Application for Further Review of Protest No. 2402-97-100058; Denial of HTSUS subheading 9802.00.80 treatment to oven-baked pants and shorts; Haggar; Levi Strauss

HQ W560870 April 2, 2001 CLA-2 RR:CR:SM W560870 MLR CATEGORY: Classification TARIFF NO.: 9802.00.80 Port Director U.S. Customs Service 797 S. Zaragosa Rd. El Paso, TX 79907 RE: Application for Further Review of Protest No. 2402-97-100058; Denial of HTSUS subheading 9802.00.80 treatment to oven-baked pants and shorts; Haggar; Levi Strauss Dear Sir: This is in reference to your memorandum dated March 2, 1998, forwarding a protest and application for further review filed by Sandler, Travis & Rosenberg, P.A., on behalf of Farah, USA, Inc., contesting the denial of the duty exemption under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to pants and shorts assembled and oven-baked in Mexico. FACTS: Protestant states that the articles at issue are men’s and women’s pants and shorts that were assembled from U.S. components, and subjected to an “oven-baking and/or washing process” in Mexico. The commercial invoice indicates that the articles at issue have been “subject to a chemical wash and/or oven baking for wrinkle purposes.” ISSUE: Whether the chemical washed and/or oven-baked pants and shorts qualify for subheading 9802.00.80, HTSUS, treatment. LAW AND ANALYSIS: Subheading 9802.00.80, HTSUS, provides a partial duty exemption for: [a]rticles ... assembled abroad in whole or in part of fabricated components, the product of the United States, which (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, such as cleaning, lubricating and painting. All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24). Section 10.14(a), Customs Regulations {19 CFR 10.14(a)}, states in part that: [t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components. Section 10.16(a), Customs Regulations {19 CFR 10.16(a)}, provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, lamination, sewing, or the use of fasteners. Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. See 19 CFR 10.16(a). However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See 19 CFR 10.16(c). Section 10.16(c)(4) specifically provides that the “chemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dyeing, or bleaching of textiles”, is not considered incidental to the assembly process. In this case, subheading 9802.00.80, HTSUS, treatment was denied because the pants and shorts were subjected to a chemical wash and/or ovenbaking process in Mexico. Protestant claims that these operations are incidental to the assembly process. In United States v. Haggar Apparel Co., 526 U.S. 380 (1999), the Supreme Court examined a permapressing operation and held that subheading 9802.00.80, HTSUS, was ambiguous for purposes of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 842-44 (1984). Therefore, subject to the analysis required by that case, if 19 CFR 10.16(c) is a reasonable interpretation and implementation of the ambiguous statutory provision, it must be given judicial deference. The Supreme Court remanded the case to the U.S. Court of Appeals for the Federal Circuit to determine whether the regulation is a reasonable elaboration of subheading 9802.00.80, HTSUS. Upon remand, the Federal Circuit reversed the Court of International Trade and held that Customs correctly applied 19 CFR 10.16(c) to cover the permapressed pants, as there were no disputes of any of the material facts and it was clear that the fabric was chemically treated in the U.S. and oven-baked after assembly in Mexico to impart “permapressed” qualities. Accordingly, since this process fell within the reasonable scope of the phrase “permapressing”, classification under subheading 9802.00.80, HTSUS, was precluded. 222 F.3d 1337 (Fed. Cir. 2000). In this case, the protestant states that the pants and shorts were subjected to a “chemical wash and/or oven baking for wrinkle purposes.” As in the Federal Circuit’s opinion in Haggar where the court found that the ovenbaking fell within the reasonable scope of the phrase “permapressing”, we find that the “chemical wash and/or oven baking for wrinkle purposes” in this case is a “chemical treatment of … assembled articles [that imparts] new characteristics, such as … permapressing”, as set forth in 19 CFR 10.16(c)(4). Accordingly, pursuant to in 19 CFR 10.16(c)(4), we find that the chemically washed/oven baked pants and shorts were subjected to operations that were not incidental to the assembly process. Therefore, the pants and shorts do not qualify for subheading 9802.00.80, HTSUS, treatment, and this protest should be denied. HOLDING: On the basis of the information submitted, pursuant to 19 CFR 10.16(c)(4), we find that the chemically washed/oven baked pants and shorts were subjected to operations that were not incidental to the assembly process in Mexico. Therefore, the pants and shorts do not qualify for subheading 9802.00.80, HTSUS, treatment, and 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 this decision available to Customs personnel, and to the public via the Customs Home Page on the World Wide Web, the Freedom of Information Act, and other public distribution channels. Sincerely, John Durant, Director Commercial Rulings Division