OT:RR:CTF:VS H264961 RMC
Port Director
U.S. Customs & Border Protection
726 Exchange St., Suite 400
Buffalo, NY 14210
Re: Internal Advice Request; Subheading 9802.00.50, HTSUS
Dear Port Director:
This is in response to your correspondence, dated April 7, 2015, forwarding the request for internal advice filed by Accolade USA.
FACTS:
This request for internal advice arises out of transactions between Accolade Group Inc. (“AGI”), a garment producer and supplier in Ontario, Canada, and Accolade USA, a wholly-owned subsidiary incorporated in Delaware. AGI sells apparel to Canadian retailers and to Accolade USA, which is the sole distributor of AGI’s products in the United States. On July 19, 2013, AGI placed a purchase order with a manufacturer in China for 9016 pieces of men’s 100% polyester knitted polo shirts. The unit price per shirt was $4.90. Although the invoice issued by the Chinese manufacturer lists the “sold to” party as AGI in Canada, the invoice also states that the goods were to be shipped to Accolade USA in Buffalo, NY.
According to the bill of lading (“BOL”), the merchandise left the Port of Xiamen, China on September 4, 2013. The BOL lists the notify party as AGI in Canada and the consignee as Accolade USA in Buffalo. The BOL also states that the port of discharge for the merchandise was Vancouver, Canada, and that the place of delivery was Buffalo, NY.
No documents were provided to show how the goods were transported from the Port of Vancouver to Buffalo, NY. However, according to the entry summary dated October 8, 2013, the goods were imported to the United States though the Port of Buffalo on September 26, 2013. The entry summary lists Accolade USA as the importer of record. The entry summary also states that the country of origin of the merchandise was China and that the exporting country was Canada. The declared value was based on the $4.90 per-unit price paid to the Chinese manufacturer.
A second BOL was provided to show that on September 30, 2013, the goods were exported from the United States to AGI in Canada. The next day, on October 1, 2013, a U.S. customer placed an order with Accolade USA for 500 screen-printed polo shirts at a price of $12,950 (i.e., $25.90 per shirt). After AGI screen-printed the shirts ordered by the U.S. customer, the merchandise was re-entered into the United States on January 27, 2014, with Accolade USA again serving as the importer of record.
Although the entry summary for the re-importation of the merchandise does not reflect a related-party sale, a statement attached to the BOL signed by AGI’s shipper/receiver states that “[b]oth the shipper and the buyer are related parties” and that “[t]his is a related transaction for customs purposes.” Furthermore, the invoice for the re-importation also shows AGI as the shipper, Accolade USA as the “sold to” party, and the U.S. customer as the “ship to” party. The invoice also shows a total amount of $3,450.00 rather than the $12,950 charged to the U.S. customer. A separate invoice provided by Accolade USA shows that AGI charged $0.50 per garment for screen printing and, as described by counsel, a markup “reflecting [AGI’s] costs and profit on top of the China factory price,” giving a total of $6.40 per garment. The entry summary also shows the quantity as 50 dozen, or 600, rather than the purchase quantity of 500. Additionally, the entry summary notes that the goods were entered with a claim under subheading 9802.00.50, HTSUS, and that the total entered value for the shirts was $80.00.
On July 23, 2014, CBP issued a Request for Information (CBP Form 28) to the importer of record, Accolade USA, on the initial importation of the polo shirts and their subsequent exportation, alteration, and re-importation. Among other documents, CBP requested a foreign repair affidavit, export documentation showing that the shirts left the United States, Canadian entry documentation, bills of lading, an invoice for the alterations performed in Canada, and Accolade USA’s internal control policies and procedures for claims under subheading 9802.00.50, HTSUS. Accolade USA responded on July 24, 2014, by providing additional documentation and explaining the structure of its transaction. However, CBP determined that additional information was necessary to determine whether the goods were properly classified and appraised. Accordingly, CBP issued an additional Form 28 on July 23, 2014, which sought a purchase order and invoice between Accolade USA and the ultimate purchaser in the United States, the purchase order with the Chinese manufacturer, proof of payment between Accolade USA and the Chinese manufacturer, and a contract with the freight forwarding company. On November 7, 2014, Accolade USA responded by providing the requested documentation which, when taken together with the documentation already provided, reflects the transaction described herein.
On December 22, 2014, CBP issued a Proposed Notice of Action (CBP Form 29) in which Accolade USA was advised that the imported merchandise was not sold for exportation to the United States. Accordingly, CBP intended to appraise the merchandise based on the price of the goods when sold to the ultimate U.S. customer ($25.90 per shirt). Furthermore, Accolade USA was informed that its claim under subheading 9802.00.50, HTSUS would be denied and that the shirts would be reclassified under subheading 6105.20.20, HTSUS, with an ad valorem duty rate of 32%.
In a supplemental responses to the Form 29 dated January 21, 2015 and January 26, 2015, Accolade USA contested the legal basis of the analysis set forth in the Form 29 on the grounds that there is “no connection between qualification of goods for HTSUS 9802.00.50 and any prior importation of said goods, however appraised.” Accolade USA also requested that the port seek internal advice from our office as authorized by 19 C.F.R. § 177.11.
ISSUES:
Whether the merchandise is eligible for a duty exemption under subheading 9802.00.50, HTSUS, when it is returned to the United States from Canada after screen printing.
LAW AND ANALYSIS:
Subheading 9802.00.50, HTSUS, provides a full or partial duty exemption for articles returned to the United States after having been exported to be advanced in value or improved in condition by means of repairs or alterations. Articles returned to the United States after having been repaired or altered in Canada, whether or not pursuant to warranty, may be eligible for duty-free treatment, provided the documentary requirements of section 181.64, CBP Regulations, (19 C.F.R. § 181.64), are satisfied. Section 181.64(a) states, in pertinent part: “‘Repairs or alterations’ means restoration, addition, renovation, redyeing, cleaning, resterilizing, or other treatment which does not destroy the essential character of, or create a new and commercially different good from, the good exported from the United States.”
Classification under subheading 9802.00.50, HTSUS, is precluded where: (1) the exported articles are not complete for their intended use and the foreign processing operation is a necessary step in the preparation or manufacture of finished articles; or (2) the operations performed abroad destroy the identity of the exported articles or create new or commercially different articles through a process of manufacture. See Guardian Indus. Corp. v. United States, 3 Ct. Int'l Trade 9 (1982), and Dolliff & Co., Inc., v. United States, 81 Cust. Ct. 1, C.D. 4755, 455 F. Supp. 618 (1978), aff'd, 66 C.C.P.A. 77, C.A.D. 1225, 599 F.2d 1015 (1979).
Your office rejected Accolade USA’s claim under subheading 9802.00.50, HTSUS, because “the goods on the initial entry . . . were not sold for exportation to the United States, and thus the goods are ineligible to be reimported under 9802.00.5060.” We agree with Accolade USA, however, that a sale for export to the United States is not necessary for a claim under subheading 9802.00.50, HTSUS. Subheading 9802.00.50, HTSUS makes no mention of a requirement that goods be sold for export to the United States. Instead, the provision refers to goods “returned to the United States after having been exported . . .”
Here, because the merchandise was screen printed in Canada, it meets the requirement under subheading 9802.00.50, HTSUS that the articles be “advanced in value or improved in condition by means of repairs or alterations.” As in HQ 562618, dated May 21, 2003 and HQ H014657, dated November 8, 2007, screen printing is an acceptable “alteration” within the meaning of subheading 9802.00.50, HTSUS. Furthermore, the shirts were complete for their intended use when exported and the screen printing in Canada did not destroy the shirts or create a new or commercially different article such that the exclusions in Guardian Indus. Corp. or Dolliff & Co. apply. See HQ H014657, dated Nov. 8, 2007.
Additionally, CBP has previously held that shirts subject to similar alterations and moving through a similar transaction structure were eligible under subheading 9802.00.50, HTSUS. For example, in HQ H014657, dated November 8, 2007, t-shirts were imported to the United States from Honduras and then shipped to the China for screen printing, embroidery, and labeling. CBP held that that t-shirts were eligible under subheading 9802.00.50, HTSUS when returned to the United States from China.
The Trade Facilitation and Trade Enforcement Act of 2015 (Pub. L. 114-125) amended Chapter 98 of the HTSUS to allow commingling and inventory management methods for fungible articles exported from the United States for purposes of subheading 9802.00.50, HTSUS. The merchandise at issue in this case, however, was entered before this amendment took effect. Accordingly, in order to benefit from a duty exemption under subheading 9802.00.50, HTSUS, Accolade must not only satisfy the documentary requirements in 19 C.F.R. § 181.64, but also demonstrate that the screen-printed shirts entered from Canada on January 27, 2014 were the same shirts that were entered into the United States on September 26, 2013. See HQ H254785, dated September 17, 2014 (“Essentially, information must be presented which enables CBP to verify that the articles returned are the same as the articles exported. For example, identification marks or numbers, such as serial numbers, for the units must be stated in the repair declaration, when they are available.”). The purpose of this requirement is to prevent the substitution of articles for the articles that were exported from the U.S. for repairs or alterations. See HQ 557661, dated November 14, 1994.
Here, the documentation provided does not adequately demonstrate that the screen-printed shirts were actually “returned to the United States” as required by subheading 9802.00.50, HTSUS. As noted above, the information provided shows that Accolade Canada placed an order with a manufacturer in China for 9016 pieces of men’s 100% polyester knitted polo shirts. The shirts were subsequently entered at the Port of Buffalo and exported to Canada. Although Accolade claims that the merchandise subsequently entered from Canada was “returned to the United States” for purposes of subheading 9802.00.50, HTSUS, eligibility, no evidence was provided to link the September 26, 2013, entry of polo shirts from China to the January 27, 2014, entry of screen-printed polo shirts from Canada. Furthermore, although the port requested information on Accolade USA’s control policies and procedures for subheading 9802.00.50, HTSUS, claims, this information was not provided. Accordingly, CBP cannot evaluate whether merchandise was commingled or substituted in Canada. Under the circumstances, we find that a duty exemption under subheading 9802.00.50, HTSUS, is not appropriate.
HOLDING:
Based on the facts of this case and the information provided, we find that the shirts are ineligible for a duty exemption under subheading 9802.00.50, HTSUS, when they are returned to the United States from Canada after screen printing.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of 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,
Robert Dinerstein, Acting Chief
Valuation and Special Programs Branch