CLA-2 RR:CR:SM 560990
TARIFF NO: 9802.00.90
Port Director
United States Customs Service
610 W. Ash Street
Suite 1200
San Diego, California 92101
RE: Application for Further Review of Protest Number 2501-98-10003 concerning the applicability of the duty exemption
under HTSUS subheading 9802.00.90 to ladies blouses; surety
Dear Director:
This is in response to the Application for Further Review of
Protest Number 2501-98-10003 which was timely filed by the law
firm of Glad & Ferguson on behalf of Intercargo Insurance Company
(Intercargo) as the surety for the importer, California
Connection. Specifically, Intercargo protests the denial of
duty-free treatment under subheading 9802.00.90, Harmonized
Tariff Schedule of United States (HTSUS), for ladies blouses.
FACTS:
The record indicates that California Connection imported
three shipments of ladies blouses from Mexico. California
Connection entered the merchandise duty-free under subheading
9802.00.90 of the Harmonized Tariff Schedule of the United States
(HTSUS). In order to verify the importer's claim for subheading
9802.00.90, HTSUS, treatment Customs issued a Customs Form (CF)
28 to California Connection and requested documentation of the
claim. Although some back-up documentation was provided, after
reviewing this documentation, your office concluded that it was
insufficient to support the claim for duty-free treatment under
subheading 9802.00.90, HTSUS. The claim for subheading
9802.00.90, HTSUS, treatment was denied and the entries were
liquidated as fully dutiable. After California Connection
refused to pay the liquidated duties, the Customs Service made a
formal demand on the surety, Intercargo, for payment of the
subject liquidated duties.
Intercargo filed a protest on February 12, 1998. In its
argument in support of the protest, the Protestant contends that
California Connection, the importer of record, filed for
bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code
and was unable to provide the items in response to the Request
for Information from Customs. It further claims that the
documentary requirements are not absolute, particularly where
compliance is waived or impossible. According to the surety,
compliance by the importer was impossible due to the foreclosure
of California Connection and the seizure of all records by a
court appointed assignee.
The record contains manufacturer certificates of origin for
the fabric components. Protestant requests a waiver of 19 CFR
10.1(a) and the liquidation of the subject entries at the rate
and duty asserted at the time of each entry.
ISSUE:
Whether the ladies blouses which are the subject of this
protest are eligible for the duty exemption under subheading
9802.00.90, HTSUS.
Whether the surety is liable for any duties owed on the
entries that the importer has not paid.
LAW AND ANALYSIS:
Subheading 9802.00.90, HTSUS, was created to provide for the
duty-free entry of:
Textile and apparel goods, assembled in Mexico in
which all fabric components were wholly formed and cut
in the United States, provided that such fabric
components, in whole or in part, (a) were exported in
condition ready for assembly without further
fabrication, (b) have not lost their physical identity
in such articles by change in form, shape or otherwise,
and (c) have not been advanced in value or improved in
condition abroad except by being assembled and except
by operations incidental to the assembly process;
provided the goods classifiable in chapters 61, 62, or
63 may have been subject to bleaching, garment dyeing,
stone-washing, acid-washing or perma-pressing after
assembly as provided for herein.
The initial question which must be addressed is whether the
ladies blouses are considered "textile and apparel goods" under
subheading 9802.00.90, HTSUS. "Textile and apparel goods"
eligible for duty free treatment under subheading 9802.00.90,
HTSUS, are listed in Appendix 1.1 of Annex 300-B of the NAFTA.
Appendix 1.1 includes goods classifiable in HTSUS chapters 54
through 62. Customs notes that the ladies blouses are
classifiable under subheading 6206.40.3030, HTSUS. Thus, as that
subheading is among those specified by Appendix 1.1, the blouses
qualify as "textile and apparel goods" for purposes of subheading
9802.00.90, HTSUS.
Next, in considering whether the blouses are eligible for
subheading 9802.00.90, HTSUS, treatment, we need to determine if
the fabric components were fully formed and cut in the United
States before they were exported to Mexico. In HRL 560100 dated
July 22, 1997, we held that to be eligible for duty-free
treatment under subheading 9802.00.90, HTSUS, there must be
cutting of fabric components performed in the United States. We
have also previously accepted the cutting of fabric to width in
the United States as satisfying the requirement that the fabric
components must be cut in the United States
Headquarters telex #5254171 dated September 11, 1995, listed
a series of documents as supporting eligibility under 9802.00.90,
HTSUS. The telex provides, in pertinent part, that:
The following documents should be maintained by all
importers
participating in the 9802.00.9000 program and available
for review by the
appropriate Customs Officer conducting a compliance
review:
1) Entry documents into the U.S.
2) Export documents to Mexico.
3) Cutting ticket including name and location of the
facility, style number,
total number being cut and type of fabric.
4) Mill invoice.
5) A signed statement from the mill that the fabric is of
U.S. origin.
6) Transportation documents.
In conjunction with the Office of Field Operations, this
office reviewed the documents contained in the protest record.
After reviewing these documents, it appears that some of the
documents indicate the fabric may have been formed in the United
States. For example, a statement from Goldtex/Material Things
indicates that the yarn and the fabric were formed at its plant
in Goldsboro, North Carolina. However, there is no evidence to
demonstrate that the fabric components were cut in the United
States. Because the cutting of fabric components in the United
States, is one of the basic eligibility requirements for duty-free treatment under subheading 9802.00.90, HTSUS, the claim in
this case has not been established. Accordingly, we find that
the imported ladies blouses are ineligible for subheading
9802.00.90, HTSUS, treatment.
Protestant also argues that as surety it should not be
required to pay the duties owed on the merchandise because the
importer filed for bankruptcy and the documents for the
supporting the claim under subheading 9802.00.90, HTSUS are
unavailable. First, Protestant has not provided any
substantiation of its contention that the documentation to
support the 9802.00.90, HTSUS, claim is unavailable because the
importer filed for bankruptcy protection. Second, there is no
entitlement to the duty-free treatment subheading 9802.00.90, if
sufficient information to establish eligibility under the
subheading has not been presented to Customs. Neither the
importer nor the protestant has established eligibility in this
case.
As surety on the protested entries, the Protestant is
responsible for payment of all the duties that the importer owes
on the imported merchandise. As part of the entry documentation,
an importer or an authorized agent usually is required to file a
bond with Customs. The bond guarantees that proper entry summary
with payment of estimated duties and taxes when due will be made
for imported merchandise, and that any additional duties and
taxes subsequently found to be due will be paid. The bond
protects the government from losses as a result of non-compliance
with Customs regulations. The bond contract is clearly designed
to be a direct and substantial benefit for the government,
ensuring that all proper duties taxes and other charges are paid.
The government requires that importers obtain a surety who will
honor their contractual obligation in the event of a default or
bankruptcy. The bond is furnished in accordance with the
regulations. It is the government's policy to insist on
retention of liability of the surety on the bond until final
ascertainment and payment of the Customs duties, taxes and
charges are received. See C.S.D. 87-20.
Thus, if the importer defaults on the payment of duties, the
surety is obligated to pay all duties that are due on the
imported merchandise. This is the case even if the importer has
filed for bankruptcy and certain documentation may not be
available. In this case, because the importer's eligibility for
the duty exemption under subheading 9802.00.90, HTSUS, has not
been established, the Protestant is liable for duties that are
due on the merchandise.
HOLDING:
Based on the record provided, there is insufficient evidence
to establish that the fabric components used in making the
imported ladies blouses were cut in the United States before
being exported to Mexico. Therefore, the imported merchandise is
not eligible for the duty exemption under subheading 9802.00.90,
HTSUS. In addition, in its capacity as the surety for the
importer, the Protestant is liable for all the duties owed on the
imported merchandise that have not been paid. Accordingly, this
protest should be denied in full.
In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office 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 the Office of Regulations and
Rulings will take steps to make the
decision available to customs personnel via the Customs Rulings
Module in ACS and the public via the Diskette Subscription
Service, Freedom of Information Act and other public access
channels.
Sincerely,
John Durant, Director
Commercial Rulings Division