CLA-2 OT:RR:CTF:TCM H031402 CW
Port Director
Otay Mesa Service Port
U.S. Customs and Border Protection
9777 Via de la Amistad
San Diego, CA 92154
RE: Application for Further Review of Protest No. 2506-08-100002; NAFTA
Verification; NAFTA Blanket Certificate of Origin
Dear Port Director:
This is in reference to the Application for Further Review (AFR) of Protest No. 2506-08-100002, timely filed on December 31, 2007, on behalf of Fantasy Activewear, Inc. The AFR concerns the eligibility of certain tubular knit fabric imported from Mexico for preferential tariff treatment under the North American Free Trade Agreement (NAFTA).
FACTS:
The protest concerns the denial of NAFTA preferential tariff treatment for certain tubular knit fabrics imported from Mexico by Fantasy Activewear under cover of 41 entries between May 18, 2006, and December 21, 2006. The fabrics that are subject to the protest are 100% cotton fabrics and 90% cotton/10% polyester fabrics. The importer classified these fabrics in subheading 6006.21.9080, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “[o]ther knitted or crocheted fabrics: [o]f cotton: [u]nbleached or bleached: [o]ther: [o]ther,” with a rate of duty of 10% ad valorem.
On October 24, 2006, your office forwarded a CBP Form 28 (Request for Information) to the Mexican manufacturer, City West S.A. DE C.V. (City West), requesting a NAFTA Certificate of Origin with respect to line item 002 for the entry made on May 18, 2006, in which NAFTA preference was claimed, as well
as the manufacturer affidavit of origin for the fabric in line item 001. The NAFTA Certificate that was provided was signed by a representative of the manufacturer and dated the same day as the date of the entry. The Certificate covered a blanket period of January 1, 2006, until December 31, 2006, and under “Description of Goods” appeared the following:
195 ROLLS OF FABRIC 100% COTTON (TUBULAR)
282 ROLL OF FABRIC 90% COTTON 10% POLY DE Tenido (TUBULAR)
320 ROLLS OF FABRIC 100% COTTON (TUBULAR)
On December 6, 2006, your office initiated a NAFTA verification by forwarding a CBP Form 28 and a NAFTA Verification of Origin Questionnaire to the fabric manufacturer, City West, requesting that the questionnaire be completed in regard to line item 002 on the above-mentioned entry. The CBP Form 28 requested that the manufacturer “[i]nclude invoice for fabric, affidavit from the mill where the fabric was formed and affidavit from yarn and fibers manufacturers.” The purpose of the questionnaire and other information requested was to verify that the fabric was formed in a NAFTA country from NAFTA originating yarn and fiber, as required under the applicable NAFTA preferential rule of origin.
The questionnaire that was completed and returned to your office by the manufacturer indicated in Section 1 that “US” yarn was used to knit the fabric, although Section III stated that no NAFTA originating materials were used to make the fabric. Mill affidavits provided by the fabric manufacturer, City West, and invoices from Fantasy Activewear to City West for the yarn stated that the yarn was made in the U.S. However, an affidavit provided by the manufacturer of the yarn used to make the 90% cotton and 10% polyester fabric (National Textiles of Winston-Salem, NC) indicated that the yarn sold to Fantasy Activewear during the period January 1, 2006, to December 31, 2006, was produced in part (not exceeding 7% in weight) of fibers of non-NAFTA origin.
Your office then forwarded another CBP Form 28 dated January 18, 2007, to City West regarding the inconsistencies stated above concerning the origin of the yarn and requesting additional documentation to substantiate that the yarns and fibers used to make the fabric are originating. The Notice requested the following additional documents:
1) Invoice for the Yarn purchased by Fantasy Activewear from National Textiles, LLC, for the 90% cotton/10% polyester yarn;
2) Manufacturer’s Affidavit of Origin for the 100% cotton yarn;
3) Invoice for the 100% cotton yarn purchased by Fantasy Activewear;
4) Mill Certificates for FIBERS used in 90% cotton/10% polyester fabric;
5) Lab Analysis of weight of fibers used in the 90%/10% polyester fabric; and
6) Mexican Pedimento and corresponding invoices for the yarns exported to City West S.A. DE C.V. for the 100% cotton yarns and the 90%/10% polyester yarns.
In response, the manufacturer stated that Section III of the questionnaire originally submitted was inaccurate when it indicated that no NAFTA originating materials were used. The manufacturer stated that both the 100% cotton fabric and the 90% cotton/10% polyester fabric were wholly of U.S. origin. An affidavit from the manufacturer of the yarn used to make the 100% cotton fabric (Wellstone Mills of Eufaula, AL) dated January 8, 2007, was submitted indicating that yarn sold during the period January 1, 2003, to December 31, 2003, and shipped on August 1, 2006, was produced in the U.S. “wholly of U.S.A. originating fibers and/or other materials”. However, no other information, such as fiber affidavits, was submitted to substantiate that NAFTA originating fibers were used in the manufacture of the fabrics.
Accordingly, your office issued a CBP Form 29 (Notice of Action) on April 4, 2007, proposing to deny NAFTA preferential treatment. In particular, City West was notified that the “verification revealed that the good does not qualify for preferential treatment pursuant to General Note 12(t), Chapter 60 to the HTSUS.” The Notice stated that “[s]pecifically, fiber affidavits for both fabrics referenced above were requested twice and not provided,” and listed certain other information that was requested but not received or was insufficient. City West was given 30 days in which to provide the requested documents.
As no additional information was received from the manufacturer or importer, your office issued Notice of Action dated May 16, 2007, which stated that the subject entry was rate advanced because of the “failed” NAFTA verification. The Notice of Action also advised that “entries within the Blanket NAFTA Certificate period submitted that contains the commodity verified mentioned above will be rate advanced.” As a result, 40 additional entries filed by the protestant during the blanket period that included fabrics substantially similar to those subject to the NAFTA verification were rate advanced.
ISSUE:
Whether the imported knit fabrics subject to the protest are entitled to preferential tariff treatment under the NAFTA.
LAW AND ANALYSIS:
Initially we note that the matter protested is protestable under 19 U.S.C. 1514(a)(2) as a decision on “the classification and rate and amount of duties chargeable.” The protest was timely filed, within 180 days of liquidation for all 41 entries subject to the protest. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub.L. 108-429, section 2103(2)(B)(ii), (iii) (codified as amended at 19 U.S.C. 1514(c)(3) (2006))).
Further Review of Protest No. 2506-08-100002 is properly accorded to Protestant pursuant to 19 CFR 174.24(b) because the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee or by the Customs courts. Specifically, the Protestant states that the issues of first impression concern the proper application of the NAFTA verification procedures; specifically, the alleged failure of CBP to comply with the NAFTA verification process as it applies to the 40 additional entries covered by the protest, and whether CBP is obligated to seek additional information directly from the party who issues a manufacturer’s affidavit.
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(a)(ii), HTSUS, provides that:
Goods that originate in the territory of a NAFTA party under the terms of
subdivision (b) of this note and that qualify to be marked as goods of
Mexico under the terms of the marking rules set forth in regulations
issued by the Secretary of the Treasury (without regard to whether the
goods are marked), and goods enumerated in subdivision (u) of this note,
when such goods are imported into the customs territory of the United
States and are entered under a subheading for which a rate of duty
appears in the "Special" subcolumn followed by the symbol "MX" in
parentheses, are eligible for such duty rate, in accordance with section
201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the 100% cotton knit fabric and the 90% cotton and 10% polyester knit fabric is eligible for the “Special” “MX” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS; and (2) qualify to be marked as products of Mexico under the NAFTA Marking Rules set forth in Part 102 of the CBP regulations (19 CFR Part 102). To determine whether the fabric is NAFTA originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part, as follows:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if –
they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the United States so that—
except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or
the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or
they are goods produced entirely in the territory of Canada, Mexico
and/or the United States exclusively from originating materials….
Insofar as the imported fabric at issue appears to be neither “wholly obtained or produced entirely in” a NAFTA country nor “produced entirely in” a NAFTA country “exclusively from originating materials”, it is necessary to determine whether the non-originating materials undergo the applicable tariff shift prescribed under General Note 12(t), HTSUS, which for goods classified in subheading 6006.21.9080, HTSUS, is as follows:
A change to headings 6001 through 6006 from any other chapter, except from headings 5106 through 5113, chapter 52, headings 5307 through 5308, or 5310 through 5311, or chapter 54 through 55.
There is no dispute that, under this tariff shift rule, the fabric at issue must be formed in a NAFTA country from originating yarn and originating fiber to be eligible for NAFTA preferential treatment.
Entry Dated May 18, 2006
On December 31,2007, counsel for the Protestant submitted its Protest and Application for Further Review with a Memorandum in Support of the Protest and Application for Further Review. Concerning the verification conducted with respect to the entry made on May 18, 2006, counsel contends that the fabric manufacturer presented, in a timely manner, valid manufacturer certificates of origin prepared by the producers of the yarn which clearly establish that the yarns were spun in the U.S. from U.S.-origin fibers. Counsel states that, if CBP was not satisfied with the information provided by the yarn producers, it was obligated to contact these producers directly to request additional substantiating information. According to counsel, if CBP had requested additional information from the yarn producers, sufficient information would have been obtained to establish that the fibers were NAFTA originating. Counsel further states that the Protestant should be afforded sufficient time to submit additional information to support the NAFTA claim in regard to this entry.
Section 181.72(a) of the CBP regulations (19 CFR 181.72(a)) provides that CBP may initiate a verification in order to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good. During the course of the verification initiated in regard to the NAFTA claim made in regard to the entry made on May 18, 2006, CBP requested specific documentation from the fabric manufacturer, City West, on several occasions to establish that the fabric was formed in Mexico from originating yarn and fiber. Among the information requested were affidavits from the fiber manufacturers and other documentation to substantiate the originating status of the fibers. The information and documentation provided by the fabric manufacturer, including statements from the manufacturers of the yarn, indicated that the fabric was formed in Mexico from NAFTA originating yarn. However, although the fabric and yarn manufacturers provided statements that the yarn was made from NAFTA originating fiber, no evidence (e.g., fiber manufacturers’ affidavits) was submitted to your office to substantiate that assertion, despite several specific requests for such evidence.
As the Protestant correctly states in the Memorandum in Support of Protest and Application for Further Review, it has been the practice of CBP to allow protestants to submit additional evidence in a protest. See HQ 112667 dated May 25, 1993, HQ 224397 dated March 8, 1994, and HQ 224118 dated July 26, 1993. We note that the substantial additional documentation provided by the Protestant in support of this protest includes no corroborating evidence regarding the NAFTA originating status of the fiber with respect to the fabric covered by the concerned entry. This is true despite the fact that the Notice of Action dated April 4, 2007, proposing to deny NAFTA preferential treatment for the fabric, specifically cited in support of the proposed action that “fiber affidavits for both fabrics were requested twice and not provided” (in addition to the failure to provide certain other requested documentation). In fact, the April 4, 2007, Notice provided City West 30 days to provide the documentation that was previously requested.
Protestant maintains that, in regard to the entry under consideration here, CBP cannot reject the yarn manufacturer’s affidavits (stating that the yarn was made from NAFTA originating fiber) without first requesting additional information directly from the yarn manufacturer, such as NAFTA Certificates of Origin or fiber manufacturer affidavits. We disagree. Section 181.72(a)(1), CBP regulations (19 CFR 181.72(a)(1)) states, in pertinent part, that a NAFTA verification “[m]ay also involve a verification of the origin of a material that is used in the production of a good that is the subject of a verification under this section.” Thus, while a NAFTA verification “may” involve requesting information directly from a producer of a material, it is not incumbent upon CBP to do so. In this case, the NAFTA origin verification was directed at the party that executed the Certificate of Origin, which is the Mexican producer of the fabric in question. This is entirely consistent with the provisions and verification procedures set forth in 19 CFR 181.72.
Therefore, as the evidence presented in this case does not establish that the fabric for which NAFTA preference was claimed in the entry made on May 18, 2006, satisfies the applicable tariff-shift rule set forth in General Note 12(t), HTSUS, we believe that NAFTA preferential tariff treatment was properly denied with respect to this entry.
40 Additional Entries
Counsel maintains that CBP improperly denied NAFTA preference with respect to the 40 additional entries covered by this protest because no NAFTA verification was performed in regard to these entries, as required by the NAFTA implementing CBP regulations. Counsel states that the NAFTA verification conducted by CBP encompassed a single entry which was covered by an entry-specific NAFTA Certificate of Origin (as opposed to a blanket Certificate). Protestant has submitted with the protest a separate NAFTA Certificate of Origin for each of the 40 additional entries covered by the protest. Counsel submits that CBP must accept these certificates at face value and approve the NAFTA claims set forth in these entries. Counsel states that, if CBP initiates a proper NAFTA verification with respect to each of the subject 40 entries, Protestant should be afforded a reasonable period of time to submit the documents necessary to substantiate the NAFTA claims.
In support of the first contention above, Protestant references 19 CFR 181.71 which provides, in pertinent part, that (with certain exceptions not applicable here):
Customs shall deny preferential tariff treatment on an imported good…only after initiation of an origin verification under § 181.72(a) of this part which results in a determination that the imported good does not qualify as an originating good or should not be accorded such treatment for any other reason as specifically provided for elsewhere in this part.
As previously stated, 19 CFR 181.72(a) provides that CBP may initiate a verification to determine whether a good qualifies for “preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good.” [Emphasis added.] Thus, a NAFTA verification encompasses the goods covered by a particular Certificate of Origin. According to 19 CFR 181.22(b)(5)), a Certificate of Origin:
(5) May be applicable to:
(i) A single importation of a good into the United States, including a
single shipment that results in the filing of one or more entries
and a series of shipments that results in the filing of one entry; or
(ii) Multiple importations of identical goods into the United States
that occur within a specified period, not exceeding 12 months,
set out therein by the exporter or producer.
In response to the October 24, 2006, request by your office for a “NAFTA Certificate of Origin for Entry Summary line item 002 for the entry dated May 18, 2006, the fabric manufacturer submitted a Certificate in which Field #2 (“BLANKET PERIOD”) included the period “01 DE ENERO 2006” to “31 DE DICIEMBRE 2006”. The instructions for the preparation of the Certificate (CBP Form 434) on the reverse side of the form state the following regarding Field #2:
Complete field if the Certificate covers multiple shipments of identical goods as described in FIELD # 5 that are imported into a NAFTA country for a specified period of up to one year (the blanket period). “FROM” is the date upon which Certificate becomes applicable to the good covered by the blanket Certificate (it may be prior to the date of signing this Certificate). “TO” is the date upon which the blanket period expires. The importation of a good for which preferential treatment is claimed based on this Certificate must occur between these dates.”
The instructions state the following regarding Field #5 (“DESCRIPTION OF GOODS”):
Provide a full description of each good. The description should be sufficient to relate it to the invoice description and to the Harmonized System (H.S.) description of the good. If the Certificate covers a single shipment of a good, include the invoice number as shown on the commercial invoice. If not known, indicate another unique reference number, such as the shipping order number.
Similarly, CBP Directive No. 3810-014A dated July 26, 2005, which sets forth policy guidelines regarding the NAFTA Certificate of Origin, states, in pertinent part, that:
Single Certificates may be used for single importations. The single Certificate should be related to the shipment by indicating the invoice number or other unique reference. Blanket Certificates may be used for repetitive shipments of goods, and the goods must be imported on or between the specified “FROM” and “TO” dates. This period may not exceed 12 months.
In regard to the Certificate under consideration here, the fact that the fabric manufacturer completed Field #2 (“BLANKET PERIOD”) with the blanket period January 1, 2006 to December 31, 2006, clearly indicates an intention that the Certificate was to be considered a blanket Certificate. In addition, the manufacturer failed to include in Field #5 of the Certificate an invoice number or other unique reference number, such as the shipping order number, which is required if it was intended that the Certificate was to cover a single shipment. Although Field #5 includes quantities of goods matching the quantities set forth in the invoice from the fabric manufacturer to the importer with respect to the entry dated May 18, 2006, we believe that, on balance, the evidence supports the conclusion that the Certificate is a blanket Certificate.
Therefore, we find that CBP properly rate advanced the 40 additional entries that were filed by the Protestant during the blanket period. It is noted that the rate advances for these additional entries encompassed only merchandise that is substantially similar to that which was subject to the NAFTA verification (i.e., knit 100% cotton fabrics and knit 90% cotton and 10% polyester fabrics). CBP did not rate advance the knit 50% cotton and 50% polyester fabrics that were included in certain of these entries as these fabrics were not subject to the NAFTA verification.
HOLDING:
In view of the foregoing, the knit 100% cotton fabrics and knit 90% cotton/ 10% polyester fabrics subject to this protest are not entitled to NAFTA preferential tariff treatment. You are instructed to DENY the protest.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division