• HQ H175556
• Feb 03, 2014

• Type : Classification • HTSUS :

OT:RR:CTF:VS H175556 CMR

Port Director
U.S. Customs and Border Protection
John F. Kennedy International Airport
Bldg #77
Jamaica, NY 11430

RE: Internal Advice Request on the eligibility of embroidery in the piece; DR-CAFTA short supply; 9822.05.01, HTSUS

Dear Port Director:

This is in response to your memorandum, dated July 7, 2011, requesting internal advice on the eligibility of certain embroidered woven fabric for preferential tariff treatment under the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA). We regret the delay in our response. FACTS:

The U.S. importer, Fashion Textile Trading (hereinafter, “FTT”), imports embroidered fabrics, i.e., embroidery in the piece, from an unrelated manufacturer in Honduras. FTT states that it sells Chinese origin batiste to the Honduran manufacturer. FTT buys the embroidery yarns from U.S. yarn producers and states it is “originating” yarn. It appears that FTT also sells the embroidery yarns to the Honduran manufacturer. The embroidered fabric of subheading 5810.92.9080, Harmonized Tariff Schedule of the United States (HTSUS), was entered under heading 9822.05.01, HTSUS, as “originating” goods qualifying for DR-CAFTA preferential tariff treatment under the DR-CAFTA short supply provision.

In May 2008, the Port of Newark initiated a verification of the DR-CAFTA preferential status of a September 2007 entry of embroidered fabrics imported by FTT. By letter dated June 4, 2008, FTT’s customs broker informed Customs and Border Protection (CBP) at the port that greige fabric is purchased from a distributor in the United States, but that the fabric “is produced primarily in China and Indonesia.” The broker indicated that the fabric fit the description of a fabric listed on the short supply list of fabrics, i.e., that it was one of the fabrics listed as not being commercially available in the United States. The broker explained the Honduran processing of the fabric and explained why she believed the embroidered fabric qualified for DR-CAFTA under heading 9822.05.01, HTSUS, and U.S. Note 20(a), Subchapter XXII, Chapter 98.

The Port of Newark initially proposed to reject the DR-CAFTA preferential treatment claim via a CBP Form 29 issued on June 11, 2008; however, allowed additional information to be submitted. The customs broker submitted additional information on June 30, 2008. The port issued a CBP Form 29, dated October 2, 2008, stating that the embroidered fabric qualified as an originating good pursuant to General Note (GN) 29, HTSUS, and “is classified under HTS 9822.05.01/5810.92.9080 with a duty rate of free.”

In March 2011, your port initiated, via a CBP Form 28, Request for Information, a verification of a December 2010 entry of FTT’s embroidered fabrics for eligibility for preferential tariff treatment under the DR-CAFTA. On May 10, 2011, your port issued a negative determination regarding the eligibility of an entry of FTT’s embroidered fabric under the DR-CAFTA. Your port also issued a CBP Form 28, dated May 13, 2011, requesting information on another entry of FTT’s embroidered fabric.

In response to the negative determination on one entry and the request for information on a second entry, counsel for FTT requested internal advice regarding the eligibility of FTT’s embroidered fabrics under the DR-CAFTA. In addition, counsel asserts that an established and uniform practice exists, pursuant to 19 U.S.C. § 1315(d), to treat these goods as DR-CAFTA originating. In support of the claim that an established and uniform practice exists with regard to the classification of these goods, counsel submitted a list of entries of the subject embroidered fabric stated to be liquidated under HTS subheading 9822.05.01/5810.92.9080, duty free.

Finally, counsel argues that the port erred in advancing the value of the merchandise in the entry to reflect the cost of the fabric which the importer maintains is reflected in the value declared to CBP and which the port believes was not included in the declared dutiable value. The port has indicated a willingness to reevaluate the value decision if the importer supplies proof of payment to them by the manufacturer for the fabric. In addition, counsel has indicated a protest would be filed against the liquidation of this entry in which this issue will be addressed. Therefore, we will not address the value of the fabric in this internal advice decision.

ISSUE:

Does the embroidered fabric produced in Honduras using originating embroidery yarns and batiste fabric of Chinese origin qualify for preferential tariff treatment as an originating good under heading 9822.05.10, HTSUS, i.e., the DR-CAFTA short supply provision?

Is there an established and uniform practice to classify the subject embroidered fabrics eligible for preferential tariff treatment under heading 9822.05.10, HTSUS?

LAW AND ANALYSIS:

DR-CAFTA Eligibility

The DR-CAFTA was signed by the governments of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States on August 5, 2004. The CAFTA-DR was approved by the U.S. Congress with the enactment on August 2, 2005, of the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (the Act), Pub. L. 109-53, 119 Stat. 462 (19 U.S.C. 4001 et seq.).

GN 29 of the Harmonized Tariff Schedule of the United States (HTSUS) implements the DR-CAFTA. GN 29(b), subject to the provisions of subdivisions (c), (d), (m) and (n) of GN 29, sets forth the criteria for determining whether a good (other than agricultural goods provided for in GN 29(a)(ii)) is an originating good for purposes of the DR-CAFTA.

Subdivision (m), GN 29, provides at paragraph (viii)(A):

A textile good of chapters 50 through 60 of the tariff schedule and imported under heading 9822.05.01 of the tariff schedule shall be considered originating if it is wholly formed in the territory of one or more of the parties to the Agreement from –

one or more fibers and yarns listed in U.S. note 20 to subchapter XXII of chapter 98; or

a combination of the fibers and yarns listed in U.S. note 20 to such subchapter XXII and one or more fibers and yarns that originate under the terms of this note.

* * *

Heading 9822.05.01, HTSUS, provides for:

Textile or apparel goods described in U.S. note 20 to this subchapter and entered pursuant to its provisions.

U.S. Note 20(a)(7), Subchapter XXII, Chapter 98, referring specifically to batiste fabric, states:

Heading 9822.05.01 shall apply to textile or apparel goods of chapters 50 through 63 and subheading 9404.90 that contain any of the fabrics, yarns or fibers set forth herein, are described in general note 29 to the tariff schedule and otherwise meet the requirements of such general note 29:

* * * (7) Fabrics classified in subheading 5513.11 or 5513.21, not of square construction, containing more than 70 warp ends and filling picks per square cm, of average yarn number exceeding 70 metric[.]

Counsel argues that the language of the tariff is confusing at best and inconsistent at worst. Counsel cites to GN 29(m)(viii)(B) and (C) which refers to goods of Chapters 61, 62, 63 and 94, but fails to cite to GN 29(m)(viii)(A) which is specific to goods of Chapters 50 through 60, including embroidered fabrics of heading 5810, HTSUS. Counsel believes the embroidered fabric qualifies for preferential tariff treatment under the short supply provisions of DR-CAFTA simply because the batiste fabric is listed as a short supply fabric under U.S. Note 20(a)(7). The tariff must be read as a whole. See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 100 L.Ed. 2d 313, 108 S. Ct. 1811(1988), wherein the court stated: “In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole. [citations omitted.]” U.S. Note 20 must read in conjunction with the applicable provision of GN 29, namely GN 29(m)(viii) (A) which identifies the non-originating materials that may be used as fibers or yarns listed in U.S. Note 20, Subchapter XXII, Chapter 98. The limitation precludes the use of non-originating fabric, namely the Chinese batiste fabric. There is no conflict between the language of U.S. Note 20, Subchapter XXII, Chapter 98, and GN 29(m)(viii)(A). When read together, it is clear that GN 29(m)(viii)(A) is the description of the goods in GN 29 referenced by the language “are described in general note 29 to the tariff schedule” in U.S. Note 20.

In U.S. Note 20, Subchapter XXII, Chapter 98, counsel focuses on certain language, such as the scope, i.e., “textile or apparel goods of chapters 50 through 63”, the short supply material, i.e., “that contain any of the fabrics, yarns or fibers set forth herein,” the condition in the note, i.e., “and otherwise meet the requirements of such general note 29,” yet ignores the language in U.S. Note 20 that requires that the goods “are described in general note 29 to the tariff schedule.” Instead, counsel argues that the use of the term “otherwise” suggests that U.S. Note 20 “prevails over the ‘short supply’ language contained in the Note.”

We disagree with counsel’s reading of U.S. Note 20 and the suggestion that it is somehow separate and superior to the short supply language in GN 29. The term “otherwise” is defined, among other things, as “in other respects.” See Webster’s II New Riverside University Dictionary (1984), at 833. By using the phrase “and otherwise meet the requirements of such general note 29,” the drafters of U.S. Note 20 incorporated by reference requirements such as direct shipment and record-keeping requirements found in the language of GN 29.

Your port is correct. The embroidered fabric produced in Honduras using originating embroidery yarns and batiste fabric of Chinese origin does not qualify as an originating good entitled to preferential tariff treatment under the DR-CAFTA because the non-originating fabric is not allowed under the terms of GN 29(m)(viii)(A) which limits the use of short supply materials allowed in goods of chapters 50 through 60 to non-originating fibers or yarns designated in U.S. Note 20 to be in short supply.

Established and Uniform Practice

Counsel argues that an established and uniform practice exists to treat FTT’s embroidered fabrics, entered under heading 9822.05.01, HTSUS, as DR-CAFTA originating, pursuant to 19 U.S.C. § 1315(d).

19 U.S.C. § 1315(d) provides, in relevant part:

No administrative ruling resulting in the imposition of a higher rate of duty or charge than the Secretary of Treasury shall find to have been applicable to imported merchandise under an established and uniform practice shall be effective with respect to articles entered for consumption or withdrawn from warehouse for consumption prior to the expiration of thirty days after the date of publication in the Federal Register of notice of such ruling; . . . .

Counsel also cites 19 CFR § 177.10(c) which provides:

Changes of practice. Before the publication of a ruling which has the effect of changing an established and uniform practice and which results in the assessment of a higher rate of duty within the meaning of 19 U.S.C. 1315(d), notice that the practice (or prior rulings on which that practice was based) is under review will be published in the FEDERAL REGISTER and interested parties will be given an opportunity to make written submissions with respect to the correctness of the contemplated change.

Counsel also states that this practice cannot be changed until a ruling is published in the Customs Bulletin as required by the statute, and that ‘[t]he invocation of 19 U.S.C. § 1315(d) requires Customs to issue an interpretive ruling or decision pursuant to 19 U.S.C.S. § 1625(c).” Sea-Land Serv. v. United States, 239 F.3d 1366 (Fed. Cir. 2001).” As set forth in 19 U.S.C. § 1315(d), publication is actually required in the Federal Register. Sea-Land held that CBP did not need to issue a notice under 19 U.S.C. § 1625 before issuing Headquarters memorandum 113308, dated January 18, 1995, which merely followed the court’s decision in Texaco Marine Services, Inc. v. United States, 44 F.3d 1529 (Fed. Cir. 1994).

To support his argument, counsel submitted a list of entries of FTT’s embroidered fabric stated to be liquidated under subheading 9822.05.01/5810.92.9080, HTSUS, duty free. At our request, counsel submitted by letter dated, September 23, 2013, a list of the entries with their liquidation dates. This office reviewed the submitted entries and found that two entries were liquidated under subheading 3920.30.00, HTSUS, which provides for: “Other plates, sheets, film, foil and strip, of plastics, noncellular and not reinforced, laminated, supported or similarly combined with other materials: Of polymers of styrene.” In addition, these two entries were entered with a different manufacturer identification number than that of the Honduran manufacturer and the origin of the goods was China. Five entries were found to have been entered and liquidated as DR-CAFTA originating goods under subheading 5810.92.9080, HTSUS, with the special preference indicator “P”, but without any reference to heading 9822.05.01, HTSUS. As these entries were not entered under heading 9822.05.01, HTSUS, they cannot be considered identical merchandise and cannot be used to support an established and uniform practice claim. Finally, one entry was simply not found to exist. Although counsel submitted a list of 89 liquidated entries to support the established and uniform practice claim, after our review, we find only 81 liquidated entries may be used.

The courts have considered the question of the existence of an established and uniform practice in the absence of a finding by the Secretary of the Treasury that such a practice exists. Counsel cites to Heraeus-Amersil, Inc. v. United States, 9 CIT 412, 415, 617 F. Supp. 89, 93 (1985), aff’d 795 F.2d 1575 (Fed. Cir. 1986), noting factors a court considers in determining whether a de facto established and uniform practice exists are “(1) the number of entries resulting in the alleged uniform classifications; (2) the number of ports at which the merchandise was entered; (3) the period of time over which the alleged uniform classifications took place; (4) and whether there had been any uncertainty regarding the classification over its history.” Counsel also argues, citing to Kahrs International, Inc. v. United States, 645 F. Supp. 2d 1251, 1294 (2009):

A de facto “established and uniform practice” is “predicated on the deliberate and concerted determination by CBP offices, acting in their official capacity, classifying particular merchandise under the expectation of uniform national application. In this case, it appears that FTT was the only importer of embroidered fabric entered claiming DR-CAFTA preferential tariff treatment under heading 9822.05.01, HTSUS. CBP has made efforts to ascertain whether any other importer of embroidered fabric entered such fabric under heading 9822.05.01, HTSUS, from 2008 to the present. We have found none.

The ports of entry involved in this matter are Newark and JFK. All of the 81 liquidated entries identified by counsel which may be considered to support a practice claim entered through a single port, i.e., Newark. The earliest date of liquidation appears to be March 6, 2009 and the negative DR-CAFTA determination issued by the Port of JFK was dated May 10, 2011. The negative determination put FTT on notice that there was an issue with their claim for DR-CAFTA preference for these goods. Therefore, we will consider the entries liquidated from March 6, 2009 until the date of the negative determination which means that over approximately a 2-year, 2 months period of time, entries of FTT’s embroidered fabrics were liquidated under heading 9822.05.01, HTSUS, with benefit of DR-CAFTA preferential duty treatment. In addition, CBP has identified one entry through the Port of JFK that liquidated in October 2009 under heading 9822.05.10, HTSUS. However, that entry was on by-pass and so was not actively considered by a CBP officer. When the Port of JFK did actively consider one of FTT’s entries of embroidered fabrics and did a verification of that December 2010 entry, the port issued a negative determination finding the embroidered fabric did not qualify for preferential tariff treatment under the DR-CAFTA. The Port of JFK was correct.

In Siemens America, Inc. v. United States, 2 CIT 136, (1981), aff’d, 692 F.2d 1382 (Fed. Cir. 1982), Siemens argued that a ruling letter by Customs “and the subsequent liquidation of some 100 of plaintiffs’ entries under item 687.60 over a period of approximately two years at the Port of New York created de facto an established and uniform practice as to the classification of [surge voltage protectors].” A classification ruling letter requires specific consideration by a Customs official of the proper classification of an article under the tariff schedule. Similarly, a verification conducted by a port requires specific consideration by a Customs official of the eligibility of a good under a preference program. In Siemens, the court considered the liquidation of some 100 entries over a two-year period at a single port; and together with a ruling letter issued by Customs, determined there was insufficient basis to find a de facto established and uniform practice existed. In this case, over a two-year and two month period, we have merely 81 liquidated entries at a single port; and one entry, which was a by-pass entry, at a second port. In this case, unlike the case in Siemens, it does appear that the importer is the sole importer of the merchandise at issue, i.e., embroidered fabric entered under heading 9822.05.01, HTSUS. However, when the second port through which the merchandise was imported examined a 2010 entry of the embroidered fabrics, it determined the goods did not qualify.

Based on Siemens, there is insufficient basis upon which to find a de facto established and uniform practice existed to classify FTT’s embroidered fabrics, processed as described herein, as “originating” DR-CAFTA goods under heading 9822.05.01, HTSUS.

With regard to a treatment, which you do not seem to argue, 19 CFR § 177.12(c)(1)(i)(C) requires that “Customs consistently applied that determination on a national basis as reflected in liquidations of entries . . . .” In this case, there is no evidence that liquidations (other than one entry on by-pass) occurred under heading 9822.05.01, HTSUS, beyond one port and only one importer is at issue. Therefore, we find there was no treatment in this case. HOLDING:

The embroidered fabrics at issue, processed as described above using fabric identified in U.S. Note 20, Subchapter XXII, Chapter 98, as short supply material, do not qualify as “originating” goods under the DR-CAFTA and are not eligible for preferential tariff treatment under heading 9822.05.01, HTSUS.

CBP finds that there is insufficient evidence to substantiate an established and uniform practice regarding the classification of FTT’s embroidered fabrics exists.

Sixty days from the date of this letter, Regulations and Rulings of the Office of International Trade will take steps to make this decision available to Customs and Border Protection ("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,

Monika R. Brenner, Chief
Valuation and Special Programs Branch