OT:RR:CTF:VS H262534 GaK
Port of New York/Newark
Protest & Control
1100 Raymond Boulevard
Newark, NJ 07102
RE: Application for Further Review of Protest No. 4601-14-101837; Protest against Denial of Preferential Treatment; United States-Korea Free Trade Agreement (“UKFTA”); Knitted Fabric
Dear Port Director:
This is in response to your correspondence, dated February 27, 2015, forwarding the Application for Further Review (“AFR”) of Protest 4601-14-101837, timely filed by Sandler, Travis & Rosenberg, P.A. on behalf of Fabtrends USA Corp. (“Protestant”), concerning knitted fabric classified under subheading 6006.32.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”) for preferential tariff treatment under the UKFTA. We also considered the supplemental materials submitted by Protestant on April 16, 2015.
The protestant imported 96% polyester and 4% spandex knit fabric (“fabric” or “product”) from Korea. The lead entry under this protest was entered on April 12, 2014 and liquidated on October 3, 2014. This protest, timely filed, covers 5 additional entries liquidated after October 3, 2014.
On February 28, 2014, Protestant ordered black fabric from Kelvin Tex. (“K-Tex” or “seller”), located in Korea. On March 3, 2014, K-Tex ordered the fabric from Dea-Duck Tex Co., Ltd. (“Dea-Duck” or “yarn spinner”) located in Korea and, on the same day, placed an order for dyeing services from Sam-Hwa Dyeing (“fabric dyer”) also located in Korea. Because the filament used to make the fabric must be originating, on May 6, 2014, the port issued a Request for Information (CF 28) on the entry of April 12, 2014, notifying Protestant that the port was conducting a verification on the fabric to determine whether the goods were originating pursuant to General Note (“GN”) 33, HTSUS. The port (“CBP”) requested supporting documents to substantiate Protestant’s claim for UKFTA preference, such as a certificate of origin, bill of materials, cost data, and production and manufacturing records. The port also requested a sample swatch of all styles contained in the shipment with a complete fabric detail sheet for each.
On May 29, 2014, Protestant supplied the port with the following documents:
Fabric detail sheet prepared by K-Tex for the fabric.
Production details of the fabric with pictures from K-Tex.
Protestant’s purchase order with K-Tex, dated February 28, 2014.
Commercial invoice and packing list issued by K-Tex to Protestant, dated March 17, 2014.
Purchase order issued by K-Tex to the yarn spinner, dated March 3, 2014.
Commercial invoice issued by the yarn spinner to K-Tex, dated March 30, 2014.
Dyeing referral issued by K-Tex to the fabric dyer, dated March 3, 2014.
Consignment processing contract between K-Tex and the fabric dyer, dated March 3, 2014, and production diary showing name of the dyeing person of the black fabric.
Commercial invoice issued by the fabric dyer to K-Tex, dated March 30, 2014.
Purchase order issued by the yarn spinner to TK Chemical (“yarn producer”), dated February 15, 2014.
Commercial invoice issued by the yarn producer to the yarn spinner, dated March 5, 2014
Origin certification of the yarn, listing the yarn producer as the provider and the yarn spinner as the supplier (exporter/producer), for the period between August 1, 2013 and July 31, 2014.
Origin certification of the fabric, listing the yarn spinner as the provider and K-Tex as the supplier, for the period between March 1, 2014 and May 28, 2015.
Origin verification questionnaire issued by K-Tex, listing K-Tex as the exporter and producer, and separately identifying the yarn producer as TK Chemical, yarn spinner (knitting) as Dea-Duck, and fabric dyer as Sam-Hwa Dyeing, dated May 16, 2014. The Origin verification questionnaire also lists the materials and the respective supplier: POY 85/72SD (TK Chemical), SDY 50/36SD (TK Chemical), SPAN 20D (TK Chemical), and 96% POLY 4% SPAN KNIT IN/GREY (Dea-Duck).
UKFTA Certificate of origin of the fabric issued by K-Tex, listing itself as the exporter and producer, dated March 17, 2014, without the applicable time period.
Export declaration Certificate for Korean Customs, dated March 17, 2014.
As indicated above, K-Tex prepared production details for Protestant which identifies all the suppliers involved in the production including each suppliers’ address, phone numbers, production capability, number of employees, and number of machines. The production details also describe TK Chemical’s yarn making method and Dea-Duck’s knitting method. It also explains the Korean business culture of using the same date for the invoice and shipping, and that invoices and payments are made at various times depending on the relationship and credit standing between the parties.
On June 6, 2014, the port issued a Notice of Proposed Action (CF 29), finding that the goods do not qualify for preferential tariff treatment under UKFTA because the submitted documents were insufficient and did not include actual production documents for all of the components of the materials used, such as worker tickets. The port stated that the yarn could not be identified and verified for shipment, and that the UKFTA certificate of origin was invalid because the seller was not the actual manufacturer and the applicable time period on the certificate of origin was blank. Protestant responded on June 26, 2014, with production records from the fabric dyer and stated that production records are “not available for the fiber or yarns because they are purchased in large quantities and…are fungible materials not requiring specific identification” pursuant to 19 C.F.R. § 10.1019. The seller also stated, in the production detail, that the quantity of yarn ordered (165,798kg) can produce approximately 0.5 million yards of fabric. Protestant also submitted a revised entry summary with the correct Manufacture Identification (“MID”) number, and a revised UKFTA Certificate of origin for the fabric, listing the yarn spinner, Dea-Duck, as the producer, instead of K-Tex. Protestant also stated that a blanket period is not required since it is not a blanket certificate of origin.
On August 5, 2014, the port issued a Notice of Action Taken (CF 29), denying Protestant’s preferential tariff treatment under UKFTA. The port stated that it was unable to identify and verify that the yarn was used to make the fabric that was entered because the documentation submitted did not include production documents and proof of origin for the fibers and yarns. Protestant timely filed protest on November 14, 2014. In its protest, Protestant states that documents or information not requested by CBP may not be the basis for denial of a preference claim. Protestant provided additional entries of similar fabric that had been found to qualify for preferential tariff treatment under UKFTA at the Port of Champlain on the basis of identical documents submitted for this entry at issue.
Whether the submitted documentation was sufficient to verify the origin of the fabric imported from Korea for UKFTA preference purposes.
LAW AND ANALYSIS:
The UKFTA is implemented in the HTSUS in GN 33. Under GN 33(b), HTSUS, goods imported into the U.S. are eligible for duty-free treatment under the UKFTA if:
(i) the good is wholly obtained or produced entirely in the territory of Korea or of the United States, or both;
(ii) the good is produced entirely in the territory of Korea or of the United States, or both, and—
(A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or
(B) the good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or
(iii) the good is produced entirely in the territory of Korea or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.
At issue in this case is whether the information submitted substantiated the claim that the merchandise met the terms of GN 33 and that the filament (yarn) was produced by TK Chemical and was used in the manufacture of the fabric. Protestant argues that documents or information not requested by CBP cannot be the basis for denial of a preference claim and cites Headquarters Ruling Letter (“HQ”) H192336, dated February 14, 2012, and Estee Lauder v. United States, Slip Op. 11-23 (decided March 1, 2011) as support. In HQ H192336, CBP considered the applicability of the Estee Lauder decision to situations involving the sufficiency of documentation in protests and stated that the Estee Lauder decision involved the sufficiency of a protest for purposes of determining whether it is valid, rather than the sufficiency of documents an importer submits to support its claim under a preference program, which is the same issue here.
In this case, the port initially requested production and manufacturing records and Protestant did not provide them. The port issued a proposed denial on the basis that the documentation did not include actual production documents for all of the components of the fabric, such as worker tickets. In addition, the yarn spinner’s purchase order for the yarns precedes Protestant’s purchase order to the seller. In its response to the Notice of Proposed Action, Protestant explains that pursuant to 19 C.F.R. § 10.1019 specific production records are not available for the yarns because they are purchased in large quantities and they are fungible materials.
19 C.F.R. § 10.1019 provides for situations where fungible materials are used, some of which are originating and non-originating, and how to claim originating status based on acceptable inventory management methods. Therefore, Protestant’s reference to 19 C.F.R. § 10.1019 is misplaced as it implies that materials of various origins were used to make the goods at issue. In this case, although counsel for Protestant does not clarify this point, we believe that the Protestant is not claiming that TK Chemical supplies fungible filament produced in Korea and another country, but rather that TK Chemical makes the filament in large quantities, all in its production plant in Korea, and that it does not have to trace which filament was used to ultimately make the fabric.
Accordingly, we must decide if the documents submitted by TK Chemical show that the filament was produced in Korea. The yarn purchase order lists POY85/72SD, classified under subheading 5402.46, HTSUS, and SPAN 20D, classified under subheading 5402.44, HTSUS. Protestant states that POY stands for partially oriented or pre-oriented yarn, and SPAN stands for spandex filament. Protestant also asserts that the classification of POY under subheading 5402.46, HTSUS “[s]ynthetic filament yarn…of polyesters, partially oriented” confirms that POY85/72/SD is polyester. We note that the fabric is comprised of 96% polyester and 4% spandex, and we find it reasonable to conclude that the fabric is made with the same types of yarns referenced in the purchase order. The production details describe all the parties involved and the purchase orders and invoices allow the correlation of the yarn to the production of the fabric in Korea. Therefore, we find that the totality of the documentation submitted is sufficient to verify Protestant’s claim for preferential tariff treatment under the UKFTA.
Protestant provided sufficient documentation to substantiate its UKFTA preference claim. The protest should be granted.
In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail the 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 the mailing of the decision. Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Myles B. Harmon, Director
Commercial and Trade Facilitation Division