of Tariff Affairs and Trade Agreements, the drafters of Chapter 99, have advised that “goods of Mexico” as it appears in U.S. Note 1 to Subchapter IV Chapter 99, is a term of art which refers to goods of Mexico under the terms of general note 12. However, since no additional duty is imposed by subheading 9904.52.08, HTSUS, we find that a determination as to the applicability of Subchapter IV is unnecessary at this time.
Protestant submits that interpreting U.S. Note 5 to exclude the merchandise from subheading 5201.00.14, HTSUS, contradicts the Uruguay Round Agreements Act (“URAA”). Specifically, Protestant points to the Marakesh Protocol, a Uruguay Round Agreement implemented by Congress under the URAA. Schedule XX annexed to the Marakesh Protocol sets forth certain trade concessions made by the United States which show a commitment to removing non-tariff barriers to trade, such as absolute quotas, and replacing them with tariff rate quota systems. A review of the provisions dealing with cotton indicate that Schedule XX was followed in establishing the tariff rate quota system for cotton that is contained in U.S. Note 5.
Protestant’s main contention concerns one brief statement in Schedule XX. After setting forth the minimum aggregate quantity of cotton to be permitted entry into the United States at the preferential rate, Schedule XX states as follows:
“An additional quantity of 10,000 metric tons is reserved for Mexico under this note.”
Protestant asserts that this 10,000 metric tons should have been provided for in U.S. Note 5 and that “interpreting” U.S. Note 5 to preclude classification of the cotton at issue is violative of the URAA. However, U.S. Note 5 makes no reference to the 10,000 metric tons, or any portion thereof, mentioned in Schedule XX. The 10,000 metric tons reserved for Mexico is present in the HTSUS; Subchapter VI, mentioned above, specifically provides for the duty free importation of 10,000 metric tons of originating cotton. Protestant is correct in that Schedule XX says nothing about NAFTA or originating goods nor does it contain any restrictions on the allowance to Mexico. However, it appears that in implementing Schedule XX the decision was made to place the allowance under the NAFTA provisions contained in Chapter 99 Subchapter VI. Accordingly, this is not an issue of interpretation; U.S. Note 5, which is statutory, clearly does not include any allotment for Mexico.
Protestant alleges that Schedule XX was not related to NAFTA and by “interpreting” U.S. Note 5 to exclude the merchandise, Customs is imposing “a further condition on the availability of the tariff rate quota that did not exist in the 1988 absolute quota by requiring that merchandise must be NAFTA originating.” Customs is not imposing a further condition on the availability of the tariff rate quota. The tariff rate quota system has been established by the HTSUS, which is a statutory enactment. Protestant contends that “merchandise that was eligible for the absolute quota in 1988 has to be eligible for the tariff rate quota in 1995.” The merchandise is eligible for the tariff rate quota in 1995; if it is nonoriginating, it must be entered at the “over-quota” duty rate. Any restrictions on the availability of the “in-quota” duty rate are due to explicit provisions in the HTSUS.
Protestant next argues that Customs “interpretation” imposes harsher results on the Protestant under NAFTA than would have been the case before the adoption of NAFTA. Protestant alleges that after the adoption of NAFTA, cotton fiber of Mexican origin, but nonoriginating under the origin rules, was “suddenly barred” from importation into the United States. This is incorrect. After Schedule XX and NAFTA, nonoriginating Mexican cotton could be entered into the United States in unlimited quantities, however, it had to be entered at the “over-quota” duty rate. That is simply how the TRQ was established. Protestant believes that only allowing the “in-quota” duty rate for originating goods was not intended by the drafters of NAFTA nor Congress. However, as implemented in the HTSUS, that appears to be exactly the intent. Protestant asserts that the “absolute ban” on nonoriginating cotton cannot be reconciled with the policy of NAFTA to eliminate barriers to trade. First, NAFTA only applies to originating goods and is inapplicable in these circumstances. Secondly, there is no “absolute ban”. The merchandise at issue can be, and has been, entered into the United States. Protestant is just dissatisfied with the fact that it had to pay the “over-quota” duty rate.
Since the HTSUS is a statutory enactment by Congress, the Customs Service, as an administrative agency, has no authority to classify merchandise under tariff provisions that Customs believes are not legally applicable to that merchandise. In accordance with the clear wording of the statute, subheading 5201.00.1400, HTSUS, is not legally applicable to the merchandise.
HOLDING:
The subject merchandise was correctly reclassified under subheading 5201.00.18, HTSUS, which provides for cotton, not carded or combed, having a staple length under 28.575 mm (1-1/8 inches): Other: Other. The applicable rate of duty is $0.36 per kilogram.
The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, 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.
Please note that the address of the person to whom any notice of approval or denial should be sent, which is listed in block 10 of the Protest (CF19), has been changed to: Grunfeld, Desiderio, Lebowitz & Silverman LLP, 303 Peachtree Street, N.E. Suite 2980, Atlanta, Georgia 30308.
Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and the public on the Customs Home page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
John Durant, Director
Commercial Rulings Division