Customs Overviews

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP

In This Issue:

FORCED & CHILD LABOR.

The Department of Labor has published the 2016 update to its list of goods produced by child or forced labor. 81 Federal Register 67393 (September 30, 2016). The notice includes the web address of the list.

The following countries are listed as using child and/or forced labor in the production of fiber, textiles or garments (an asterisk indicates that forced labor is involved):

  • Argentina
  • Azerbaijan
  • Bangladesh
  • Benin*
  • Brazil*
  • Burkina Faso*
  • Cambodia
  • China*
  • Egypt
  • Ethiopia*
  • India*
  • Kazakhstan
  • Malaysia*
  • Mali
  • Nepal*
  • Pakistan*
  • Thailand*
  • Turkmenistan*
  • Uzbekistan*
  • Vietnam*
  • Zambia

Given the increased attention that Customs and Border Protection (CBP) is directing to forced labor issues, members would be wise to emphasize these issues to suppliers located in countries identified as employing forced labor in the textile sector.

RULING DELAYS.

Although the Headquarters Office can sometimes take considerable time to issue a ruling, the National Import Specialist Division could be relied upon to respond within 30 days. That appears to have changed and whether the change is permanent or temporary is unclear.

While our experience is based upon an admittedly small sample, responses to ruling requests have been taking in excess of 60 days. Our impression is that it is not necessarily that the NIS is taking longer to issue a ruling response but that the review process is slower and the process of assigning ruling requests is also slower. In one situation, we learned that a ruling submitted in late spring was not assigned to an NIS until July. We understand that there are two main reasons for the delays: 1) loss of personnel in the office responsible for processing ruling requests and 2) disruption resulting from the move of the offices. This suggests that the delays are temporary.

Nevertheless, if members are having similar problems, please let us know since it may make sense for USFIA to engage CBP in discussions around the issue.

ENFORCEMENT EMPHASIS.

It is no secret that CBP is placing increased emphasis on enforcement. This is manifest in the following circumstances.

The importer has undergone an audit which is complete. The audit report raises a series of valuation questions that are the subject of a request for internal advice. The request is presently before the Headquarters Office. Nevertheless, the port issues a pre-penalty notice. The only violation is based on the valuation issues addressed in the pending request for internal advice. The port advises that it was directed to issue the pre-penalty notice by the Headquarters Office.

In essence, the pre-penalty notice is based upon “violations” that do not exist. It seems to me that there are no violations until such time as the Headquarters Office decides that the port and/or the auditors are correct on the valuation questions. If the importer was correct, where is the violation?            

CLASSIFICATION RULINGS.            

The following is a brief description of two recent classification decisions, both of which appear in the Customs Bulletin for September 21, 2016.

The first decision, HQ H275674 (August 17, 2016) involves five articles of children's luggage, a rolling pullman case, two backpacks, a tote bag, and an insulated lunch bag. All of the bags are made up of an exterior surface of man-made fiber textile and each has a front panel of PVC decorated with one or more cartoon or movie characters. The textile material accounts for the greatest part of the surface area.

In NY M82559 (May 2, 2006) and NY M84189 (June 16, 2006), the NIS Division classified the bags as consisting of textile materials. The Headquarters Office decided to review the decisions and determined that classification should be as of plastics materials.

The change in classification is based upon an essential character analysis. Thus, despite the fact that the textile materials account for the majority of the external surface area, Headquarters concluded that the PVC panels were relatively more important. The principal reason given is that the bags were made for use by children, who would be more interested in the characters depicted on the PVC panels rather than the structural integrity of the luggage. Accordingly, CBP concluded that classification was as of plastic materials, not textile materials. The change is classification increased the duty rate for the pullman case, the backpacks and the tote bag to 20% from 17.6%, but reduced the rate to 3.4% from 7% for the insulated lunch bag.

The second ruling, HQ H237738 (August 17, 2016) addresses the classification of graduated compression hosiery. The hosiery provides graduated compression with the strongest being applied to the foot and ankle area, gradually decreasing as the stocking rises up the leg. The hosiery is prescribed by physician's to prevent or treat various disorders of the legs and feet. NY H235286 (December 7, 2012) found classification in subheading 6115.30.90 (14.6%).

The issue was whether the stockings are classified in subheading 6115.10 as graduated compression hosiery or rather under subheading 6115.30 as woman's full-length or knee-high length hosiery. Classification as graduated compression hosiery was based primarily on a review of the applicable Explanatory Note. A key element of the decision was that use of the hosiery was prescribed by physicians and specially fitted to the patient by certified healthcare personnel. The ruling finds classification in subheading 6115.10.05 (Free).

ORIGIN MARKING.  

NY N278154 (August 26, 2016) addresses the acceptability of an origin label consisting of a fabric label that hangs about three inches below the rear center neckline from two braided yarns sewn into the neckline hem.

New York ruled that the label was not acceptable as not sufficiently permanent. The decision is based upon T.D. 54640(6) (1958).

T.D. holds that wearing apparel origin must be disclosed by means of a fabric or film label properly affixed on the inside center of the neck midway between the shoulder seams. It also states that button tags, string tags, other hang tags, paper labels and other similar methods of marking are not acceptable.

CPSC DEVELOPMENTS.

There were no recalls of apparel articles in September - the second consecutive month.

By John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP

In This Issue:

DE MINIMIS VALUE.

United States Customs and Border Protection (CBP) has yet to provide updated guidance on the manner in which importers can take advantage of the increase in the de minimis value from $200 to $800. These shipments are exempt from duty and formal customs processing. The underlying statute limits the exemption to “articles imported by one person on one day.” In addition, the statute provides that the benefit “shall not be granted any case in which merchandise covered by a single order or contract is forwarded in separate lots to secure the benefit of this subdivision (2).”

CBP previously has ruled on the treatment of packages addressed to individuals but exported by the seller in a single consolidated shipment. In HQ 114113 (October 26, 1998), packages for individuals, consolidated in a single shipment, were ruled eligible for informal duty-free treatment when the individual packages were assigned a house airway bill number and entry was made on the basis of the HAWB. Where entry was made on the basis of a master airway bill, the value limit was applied to the total value of the consolidated shipment.

We understand that some believe they may use Foreign Trade Zones or ship through Canada (presumably bulk shipments would be repackaged for individual shipment in Canada or the FTZ) in order to take advantage of the de minimis rule.

Given that CBP has yet to provide any new guidance and in view of the 1998 ruling cited reviewed above, prudence suggests that members proceed cautiously.

DISPLAY CLASSIFICATION.

CBP addressed the classification of footwear displays as usual packaging, classified with the footwear, or as a separate article in HQ H264893 (May 18, 2016).

The display at issue consists of a master carton formed by a cardboard base, sides, and a lid, which contains shoes individually boxed in shoeboxes. The pre-filled displays are loaded onto a pallet and shrink wrapped for shipment. Prior to placement on the sales floor, the shrink wrap, cardboard sides, and lid are removed and the stacked rows and columns of shoe boxes are ready for sale.

Generally, packaging that is either reusable or unusual is not classified with its contents. The issue here was whether the display is properly to be considered an unusual container.

CBP, noting industry sources that indicated that the display is typical of those used in the footwear marketplace particularly in warehouse clubs, concluded that the packaging was not unusual. The ruling also notes that the display made up the outer shipping container for the footwear. Accordingly, the display was held to be classified with the footwear, rather than as a separate article.

Similar displays are used in the textile and apparel industry. However, given the reference to footwear industry sources, it is not unreasonable to view the decision as limited to footwear.

FIRST SALE.

CBP may be taking another close look at first sale.

Recently, CBP has taken a firm position that “flash title” may be a sufficient basis on which to deny first sale treatment. “Flash title” occurs when the terms of sale are the same for the seller, middleman, and/or the importer. CBP appears to be looking for a clear indication that the middleman took title and risk of loss for at least a brief period of time. This seems like a change from CBP’s previous position that flash title would not defeat a first sale claim when the transaction was otherwise acceptable.

RECREATIONAL PERFORMANCE OUTERWEAR.

You will recall that trade legislation passed in 2015 had serious errors with respect to the treatment of recreational performance outerwear. The errors were corrected in the 2016 legislation.

The corrections go into effect August 22, 2016. As of this writing, the ITC has not updated the tariff and we do not expect them to do so until very close to the effective date.

Keep in mind, that this is a change in classification only, and not a change in duty rate. The purpose of the classification changes is to make it easier to negotiate lower rates in any future trade agreement negotiations.

ELECTRONIC PROTESTS.

CBP has announced that effective August 29, 2016, ACE will be the sole method for filing electronic protests. As of that date, CBP will no longer accept electronic filing through ABI. 81 Federal Register 49685 (July 28, 2016).

This change has no impact on filing paper protests.

CPSC DEVELOPMENTS.

There were two recalls of textile and apparel articles in July. Baby swaddles and sleeping bags were recalled because the shoulder snaps on the articles can break or detach, posing a choking hazard to young children. Oven mitts were recalled because they lack thermal protection, posing a burn hazard 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 Issue:

HANGER CLASSIFICATION.

Customs and Border Protection and (CBP) proposes to revoke NY N255930 (August 20, 2014), which held that certain hangers were not classified in Chapter 39. The principal basis for the decision was the absence of evidence that the hangers are of the kind commercially reused. Proposed HQ H258772 would classify the hangers in HTS subheading 3923.90.00 (3%), rather than in the same provision as the garments. 50:20 Cust. Bull. 61 (May 18, 2016).           

The proposal reaffirms CBP's position is that actual use of the imported hangers is not necessary. However, it is necessary that the hangers be of a type suitable for repetitive use.

The proposed ruling points out that the subject hangers are made entirely of durable molded plastic (the hook was not metal). Also, the importer had a positive ruling on similar hangers. The hanger types involved are KMTN 15, KMTR15, KMT17, KMTNR 17, and KMBP12. The last hanger has metal spring clips.           

It is not clear that the proposed ruling breaks new ground, except in that it makes it clear that a metal hook is not necessary for separate classification.           

CBP is seeking comments on the proposed rolling. The comments are due by June 17, 2016. USFIA will file comments in support of the proposed ruling

ACE.

CBP has announced that ACE will be the sole authorized electronic data system for processing electronic entry and entry summary filings. 81 Federal Register 32339 (May 23, 2016).           

Effective July 23, 2016, ACE is the sole vehicle for filing a variety of entry types, including consumption (01, 02, 03, 06), informal (11), warehouse (21) and warehouse withdrawals (31). On the other hand, ACS remains the appropriate vehicle for the following entries: NAFTA duty deferral (08), reconciliation summary (09), direct identification unused merchandise drawback (41) and rejected merchandise drawback (43), among others.           

CBP also announced that it will conduct a test with Fish & Wildlife (F&W) concerning the filing of F&W documents electronically for processing in ACE. 81 Federal Register 27149 (May 5, 2016). The notice indicates that the test will not start prior to May 1, 2016.           

Of note is that only certain documents will be eligible for electronic transmission. The Declaration for Importation of or Exportation of Fish or Wildlife (FWS Form 3-177) is eligible. However, original CITES declarations and any foreign-law hat paper documents will continue to be submitted directly to F&W at the applicable port. 

The notice lists the requirements for importers interested in participating in the test. CBP began accepting applications on the publication date of the notice. 

CLASSIFICATION DECISIONS.

The following is a summary of recent classification decisions.

The first is HQ H194697 (March 8, 2016). The ruling, which appears in the May 4, 2016 Customs Bulletin, involves a cast sock. The sock is 100 percent polyester fleece. It is ankle length and used to cover the foot while wearing a cast. The ankle portion and has a hook and loop closure that secures the sock to the wearer’s foot and the toe portion has a sewn-in padded cushion.

The ruling revokes NY N183637 (October 4, 2011), which classified the sock in HTS subheading 6115. 96.90(14.6%). The importer sought classification in heading 9021, covering orthopedic devices. The Headquarters Office agreed with the importer. The decision to classify the cast sock in heading 9021 is based upon the fact that the socks are sold individually and not in pairs and designed to fit either foot equally. Further, the sock’s is construction is such that it would only be used over a leg in a cast to provide warmth and is suitable for use as an accessory principally or solely with an orthopedic appliance. Accordingly, classification was held to fall in HTS subheading 9021.10.00 (Free).

The second ruling, HQ H237738 (Proposed) addresses the classification of graduated compression hosiery. This ruling also appears in the May 18, 2016 Customs Bulletin.

The hosiery provides graduated compression with the strongest being applied to the foot and ankle area, gradually decreasing as the stocking rises up the leg. The hosiery is prescribed by physicians to prevent or treat various disorders of the legs and feet. NY H235286 (December 7, 2012) found classification in subheading 6115.30.90 ().

The issue was whether the stockings are classified in subheading 6115.10 as graduated compression hosiery, or rather under subheading 6115.30 as woman's full-length or knee-high length hosiery.

Classification as graduated compression hosiery was based primarily on a review of the applicable Explanatory Note. A key element of the decision was that use of the hosiery was prescribed by positions and specially fitted to the patient by certified healthcare personnel. The ruling proposes classification in subheading 6115.10.05 (Free).

CAFTA SHORT SUPPLY.

Bob Stack has brought to our attention that a number of relatively recent rulings misquote a CAFTA provision relating to the use of elastomeric yards in short supply fabrics.

CAFTA originally required that all elastomeric yarn used in short supply fabrics be originating. That provision was eliminated in October 2012. However, some rulings continue to cite this as a requirement. Among the rulings that exhibit this error are NY N2566519 (January 16, 2015) and NY N257438 (October 6, 2014). The requirement was not used to deny CAFTA treatment but the fact that it is mentioned could be the source of confusion to importers and CBP officers.

We understand that CBP will move to correct these rulings. However, it would be optimistic to think that something will be done in anything like the new future. 

CPSC DEVELOPMENTS.

There were no recalls of textile and apparel articles in May. 

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.

In This Issue:

GSP.

The Office of the United States Trade Representative (USTR) has announced the results of its review of the petition to add certain travel goods to the list of articles eligible for duty-free treatment under the Generalized System of Preferences (GSP). The petition has been approved but only for lesser-developed developing countries (e.g., Bangladesh, Cambodia, Bangladesh, and Haiti) and AGOA countries. The decision for the balance of the GSP-eligible countries was deferred. The travel goods covered are those classified in the following subheadings and statistical reporting numbers: 4202.11.00, 4202.12.40, 4202.21.60, 4202.21.90, 4202.22.15, 4202.22.45, 4202.31.60, 4202.32.40, 4202.32.80, 4202.92.15, 4202.92.20, 4202.92.45, 4202.99.90, 4202.12.2020, 24202.12.2050, 4202.12.8030, 4202.12.8070, 4202.22.8050, 4202.32.9550, 4202.32.9560, 4202.91.0030, 4202.91.0090, 4202.92.3020, 4202.92.3031, 4202.92.3091, 4202.92.9026, and 4202.92.9060.

The decision, which is effective July 1, 2016, appears on the USTR website and will be published in the Federal Register shortly.

CLASSIFICATION DECISION.

HQ H110416 (February 29, 2016) appears in the Customs Bulletin for June 8, 2016. It does not yet appear in CROSS. The ruling modifies two New York rulings, N086592 December 7, 2009 and N086736 December 9, 2009. Both New York rulings classify garment sets consisting of a jacket and pants under the provisions for the individual pieces. In May 2010, the importer sought reconsideration arguing that the garments are classified as suits.

The garment sets consist of a jacket and pants. In each style, the jacket has at least four panels. The components of each style are of the same fabric construction, style, color, and composition. They are also of corresponding sizes. The garments clearly satisfy the definition of a suit. Neither of the New York rulings provides an indication of why the suits were not classified as suits. In any event, six years later, the Headquarters Office agrees with the importer. 

VALUATION ENCYCLOPEDIA.

Those of you who have tried to find the Valuation Encyclopedia in recent months found that it is not available. We understand that it is being updated and expect that it will be available in a “relatively” short period of time. 

ISFs.

U.S. Customs and Border Protection (CBP) has announced that effective June 30, 2016, ports will no longer be required send requests for liquidated damage claims relating to Importer Security Filing errors to Headquarters for review. The "three-strike "approach to these claims against will end, as well.

CPSC DEVELOPMENTS.

There was one recall of textile and apparel articles in June. Children’s sleepwear was recalled for failure to satisfy applicable flammability standards.

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.

USFIA Customs Overview for May 2, 2016

By John B. Pellegrini, USFIA Customs Counsel, McGuireWoods LLP

In This Issue:

“JUMP TEAMS” 2015.

Customs and Border Protection (“CBP”) has shared the results of the Fiscal 2015 Textile Production Verification Team visits with USFIA.

CBP visited 123 factories in Honduras, El Salvador, Colombia, Ethiopia, Lesotho, the Dominican Republic, Korea, Madagascar, Guatemala, and Mauritius. None of the factories visited showed evidence of transshipment and three were categorized as high risk for transshipment.

The visit also looked at compliance with preference program requirements. CBP visited 87 factories. CBP found 5 factories violated CAFTA program requirements, though no factories were found to have violated AGOA, KORUS or CTPA requirements. However, 11 factories were determined to have insufficient documentation to support AGOA claims. The same criticism was lodged against 16 factories claiming CAFTA status and two claiming CTPA status. None of the 14 factories visited in Korea were subject to the same criticism. 

FORCED LABOR.

CBP announced that it is detaining rayon fiber produced by Tangshan Sanyou in China. The detentions are based on allegations that the fibers were made with forced prison labor. CBP is also seeking redelivery of fibers imported prior to the March 29, 2016, notice.

The next step in the process is a bit confusing. The regulations require that CBP make a finding. This requirement seems to contemplate some type of inquiry after the initial withhold release order. However, the exact nature of the inquiry is not provided in any detail. However, a 1994 court decision involving a forced determination in 1994 indicates that the next step is a more formal determination by CBP and publication of the finding in the Federal Register.

Some reports have suggested that the detentions could spill over to apparel and made-up articles using rayon sourced from the firm. CBP has remained silent on this point. The statute, 19 USC § 1307, refers to “goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions.” The regulations refer to “a class of merchandise.” Given this language, we think it highly unlikely the detentions can be extended to apparel or other made-up articles.

However, if the fibers can be traced to either fabric or apparel makers, it is possible that the names of the retailers and distributors who purchase from the fabric or apparel makers will be disclosed. CBP will not make the disclosure, but rather an NGO that is the likely source of the allegations. 

METALLIC YARN.

A new case challenging the classification of apparel made with man-made fiber yarns with a small amount of metal powder was filed in April. Lockhart Textiles, Inc. v. United States, Court No. 16-00069.

The case is based on a denied protest involving knit trousers entered in HTS subheading 6104.63.20 (28.2%). The importer protested asserting that classification lies in subheading 6104.69.80 (5.6%) on the grounds that the yarns qualify as metallic for tariff purposes.

This case apparently replaces a case filed in late 2015. The 2015 case ran into technical issues relating to the protest denial.

PENALTY CASE.

CBP recently commenced a penalty action against an importer of knit fabric from Canada. United States v. Tricot Liesee 1983, Inc., Court No. 16-00066.

The complaint alleges that the importer entered knit fabric as NAFTA qualified when in fact the yarn was non-originating. The complaint also notes that the importer had attempted to file a prior disclosure but provides no information as to why the prior disclosure was not accepted. Presumably, CBP takes the position that the importer was aware of an ongoing investigation when it submitted the prior disclosure.

The importer took the position that the fabric was eligible for a TPL and that the only under payment was for MPF. CBP asserts that since that claim was not filed until after liquidation, it was not valid even though the TPL was open at the time of entry.

This case is watching for potential developments in the rules applicable to prior disclosures and the ability to take advantage of a TPL on a post-entry basis. 

NEPAL.

The International Trade Commission has announced that it will conduct an investigation to determine whether certain articles from Nepal are import sensitive. 81 Federal Register 23518 (April 21, 2016). The hearing is scheduled to take place June 9, 2016.

The investigation is being conducted in connection with legislation that authorized the president to establish a trade preference program for Nepal. Among the articles included in the investigation are luggage, handbags, leather gloves, wool gloves, some carpeting and rugs, shawls, scarves, mufflers and similar articles, headbands , and hats.

The deadline for filing requests to appear at the public hearing is May 23, 2016.

Those who simply wish to submit comments must do so before June 24, 2016.

CPSC DEVELOPMENTS.                                                 

There were five recalls of textile and apparel articles in April. Four of the recalls involved items that failed to meet federal flammability standards. The items were scarves of 100 percent rayon, scarves of 100 percent silk, men’s silk shirts and children’s loungewear (fiber content not provided).

The fifth recall covers a child’s cape. The hook and loop fastener at the neck of the cape can fail to detach readily during use, posing a strangulation hazard to 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.