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USA-ITA Customs Overview for February 2012

By John B. Pellegrini, USA-ITA Customs Counsel, McGUIREWOODS, LLP

Table of Contents:

CAFTA LITIGATION                                                                                

There may be light at the end of the tunnel for those importers who are frustrated with the manner in which Customs and Border Protection (“CBP”) reviews documents submitted in support of CAFTA claims.  Recently, two importers initiated litigation in the Court of International Trade challenging the refusal of the Port of Miami to grant the CAFTA preference.  Our understanding is that in both cases, the issue is not whether the garments qualify for the CAFTA preference but whether the documentation provided by the supplier and the importer was sufficient for the Port.

Importers who file CAFTA claims at Miami experience frequent problems with documentation.  The problems usually are of the “nit-picking” variety rather than a significant deficiency in the documentation.

We are not suggesting that importers start litigation every time the Port of Miami denies a CAFTA claim but depending on the result of these new litigations, that may prove to be an option.  Hopefully, the litigations will shine some light on what is happening in Miami and require that the Headquarters Office take a closer look at what the ports are doing when they determine that the CAFTA preference, or any other preference, is not supported by appropriate documentation.      

FESTIVE ARTICLES                                                                                   

CBP proposes to revoke New York Ruling N097116 (April 9, 2010) which addresses the classification of a children’s dress-up vest.

The subject vests are composed of non-woven polypropropylene fabric and are designed to be worn over other clothing.  The garments are pulled over the head, feature a rounded neckline, oversized arm holes with open sides, a hook/loop velcro closure and hemmed edges.  The vests come in different styles that indentify the wearer as a police officer, fireman, soldier, or construction worker.  The differentiation is created by color and by screen printing of designs and words that identify the wearer’s occupation.  The vests have a retail price of $1.00.

The New York ruling held that the garments were classified as clothing HTS subheading 9217.10.95 (14.2%).  The importer sought reconsideration. The Headquarters Office proposes to issue HQ H105997 revoking the ruling and classifying the subject merchandise in subheading 9505.90.60 (Free).

The proposed ruling points out that in analyzing whether a textile costume is of flimsy and non-durable construction and therefore, classified as a festive article, CBP looks at styling, construction, finishing touches, and embellishments.

In reaching the conclusion that the vests are classified as festive articles, CBP pointed to the following factors: 1) the absence of zippers, buttons and overall tailoring elements; 2) basic straight stitching, visible overlock stitching with loops loose enough so that they can be pulled and easily loosened; 3) folded hems that are loose and not tightly secured; 4) the absence of closures that reflect a well-made garment; 5) the use of small velcro tabs as closures; and 6) screen printed stripes rather than sewn-on stripes.  Given these considerations, CBP held that the garments were classified as festive articles.

VALUE DECISION                                                                                     

CBP has issued a value ruling that may be of interest to members.  The ruling, HQ H179142 (November 21, 2011), concerns the treatment of certain charges for services provided by a logistics provider, specifically whether the charges should be included in the transaction value of imported merchandise.

The services provided by the logistics provider include; 10 + 2 management fee; booking services, carrier fee for issuing the bill of lading; CFS receiving and packing fee, foreign customs clearance fee, CY monitoring, documentation fee for issuing the freight cargo receipt or house bill of lading, port construction fee, port security charge fee, etc.

In all cases, the fees were paid by the seller to the logistics provider.  Accordingly, the fees are included in the price payable by the importer to the seller.

Under these circumstances, CBP held that the fees could be deducted from the price in calculating statutory transaction value.

Please note, that this approach is available only when the fees are paid by the seller and are included in the price.  Further, in order to adjust the fees the importer would have to establish the actual cost of these fees by providing documentation, such as an invoice, issued by the carrier, freight forwarder port – the actual provider of the services.  It is insufficient to simply provide a list of the charges on the seller’s invoice.

CBP ruled that all of these services could be deducted from the price.  To reiterate, this requires that the service fees be included in the seller’s price and as important, the importer is able to provide documentation from the actual provider of the services establishing the actual price paid.

CVD                                                                                                              

In GPX International Tire Corporation v. United States (December 19, 2011), the Court of Appeals for the Federal Circuit determined that the Department of Commerce lacked statutory authority to apply the countervailing duty law to non-market economies, including China.  Under the countervailing duty law, the United States may impose additional duties to offset, or countervail, certain government subsidies.

The Court noted that when it amended and reenacted CVD the countervailing duty law, Congress was aware of and ratified the position held at that time by Commerce that government payments may not be characterized as “subsidies” in a non-market economy context and that the countervailing duty law did not apply to non-market economy countries.

We expect that the government will appeal the decision to the U.S. Supreme Court.  It is also likely that Commerce will pursue legislation to expressly grant it authority to apply the countervailing duty law to non-market economies.

The Customs Overview is a newsletter of Customs legal, administrative and other developments affecting importers of textiles and wearing apparel prepared as a service for USA-ITA members and other interested parties. Matters reported on or summarized herein should not be construed as legal advice on specific situations.

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