• HQ H058767
• Sep 25, 2009

• Type : Classification • HTSUS :
•  Related:   562045; 112667; 224397; 224118   

HQ H058767

OT:RR:CTF:VS H058767 YAG

Port Director
U.S. Customs and Border Protection
Port of Buffalo
726 Exchange Street, Suite 400
Buffalo, NY 14210

RE: Application for Further Review of Protest No. 0901-07-100388; NAFTA Eligibility

Dear Port Director:

This is a decision on the above-referenced Protest and Application for Further Review, filed by FedEx Trade Networks, Inc., on September 28, 2007, on behalf of their client, Capitol Manufacturing Company (“Capitol Manufacturing”).  FACTS:

Capitol Manufacturing is an importer of non-alloy steel pipe fittings, classified under subheading 7307.99.5015 of the Harmonized Tariff Schedule of the United States (“HTSUS”). The fittings were claimed to be produced in Canada and were imported into the United States.

Capitol Manufacturing claimed NAFTA eligibility for its 2006 shipments of non-alloy steel pipe fittings. On December 18, 2006, CBP issued CF 28s, addressed to Capitol Manufacturing, the Importer, for several entries, requesting a better invoice description, mill certificate, weight verification, quantity, and unit price for each fitting as well as the 2006 NAFTA Certificate of Origin to substantiate the NAFTA claim. On January 8, 2007, CapProducts, Ltd., a Canadian Exporter, as stated in the invoices submitted to CBP, provided some information to CBP, including the Certificate of Origin, which was not dated and did not cover the date of importation of the entries in question. On February 1, 2007, a proposed CF 29 was issued, intending to deny the NAFTA claim based on the insufficient Certificate of Origin. This CF 29 was later cancelled because the valid Certificate of Origin, covering the period of January 1, 2006 to December 31, 2006, was attached to all entries subject to this protest. Subsequently, on April 3, 2007, a second CF 28 was issued for supporting documentation based on the NAFTA claim made for the above referenced entry numbers. The request asked for an explanation as to how the non-alloy steel pipe fittings satisfied the specific rules of origin as set out in Annex 401 of the NAFTA. It was specifically addressed to the Exporter, CapProducts, Ltd. The Exporter failed to respond to this request within the time limits allowed, and on May 21, 2007, a proposed CF 29 was issued based on the lack of response for the CF 28 issued on April 3, 2007. Once again, CBP’s proposed CF 29 was addressed to the Exporter and specifically stated that if no additional information was provided, action would be taken on June 21, 2007 with no further notification from CBP. The Exporter was afforded the opportunity to provide written comments or information at any time before June 21, 2007. No information was provided. On July 2, 2007, CBP notified Capitol Manufacturing of the denial of the NAFTA claim.

All entries subject to this protest were liquidated on July 20, 2007, and the NAFTA claim was denied. On August 22, 2007, approximately a month after the liquidation, CapProducts, Ltd. provided CBP with the packing lists and invoices. FedEx Trade Networks, Inc. filed this protest on behalf of Capitol Manufacturing on September 28, 2007. Accordingly, the Protest was timely filed. On April 17, 2009, the Protest, having been approved for further review was referred to this office.

In its Protest, FedEx Trade Networks, Inc. first contends that the non-alloy steel pipe fittings had been misclassified in Entry No. 112-27540004 under subheading 7307.29.0030, HTSUS instead of under subheading 7307.99.5015, HTSUS. However, upon our review, it appears that all entries have been correctly classified under subheading 7307.99.5015, HTSUS.

Moreover, FedEx Trade Networks, Inc. claims that Capitol Manufacturing has provided all of the documentation with which to verify the NAFTA eligibility of the imported merchandise covered by the subject entries. Thus, this protest decision is being issued subsequent to the review of the following documents, provided by FedEx Trade Networks, Inc., together with its protest and forwarded to our office for our consideration: (1) Customs Protest, CBP Form 19; (2) Customs Protest and Summons Information Report, CF 6445A; (3) Attachment of the Protestant, addressed to the Port Director that accompanied the Protest; (4) Relevant Entry Summaries and Invoices submitted with the Protest; and (5) the following attachments to the Protest, provided by FedEx Trade Networks, Inc.: (a) list of liquidated entries subject to this Protest; (b) 2006 blanket Certificate of Origin from the Canadian Exporter, CapProducts, Ltd.; (c) a letter from CapProducts, Ltd. stating that ninety seven percent (97%) of the fittings covered by the subject entries were made from steel pipe manufactured by two (2) U.S. companies; (d) Producer’s Certificate of Origin for the pipe from each of the two U.S. companies; (e) value and weight breakdown for each entry for the originating and non-originating fittings; and, (f) amended entry summaries, which reflect the breakdown between the originating and non-originating fittings.

Furthermore, on June 23, 2009, in response to our office’s request for additional information, CapProducts, Ltd. stated that the company uses Epicor Inventory Management System to track its merchandise. CapProducts, Ltd. also stated that the company’s facility is ISO 9001:2000 Quality System certified and provided us with the ISO certificate. Additionally, on July 16, 2009, CapProducts, Ltd. provided a detailed explanation of its inventory control system; however, a subsequent communication from CapProducts, Ltd. indicated that the procedure described was not in existence at the time the entries subject to protest were filed. Further, on July 1, 2009, CapProducts, Ltd. provided spreadsheets for each of the seven entries subject to this protest, together with the appropriate invoices and detailed packing lists. According to CapProducts, Ltd., every item located on the invoices submitted was considered “not exempt from NAFTA (meaning the raw materials came from non-NAFTA countries)” and was listed on the spreadsheets along with the item description, price, weight, total amount, and total weight. CapProducts, Ltd. claims that the items not listed on the seven entry details were all eligible for NAFTA treatment. According to CapProducts, Ltd., the initial invoices submitted to CBP incorrectly identified all the imported merchandise to be NAFTA exempt. CapProducts, Ltd. claims that during its investigation, it discovered that a small percentage (approx. 3%) of the imported merchandise originated from non-NAFTA countries. It is claimed that the Exporter developed an inventory control procedure subsequent to this review. However, in order to avoid the penalty on the entries subject to this protest, the Exporter paid the full duty and, subsequently, filed this protest, claiming a refund of duties on the merchandise allegedly originating from NAFTA countries.

The port contends that Capitol Manufacturing failed to timely provide information in response to CF 28s. Thus, the merchandise does not qualify for the preferential treatment under NAFTA. ISSUES:

Whether a claim for NAFTA tariff preference is properly denied when the Exporter fails to timely provide or make available information requested by CBP during a verification; and, Whether the non-alloy steel pipe fittings imported from Canada qualify for preferential tariff treatment under NAFTA.

LAW & ANALYSIS:

I. Whether a claim for NAFTA tariff preference is properly denied when the Exporter fails to timely provide or make available information requested by CBP during a verification.

Section 181.21(a), Customs Regulations (19 CFR §181.21(a)) states, in pertinent part, that:

[I]n connection with a claim for preferential tariff treatment . . . for a good under the NAFTA, the U.S. importer must make a formal declaration that the good qualifies for such treatment. . . .[t]he declaration must be based on a complete and properly executed original Certificate of Origin, or copy thereof, which is in the possession of the importer and which covers the good being imported.

Further, to verify or substantiate the NAFTA claim, Customs has the right to seek further information by initiating a NAFTA verification. Under Section 181.71, Customs Regulations (19 CFR §181.71), except in such cases as when a Certificate of Origin is not provided, Customs can deny a NAFTA claim only upon a determination following an origin verification.

CapProducts, Ltd. attached various Certificates of Origin to the entries covering the merchandise imported from Canada from January 1, 2006 to December 31, 2006. Therefore, a negative origin determination can only result from an origin verification process.

NAFTA verification procedures are set forth in Section 181.72, Customs Regulations (19 CFR §181.72). In particular, 19 CFR §181.72(a), states:

Subject to paragraph (e) of this section, Customs may initiate a verification in order to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good.

Also, 19 CFR §181.72(a)(3) states, in pertinent part, that an origin verification shall be conducted by means including:

(i)      A verification letter which requests information from a Canadian or Mexican exporter or producer, including a Canadian or Mexican producer of a material, and which identifies the good or material that is the subject of the verification. The verification letter may be on Customs Form 28 or other appropriate format and may be sent: (A) by certified or registered mail, or by any other method that produces a confirmation of receipt by the exporter or producer. . . .

In the NAFTA verification process, if the exporter or producer that receives a request for information from CBP does not respond within 30 days of the initial request for information, CBP shall send a follow-up verification letter. See 19 CFR §181.72(d). The follow-up letter also should be sent by certified, registered, or other method of mail that can prove delivery. If the exporter or producer does not respond within 30 days of receiving the follow-up request, Customs may then consider the goods to not originate in a NAFTA country and may then deny preferential tariff treatment on the goods. Section 181.72(d)(2)(ii), Customs Regulations (19 CFR §181.72(d)(2)(ii)), states in pertinent part:

If the exporter or producer of a good fails to respond to a follow-up verification letter . . . Customs may consider the good to be non-originating and consequently may deny preferential tariff treatment on the good as follows: (A) if the follow-up letter or questionnaire included a written determination as provided for in paragraph (d)(1)(i) of this section and the exporter or producer fails to respond to the follow-up letter or questionnaire within 30 calendar days or such longer period as specified therein: (1) from the date on which the follow-up letter or questionnaire and written determination were received by the exporter or producer, if sent pursuant to the paragraph (d)(1)(ii)(A) of this section . . .

In this case, the verification was initially directed at the Importer. Capitol Manufacturing. However, it was CapProducts, Ltd., the Exporter, as claimed on the invoices, that provided CBP with the responsive information. Therefore, subsequent requests for information and notices were addressed to CapProducts, Ltd., the Exporter. After several documented and specific requests for additional information (CF 28s were sent to the parties on December 18, 2006 and on April 3, 2007, CBP issued notices (CF 29s, dated February 1, 2007 and May 21, 2007) that it intended to make a negative determination and deny the NAFTA claims. In these written requests and notices, CBP asked CapProducts, Ltd. to explain how the imported merchandise satisfied the applicable Rules of Origin, specified in Annex 401 of the NAFTA. The Exporter was also given notice that if no additional information was provided, action would be taken on June 21, 2007 with no further notification from CBP. The entries were liquidated on July 20, 2007. The Exporter was given an opportunity to provide the information; however, it did not timely respond to CBP’s requests during verification. The timing of these CBP notices was in compliance with NAFTA verification procedures.

Additionally, the issue of whether the Exporter received the CBP notices is moot because the Exporter responded to such notices, although untimely. Therefore, the responses themselves are prima facie evidence that the notices were received by the Exporter. See Headquarters Ruling Letter (“HRL”) 562045, dated December 4, 2001. In conclusion, the port’s negative NAFTA determination was consistent with Customs Regulations and procedures.

Nevertheless, this protest was filed by FedEx Trade Networks, Inc., on behalf of Capitol Manufacturing, the Importer of record. The Importer’s interest is preserved by its right to protest the chargeable rate of duty. See 19 CFR §174.11(b). The amount of duties chargeable on liquidation is protestable under 19 U.S.C. §1514(a)(2); 19 CFR §174.11(b). Also, under 19 U.S.C. §1514(c)(2)(A) and 19 CFR §174.12(a)(1), an Importer shown on the entry papers has the right to protest. In the instant case, the Importer’s protest was timely filed as it was within the 90-day period permitted by 19 U.S.C. §1514(c)(3), 19 CFR §174.12(e). See also HRL 562045, dated December 4, 2001.

During the protest, the Importer provided the documents in order to prove the validity of the NAFTA claim. Upon further review in a protest, 19 CFR §174.28 allows the submission of additional arguments/grounds and alternative claims until the final disposition of the protest. It has been the practice of this office to allow protestants to submit additional evidence in a protest. See HRL 112667, dated May 25, 1993; HRL 224397, dated March 8, 1994; and HRL 224118, dated July 26, 1993. Accordingly, we find that although the Exporter failed to timely provide the necessary documentation during verification, the Importer may submit the necessary information on whether the imported merchandise qualifies for NAFTA preference, together with its protest.

II. Whether the non-alloy steel pipe fittings imported from Canada qualify for preferential tariff treatment under NAFTA.

General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(a)(i), HTSUS, provides, in pertinent part, that:

Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "CA" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.

Accordingly, the non-alloy steel pipe fittings will be eligible for the “Special” “CA” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and, (2) qualify to be marked as products of Canada under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 CFR 102). In order to determine whether the non-alloy steel pipe fittings are NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part, as follows:

For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if—

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or (ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that— (A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or (B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.

Because the non-alloy steel pipe fittings are not wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the tariff shift prescribed under General Note 12(b)(ii), HTSUS. As stated in the importer’s submission, the imported non-alloy steel pipe fittings are classified under subheading 7307.99.5015, HTSUS. The applicable rule in General Note 12(t)/73, provides for a change to headings 7305 through 7307 from any other chapter.

Based on the information submitted by the FedEx Trade Networks, Inc., Part A of the General Note 12(t)/73 is not satisfied in this case, because the non-alloy steel pipe fittings did not undergo a tariff shift from another chapter. Therefore, the rule will be satisfied and NAFTA eligibility established only if the non-alloy steel pipe fittings satisfy General Note 12(b)(iii), HTSUS.

In order to establish the fact that the non-alloy steel pipe fittings were produced entirely in Canada from originating materials, FedEx Trade Networks, Inc. cited to the Certificate of Origin, the letter from CapProducts, Ltd., stating that most of the fittings covered by the subject entries were made from steel pipe manufactured by two (2) companies in the United States, and the Certificate of Origin of the pipe from the two (2) U.S. companies. Furthermore, FedEx Trade Networks, Inc. provided multiple charts, showing the value and weight breakdown for entry for non-originating fittings and the amended entries. Additionally, CapProducts, Ltd. stated that the company uses Epicor Inventory Management System to track its merchandise. CapProducts, Ltd. also stated that the company’s facility is ISO 9001:2000 Quality System certified and provided us with the ISO certificate. Further, CapProducts, Ltd. claimed to have an inventory control system in place to ensure that it can track the non-alloy pipe fittings produced from originating and non-originating materials.

General Note 12(g), HTSUS defines the term “fungible goods” and provides for the use of the inventory management methods, as follows:

Fungible goods and materials. For purposes of determining whether a good is an originating good:(i) where originating and non-originating fungible materials are used in the production of a good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in regulations promulgated by the Secretary of the Treasury; and(ii) where originating and non-originating fungible goods are commingled and exported in the same form, the determination may be made on the basis of any of the inventory management methods set out in regulations promulgated by the Secretary of the Treasury.

Section 102.1(f) of the CBP Regulations (19 CFR §102.1(f)) further defines fungible goods or materials as “goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical." Additionally, section 102.12 of Customs Regulations (19 CFR §102.12), states that when fungible goods of different countries of origin are commingled, the country of origin of the goods is the countries of origin of the commingled goods or if the good is fungible, has been commingled, and direct physical identification of the origin of the commingled good is not practical, the country or countries of origin may be determined on the basis of any inventory management method provided under the appendix to part 181 of the Customs Regulations. 19 CFR Part 181, App.

With respect to this issue, no information was submitted with this protest evidencing the existence of an inventory management system at the time of the importation. On the contrary, the Port of Buffalo determined that CapProducts, Ltd. did not have any inventory control system for NAFTA purposes in place. CapProducts, Ltd. claims that the system was put in place subsequent to the importation of the merchandise subject to this protest. In the absence of an inventory management system, CapProducts, Ltd. has not provided information as to how the company determined what steel fittings were made from originating materials and what steel fittings were made from non-originating materials for the entries subject to this protest, prior to the implementation of its inventory control system, described in its email, dated July 16, 2009. In other words, there is no link to show which fittings imported into the United States were produced from originating pipes and which imported fittings were produced from the non-originating pipes.

Accordingly, in the absence of an inventory management system or an explanation of how the steel fittings were deemed to be from non-originating or originating materials, it is impossible for us to ascertain with certainty whether the imported goods are produced entirely in the territory of Canada from originating materials. Therefore, the imported goods are not deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS. Since FedEx Trade Networks, Inc. failed to satisfy provisions of General Note 12(b), HTSUS, the imported merchandise does not qualify for preferential treatment under NAFTA, and it is not necessary for us to examine whether General Note 12(a)(ii), HTSUS establishes that NAFTA-originating goods qualify to be marked as goods of Canada under the NAFTA Marking Rules. See 19 CFR Part 102.

HOLDING:

This Protest is DENIED.

In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP 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 and Trade Facilitation Division