Application for Further Review of Protest No. 5206-19-100137; Peru Trade Promotion Agreement; Origin

H323405 November 16, 2022 OT:RR:CTF:VS H323405 JMV CATEGORY: Origin Center Director Apparel, Footwear, and Textiles CEE U.S. Customs and Border Protection 139 Southern Road Savannah, Georgia 31405 RE: Application for Further Review of Protest No. 5206-19-100137; Peru Trade Promotion Agreement; Origin Dear Center Director, The following is our decision regarding the Application for Further Review (“AFR”) of Protest No. 5206-19-100137, timely filed on February 19, 2019, on behalf of the protestant, Lucky 7 Fashion Super Discount III, Inc. (“Lucky”). Lucky contests U.S. Customs and Border Protection’s (“CBP”) denial of its claim for preferential tariff treatment under the Peru Trade Promotion Agreement (“PTPA”). FACTS: This protest stems from an origin verification wherein CBP found that Lucky has not provided sufficient documentation to demonstrate that the garments at issue qualify for preferential tariff treatment under the PTPA. Lucky is a Florida based company that imports apparel and merchandise manufactured in Peru. Lucky then distributes the imported goods to its stores located in South Florida, which are either wholesale or retail, and offers private label services. Lucky states that its manufacturer is Peru Cotton Tex Sac (“Peru Cotton”), however, Peru Cotton contracts out all production to various cutting and sewing operators. The verification involved eight entries of textile goods. Lucky and CBP agreed to limit the scope of the verification to one entry line per entry, all of which fell under either Chapter 61 or 62 of the Harmonized Tariff Schedule of the United States (“HTSUS”), which cover Articles of apparel and clothing accessories, knitted or crocheted and Articles of apparel and clothing accessories, not knitted or crocheted, respectively. Specifically, these entries included women’s overalls, women’s knitted t-shirts, women’s cotton shorts, men’s cotton trousers, women’s knitted cotton dresses, men’s knitted shorts, and men’s knitted t-shirts classified under subheadings 6103.43, 6104.42, 6109.90, 6203.42, and 6204.62, HTSUS. In support of this protest, for each of the entry lines examined, Lucky provided: suppliers’ “Affidavit of Origin” for the sewing thread and fabric, transportation documents between various producers in the production process, lab test reports on sewing thread and fabric fiber, proofs of payments, purchase orders, production orders for sewing and cutting operations, and invoices. We note that none of the affidavits are “sworn to” or notarized. ISSUE: Whether the importer provided sufficient documentation to sustain a claim of origin under the PTPA. LAW AND ANALYSIS: The PTPA was signed by the Governments of Peru and the United States on April 12, 2006. The PTPA was approved by the U.S. Congress with the enactment on December 14, 2007, of the PTPA Implementation Act (“the Act”), Pub. L. 110-138, 121 Stat. 1455 (19 U.S.C. 3805). General Note (“GN”) 32 of the HTSUS implements the PTPA. GN 32(b) sets forth the criteria for determining whether a good is an originating good for purposes of the PTPA. GN 32(b) states: For the purposes of this note, subject to the provisions of subdivisions (c), (d), (m) and (n) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good under the terms of this note if— (i) the good is a good wholly obtained or produced entirely in the territory of Peru, the United States, or both; (ii) the good was produced entirely in the territory of Peru, 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 (n) of this note; or (B) the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note; and the good satisfies all other applicable requirements of this note; or the good was produced entirely in the territory of Peru, the United States, or both, exclusively from materials described in subdivision (b)(i) or (b)(ii) of this note. In the instant case, Lucky does not claim that the imported garments meet the definition of the expression “good wholly obtained or produced” listed under GN 32(c)(i). Since the garments are not considered “wholly obtained or produced” as set forth in GN 32(c)(i), HTSUS, we must determine whether the non-originating materials would satisfy the applicable change in tariff classification. The men’s shorts are classified under subheading 6103.43, HTSUS. The rule of origin for this subheading is: A change to subheadings 6103.41 through 6103.49 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the men’s shorts is satisfied because the shorts are manufactured in the territory from 100% polyester fiber classified in heading 5506, HTSUS. The women’s cotton knitted dresses are classified under subheading 6104.42, HTSUS, with the following tariff shift rule: A change to subheadings 6104.41 through 6104.49 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the women’s cotton knitted dresses is satisfied because the dresses are manufactured in the territory from 95% cotton, 5% spandex fiber classified in heading 5506, HTSUS. The men’s knitted t-shirts of other textile materials and the women’s knitted t-shirts of other textile materials are classified under subheading 6109.90, HTSUS, with the following tariff shift rule: A change to headings 6105 through 6111 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the men’s and women’s knitted t-shirts is satisfied because the t-shirts are manufactured in the territory from 95% polyester, 5% spandex fiber classified in heading 5506, HTSUS, and that women’s knitted t-shirts of other textile materials are manufactured from 95% viscose, 5% spandex fiber also classified in heading 5506, HTSUS. The men’s trousers of cotton are classified under subheading 6203.42, HTSUS, with the following tariff shift rule: A change to subheadings 6203.41 through 6203.49 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516, 5801 through 5802 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the imported men’s trousers is satisfied because the trousers are manufactured in the territory from 95% polyester, 5% spandex fiber classified in heading 5506, HTSUS. The women’s dresses of cotton are classified under subheading 6204.42, HTSUS, with the following tariff shift rule: A change to subheadings 6204.41 through 6204.49 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516, 5801 through 5802 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the women’s dresses of cotton is satisfied because the dresses are manufactured in the territory from 100% cotton fiber classified in heading 5201, HTSUS. The women’s shorts of cotton and the women’s bib and brace overalls of cotton are classified under subheading 6204.62, HTSUS, with the following tariff shift rule: A change to subheadings 6204.61 through 6204.69 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516, 5801 through 5802 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both. Lucky argues that the tariff shift rule for the women’s cotton shorts, and bib and brace overalls is satisfied because the shorts and overalls are manufactured in the territory from 95% cotton, 5% spandex fiber classified in heading 5506, HTSUS. The CBP regulations applicable to the PTPA are contained in 19 CFR § 10.901 to § 10.934. Section 10.926 specifically addresses “Verification and justification of claim for preferential tariff treatment.” With regard to a verification of a claim that goods originate under a trade agreement, the regulation references different methods of how CBP may conduct a verification, including written requests for information. In the case of the entries at issue, the Apparel, Footwear and Textile Center of Excellence & Expertise (the “Center”) issued a Request for Information (CBP Form 28) requesting additional information and documentation. It wasn’t until after the Center issued a Notice of Action (CBP Form 29), that Lucky provided the requested information. The Center denied the PTPA claims because the Center found the documentation submitted in response to their request was deficient to support the claims. In reviewing documents submitted to support a claim for preferential tariff treatment for purposes of PTPA, we consider the guidance issued to CBP field personnel and the importing community by CBP Headquarter offices in the form of memorandum and Textile Book Transmittals (“TBT”). This guidance includes TBT-07-019, “Documents Used to Verify Free Trade Agreement and Legislated Trade Program Claims for Textiles and Wearing Apparel,” which was issued by the Executive Director, Trade Policy and Programs, Office of International Trade on October 10, 2007; and TBT-11-004, “Additional Documents Used to Verify Free Trade Agreement and Legislated Program Claims for Textiles and Wearing Apparel,” which was issued by the Executive Director, Trade Policy and Programs, Office of International Trade on March 31, 2011. See, e.g., Headquarter Ruling Letter (“HQ”) H301722, dated May 21, 2019; HQ H185798, dated August 16, 2013; and HQ H217821, dated June 23, 2012 (relying on TBTs to determine whether documents provided by an importer support a claim for preferential tariff treatment under a preferential trade program). According to TBT-07-019, when a trade agreement requires the use of yarn or fabric that originates in the territory of the parties, importers must be able to provide certain documents to support the claim for preferential tariff treatment: When requested by CBP, the primary documents importers must submit to confirm each raw material source are indicated below. The following requirements hold whether U.S. materials or regional materials are used: An affidavit completed by a party having direct knowledge of the yarn or fabric formation is necessary to substantiate the origin claim. a. Such an affidavit (or declaration) should identify the factory that produced the yarn or fabric, giving the full name and address. . . . Affidavits will not be accepted from converters or dyers who are not responsible for the actual production of the yarn or fabric. The affidavit should have a description of the goods, such as fiber content, yarn count and fabric type, as well as some identifying characteristics, such as an invoice or order number. . . . Documents to Support Claims Involving Agreements/Groupings Requiring Regional Yarn or Fabric Records demonstrating that a party to the transaction sourced regionally formed yarn, fabric, or cut or knit-to-shape components clearly dedicated to the final imported merchandise. Such records include purchase orders, invoices, delivery notices, etc. These documents should demonstrate a direct correlation of the materials or components to the finished good by way of style numbers, fabric type and construction, or other means. Transportation and export records (e.g., bills of lading) from the regional country of origin of the yarn or fabric to the regional country of final production. Entry documents showing movement of the inputs into the regional country of final production. Documents showing movement and delivery of inputs within the regional country of final production. Men’s trousers of cotton For this entry, the trousers would meet the tariff shift rule above if the yarn used to make the trousers were formed in Peru, the United States, or both. To support the assertion that the trousers do meet the tariff shift rule, Lucky provided affidavits from a fabric producer, sewing thread producer and Rocio Quispe Clemente, the actual producer of the trousers classified under subheading 6203.42, HTSUS. The fabric producer’s statement states that the fabric was produced in Peru but does not state the origin of the yarn used to produce the fabric. If, as Lucky claims, the yarn used to produce the fabric was spun from cotton and spandex fiber within the territory, then the garments would meet the tariff shift requirement. However, Lucky has not provided any documentation regarding the origin of the yarn, and therefore, has not demonstrated that the goods meet the tariff shift requirement. We also note that the thread supplier provided a statement of origin indicating that the thread was produced in Peru but did not include the filament source, production records, or commercial records related to the purchase of the filament. Chapter Rule 4 of Chapter 62, GN 32(n) states, “a good of this chapter containing sewing thread of heading 5204 [cotton sewing thread] or 5401 [synthetic fiber sewing thread] shall be considered originating only if such sewing thread is both formed and finished in the territory of Peru, the United States, or both.” Therefore, we find that Lucky has not demonstrated that the trousers meet the requirement of Chapter Rule 4 of Chapter 62, GN 32(n). Additionally, Lucky provided no documentation to determine whether the trousers meet GN 32(n) 62, Chapter rule 5, which requires pocket bag fabric to be “formed and finished in the territory of Peru, the United States, or both from yarn wholly formed in Peru, the United States, or both.” Therefore, we find that the subject trousers do not qualify for preferential tariff treatment under the PTPA. Women’s bib and brace overalls of cotton Regarding the entry of women’s cotton bib and brace overalls classified in subheading 6204.62, HTSUS, Lucky provided CBP with an excel spreadsheet that includes a flow chart, a list of fabric suppliers, a list of purchase orders from Lucky to Peru Cotton and their details, a list of transportation providers and payment information, and a list of style numbers and unit costs. However, no documentary evidence, such as actual purchase orders, invoices or payment records were provided. Therefore, we find that Lucky did not provide sufficient information to demonstrate that the subject overalls qualify for preferential tariff treatment under the PTPA. Women’s dresses of cotton Again, for the women’s cotton dresses to meet the tariff shift rule for garments of subheading 6204.42, HTSUS, the yarn used to make the dresses would have to be formed in Peru, the United States, or both. To support the claim that the women’s cotton dresses do originate under PTPA, Lucky provided an affidavit stating that the fabric was produced in Peru by Textil Vivanco Garcia E.I.R.L. from cotton yarn produced in the United States. However, Peru Textil Vivanco Garcia E.I.R.L. is not the producer of the yarn and, according to TBT-07-019, “Affidavits will not be accepted from converters or dyers who are not responsible for the actual production of the yarn or fabric.” Further, Lucky did not provide any transportation documents, export records, or entry documents of U.S. yarn into Peru, as is required by TBT 07-019. Additionally, while the certification of origin for the fabric does state the invoice numbers of the fabric it is certifying origin for, those invoices were not provided. Lucky also did not provide any purchase orders, invoices, transport records, production records, or proofs of payment for the fabric or yarn. Therefore, this affidavit does not provide any support for the claim that the dress fabric is produced from yarn originating in the United States, which would demonstrate that the garments meet to tariff classification shift from cotton fiber of heading 5201, HTSUS to dresses of subheading 6204.42, HTSUS. The thread supplier provided a statement of origin indicating that the thread was produced in Peru, but did not include the filament source, production records, or commercial records related to the purchase of the filament. Chapter Rule 4 of Chapter 62, GN 32(n) states, “a good of this chapter containing sewing thread of heading 5204 [cotton sewing thread] or 5401 [synthetic fiber sewing thread] shall be considered originating only if such sewing thread is both formed and finished in the territory of Peru, the United States, or both.” We also note that Peru Cotton subcontracted services to Gladys Saavedra Atoche, but the purchase order was not translated fully to ascertain what services were provided. Therefore, we find that Lucky did not provide sufficient information to demonstrate that the subject dresses qualify for preferential tariff treatment under the PTPA. Women’s shorts of cotton This entry includes women’s cotton shorts of subheading 6204.62, HTSUS. The documents provided for this entry do not cover important steps in the production process. Peru Cotton outsources the fabric cutting process, but did not provide production reports, nor did the cutting service provider substantiate the fabric used in production. Peru Cotton paid “Escobar Chancha Janet Vanessa” $156.25, but no documentation indicates what goods or service was received in exchange for this payment. Additionally, the thread producer, Espinoza Vilca Jean Bryan, created and signed a “Mfg. Affidavit of Origin” with no production support documentation. Chapter Rule 4 of Chapter 62, GN 32(n) states, “a good of this chapter containing sewing thread of heading 5204 [cotton sewing thread] or 5401 [synthetic fiber sewing thread] shall be considered originating only if such sewing thread is both formed and finished in the territory of Peru, the United States, or both.” Therefore, we find that Lucky has not demonstrated that the women’s shorts meet the requirement of Chapter Rule 4 of Chapter 62, GN 32(n). Again, the yarn used to make the women’s shorts would have to be formed in Peru, the United Stat