Customs Overviews

In This Issue:

  • Preference Rulings
  • Forced Labor – Uzbekistan
  • User Fees
  • CPSC Developments 

PREFERENCE RULINGS.

The following is a summary description of preference rulings recently made public by U.S. Customs & Border Protection (CBP).

The first ruling, HQ H291701 (May 22, 2018), addresses whether certain disposable shoe covers are eligible for North American Free Trade Agreement (NAFTA) benefits.

CBP denied NAFTA treatment at liquidation and the importer protested. The crux of the issue was whether the covers satisfied the applicable RVC requirement. The decision at liquidation appears to have been based on the fact that the importer submitted a second set of documents that differed in part from the original set. In support of the protest, the importer explained that the second set of documents included different labor costs than provided originally because the first set was based upon estimated production runs and did not include all labor and packaging costs. The importer provided more detailed information as part of the protest, information based on actual production run data that was supported by evidence. In addition, the importer provided NAFTA certificates for all of the originating materials used in production of the shoe covers.

The Headquarters Office approved the protest based upon this additional information.

This ruling highlights the importance of providing complete documentation and, where necessary, explanation. In particular, importers claiming a preference should ensure that a claim originating good status be supported by an appropriate certificate of origin.

HQ H296285 (July 10, 2018) discusses the origin of sewing thread under CAFTA. The CAFTA origin rule applicable to some apparel mandates sewing thread formed and finished in the region, a term CBP equates with “wholly formed.” The thread at issue was staple yarn or spun yarn made of cotton, polyester, or aramid fibers, and core spun yard consisting of polyester fiber spun around a polyester filament core.

In order to be “wholly formed,” the filament of a core yarn must be originating. However, there is no impediment to using non-originating fibers.  

The importer indicated that it planned to import some fibers but would continue to source the filament from regional sources. The ruling holds that as long as processing is performed in the region both forms of yarn may use non-originating fibers and remain in originating status.

FORCED LABOR – UZBEKISTAN.

The Department of Labor has filed notice of its initial determination to drop Uzbekistan cotton from the list of products made with indentured or forced child labor. 83 Federal Register 36969 (July 31, 2018).

It is important to note that the finding is limited to child labor. The notice is careful to note that the International Labor Organization and independent monitors found that at least 300,000 adults were forced to work in the 2017 cotton harvest.

USER FEES.

CBP published notice of various changes to user fees effective October 1, 2018.  83 Federal Register 37509 (August 1, 2018). The Merchandise Processing Fee (MPF) ad valorem rate of 0.3464% remains the same; the MPF minimum and maximum for formal entries will change. The minimum will increase to $26.22 from $25.67 and the maximum to $508.70 from $497.99.

A list of all fee changes may be found in the notice.

CPSC DEVELOPMENTS.

There were two recalls of textile or apparel items in July. The recalls cover: 1) children’s sleepwear that fail to meet federal flammability standards for clothing textiles, posing a risk of burn injuries to consumers; and, 2) shorts with patches that can detach, 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:

  • Classification Decisions
  • First Sale
  • Air Cargo
  • CPSC Developments

CLASSIFICATION DECISIONS.

The following is a summary description of classification decisions recently made public by U.S. Customs.

The first two decisions appear at 52 Customs Bulletin 23 (June 6, 2018).

HQ H273867 (Proposed) addresses the classification of non-woven polypropylene bottle bags. The bags have two handles and open tops. The insides of the bags are divided into six equally sized compartments. The bags are sold or distributed free of charge. HQ H235569 (May 17, 2013) classified the bags in subheading 4202.92.91 (17.6%), the basket provision for other bags. The proposed ruling would classify the bags as shopping bags in subheading 4202.92.39 (17.6%). CBP considers the bags classifiable as shopping bags because they have carrying handles, are of durable construction, are suitable for repetitive use and designed to provide storage, protection, portability, and organization for bottles.

The second of the two Rulings, HQ H285295 (May 8, 2018) classifies a girls' cotton sports bra from Peru in HTS subheading 6212.10.90 (16.9%) as a brassiere. The ruling also concludes that the garment is eligible for duty-treatment under the Peru FTA. The ruling revokes NY N279310 (October 13, 2016), which had classified the garment in subheading 6109.10.00 (16.5%) and denied duty-free treatment.

The change in classification is based upon CBP’s recognition that the onset of breast development may be as young as 8.8 years. CBP concluded that the garment is used for body support purposes justifying classification in subheading 6212.10.90.

The change in classification also meant that the garment qualified for duty-free treatment. As a T-shirt or similar garment, the applicable origin rule required that fabric classified in heading 5806 be originating. However, the requirement for garments classified in the heading 6212 is that the fabric undergo a change in classification. Since that did occur, the garment qualified for duty-free treatment.

FIRST SALE.

It is no secret that CBP is no fan of first sale. Recent rulings have focused on transactions where the importer and export are related and where there is flash title. CBP typically denies first sale in these circumstances.

A recent ruling grants first sale where the importer and exporter are related and illustrates the importance of avoiding flash title. The ruling, HQ H295538 (May 31, 2018), involves an importer of footwear and a related exporter. The exporter purchased the merchandise on ex-factory terms and resold on FOB terms. CBP granted first sale in a very brief ruling that does not include a slavishly detailed review of the transaction documents.

The message is clear - avoid flash title.

AIR CARGO.

CBP has announced an amendment to its regulations pertaining to the submission of advanced air cargo data. 83 Federal Register 27380 (June 12, 2018). The changes apply to inbound aircraft that has commercial cargo aboard. The new rules go in to effect on an interim basis July 12, 2018). Comments on the interim rule are due by August 13, 2018.

Previously, the requirement was that advanced data must be transmitted to CBP four hours prior to arrival of the aircraft in the United States. On certain short flights, the data was required not later than the time of departure of the aircraft. Under the interim rule, the data must be transmitted as early as practicable, but no later than prior to lading the cargo on to the aircraft. CBP explains that under the new timeframe, it will have sufficient time before the aircraft departs to analyze the data, determine whether is suggests the presence of a threat and to eliminate the threat.

CPSC DEVELOPMENTS.

There was a single recall of textile or apparel items in June. The recall covers women’s scarves that fail to meet federal flammability standards for clothing textiles, posing a risk of burn injuries to consumers.

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:

  • New Balance Caves
  • GSP Refund Process
  • Cell Phone Sports Armbands
  • CPSC Developments

NEW BALANCE CAVES.

New Balance has agreed to settle the California class action that challenged its “Made in USA” labels. The settlement covers footwear marketed as "Made in USA" that has a domestic value of 70 percent or greater, but less than 95 percent.

As part of the settlement, New Balance agrees to pay $750,000, to be distributed in $10 increments to consumers who purchased the mislabeled footwear. New Balance agrees that it will no longer use the “Made in USA” unless the shoe contains at least 95 percent domestic content. New Balance may continue to make qualified claims of domestic production as long as the 70 percent standard is mentioned explicitly in connection with the claim. The settlement agreement recites the following example: “New Balance ‘made’ is a premium collection that contains domestic value of 70% or greater”.

The settlement was filed April 23, 2018, and is subject to court approval.

GSP REFUND PROCESS.

U.S. Customs and Border Protection (CBP) began accepting claims for GSP duty-free treatment on eligible merchandise entered as of April 22, 2018. In addition, CBP indicates that it will automatically liquidate or reliquidate entries of GSP-eligible merchandise entered on or after January 1, 2018, through April 21, 2018. Automatic liquidation is limited to entries filed electronically through ABI and that claimed GSP treatment. 83 Federal Register 17561 (April 20, 2018).

Importers must file a specific request for a refund for GSP-eligible articles entered other than through ABI, or which were not the subject of a GSP claim at entry. The request must be filed with CBP by September 19, 2018.

Note that certain solar cells and panels from Philippines and certain solar cells, solar panels, washing machines, and washing machine parts from Thailand, although GSP eligible goods, are subject to Section 201 measures. Accordingly, these articles may not receive GSP duty preferences. CSMS #18-000307 (April 26, 2018).

CELL PHONE SPORTS ARMBANDS.

An importer has challenged CBP's classification of sports armband cell phone holders as other travel bags, subheading 4202.99.90 (20%). The importer makes alternate classification claims. These include Chapter 95 as articles for general physical exercise, other, or under a classification for the materials (plastic, rubber or textile) that make up the armbands, presumably a question of essential character.

Members who import similar products may wish to consider filing protests to take advantage of a favorable decision. The case is Incase Design, Inc., Court No. 18-00090.

CPSC DEVELOPMENTS.

There was a single recall of a textile or apparel item in April. The recall covers decorative cushions that can catch fire if exposed to an ignition source, posing a fire hazard.

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 Issue:

  • Classification Decisions
  • Turkmenistan WRO
  • Bond Limits
  • De Minimis
  • CPSC Developments

CLASSIFICATION DECISIONS

The following is a summary description of classification decisions recently made public by U.S. Customs & Border Protection (CBP).

In HQ H257531 (January 22, 2018), The Headquarters Office addressed the classification of a textile money belt. The ruling revokes a 1991 New York ruling, 868779 (November 25, 1991). That ruling found that a MMF/cotton money belt was classified as “flatgoods” in HTS subheading 4202.32.93 (17.6%). The Headquarters Office ruled that the money belt is properly a classified as “travel sports and similar bags” in HTS subheading 4202.92.31 (17.6%). The subheadings and duty rates are those currently in force.

In addition to the age of the revoked ruling, HQ H257531 is interesting in that it reminds us that, outside of the textile chapters, classification of a mixed fiber article is based upon an essential character analysis. While, as here, the analysis is cursory, it is useful to keep that distinction in mind. Almost invariably, the essential character will be imparted by the fiber that dominates by weight.

The scope of subheading 9801.00.20 was the subject of HQ H276403 (December 12, 2017). The subheading provides duty-free treatment for merchandise exported from the United States pursuant to a lease or similar use agreement after importation and payment of duty. The merchandise at issue consisted of apparel and accessories.

Here, the imported merchandise was shipped to Canada for warehousing until needed by customers in the United States. The ultimate issue was whether the goods were entrusted to the custody of a second party.

CBP reviewed the relationship between the importer and the party responsible for warehousing and concluded that, although they have that may have separate legal existence, for all intents and purposes, they were the same party. Given that conclusion, CBP held that subheading 9801.00.20 did not apply and denied duty-free treatment.

CBP has frequently expressed skepticism that related parties located north and south of the border can enter into transactions that are recognized for purposes of the customs laws.

TURKMENISTAN WRO

As previously reported, CBP issued a withhold release order covering all Turkmenistan cotton and products produced in whole or in part with Turkmenistan cotton. The order is dated May18, 2018. The petition names two importers, Ikea (cotton bed linens) and Gamby Global, Inc. (fabric). It is not clear how far beyond the two named importers the detentions will extend.

To our knowledge, no shipments have been detained pursuant to the WRO and senior CBP officials have indicated that they do not expect a great deal of activity related to the WRO.

BOND LIMITS

CBP has broad discretion in setting bond amounts. However, that discretion is not unlimited. This is illustrated by a recent decision of the Court of International Trade.

The decision was in response to an importer’s request for a permanent injunction commenced to contest the imposition of an enhanced single entry bond requirement equal to three times the total shipment value. This created a single entry bond requirement of $9 million as opposed to the previous continuous bond amount of $200,000. The imposition of the requirement would, as a practical matter, put the importer out of business. CBP took this action because the importer had entered merchandise that violated certain trademark rights. The violative merchandise represented less than one percent of the importer's merchandise.

CBP’s directive on determining bond amounts indicates that the bond's purpose is to protect the revenue and to ensure compliance. The directive goes on to indicate that it is not CBP’s intention to require a bond amount that unnecessarily puts an excessive burden on importers or places them in an impossible situation.

The court looked at CBP's directive and the fact that the problematic merchandise represented only a very small part of the importer’s merchandise and concluded that bond amount was excessive and imposed a permanent injunction, preventing CBP from imposing the single entry bond requirement.

CBP has also refused to release the importer’s entries without a 100 percent inspection. The court ordered CBP to use its best efforts to process all of the backlogged shipments and to release them in a timely manner.

Although this matter is not settled as there has not been a decision on the merits, the likelihood is that the parties will reach an accommodation.

DE MINIMIS

During a National Association of Foreign Trade Zones conference held in May, a CBP official disclosed that the agency has ruled that distributors are not allowed to enter bulk goods into an FTZ, break them down into consumer shipments, and take advantage of the de minimis legislation. The ruling, which had not been made public as of 4:00 PM yesterday, was issued in response to an internal inquiry. We understand that the ruling does not address the retail sale prohibition but focuses on how goods are imported into the U.S.

There are efforts underway to amend the legislation to correct the failure to address the FTZ issues.

USFIA will circulate the ruling once it becomes public.

CPSC DEVELOPMENTS

There were two recalls of textile or apparel items in May. The recalls involved: 1) a three-piece cardigan set in which the cardigan’s toggle button can detach, posing a choking hazard to young children; and, 2) women’s silk scarves that fail to meet federal flammability standards for clothing textiles, posing a risk of burn injuries to consumers.

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:

  • Collection Policy
  • False Origin Claims
  • Liquidation Notices
  • CPSC Developments

COLLECTION POLICY.

U.S. Customs & Border Protection (CBP) has modified its collection policies. CSMS #18 -000234 (March 20, 2018).

CBP will issue dunning letters 120 days after the bill if a protest has not been filed; it had previously been 61 days. The dunning letter will outline the consequences that could ensue when payment is not received or a protest not filed with 180 days. If a protest is filed, the bill will not be subject to set off by diverted refunds nor will the importer be subject to sanctions because of the bill.

FALSE ORIGIN CLAIMS.

There were two recent developments in this area.

The first is the settlement of the claim in California that a grocer falsely labeled olive oil as being Italian in origin. The settlement awards $1.3M to counsel and either $.50 in cash or $1.50 in vouchers to members of the class. The litigation, which was prosecuted in a California state court, alleged violations of the Tariff Act of 1930.

The fact that plaintiffs’ counsel earned over $1M creates an incentive to bring similar actions and could prove to be much more vexing than enforcement of origin marking rules by CBP.

The second development involves a claim by the Federal Trade Commission that a mattress manufacturer falsely labeled its products as “Assembled in the US.” 83 Federal Register 12192 (March 20, 2018). In fact, according to the FTC, the mattresses were imported in a finished condition. The FTC indicates that the mattress importer had entered into a settlement agreement. No details as to any fines were made public.

LIQUIDATION NOTICES.

On March 5, 2018, CBP announced that it had uncovered an error in the creation of Liquidation Courtesy Notices. Some Notices were issued with errors and others were not issued. CBP issued corrected Notices the following week. That delivery covered all Notices for the weeks of the March 5 and the March 12. 

CBP also announced that as of February 24, 2018, the Notice delivery date is a Sunday, not a Friday.

CPSC DEVELOPMENTS.

There was a single recall of an apparel items in March. Star studded jeans, whose metal stars can detach, posing a laceration hazard, were recalled.

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.