OT:RR:CTF:VS H261051 EE
Port Director
U.S. Customs and Border Protection
3150 Tchulahoma Road Suite 1
Memphis, TN 38118
RE: Protest No. 2006-13-101054; polyester embroidered emblems; NAFTA
Dear Port Director:
This is in response to the Application for Further Review (“AFR”) of Protest No. 2006-13-101054, timely filed by counsel on behalf of World Emblem International Inc. (hereinafter, the “protestant”) on June 11, 2013 and received by our office on January 23, 2015, concerning the eligibility of certain embroidered emblems for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
The protestant manufactures hundreds of different styles of emblems that display the wearer’s name, company name, logo, or other detail. The emblems are meant to be sewn onto the wearer’s clothing. There are two main types of emblems at issue: some of the emblems consist of a polyester fiber backing with polyester embroidered edges and embroidered designs in the center of the emblem (“embroidered emblems”) and other emblems are embroidered across the whole face of the emblem (“appliques”). The protestant states that both the backing fabric and all sewing and embroidery thread is made from 100% polyester fiber.
The protestant states that it manufactures the emblems at its factory in Mexico. Workers there begin with 100% polyester fabric sourced in the U.S. In order to withstand the embroidering process, the workers next add stiffness to the fabric by fusing 3/1000” sheet of urethane between a top layer of fabric and a bottom layer of pellon interfacing. The sheets are cut to various shapes, resulting in a “blank”. For embroidered emblems, workers then sew the edging (also called “merrow” or “merrowing”) around the border and sew the design onto the face of the blank. Both the merrow and face embroidery is done using polyester thread made in either Germany or Mexico, depending on the color needed. For appliques, the embroidery is applied to the whole face of the blank. The protestant entered the embroidered emblems under subheading 5810.92.10, Harmonized Tariff Schedule of the United States (“HTSUS”) and U.S. Customs and Border Protection (“CBP”) does not dispute this classification.
On November 16, 2012, CBP issued a Notice of Action (CBP Form 29) to the protestant stating that the emblems did not qualify for preferential tariff treatment pursuant to GN 12(f)(vi), HTSUS. The port stated that the non-originating embroidery thread manufactured in Germany exceeded the percentage allowed under the de minimis rule. Counsel for the protestant states that contrary to the port’s position that the non-originating thread must be 7% or less of the embroidery fibers on the edges and face of the emblem, the NAFTA de minimis rule requires that the non-originating thread be 7% or less of the weight of the total polyester fiber in the whole emblem. Counsel for the protestant claims that under this analysis, the majority of the protestant’s entries satisfy the de minimis rule.
The protestant provided samples of the embroidered emblems and the appliques and a CD-ROM containing entry summary information and analyses of thread content.
ISSUE:
Whether the imported emblems are eligible for preferential tariff treatment under the NAFTA.
LAW AND ANALYSIS:
General Note (“GN”) 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. GN 12(a)(ii), HTSUS, provides that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Mexico. GN 12(b), HTSUS, sets forth the various methods for determining whether a good originates in the territory of a NAFTA party. Specifically, these provisions provide, in relevant part, as follows:
(a) Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note--
* * * *
(ii) 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 Mexico 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 “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
(b) 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
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
There is no dispute as to the classification of the merchandise in subheading 5810.92.10, HTSUS. The applicable tariff shift rule for the embroidered emblems classified under subheading 5810.92.10, HTSUS, is set forth in GN 12(t)/58.2, HTSUS, which provides: “A change to headings 5801 through 5811 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, or chapters 54 through 55.”
The protestant states that the non-originating thread is classified under chapters 54 and 55, HTSUS. Since chapters 54 through 55, HTSUS, are excepted from GN 12(t)/58.2, HTSUS, the tariff shift rule is not met. However, the use of non-originating thread may be permissible under the NAFTA de minimis rule set forth in GN 12(f)(vi), HTSUS, which provides that:
A good provided for in chapters 50 through 63, inclusive, of this schedule that does not originate because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification, provided for in subdivisions (r), (s) and (t) of this note, shall nonetheless be considered to originate if the total weight of all such fibers or yarns in that component is not more than 7 percent of the total weight of that component.
In accordance with GN 12(f)(vi), HTSUS, if the total weight of the non-originating fibers do not exceed more than 7% of the total weight of the component of the embroidered emblems that determines its tariff classification, the emblems can nonetheless be considered to originate. As such, we find that the emblems where the non-originating fibers are less than 7% of the weight of the total polyester fiber in the entire emblem, rather than the weight of the thread on the edge and face, qualify as NAFTA originating goods eligible for preferential tariff treatment.
HOLDING:
The protest should be allowed.
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 sixty (60) days from the date of this letter. Any re-liquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty (60) days from the date of this decision, the Office of International Trade; Regulations and Rulings 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