• HQ 967594
• Jun 24, 2005

• Type : Classification • HTSUS :
•  Related:   G84929; H85974; H85976   

CLA-2 RR:CR:TE 967594 CMR

TARIFF NO.:

S. Richard Shostak, Esq.
Bruce Shulman, Esq.
Stein Shostak Shostak & O’Hara
515 South Figueroa Street
Los Angeles, CA 90071-3329

RE: Interpretation of language in Tariff Preference Level provisions set forth in Additional U.S. Note 3(b) of Section XI of the Harmonized Tariff Schedule of the United States

Dear MM. Shostak and Shulman:

This is in response to your submission of February 1, 2005, submitted on behalf of your clients, Byer of California and L & L Manufacturing, Inc., requesting this office to declare Additional U.S. Note 3(b) of Section XI of the Harmonized Tariff Schedule of the United States (HTSUS) [referred to by you as NAFTA Mexican Tariff Preference Level 1] as inapplicable to apparel assembled in Mexico from fabric components cut to shape in the United States. In addition, arguments presented at by you at a meeting held at CBP on June 16, 2005 have been taken into consideration in drafting this response.

FACTS:

The North American Free Trade Agreement Implementation Act (Public Law 103-182, 107 Stat. 2057) was enacted on December 8, 1993. The law implemented the provisions of the North American Free Trade Agreement (NAFTA). Within the NAFTA were provisions referred to as “tariff preference levels” that allow the importation of non-originating textile and apparel goods that meet specified production requirements within the NAFTA parties. These tariff preference levels (TPLs) are implemented in the additional U.S. notes to Section XI of the HTSUS and are limited in the amount of goods that may utilize the TPLs.

Additional U.S. Note 3, Section XI, implements the TPLs for textile apparel goods of Chapters 61 and 62 by setting forth the production requirements that must be met to qualify for the TPLs. Note 3(a) is specific to apparel goods of Chapters 61 and 62 imported from Canada. Note 3(b) is specific to apparel goods of Chapters 61 and 62 imported from Mexico. Note 3(c) is specific to apparel goods of Chapters 61 and 62, and textile goods of Chapter 63, which are imported from Mexico and are sewn or otherwise assembled in Mexico from fabric cut to shape in the United States. Note 3(c) ceased to be applicable to any goods as of January 1, 2005, i.e., the date the quantitative restrictions on textile and apparel goods of World Trade Organization members ended.

In your submission, you indicate TPL 1 (Note 3(b) TPL) is being utilized by producers who formerly used TPL 3 (Note 3(c) TPL) causing an increased usage of TPL 1 this year as TPL 3 became inapplicable as of January 1, 2005. The expectation is that TPL 1 will close sooner than it has in the past as a result of this change in usage. You claim that the increased usage of TPL 1 by importers who previously utilized TPL 3 will have an adverse impact on importers, such as your clients, who have arranged their Mexican production to utilize TPL 1. You state you have been advised that ports along the border, including the Ports of San Diego and San Ysidro, are permitting utilization of TPL 1 for apparel entered under subheading 9802.00.8055, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), that is assembled in Mexico from fabric components cut to shape in the United States.

On behalf of your clients, your are requesting that U.S. Customs and Border Protection (CBP) issue a ruling interpreting the language of Additional U.S. Note 3(b), Section XI. Specifically, you seek a ruling stating that TPL 1 (U.S. Note 3(b)) cannot apply to apparel assembled in Mexico from U.S. cut components.

ISSUE:

Does the language of U.S. Note 3(b) of Section XI allow for apparel assembled in Mexico of components cut in the United States to fall within the scope of U.S. Note 3(b) or does the language limit the Note to only apparel assembled in Mexico of components cut in Mexico?

LAW AND ANALYSIS:

There are various sources that may be looked to in reaching a decision on the question that has been posed. Paramount among these sources is the tariff schedule. You raised concern that goods are being entered under subheading 9802.00.8055, HTSUS, and that ports are accepting TPL 1 (U.S. Note 3(b)) for such goods. If this is the case, it is a mistake. Subheading 9802.00.8055, HTSUSA, provides for:

Articles, except goods of heading 9802.00.90 and goods imported under provisions of subchapter XIX if this chapter and goods imported under provisions of subchapter XX, 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 . . . .

Textile or apparel goods described in additional U.S. note 3(c) to section XI . . . .

[Bold added].

As subheading 9802.00.8055, HTSUSA, refers specifically to “goods described in U.S. note 3(c) to section XI” and U.S. note 3(c) is no longer applicable to goods imported into the United States as of January 1, 2005, no goods should be entering under subheading 9802.00.8055, HTSUSA, regardless of which TPL is being claimed. See Additional U.S. Note 3(c), Section XI, which provides in the last sentence of the provision—“This subdivision shall not apply after quantitative restrictions established pursuant to the Multifiber Arrangement or any successor agreement are terminated.” A footnote to the provision states that “[t]he quantitative restrictions of the Multifiber Agreement are scheduled to terminate on January 1, 2005.” Quantitative restrictions on textiles and apparel goods of World Trade Organization members did end on January 1, 2005.

U.S. Note 3(b), Section XI, states:

The rate of duty in the “Special” subcolumn of rates of duty column 1 followed by the symbol “MX” in parentheses shall apply to imports from Mexico, up to the annual quantities specified in subdivisions (g)(i) of this note, of apparel goods provided for in chapters 61 and 62 that are both cut (or knit to shape) and sewn or otherwise assembled in the territory of a NAFTA party from fabric or yarn produced or obtained outside the territory of one of the NAFTA parties.

Clearly, to qualify for preferential duty treatment under U.S. note 3(b), apparel must be both cut (or knit to shape) and assembled in the territory of a NAFTA party. The question presented is whether the cutting (or knitting to shape) and assembling must occur in the territory of a single NAFTA party or may occur in more than one NAFTA party.

The NAFTA language from which U.S. note 3(b) is derived states:

Preferential Tariff Treatment for Non-Originating Goods of Another Party

Apparel and Made-Up Goods

1. (a) Each Party shall apply the rate of duty applicable to originating goods set out in its Schedule to Annex 302.2, and in accordance with Appendix 2.1, up to the annual quantities specified in Schedule 6.B.1, in SME, to apparel goods provided for in Chapters 61 and 62 that are both cut (or knit to shape) and sewn or otherwise assembled in the territory of a Party from fabric or yarn produced or obtained outside the free trade area, and that meet other applicable conditions for preferred tariff treatment under this Agreement. The SME shall be determined in accordance with the conversion factors set out in Schedule 3.1.3.

* * * [Bold added.]

See Appendix 6.B to Annex 300-B of the NAFTA.

The language from the NAFTA, “both cut (or knit to shape) and sewn or otherwise assembled in the territory of a Party,” is nearly identical to the language in Additional U.S. Note 3(b), “both cut (or knit to shape) and sewn or otherwise assembled in the territory of a NAFTA party.”

“Party” is not defined in the NAFTA, General Note 12 of the HTSUS (the note which implements the provisions of the NAFTA in the HTSUS), nor the CBP regulations applicable to the NAFTA (19 C.F.R. Part 181). The Parties of NAFTA clearly are the United States, Canada and Mexico. However, when reference is made to “a Party” as in the note at issue, it is ambiguous whether the reference is to only one of the three parties to NAFTA.

“A” is defined in Webster’s II New Riverside University Dictionary (1984) at 65, in relevant part, as:

–Used before nouns and noun phrases that denote a single, but unspecified, person or thing . . . . 4. Any 5. a.—Used before a proper name to denote a type or a member of a class . . . 5. b.—Used before a mass noun to indicate a single type or example

The Random House Dictionary of the English Language (1973), at 1, defines “a”, in relevant part, as:

Indefinite article. 1. not any particular or certain one of a class or group: a man; a chemical; a house. . . . 3. one; a certain; a particular: one at a time; two of a kind; a Miss Johnson. . . . 6. any; a single: not a one.

Considering the definition of “a”, in our view, “a Party” may be interpreted to mean “a single Party” or “any Party.” “Party” may refer to Canada, Mexico or the United States.

The “Trilateral Customs Guide to NAFTA” (hereinafter “Guide”) lends support to this interpretation. With regard to tariff preference levels (TPLs), the “Guide” states:

To allow flexibility, textile and apparel exports will have access to tariff preference levels (TPLs). This means that specified quantities of certain fibres, yarns, and fabrics that do not meet the article 401 origin criteria, but which are subject to significant processing in one or more NAFTA countries, can still be eligible for preferential NAFTA rates. Amounts of these goods exceeding the tariff preference level will be subject to most-favoured-nation (MFN) rates of duty. Apparel goods made from non-originating fabric that is cut and sewn in North America may be eligible for TPLs.

Therefore, in considering the phrase “both cut (or knit to shape) and sewn or otherwise assembled in the territory of a NAFTA party” as it relates to apparel goods, CBP believes the language may be interpreted to mean that apparel goods which are cut (or knit to shape) in the territory of a NAFTA party and sewn or otherwise assembled in the territory of a different NAFTA party meet the terms of the language and need not be narrowly construed to mean that cutting (or knitting to shape) and assembling must occur in a single NAFTA country.

In support of your argument that apparel described in Additional U.S. Note 3(b), eligible for TPL 1, must be cut and sewn in Mexico, you cite to the CBP Informed Compliance Publication, “What Every Member of the Trade Community Should Know About: NAFTA (the North American Free Trade Agreement) for Textiles and Textile Articles. In fact, you cite to three different editions of this informed compliance publication, May 14, 1996 (Revised) April, 1998; Revised August 2000, and January 2004.

The three versions of the cited informed compliance publication contain the same discussion on TPLs and the same examples. A shorthand version of TPLs is presented which states; “MX apparel cut or knit to shape & sewn or otherwise assembled, except for certain: . . . .” With regard to the TPLs, the publication states in relevant part:

Each rule contains separate requirements for Canada and Mexico and separate quantity levels for each country. . . . .

Specifically, the rules are:

For Canadian apparel to qualify, the garment must be cut or knit to shape and sewn or otherwise assembled in Canada from foreign fabric or yarn. . . .

For Mexican apparel, the qualifying rule is the garment must be cut or knit to shape and sewn or otherwise assembled from foreign fabric or yarn. . . .

In discussing a specific example of men’s trousers “constructed in Mexico,” the ICP states: “. . ., in light of the TPL rules, if a good classified in Chapters 61 or 62 is both cut (or knit to shape) and sewn or otherwise assembled in Mexico from foreign fabric or yarn, it can be entitled to TPL treatment.

The Informed Compliance Publications are issued for general information purposes only and are not equivalent, by any means, to ruling letters issued by this office. With regard to the applicability of TPLs to apparel articles which have been assembled in one NAFTA party from components which were cut to shape in another NAFTA party, other than the specific TPL for apparel assembled in Mexico of components cut to shape in the United States (referred to by you as TPL 3), CBP has issued three rulings on point. In these rulings, certain apparel articles did not qualify as NAFTA originating goods under General Note 12 of the HTSUS, however CBP indicated the apparel articles may be eligible for preferential duty status under Additional U.S. Note 3(b) to Section XI, HTSUS. In each case, the apparel articles had been assembled in Mexico of components which had been cut in Canada. After assembly, the apparel was packed in Canada. See New York Ruling Letter (NY) G84929 of December 11, 2000; NY H85974 of December 26, 2001; and, NY H85976 of December 26, 2001.

You cite two of these rulings in your submission, NY G84929 and NY H85974. In each ruling, panties cut in Canada, assembled in Mexico, and packed in Canada failed to meet the terms of General Note 12 of the HTSUS to qualify as originating goods under the NAFTA. In the case of NY G84929, two styles of panties failed to qualify as originating NAFTA goods because the front panels’ fiber and yarn were of United Kingdom origin. In NY H85974, two styles of panties failed to qualify as originating NAFTA goods because French origin fibers and yarns were used in the production of the garments’ fabric, along with U.S. origin fibers and yarns. In each ruling, with regard to the non-originating panties, CBP stated:

Noting Additional U.S. Note 3(b) to Section XI, HTSUSA, the panties may be eligible for a preferential duty rate under the Tariff Preference Levels (TPL); a TPL provides for a NAFTA rate to imports of a particular good up to the specified quantity, indicated in Additional U.S. Note 3(g)(i), upon compliance with all applicable regulations.

You argue the language regarding possible eligibility for TPL should be viewed as nothing more than dicta since the word “may” is used instead of “will.” Eligibility for NAFTA TPL treatment for apparel goods imported into the United States is contingent upon meeting all requirements for such treatment, including presenting a TPL certificate of eligibility from Canada or Mexico. Therefore, the choice of the word “may” with regard to TPL eligibility in the cited New York ruling letters was appropriate. As such, the ruling letters reflect the view of CBP that the language of Additional U.S. Note 3(b), Section XI, allows for cutting to occur in any NAFTA party and assembly to occur in any NAFTA party and does not limit these operations to one NAFTA party.

Whether the recipients of the above cited rulings received TPL treatment for their merchandise referenced in the rulings was dependent upon presentation at the time of making the claim for preferential duty treatment of a properly completed and executed Certificate of Eligibility signed by an authorized official of the Canadian or Mexican government. See 19 C.F.R. §12.132(b). We note that differences in interpretation of the language of Appendix 6.B to Annex 300-B of the NAFTA do exist.

In furtherance of CBP’s view that the language of the TPL provision at issue does not restrict cutting and assembly of apparel to a single Party, we note that CBP issued a directive, CBP Directive No. 3550-085, dated December 21, 2003, regarding “Claims under the North American Free Trade Agreement Tariff Preference Levels Program.” The directive is posted on the CBP web site and was made available to the public at the time of its issuance. With regard to Mexican TPL goods, the directive states, in pertinent part:

6.6.1 The TPLs have been established for apparel goods classified in Chapters 61 and 62 that are both cut (or knit to shape) and sewn or otherwise assembled in the territory of a NAFTA party from fabric or yarn produced or obtained outside the territory of one of the NAFTA parties. Apparel goods are intended to include all those products shown in Chapters 61 and 62, including some items such as scarves and headbands that have traditionally been considered by CBP to be accessories.

6.6.2 The TPLs have been established for textile and apparel goods in Chapters 61, 62, and 63 that are sewn or otherwise assembled in Mexico under HTS subheading 9802.00. This provision is for foreign fabric cut in the United States and exported to Mexico for assembly. If this TPL fills for HTS number 9802.00.8055 [Textile or apparel goods described in additional U.S. note 3(c) to section XI], merchandise must then be entered under HTS number 9802.00.8068 [Other].

If the TPL under section 6.6.2 fills, apparel goods of Chapter 61 and 62 should be reported to the TPL of section 6.6.1 above by using either the 9999.00.60 or 9999.00.61 TPL statistical reporting number in the first tariff field and the appropriate Chapter 61 or 62 number in the second tariff field through the ACS quota module. . . .

Paragraph 6.6.1 above describes TPL 1, while paragraph 6.6.2 describes TPL 3. Paragraph 6.6.3 clearly indicates that when TPL 1 has filled, apparel goods of Chapter 61 and 62 should be reported to TPL 1. We acknowledge your argument that the directive is not a legal interpretation of the language of the TPL provisions set forth in the tariff schedule, however, it is a clear statement of how the quota allocated under those TPL provisions is to be handled by the ports and an indication of CBP’s view that apparel goods assembled in Mexico of fabric components cut in the United States may utilize TPL 1. The directive has been publicly available for well over a year.

Regardless of CBP’s interpretation of these provisions, a Certificate of Eligibility is a requirement to receive the benefits of the TPLs. Although CBP does not narrowly construe the language of Additional U.S. Note 3(b) or 3(a) to constrain production, i.e., cutting (or knitting to shape) and assembly, of an apparel article to one NAFTA party for purposes of eligibility for TPL under those provisions, our NAFTA partners may or may not issue a TPL Certificate of Eligibility for merchandise produced in more than one NAFTA party of foreign fabric or yarn, depending on their interpretation of the language and any rules or regulations they may have established for administering the TPLs. We note that this necessary step has not been ratified by Mexico.

HOLDING:

CBP interprets the phrase “both cut (or knit to shape) and sewn or otherwise assembled in the territory of a NAFTA party” as it relates to apparel goods to mean that apparel goods which are cut (or knit to shape) in the territory of a NAFTA party and sewn or otherwise assembled in the territory of a different NAFTA party meet the terms of the language. Therefore, the language of U.S. Note 3(b) of Section XI allows for apparel assembled in Mexico of components cut in the United States to fall within the scope of U.S. Note 3(b).

Sincerely,

Gail A. Hamill, Chief
Textiles Branch