Application for Further Review and Protest #5201-12-100497; Eligibility of certain goods under DR-CAFTA Short Supply Provision

HQ H232358 August 16, 2013 OT:RR:CTF:VS H232358 CMR CATEGORY: Classification U.S. Customs and Border Protection Assistant Port Director 6601 NW 25th Street Room 273 Miami, FL 33122-3215 RE: Application for Further Review and Protest #5201-12-100497; Eligibility of certain goods under DR-CAFTA Short Supply Provision Dear Ms. Amato: This is in response to the Application for Further Review (AFR) and Protest #5201-12-100497, timely filed on July 23, 2012, by Alston & Bird, on behalf of Ben Wachter Associates, against the liquidation of two entries in which duties were assessed on certain line items for which preferential tariff treatment under the U.S. – Dominican Republic – Central America Free Trade Agreement (DR-CAFTA) was claimed. You forwarded the AFR and Protest to this office for our response. The AFR was properly sought and approved pursuant to 19 CFR 174.24(b). A meeting was held with counsel on August 14, 2013. We have taken into consideration the discussion and arguments presented during that meeting in reaching our decision set forth below. FACTS: The items at issue in the two entries subject to the protest are two styles of men’s shirts, styles 142202340 and AM7034. Both styles were entered under subheading 9822.05.01, Harmonized Tariff Schedule of the United States (HTSUS), as garments made up of fabric designated as not available in commercial quantities (also known as, “short supply”) provided for in U.S. Note 20(a), Subchapter XXII, Chapter 98, and as otherwise meeting the terms of U.S. Note 20(a). The Certificate of Origin for style 142202340 indicates that the garment was made up of fabric described in U.S. Note 20(a)(130); while the Certificate of Origin for style AM7034 indicates that it was made up of fabric described in U.S. Note 20(a)(121). On July 20, 2011, the port issued a Request for Information (CBP Form 28) to Ben Wachter Associates requesting the number and description of the short supply fabric used in the manufacture of the garments at issue, along with other styles not at issue herein. The port also requested any laboratory or factory inspection reports completed to confirm that the fabric is a “short supply” fabric, along with specification sheets from the producer of the fabric. It also requested affidavits from the fabric producer(s). The Certificates of Origin referenced above were submitted in response to the port’s request. On May 1 and 30, 2012, the port issued Notices of Action (CBP Forms 29) rate advancing the garments at issue and indicating that the reason for the rate advance was that CBP laboratory analysis of the garments indicated that they did not meet the requirements of the DR-CAFTA short supply provision. Counsel assumes that the garments failed to qualify for preferential tariff treatment under the DR-CAFTA because the CBP laboratory report for style 142202340 indicated that the metric number of the polyester filament yarn was 53, and the CBP laboratory report for style AM7034 indicated that the metric number of the polyester filament yarn was 55. Additionally, the laboratory found that the fabric samples for both styles did not have a Teflon finish. The reports also indicate that the laboratory was unable to determine if the fabric samples had undergone any other finishing processes. To substantiate the claim that the shirts at issue were made of designated short supply fabrics, purchase orders and invoices for the fabrics were submitted. In addition, an offer sheet issued to one of the fabric manufacturers from a yarn producer for polyester filament yarn and a bank sale confirmation sheet issued by a Korean bank to the fabric manufacturer and the yarn producer were also submitted. These documents, however, were in Korean with the exception of the descriptions and quantities of the yarns which were in English. ISSUE: Were the men’s shirts in the entries at issue properly denied preferential tariff treatment under the DR-CAFTA for failure to meet the requirements for classification in heading 9822.05.01, HTSUS? LAW AND ANALYSIS: 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 DR-CAFTA 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, 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)(B): An apparel good of chapter 61 or 62 of the tariff schedule and imported under heading 9822.05.01 of the tariff schedule shall be considered originating if it is cut or knit to shape, or both, and sewn or otherwise assembled in the territory of one or more of the parties to the Agreement, and if the fabric of the outer shell, exclusive of collars and cuffs where applicable, is wholly of— (1) one or more fabrics listed in U.S. Note 20 to subchapter XXII of chapter 98; . . . . U.S. Note 20(a), Subchapter XXII, Chapter 98, provides, in relevant part: 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: * * * (121) Certain Woven Modal-Polyester Fabric HTS: 5516.12; 5516.13; 5516.22; 5516.23 Fiber Content: 52% - 95% spun modal rayon; 5% - 48% filament polyester Yarn Size (metric): Spun Modal Rayon - 44/1 to 88/1 Filament Polyester - 59 to 92 Thread Count (metric): 31 to 53 warp ends per cm; 27 to 36 filling picks per cm Weave: Plain Weight: 100 - 300 grams per sq. meter Width: 137 to 153 cm Coloration: Piece dyed or yarns of different colors Finishing Process: Wicked, UV blocker, peached, sanded wash, stain-resistant, and teflon finish NOTE: In the finishing process, in the event that the polyester filament content breaks and turns into fibers, the finished fabric's specifications may fall under HTS classifications 5516.92 and 5516.93, for woven fabrics of artificial staple fiber. * * * (130) Certain Woven Modal-Polyester Fabric HTS: 5516.12; 5516.13; 5516.22; 5516.23 Fiber Content: 52% - 95% spun modal rayon; 5% - 48% filament polyester Yarn Size (metric): Spun Modal Rayon - 44/1 to 88/1 Filament Polyester - 59 to 92 Thread Count (metric): 31 to 53 warp ends per cm; 27 to 36 filling picks per cm Weave: Twill or dobby or jacquard or oxford or satin Weight: 100 - 300 grams per sq. meter Width: 137 to 153 cm Coloration: Piece dyed or yarns of different colors Finishing Process: Wicked, UV blocker, peached, sanded wash, stain-resistant, and teflon finish NOTE: In the finishing process, in the event that the polyester filament content breaks and turns into a fiber, the classification would be a woven fabric of 100% polyester synthetic staple fiber (HTS 5516.92; 5516.93) As indicated in U.S. Note 20, each designation requires the use of polyester filament yarn of 59 to 92 metric yarn number. In this case, it is claimed the garments at issue are of fabrics listed in U.S. Note 20, Subchapter XXII, Chapter 98, specifically, U.S. Note 20(a)(121) and (130). Heading 9822.05.01, HTSUS, provides that the provision shall apply to apparel goods of chapters 61 and 62 that “contain any of the fabrics, yarns or fibers” listed in the note. Counsel submits that the submitted documents show that the manufacturer of the men’s shirts at issue purchased fabric that met the yarn size and other specifications required by the applicable short supply designations. In Headquarters Ruling Letter (HQ) H185799, dated April 11, 2013, we addressed the arguments put forth by counsel regarding the specifications of the applicable short supply designations being intended to be applied to yarns and fabrics in their condition prior to processing and allowing documents indicating the use of qualifying short supply fabric to rebut CBP’s laboratory results. As such, we will not repeat ourselves, but will simply state that we examine the merchandise in its condition as imported. See HQ H185799. See also, HQ H068277, dated December 30, 2010. In this case, both of the fabrics at issue failed to meet the short supply designations due to the size of the polyester filament yarn in the fabric and the absence of a Teflon finish. Counsel has argued that, unlike the short supply fabric designation addressed in HQ H185799, the short supply designations at issue here contain the same language which addresses changes as a consequence of the finishing process. U.S. Note 20(a)(121), Subchapter XXII, Chapter 98, states: In the finishing process, in the event that the polyester filament content breaks and turns into fibers, the finished fabric’s specifications may fall under HTS classifications 5516.92 and 5516.93, for woven fabrics of artificial staple fiber. However, U.S. Note 20(a)(130), Subchapter XXII, Chapter 98, states: In the finishing process, in the event that the polyester filament content breaks and turns into a fiber, the classification would be a woven fabric of 100% polyester synthetic staple fiber (HTS 5516.92; 5516.93). Counsel argues these statements in the short supply designations contemplate “that finishing processes can and will alter the physical characteristics of yarns and fabrics by the time they are cut from a sample apparel article for laboratory analysis.” However, these statements also illustrate that the short supply designations provided for specific changes that could result from processing within the short supply designation so that such changes would not preclude a fabric from the designation. In this case, the statements allowed for changes in the lengths of the polyester yarns from filament to staple fiber. However, the issue with the polyester yarn is not its length, but its diameter. In each short supply designation at issue here, a range was provided in which the polyester filament yarn could fall. In this case, the polyester filament yarn fell outside of the designated range. Furthermore, each short supply designation provided for the same specific finishing of the fabrics, i.e., wicked, UV blocker, peached, sanded wash, stain-resistant, and Teflon finish. The laboratory reports indicate that neither fabric had a Teflon finish. We note that the Commercial Availability Requests filed with the Committee for the Implementation of Textile Agreements (CITA) described the fabrics in the short supply designations as woven modal-polyester blend of ring-spun yarn, with a unique combination of finishing processes that are critical for the end-use of men’s shirts intended for sportswear and travel. See Commercial Availability Request, dated January 2, 2009 and Commercial Availability Request, dated August 10, 2009, available on the website of the Office of Textiles and Apparel, Department of Commerce, at http://web.ita.doc.gov/tacgi/CaftaReqTrack.nsf/AllPetitions. Counsel submitted purchase orders for the short supply fabrics used in the garments at issue. Two purchase orders indicate the fabrics were to have a “sand wash finish.” One purchase order indicates that the finish was to be “sand washing, UV cut.” Other than the sand wash finish, nothing in the documentation submitted in support of the protest indicates that these fabrics were subjected to any of the other finishing processes that are “critical for the end-use of men’s shirts intended for sportswear and travel” and listed in the short supply designation requests, i.e., wicked, UV blocker, peached, stain-resistant, and Teflon finish. HOLDING: The protest should be denied. The garments do not qualify for classification in subheading 9822.05.01, HTSUS, and are not eligible for preferential tariff treatment under the DR-CAFTA. In accordance with the Protest/Petition Processing Handbook (CIS HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, Regulations and Rulings of the Office of International Trade 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