Customs Overviews

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP 

In This Memo:

  • 301 Developments 
  • "Jump Teams" 2018
  • Commission Decision
  • 21st Century
  • FTC - Leather Guides
  • GSP
  • CPSC Developments

301 DEVELOPMENTS. 

The threat of a List 4, the likelihood that List 3 will be revoked or that the duty will be increased to 25%, all appear to be waning. 

USTR is expected to establish a List 3 exclusion process in the very near future.  Members who import goods on List 3 should begin formulating support for an exclusion petition.  Any petition must address the following elements; 1) is the product available in the US and China is the sole source, 2) the product is not strategically important and not related to "Made in China 2025” or another China industrial programs; and 3) the 301 tariffs are a cause of severe harm to petitioner.  The fact that most List 3 products of interest to USFIA members are subject to “normal” duties much higher other the 301 retaliation duties  should mean there is a strong case for an exclusion.

It is obvious that members who submit exclusion petitions on List 3 products face an uphill battle, nevertheless, there is no disadvantage in seeking an exclusion.  


“JUMP TEAMS” 2018. 

Customs and Border Protection (“CBP”) has shared the results of the Fiscal 2018 Textile Production Verification Team visits with USFIA.

The teams visited approximately 138 factories in nine countries, Colombia, the Dominican Republic, El Salvador, Guatemala, Kenya, Madagascar, Mauritius, Nicaragua, and Peru.  None of the factories visited showed evidence of transshipment but 18 were categorized as high risks for transshipment. 

The visits also looked at compliance with preference program requirements; AGOA, CAFTA, as well as the Colombia and Peru agreements.  Nine of the 49 CAFTA factories were found to have violated CAFTA program requirements.  No violations were found in the AGOA, Colombia or Peru agreements.

Insufficient documentation was detected in 13 of the 28 AGOA factories. The same criticism (insufficient documentation) was lodged against 10 of the 23 Peru factories, four of the 19 Colombia factories and 17 of the 49 CAFTA factories.

Only one country, Guatemala, had no issues. None of the 20 factories visited were deemed a transshipment risk, violated the applicable preference program or had insufficient documentation.


COMMISSION DECISION.    

CBP recently published HQ H301531 (March 5, 2019), which addresses the dutiable status of a payment purported to be a buying commission.

The importer provided the following documentation to support its claim, sales contract cover invoice and a commission agreement. The sales contract lists a separate amount for the commission and notes the commission is included as part of the total price.  The commission agreement lists the importer and the seller as parties and indicates that the commission is paid to a third party. This agreement, which is between the third party and the seller, not the buyer, indicates that the former’s duties include providing customer information, commercial information and investigating the credit worthiness of buyers.

It is no surprise that CBP ruled that the commission is part of the customs value. First, it is included in the price. Even if one could argue that the commission was paid to a bona fide buying agent, the fact that it was paid to the seller means that it is dutiable.  Further, the third party's obligations make it clear that it is acting on behalf of the seller not the buyer. 

There could hardly be a clearer case that the commission is not paid to a bona fide buying agent and for that reason dutiable.


21st Century. 

CBP has announced the reopening of the public comment period on the themes identified in “The 21st-Century Customs Framework” initiative. 84 Federal Register 8884 (March 12, 2019).  The additional comment period expires April 11, 2019.


GSP.  

The Trump Administration has announced its intention to remove India and Turkey from the list of beneficiary countries under the Generalized System of Preferences.  Once the change goes into effect, otherwise eligible goods from either country will no longer enjoy the duty-free treatment. GSP changes typically take effect on July 1.  

However, it is also possible that the change could take place 60 days after Congress and the governments of India and Turkey are informed of the change. Presumably, the necessary Presidential Proclamation will provide more details.  It is likely that any change will apply to goods entered (not exported or ordered) on or after the effective date.


FTC – LEATHER GUIDES. 

The FTC has published a notice seeking comments on the Guides for Select Leather and Imitation Leather Products, 19 CFR Part 24.  84 Federal Register 8045 (March 6, 2019). The request is part of the FTC’s systematic review of all current regulations and guides.   The Guides apply to leather and imitation leather luggage, handbags, flatgoods, belts and footwear.

The most recent review of the Guides took place in 2007-2008.     

The Commission seeks comments on the following points, among others.
(1)  Whether there is a continuing need for the Guides as currently promulgated.
(2)  Are these specific provisions of the Guides that re no longer necessary?
(3)  Where the industry has adopted the Guides as part of its routine business practices.
(4)  Are these deceptive or unfair practices addressed in the Guides prevalent in the marketplace?  Are the Guides effective in addressing the practices?
(5)  The burdens and costs, including costs of compliance, imposed on businesses that follow the Guides.
(6)  What changes, if any, should be made to the Guides to reduce the burdens or costs to businesses.
(7)  Whether the Guides overlap or conflict with other Federal, State or local or international laws and regulations.
(8)  Whether consumer perceptions or preferences have changed since the Guides were issued in 1996 and, if so, whether the changes warrant revising the Guides.
(9)  Whether any changes in relevant technology, economic conditions or environmental conditions have had an impact on the Guides.

Comments are due on or before April 22, 2019.  If you would like USFIA to file comments, please let us know your recommendations and feedback by April 18th.  . 


CPSC DEVELOPMENTS.  

There were two recalls of textile articles in March.  The recalls cover: 1) heated socks - the lithium-ion battery can heat, melt or ignite when charged with a charger other than the one provided with the product, posing fire and burn hazards to the user; and 2) baby rattle socks - small ornaments can detach from the socks, posing a choking hazard to young children.


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 United States Fashion Industry Association members and other interested parties.  Matters reported on or summarized herein may not be construed as legal advice on specific situations. 

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP 

In This Memo: 

  • Classificataion Decisions
  • North Korea - Sanctions
  • Yantian Express
  • CPSC Developments 


Classification Decisions.

CBP recently published the following rulings.  

HQ H296342 (November 19, 2018), which appears in the Customs Bulletin for February 20, 2019, revokes NY N288630 (November 30, 2017).  The New York ruling classified a man's upper body garment in subheading 6110.30.30 (32%), as sweaters pullovers, etc.  The importer sought classification in heading 6101, as a jacket.

The garment is constructed of a bonded fabric consisting of an outer layer of polyester knit fabric, a middle layer of polyurethane film, and an inner layer of polyester microfleece knit fabric. The polyurethane film is not visible in the cross section. The garment has a stand-up collar, a full-front opening with a storm flap and a zippered closure. It has long sleeves with elastic edging on the cuffs, side entry pockets below the waist, and a bottom with a curved tail. 
 
The Headquarters Office agrees with the classification asserted by the importer.

The decision is based upon an analysis of the factors that CBP examines in distinguishing between jackets and other garments. The presence of three jacket characteristics generally leads to classification is outerwear.

The ruling points out that the subject garment has three jacket characteristics: a heavyweight shell fabric (12 ounces), pockets below the waist, and a heavy-duty zipper. In addition, the importer claimed that the garment was water resistant, an attribute confirmed by the Customs Laboratory.  Given these characteristics, CBP holds that classification lies in subheading 6101.30.20 (28.2%).

In HQ H297341 (November 13, 2018), which appears in the same issue of the Customs Bulletin, CBP revokes a portion of NY A89600 (December 9, 1996).  The ruling covers medical stretch briefs classified in subheading 9817.00.96 (Free), as articles specially designed for and adapted for use by the physically or mentally challenged.  Classification in 98f17.00.96 was revoked.

The MMF knit briefs are designed to hold disposable and reusable absorbent pads for use by adults and children suffering with permanent or chronic incontinence.

CBP asserts that to be classified in the Chapter 98 provision, an article must be made with the specific purpose and intent to be used by persons facing physical challenges and it must benefit those persons to a greater extent than others.  From this principle, CBP points out that many of the features of the subject merchandise are found in garments – pants marketed to and used by women after childbirth, and briefs designed to hold post-surgery dressings - not designed for the physically challenged.  Given these factors, CBP concluded that the subject briefs were not sufficiently specialized to qualify for classification in subheading 9817.00.96.

This ruling is another indication that CBP is taking a very close, perhaps jaundiced, look at existing rulings that classify garments in the provision for garments specially designed for the use of the handicapped.


North Korea – Sanctions. 

A recent press release from Treasury’s Office of Foreign Assets Control ("OFAC"), highlights one more area of potential concern for members. The press release covered a civil settlement with a cosmetics importer.   The cosmetics, false eyelash kits, originated in China but contained ingredients produced in North Korea. This violated sanctions against North Korea.  The fine approached $1M.  Although, the fine was substantially reduced from a potential maximum of $40M, in part because the importer reported the violations, OFAC was highly critical of the importer’s failure to institute an adequate compliance program. 

It is a given that members routinely pay close attention to origin issues. Nevertheless, they should review their procedures to ensure that suppliers have provided representations that they comply with all US export controls in trade sanctions. Further, training materials should include information on sanctions. The likelihood is that members cover these areas but perhaps more indirectly than OFAC would consider adequate.


YANTIAN EXPRESS.  

As some of you may be aware, the Yantian Express caught fire on the way to the US and is now in Freeport for damage assessment and repairs. Importers whose cargo had been laden on the vessel are also engaged in damage assessment.

Some of the cargo had been released electronically in early January based upon an estimated date of arrival of January 6, 2019.  CBP has issued instructions on how an importer whose cargo had been released should deal with the situation. The instructions are found in CSMS# 19-000071 (February 14, 2019). A copy is available here. 


CPSC DEVELOPMENTS.  

There were no recalls of a textile or apparel item in February.


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 United States Fashion Industry Association members and other interested parties.  Matters reported on or summarized herein may not be construed as legal advice on specific situations. 

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP

In This Memo:

  • The Shutdown
  • Valuation Ruling
  • Set Classification
  • Drawback Developments
  • Guayabera Shirts
  • CPSC Developments

THE SHUTDOWN.

As far as we have been able to determine, the government shut down has no impact on clearance. Neither CBP nor DHS has published anything definitive.  However, DHS has indicated that 50,000 of the 60,000 CBP employees are considered essential.  We assume the 10,000 or so considered nonessential are Headquarters Office personnel and others not directly involved in clearing cargo. It appears that the CEE’s are operating.

VALUATION RULING. 

CBP recently published in the following ruling in CROSS, HQ H285847 (July 12, 2018).  The ruling deals with the appraised value of merchandise sold by a Canadian parent to a related importer. CBP appraised the merchandise at the price from the importer to its US customer. The importer protested.

The basic issue is whether there was a bona fide sale between the Canadian parent and the importer. CBP decided there was no sale and that the importer was in fact a selling agent.

The ruling lists the following factors in support for that conclusion.  The terms of sale from the importer to its customers was FOB Montreal. An employee of the Canadian company was listed as the salesperson on the importer’s invoices to the US customers. There was a factoring agreement that treated both the Canadian parent and the importer as a single entity. The importer failed to provide any evidence that it paid the Canadian parent for the merchandise. A transfer pricing study that recited that the Canadian parent owned all contract relationships between the importer and its US customers.

Based on the above, CBP concluded that the appropriate appraised value was the price paid by the US customers.

CBP is skeptical about the bona fides of sales between Canadian sellers and related importers. The circumstances described here may justify the skepticism; however, that frequently is not the case.

SET CLASSIFICATION. 

HQ H289552 (December 4, 2018) responds to a ruling request dated June 26, 2017.

The subject merchandise is a "Super Blanky" with a coordinating mask.  The item is sold in the bedding area of a store for use by young children. The “Blanky” is rectangular.  Two fabric pieces are sewn along the longer sides of the rectangle and go around the arms creating a cape.  It is brushed polyester. The mask is dyed felt. The articles are sold as a set at retail.     

CBP classified the combination as a set. Both articles are classified in separate provisions, are designed for a particular activity and are packaged as a unit.  The “Blanky” was considered to be akin to a "Snuggie", which the CIT found to be classified as a blanket in subheading 6301.40.00 (8.5%).  The mask is classified in subheading 9505.90.60 (Free).

As a set, classification lies in the subheading that provides for component responsible for imparting the essential character of the set.  CBP found that the “Blanky” was the more important component. It is bigger in size and weight. When worn together it has the appearance of the central and predominate piece and the role of the mask is secondary. Therefore, classification falls in the blanket provision.

DRAWBACK DEVELOPMENTS. 

As required by the CIT, CBP published the final Modernized Drawback Rule in the Federal Register. 83 FR 64942 (December 18, 2018). The rules are effective December 17, 2018.

Simultaneously, CBP indicated that it is returning certain TFTEA claims in anticipation that they will be resubmitted with a request for accelerated payment. CSMS # 18-000737 (December 18, 2018).  This will require that the drawback claimant take certain steps. A copy of the CSMS document is available from USFIA.

Third, CBP announced that it would hold a public meeting to discuss items relating to CBP operations in the 21st-Century trade environment. 83 F.R. 65703 (December 21, 2018).  The topics include emerging roles in the global supply chain, intelligent enforcement, cutting-edge technology, data access and sharing, 21st-century processes, and self-funded Customs. The public meeting is scheduled for March 1, 2019, from 9 AM to 5 PM, EST. The meeting will be conducted in person and via teleconference.

CBP invites written comments on the themes described above.  The comment due date is February 4, 2019.  Details on the methods for filing comments are available from USFIA.

USFIA expects to file comments and solicits member input.

GUAYABERA SHIRTS.  

On December 21, 2018, the White House issued a Presidential Proclamation making changes to various preference programs. Among the changes is an amendment to U.S. note 41 to subchapter XXII, chapter 98 to add heading 6211.  This change ensures duty-free treatment for women’s guayabera shirts under the Panama FTA.

The Proclamation has not been published in the Federal Register. Nevertheless, the change is effective as of January 1, 2019.

CPSC DEVELOPMENTS. 

There were four recalls of a textile or apparel item in December.  The recalls cover 1) infant and toddler hoodies - a zipper slider can detach from the hoodie, posing a choking hazard to young children; 2) women’s silk scarves that fail the federal flammability standard for clothing textiles; and, 3) infant snowsuits - the metal snaps on the snowsuit can detach, posing a choking hazard to young children; and, 4) children’s robes that fail to meet the federal flammability standard for children’s sleepwear.

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 United States Fashion Industry Association members and other interested parties. Matters reported on or summarized herein may not be construed as legal advice on specific situations. 

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP

In This Memo:

  • 2019 HTSUS
  • California - Shippers Liability
  • Morocco FTA
  • “Made in USA”
  • CPSC Developments

2019 HTSUS.

The 2019 Harmonized Tariff Schedule is now available on the USITC website.  

We saw only one change from the final 2018 version. The change relates the Miscellaneous Tariff Bill (MTB) provisions. As in the past, a footnote indicates that an MTB may apply. However, the relevant MTB subheading, where there is one, is found at the end of chapter rather than on the same page as the main subheading.

CALIFORNIA - SHIPPER LIABILITY.

Under California Labor Code Section 2810.4, effective Jan. 1, 2019, any customer of a port drayage carrier will be jointly and severally liable for unpaid wages, unreimbursed expenses, damages, and penalties due to the commercial truck driver after the date the carrier is listed on the California Division of Labor Standards Enforcement (“DLSE”), available at https://www.dir.ca.gov/dlse/List_Port_Trucking_Companies_Outstanding_Judgments.html

On January 2, the California DLSE published the list of port drayage companies with unsatisfied final court judgments, tax assessments or tax liens. Members who use any of the port drayage carriers may be liable for the following:

  • unpaid minimum, regular or premium wages;
  • unlawful deductions by the motor carrier from wages;
  • out-of-pocket business expenses incurred by the commercial driver that are not reimbursed by the motor carrier;
  • civil penalties for failure to secure valid workers’ compensation coverage; and
  • damages or penalties, as provided for by law, that are due to the commercial driver or the state based upon the failure of the motor carrier to pay wages owed.

The type of customer that may be jointly and severally under this new law is broadly defined as “a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier.”

The customer is liable prospectively, not retroactively, for unpaid wages, unreimbursed expenses, damages and penalties incurred after the carrier is listed on the California DLSE website. If the customer and the carrier have a contract and the customer wishes to terminate the contract, the customer will not be liable until the earlier of the contract’s expiration date or 90 business days after the carrier is listed on the website.

Any company that engages California port drayage carriers, directly or indirectly, should take steps to protect itself from liability, including:

  1. monitoring the California DLSE list, which must be updated by the fifth day of every month, to determine whether any of its existing or prospective port drayage carriers are on the list;
  2. considering whether to cease engaging a port drayage carrier while that carrier appears on the list and whether to terminate contracts with listed carriers;
  3. verifying that its ocean carriers, freight forwarders, brokers and other transportation providers are not engaging any listed port drayage carriers; and
  4. considering amendments to its contracts with these transportation providers to require them to monitor the California DLSE list and to address any liabilities that might arise from engaging any port drayage carrier while that carrier appears on the list.

Prepared by Lisa Ormand Taylor of McGuireWoods LLP, 904-798-3240, This email address is being protected from spambots. You need JavaScript enabled to view it.

MOROCCO FTA.

PP 9834 (December 21, 2018), 84 F.R. 35 (January 7, 2019) amend the Morocco agreement to grant duty-free treatment to articles of women’s apparel classified headings 6204 and 6206 made from certain, very specific fabrics. The change was effective January 1, 2018.

PP 9834 also contains the change in the Panama agreement relating to women’s guyabara shirts previously reported.         

“MADE IN USA”.

The district court has granted preliminary approval of the revised settlement under which New Balance must pay $750,000 and agree to change its misleading labeling practices. The revised settlement will provide refunds of up to $100 per household for consumers who bought New Balance shoes in California. Unused funds will be donated to the Public Justice Foundation.

The original proposal was rejected because the court found that the maximum recovery of $10 would require an “abysmally low” participation rate of five percent for each class member to receive the $10. The class is estimated to be nearly one million.

CPSC DEVELOPMENTS.

There were no recalls of a textile or apparel item published since December 20, 2018. This does not mean that there were no disclosures, only that they have not been published – another result of the shutdown.

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 United States Fashion Industry Association members and other interested parties. Matters reported on or summarized herein may not be construed as legal advice on specific situations.

CLASSIFICATION DECISION

U.S. Customs & Border Protection (CBP) recently published HQ H300680 (Proposed). It appears in the Customs Bulletin for November 14, 2018 and reviews a 2004 pre-classification ruling. The ruling classified a backpack that contained plastic play food as a unit under the provision for toys, subheading 9503.00.00 (Free). That classification was based upon the conclusion that the backpack and play food constituted a tariff set.

The Headquarters Office first looks at the question of whether the combination is a set. It decided that it is not, for the reason that the set components are not intended to meet a particular need or to carry out a specific activity. The backpack has a separate use and is not necessarily used when a child is playing with the toy food.

The next question is whether the backpack could be classified with the toys as ordinary packaging. Again, the Headquarters Office felt otherwise. First, the Chapter 95 Notes effectively preclude classification of heading 42 bags in the chapter. 

Finally, the ruling examines whether backpack could be treated as packaging. Since the backpack is suitable for long-term use and is not specially fitted to contain the play food it was not classified as packaging. 

Accordingly, the proposal is that the toy food be classified in subheading 9305.00.00 and the backpack in subheading 4202.92.45 (20%).

ADAPTIVE CLOTHING. 

The Customs Bulletin for November 14, 2018, publishes proposed revocations of two New York rulings holding that garments with magnetic buttons were classifiable as articles for the physically challenged in subheading 9817.00.17.

The first proposed ruling, HQ H300625, would revoke NY N278872 (September 29, 2016) which dealt with a man's dress shirt. The second ruling HQ H00600 addresses the classification of a man's suit with magnetic buttons. The relevant New York ruling is N382688 (January 27, 2017). The basic reasoning in both proposed rulings is that garments incorporating magnetic closures, according to CBP, have become “mainstream in their use.”

The two proposed rulings along with HQ H292346 (June 29, 2018) and HQ H292642 (June 29, 2018), appear to make it virtually impossible to attain subheading 9817.00.17 treatment for apparel. Basically, apparel not obviously intended for the physically challenged does not qualify for classification in that provision. The likely consequence of these rulings is that stylish clothing designed for the physically challenged will become more expensive and in many cases beyond the means of the very individuals whose needs the garments are designed to address. CBP’s narrow interpretation makes it more difficult for the fashion industry to develop stylish apparel that creates a sense of inclusiveness while addressing the physical challenges of the community it is attempting to serve. 

Comments on the proposed rulings are due December 14, 2018. USFIA will file comments if there is sufficient member interest in the issue, so please let us know your thoughts by Monday, December 10, 2018.

NAFTA RULING. 

The Headquarters Office addressed the validity of a post-entry North American Free Trade Agreement (NAFTA) claim in HQ H300353 (September 14, 2018).

The importer filed the claim electronically through the Document Image System rather than through Automated Commercial Environment (ACE). The claim was timely. The port denied the claim arguing that the only means of filing the claim electronically was through ACE. The importer protested the denial.

The ruling points out that the instructions on electronic filing of post-NAFTA claims were not clear. The only message that was clear on whether electronically filing must be through ACE referred to protests. A post-entry NAFTA claim is not a protest; it’s a 520(d) claim. Given the circumstances, in particular that the claim was timely, the Headquarters Office ruled that the protest should be approved; common sense prevailed.

BOND ISSUES. 

The Trump tariffs have prompted CBP to issue a notice reminding importers that its Revenue Division conducts continuous bond sufficiency reviews on a monthly basis. CSMS #18-000664 (November 8, 2018). The basic requirement is that the continuous bond amount equals 10 percent of annual estimated duties. In the event that the Revenue Division determines that the bond amount is insufficient, it could restrict release. In addition, it could deactivate the bond, requiring that the importer use single entry bonds, which are substantially more expensive than continuous bonds. We have seen no reports of the Revenue Division taking either action.

CBP – TECHNOLOGY. 

CBP is said to be running multiple emerging-technology pilots to see whether new technology can better address agency needs. In the latest project, CBP is using Microsoft HoloLens augmented-reality headsets to inspect goods for intellectual property rights violations. Instead of referring to paper guides to verify the authenticity of an imported product, CBP uses a HoloLens-enabled mobile app to instantly access product details and compare the reference images to the physical object under examination. CBP is also considering an app that would allow it to test items such as pharmaceuticals to ascertain if they are legitimate.

CBP also recently concluded a “live fire testing” of a proof of concept that uses block chain technology to verify NAFTA and CAFTA certificates of origin. The goal is to reduce CBP’s interference in the process without sacrificing enforcement priorities. 

CPSC DEVELOPMENTS. 

There was one recall of a textile or apparel item in November. Girls’ clothing sets with a pendant necklace were recalled because the metal pendant on the necklace contains levels of lead that exceed the federal lead content ban. 

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 United States Fashion Industry Association members and other interested parties. Matters reported on or summarized herein may not be construed as legal advice on specific situations.