Application for Further Review of Protest No. 1503-20-100026; Tariff Classification of material constructed from ultra-high molecular weight polyethylene filaments; Valuation

HQ H311142 May 28, 2024 OT:RR:CTF:FTM H311142 BJK JMV CATEGORY: Classification; Valuation TARIFF NO.: 3921.90.15 Center Director U.S. Customs and Border Protection Apparel, Footwear, Textiles Center 555 Battery Street, Room 401 San Francisco, CA 94111 ATTN: Stephen Bono, Import Specialist RE: Application for Further Review of Protest No. 1503-20-100026; Tariff Classification of material constructed from ultra-high molecular weight polyethylene filaments; Valuation Dear Center Director: Below is CBP’s decision regarding the Application for Further Review (“AFR”) of Protest No. 1503-20-100026, timely filed on or about March 11, 2020, by the law firm of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, on behalf of their client DSM Dyneema BV, LLC (“Protestant” or “DSM Dyneema”), concerning: (1) the tariff classification of several materials constructed from ultra-high molecular weight polyethylene filaments under the Harmonized Tariff Schedule of the United States (“HTSUS”); and (2) the proper method of appraisement under 19 U.S.C. § 1401a of the imported merchandise from the Netherlands. FACTS: The merchandise at issue consists of three styles of material referred to as “HB25,” “HB26,” and “HB50” (collectively “HB materials”). According to Protestant, the HB materials are constructed from ultra-high molecular weight polyethylene filaments (“UHMWPE”) for low weight hard armor applications. Protestant provided an excerpt of an article from the European Journal of Mechanics – A/Solids entitled “The effect of shear strength on the ballistic response of laminated composite plates” that describes the manufacturing process of HB materials. The article describes the manufacturing process of the HB materials as follows: Step I: Fibres are produced by a gel-spinning/hot drawing process [...]. The UHMWPE is dissolved in a solvent at a temperature of 150°C and the solution is pumped through a spinneret containing a few hundred capillaries in order to form liquid filaments. These liquid filaments are then quenched in water to form a gel-fibre. The gel-fibre is drawn at a strain rate on the order of l s?1 in hot air (at 120°C), resulting in a highly oriented (crystalline) fibre of diameter 17 ?m. Step II: Fibres are aligned into tows, coated in matrix resin solution and are then formed into a [0°/90°/0°/90°] stack. The stack is dried to remove the matrix solvent. Step III: The [0°/90°/0°/90°] stack is cut, laid-up to the required thickness and hot pressed (20 MPa at 120° C). Bonding of the layers is achieved by the matrix material. The fibre diameter is unchanged by the hot-pressing operation, although a proportion of the fibres change their cross-sectional shape. See K. Karthikeyan et. al., The effect of shear strength on the ballistic response of laminated composite plates, 42 European Journal of Mechanics – A/Solids 35-37 (2012). U.S. Customs and Border Protection (“CBP”) tested the HB materials, and the San Francisco CBP Laboratory Report No. SF20190618, dated August 14, 2019, details the initial analysis of the HB materials. The New York CBP Laboratory Report Nos. NY20210282, NY20210283, and NY20210284, dated April 28, 2021, provide additional information pertaining to the HB materials. Their cumulative findings are detailed below: HB25 SF Laboratory Report No. SF20190618: The HB25 sheet is composed of two layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The two layers of the HB25 sample are held together with a polyetherurethane resin. The HB25 sheet has the following composition, by weight: 83 percent polyethylene textile fibers and 17 percent polyurethane plastic. NY Laboratory Report No. NY20210282: The sample, a swatch claimed to be “HB25”, weighs 134.3 grams per square meter. The sample is composed of two layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer. HB26 SF Laboratory Report No. SF20190618: The HB26 sheet is composed of four layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The four layers of the HB26 sample are held together with a polyetherurethane resin. The HB26 sheet has the following composition, by weight: 93 percent polyethylene textile fibers and 7 percent polyurethane plastic. NY Laboratory Report No. NY20210283: The sample, a swatch claimed to be “HB26”, weighs 270.8 grams per square meter. The sample is composed of four layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer. HB50 SF Laboratory Report No. SF20190618: The HB50 sheet is composed of four layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The four layers of the HB50 sample are held together with a co-polymer matric of polyisoprene rubber and styrene plastic. Polyisoprene rubber appears to be the predominate polymer in the mixture. The HB50 sheet has the following composition by weight: 85 percent polyethylene textile fibers and 15 percent rubber/plastic co-polymer. NY Laboratory Report No. NY20210284: The sample, a swatch claimed to be “HB50[“] weighs 244.3 grams per square meter. The sample is composed of four layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer. The HB materials were entered into the United States between November 9, 2018 and March 27, 2019, under subheading 5407.30.1000, HTSUSA (“Annotated”), which provides for “[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Over 60 percent by weight of plastics.” The 2018-2019 applicable rate of duty for subheading 5407.30.1000, HTSUSA, was Free. Between September 13, 2019 to October 25, 2019, CBP liquidated the HB materials under subheading 5407.30.9000, HTSUSA, which provides for “[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Other.” The 2019 applicable rate of duty for subheading 5407.30.9000, HTSUSA, was 8% ad valorem. Protestant now argues that the subject merchandise is classified in subheading 5603.14.90, HTSUS, which provides for “Nonwovens, whether or not impregnated, coated, covered or laminated: Of man-made filaments: Weighing more than 150 g/m2: Other.” The 2019 applicable rate of duty for subheading 5603.14.90, HTSUS, was Free. Moreover, Protestant provides that the HB materials were not appraised correctly. On the entry summary, the only deductions calculated were the expenses for the customs brokerage and duties and fees. Specifically, Protestant provides the following with regard to the deductions that were not made: The terms of sale reflected on the commercial invoices is DDP delivery point (Tarboro NC). The bill of lading also states that all freight charges are prepaid to Tarboro, NC. Based upon these facts, the proper transaction value of the merchandise is the invoice price, with the deductions for: the actual costs of transportation from the seller’s premises until delivery in Tarboro, NC; all other costs incident to international shipment and delivery in the U.S. (e.g., customs brokerage fees and related expenses; insurance; and customs duties and fees payable upon importation). See 19 C.F.R. §§ 152.102(f), 152.103. Therefore, Protestant concludes that the actual proper transaction value of the HB material is the invoice price, with the deductions for any costs associated with transportation and insurance. ISSUES: What is the proper tariff classification of the “HB25,” “HB26,” and “HB50” materials? Whether costs related to international freight and insurance may be deducted from the transaction value of the subject materials. LAW AND ANALYSIS: CLASSIFICATION Initially, we note that the matter is protestable under 19 U.S.C. § 1514(a)(2) as a decision on classification. The protest was timely filed on or about March 11, 2020, within 180 days of liquidation. 19 U.S.C. § 1514(c)(3). Further Review of Protest No. 1503-20-100026 was properly accorded to Protestant pursuant to 19 C.F.R. § 174.24(c) because the decision against which the protest was filed is alleged to be inconsistent with matters previously ruled upon by the Commissioner of Customs or his designee or by the Customs courts. Classification of goods under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied in order. The 2020 HTSUS provisions under consideration are as follows: 3921 Other plates, sheets, film, foil and strip, of plastics: 3921.90 Other: 3921.90.15 Other * * * 5407 Woven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: * * * 5603 Nonwovens, whether or not impregnated, coated, covered or laminated: * * * Note 1(h) to Section XI, which covers Chapter 54 and 56, HTSUS, provides: This section does not cover: … (h) Woven, knitted or crocheted fabrics, felt or nonwovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of chapter 39; * * * Note 9 to Section X1, which covers Chapter 54, provides: The woven fabrics of chapters 50 to 55 include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding. * * * Note 3 to Chapter 56, HTSUS, provides the following: Headings 5602 and 5603 cover respectively felt and nonwovens, impregnated, coated, covered or laminated with plastics or rubber whatever the nature of these materials (compact or cellular). Heading 5603 also includes nonwovens in which plastics or rubber forms the bonding substance. Headings 5602 and 5603 do not, however, cover: … Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of color (chapter 39 or 40); * * *   In addition, in interpreting the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs to the Harmonized Commodity Description and Coding System represent the official interpretation of the tariff at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989). The General EN to Chapter 39 states, in relevant part, the following: Plastics and textile combinations … The following products are also covered by this Chapter : … (b) Textile fabrics and nonwovens, either completely embedded in plastics or entirely coated or covered on both sides with such material, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour; EN 56.03 provides, in pertinent part, as follows: A nonwoven is a sheet or web of predominantly textile fibres oriented directionally or randomly and bonded. These fibres may be of natural or manmade origin. They may be staple fibres (natural or manmade) or manmade filaments or be formed in situ. Nonwovens can be produced in various ways and production can be conveniently divided into the three stages: web formation, bonding and finishing Web formation      Four basic methods exist: by carding or airlaying fibres in order to form a sheet. These fibres may be parallel, cross or random oriented (drylaid process); by extruding filaments which are directionally oriented, cooled and laid down directly into a web or which are coagulated, washed and laid down directly into a web in a wet form of the process (spun laid process); … by various specialised technologies in which fibre production, web formation and usually bonding occur simultaneously (in situ process). II. Bonding After web formation the fibres are assembled throughout the thickness and width of the web (continuous method) or in spots or patches (intermittent method). This bonding can be divided into three types: Chemical bonding, in which the fibres are assembled by means of a bonding substance. This may be done by impregnation with an adhesive binder such as rubber, gum, starch, glue or plastics, in solution or emulsion, by heat treatment with plastics in powder form, by solvents, etc. Binding fibres can also be used for chemical bonding. … Finishing Nonwovens may be dyed, printed, impregnated, coated, covered or laminated. Those covered on one or both surfaces (by gumming, sewing or by any other process) with textile fabric or with sheets of any other material are classified in this heading only if they derive their essential character from the nonwoven. … However, the heading does not cover the following products which fall in Chapter 39 or 40: (a) Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour. … * * * Protestant entered the HB materials under subheading 5407.30.10, HTSUS, which provides for “[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Over 60 percent by weight of plastics.” CBP liquidated the HB materials under subheading 5407.30.90, HTSUS, which provides for “[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Other.” However, it should be noted that the HB materials are excluded from classification in heading 5407, HTSUS, entirely because they are not woven materials specifically provided for in heading 5407, HTSUS. Precisely, the HB materials are constructed of filament tow, and not of yarns. Note 9 to Section XI, HTSUS, which covers Chapter 54, states that “[t]he woven fabrics of chapters 50 to 55 include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding.” (Emphasis added). The San Francisco CBP Laboratory Report No. SF20190618, dated August 14, 2019, describes all of the HB25, HB26, and HB50 materials of being composed of layers of “filament fiber tow,” and in the article provided by Protestant, The effect of shear strength on the ballistic response of laminated composite plates, the HB materials are also described as being composed of “[f]ibres [that] are aligned into tows.” Therefore, because the HB materials are composed of filament tows, and not yarns, they are automatically excluded from classification in heading 5407, HTSUS. That being said, Protestant now asserts that the imported products are properly classified under subheading 5603.14.90, HTSUS, which provides for “[n]onwovens, whether or not impregnated, coated, covered or laminated: Of man-made filaments: Weighing more than 150 g/m²: Other.” Protestant explains that CBP previously classified products similar to the subject HB products in Headquarters Ruling Letter (“HQ”) H037542, dated August 11, 2010, where CBP addressed SB fabrics, as nonwovens. Protestant states that “[t]he SB fabrics in HQ H037542 and the HB Fabrics in the entries under protest are made with the identical UHMWPE fibers and are produced with the identical nonwoven construction. They are produced by forming and bonding directionally oriented filaments, and then stacking with additional sheets.” According to Protestant, the only difference between the SB fabrics in HQ H037542 and the HB materials at issue in this case is that the SB fabrics were laminated with plastic. Protestant believes that because CBP determined that the SB fabrics in HQ H037542 were nonwoven, then the similar HB fabrics in this protest are also nonwoven even though they lack plastic lamination. Specifically, Protestant cites to the CBP laboratory report referenced in HQ H037542 that provided that the SB fabrics were “not woven or knit.” Furthermore, Protestant relies on the fact that CBP stated in HQ H037542 that “[the SB fabric] is not a woven fabric and is therefore not classified in Chapter 59. Nonwoven textiles are covered in Chapter 56 of the HTSUS.” As a result, Protestant concludes that HQ H037542 “clearly supports the conclusion that the uncoated fabrics – the HB Fabrics – are nonwovens and thus properly classified in heading 5603.” The ENs to heading 56.03 are instructive for understanding the construction of nonwovens. The ENs provide that a nonwoven is a “sheet or web of predominantly textile fibres oriented directionally or randomly and bonded. These fibres may be of natural or man made origin. They may be staple fibres (natural or man made) or man made filaments or be formed in situ.” The ENs to heading 56.03, HTSUS, further provide guidance on the stages of nonwoven fabric formation setting forth a description of each process in three separate sections, discussed above, as: Web Formation, Bonding, and Finishing. The HB materials in this case have similarities to the nonwoven fabric formation mentioned above. Specifically, the fibres in the HB materials are made from a specialized technology, and from extruding filament fibres that are arranged into tow oriented directionally. Moreover, the fibres are assembled throughout the thickness and width and are chemically bonded by impregnation with an adhesive binder, i.e., the resin material. Lastly, the HB materials layers are coated with a resin material to bind the layers together, in line with the finishing step of nonwovens explained in the ENs to 56.03. However, the ENs to 56.03, state the following regarding nonwovens that are excluded from classification in heading 5603, HTSUS: … [T]he heading does not cover the following products which fall in Chapter 39 or 40: Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour. This exclusion is further provided for in Note 3(b) to Chapter 56, HTSUS, which provides the following: Headings 5602 and 5603 cover respectively felt and nonwovens, impregnated, coated, covered or laminated with plastics or rubber whatever the nature of these materials (compact or cellular). Heading 5603 also includes nonwovens in which plastics or rubber forms the bonding substance. Headings 5602 and 5603 do not, however, cover: … (b) Nonwovens, either completely embedded