OT:RR:CTF:VS H246655 GaK
Port Director
U.S. Customs and Border Protection
200 North Mariposa Road
Nogales, AZ 85621
RE: Application for Further Review of Protest No. 2604-13-100010; Protest against denial of NAFTA preferential treatment
Dear Port Director:
This is in response to your correspondence, dated September 4, 2013, forwarding the Application for Further Review (“AFR”) of Protest No. 2604-13-100010, timely filed by counsel on July 15, 2013, on behalf of Jowett Garments Factory, Inc. (“Jowett”) and Joy Textile S.A. de C.V. (“Joy”) (collectively “Protestant”). The AFR concerns the eligibility of certain fabrics imported from Mexico for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). We also considered the supplemental presentation submitted during our meeting with Protestant and their counsel on October 27, 2015. We regret the delay in responding.
FACTS:
Jowett imported 170 rolls of 100% polyester fabric and 96%/4%, 92%/8%, 91.5%/8.5%, 91%/9%, and 82%/18% polyester/spandex fabrics (“fabric” or “product”) from a related company, Joy, in Mexico. The fabric was entered on June 7, 2012 under subheadings 6004.10.00 and 6006.32.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”) and liquidated on April 12, 2013. On July 18, 2012, the port initiated a NAFTA verification on the goods imported under six commercial invoices, which were all dated June 4, 2012. The port issued separate Requests for Information (CF 28) to Jowett and Joy, which requested the following documents from Joy: Certificates of Origin, detailed production timeline, contracts between raw materials suppliers and Joy, raw materials information, production records, post-production records, full explanation of inventory control method with the date of implementation, sub-contractor records, inspection certificates, accurate information on how Joy determines the value of the imported product, and evidence of payment from Jowett.
In response to the CF 28, your office notes that Protestant submitted large boxes of documents without a cover letter or analysis. Numerous documents were in Chinese or Chinese/Spanish without English translations and a large percentage of documents did not have titles or headings. Several documents such as purchase orders, commercial invoices and Certificates of Origin were not dated or dated several months outside of the verification period. For example, one of the Certificates of Origin completed by Jowett for the period January 1, 2012 to December 31, 2012 covers 100% polyester yarn produced by a yarn producer, and in the column indicated “PRODUCER” it states “NO-1.” Another Certificate of Origin completed by Jowett for the same time period covers 100% polyester yarn by a different yarn producer and also states “NO-1” under the “PRODUCER” column. In addition, when the port requested a full explanation of the current inventory control method including the date of its implementation, Protestant stated that it first uses “Specific Identification, and secondly First In First Out (FIFO) for inventory control and costing goods” and that it purchases raw materials based on the actual yarn and materials to be used per specific fabric purchase order. Protestant did not provide the date of implementation with regard to the inventory control method. The port also reviewed Mexican import documents referred to as “pedimento” included in Protestant’s submission, which showed that Protestant imported large quantities of Taiwanese-origin yarn in addition to the U.S.-origin yarn.
On November 16, 2012, the port issued a Notice of Action Proposed (CF 29) to Jowett, which determined that all of the goods subject to the NAFTA verification did not qualify as originating based on the fact that Chinese origin yarns, U.S. origin yarns, and Chinese origin fabrics were being exported into Mexico combined with the fact that identical fabrics were imported into the U.S. The port further stated that the documents provided by Protestant did not demonstrate that an adequate inventory control method existed for all yarns and fabrics used by Joy in the manufacturing process. The port also noted that the documents provided were incomprehensible and contradictory and failed to establish conclusive evidence that the products qualified for preferential tariff treatment. In response, Protestant submitted a video of its production facility, warehouse storage areas, and images of a computer system. The video shows several rolls of unmarked fabric and an area where NAFTA yarn, non-NAFTA yarn, and rolls of fabric were placed together. On January 15, 2013, your office met with representatives from Joy and Jowett to discuss the NAFTA verification. During this meeting, your office states that Joy’s representatives briefly explained what the documents in Chinese and Spanish represent, but did not provide translations to allow the port to properly review the paperwork. The port again requested a full explanation of their current inventory control method, including the date of its implementation. Protestant did not provide a written explanation of its inventory control method.
On March 13, 2013, the port issued a Notice of Action Taken (CF 29) to Joy and found that the supplemental submission was not conclusive to determine the absence of commingling, and did not demonstrate that an adequate inventory control method was in place. Protestant filed an AFR, claiming that the negative determination of the NAFTA verification based on potential commingling was incorrect and without any factual support. Protestant also stated that the denial was not proper because the Notice of Action Proposed was not sent to the exporter pursuant to 19 C.F.R. § 181.75 and was only sent to the importer. Protestant stated that since its U.S. purchasers, such as Nike and Under Armour, required total control of their products, such controls existed. Protestant did not provide any documents from its U.S. purchasers to substantiate this claim. Protestant stressed that the negative NAFTA determination is only based on suspicions and further states that CBP’s decision is inconsistent with previous NAFTA verifications of the same or substantially similar product and specific identification procedures in 2000, 2003, 2008, and 2010.
In support of its AFR, Protestant refers to the same video that demonstrates the specific identification procedures used at Joy’s factory. Screen shots of the video were also provided with brief descriptions. The screen shots show the following images: yarn box markings from U.S. suppliers; Joy’s factory labels with the yarn lot number, yarn type, and date received; a Joy employee placing labels for identification onto boxes; a computer screen showing the yarn lot number being assigned to the particular packing list of the yarns received; a computer screen showing the “Joy Textile Management System” which is described to contain material controls and production tracing records; Joy employee inputting received yarn into the system, assigning purchase orders a knitting number, inputting purchase orders into the system, and stamping the purchase order with the corresponding knitting number. Protestant also provided a Notice of Action Taken (CF 29) from a separate AFR issued to Jowett, regarding apparel made by California Textiles, to illustrate the claim that CBP did not review the submissions separately and emphasized that CBP used similar language in both CF 29s. Protestant submitted a letter from Joy’s accountant, dated July 10, 2013, which describes Joy’s inventory control method as a “Direct/Specific Identification” that controls the origin status of its inventory. The accountant’s letter states that the method is similar to First In, First Out (“FIFO”) and that it complies with the GAAP, and that the audits show that NAFTA origin materials are maintained in different locations, separate from other fungible non-NAFTA materials. The letter does not state when the audit was conducted.
Protestant submitted a USB flash drive with the protest, which included all of the documents submitted to the port in boxes, and a narrative with exhibits of a sample purchase order #45M-19800 to support its NAFTA preference eligibility and “trackability” of the yarn. Protestant claims that the exhibits of inventory and production documents show the tracking and accountability for a specific yarn from its receipt, issuance from inventory, knitting into fabric, dyeing, and shipping. Protestant further claims that the exhibits document that NAFTA yarn was used to manufacture NAFTA fabric. The attached exhibits consist of the following:
Purchase order #45M-19800 issued by Jowett to Joy, dated April 21, 2012. Protestant highlighted the number K128002 associated with one item. The ship type is indicated as NAFTA.
Commercial Invoice #0604-U1 issued by Joy to Jowett, dated June 4, 2012. Protestant highlighted the first line item as the example, which states that the total ship quantity is 167.40 kg for 100% polyester fabric.
Joy’s packing list with production information for the fabric shipment, dated June 4, 2012. The total ship quantity is 167.40 kg. The packing list includes: 1) specific yarn lot #UN0589-E, 2) specific dye lot #D192460 where finished fabrics are finished, 3) purchase order #45M-19800 issued by Jowett, and 4) knit #K128002 assigned by Joy for this particular purchase order.
Yarn release report for knitting, entitled “Hilo Salida” (translated into Output Yarn according to Protestant). The date is illegible. The yarn lot #UN0589-D/E is highlighted with the yarn location L-14. The document is in Chinese and Spanish and Protestant did not provide a full translation or explanation of other numbers included in this exhibit. Protestant claims that yarn lot #UN0589-E was a NAFTA yarn as specified on the purchase order without supporting evidence.
Production record of knitting from May 2012, which includes the yarn lot #UN0589-E and knit #K128002.
Production records of workers 1, 2, and 3, which are completely illegible. Protestant highlighted certain lines, without an explaining its significance.
Time card of “employee 1” from May 2012. Protestant claims the time card further documents the time of the production records.
Dyeing and Finishing report in Chinese without a translation. The report includes the same corresponding numbers for knit, yarn lot, purchase order, and dye lot.
Dyeing recipe for dye lot #D192460, in Chinese and Spanish without a translation.
Dyeing machine log in Chinese without a translation, dated May 25, 2012.
Time card of employee for dyeing from May 2012.
Inspection Report, printed May 30, 2012, for dye lot #D192460, for order #M45TLDS243 and total weight 167.40 kg.
During the meeting on October 27, 2015, Protestant provided purchase orders, invoices, packing list, production records and other documents from September 2015. The format of the September 2015 documents is identical to the 2012 documents provided with the protest and they were presented to demonstrate that their inventory control remains the same as it was in 2012. Protestant also provided a detailed description of each document and how it is connected to the other documents. The documents presented during the meeting were legible and properly identified with translations. Protestant also submitted a written explanation of their specific identification method and a sample blue fabric that was made with different origin yarns to demonstrate that they must maintain strict inventory control to produce acceptable product. The sample fabric was striped with different hues of blue, which was not intended.
Protestant explained that as soon as the yarn is delivered to the Joy factory, the boxes are assigned a yarn lot number along with the type of yarn and date of receipt before they are unloaded from the truck. The yarn lot numbers (e.g. SP####) are associated with the corresponding purchase order. Then each yarn lot number is assigned a warehouse location by section and line. The yarn is added into the yarn inventory system, which generates a knitting work order for production under a P number. Then a knitting production card is created, which includes the P number, yarn lot number, and warehouse location. A production control sheet for knitting work order is also created, and assigned a K number, to record the actual yarn retrieval and respective knitting work production information. In addition, every time yarn is retrieved from the warehouse, it is recorded and accounted for in a yarn warehouse supervisor log and a separate log for yarn lot usage to maintain usage by yarn lot. The production control sheet follows the yarn as it is knitted and each roll of fabric that is produced is tagged with the knitting machine number, yarn lot number, P number, and date of manufacture. Then a dyeing order is produced and assigned a D number, which is associated with the corresponding P and K number, knitting machine number yarn lot number, and how many rolls are needed from the yarn lot. A dyeing production control sheet is used to track production, which is updated at each dyeing process, and includes the fabric type, color, D number, K number, P number, yarn lot number, fabric purchase order number, date of distribution, and fabric tub number where the fabric will be dyed. The dyed fabric is then scoured, pre-set, and finished. After final inspection, a shipping label is created, which includes the D number, P number, fabric content, purchase order number, NAFTA marking, and country of origin. Finally, a fabric packing list and warehouse location is recorded, which includes the D number, K number, purchase order number, and fabric type.
ISSUE:
Whether the documentation, submitted by the protestant, supports the claim for preferential tariff treatment under the NAFTA for the imported fabric.
LAW AND ANALYSIS:
The NAFTA is implemented in the HTSUS in General Note (“GN”) 12. However, at issue in this case is not the question of whether the product met the terms of the GN 12 per se, but whether the information submitted substantiated the claim that the product met the terms of GN 12. To verify or substantiate the NAFTA claim, CBP has the right to seek further information by initiating a NAFTA verification pursuant to 19 C.F.R. § 181.72.
As noted in the FACTS section above, Protestant initially submitted a narrative with partially translated documents to demonstrate that its inventory control method is sufficient. While Protestant later submitted translations and provided a thorough narrative of their inventory control method, we note that it is incumbent on the importer to present documentation which CBP personnel will be able to analyze and consider. Such documentation must either be in English or, if in a foreign language, accompanied by an English translation. Anything else falls short of the importer's obligation to exercise reasonable care in providing information which is necessary to enable CBP to properly assess duties, collect accurate trade statistics and determine whether any other applicable legal requirements are met. See Headquarters Ruling Letter (“HQ”) H036556, dated February 12, 2009 and 19 U.S.C. § 1484. Furthermore, in TBT-12-003, dated March 22, 2012, “Supplemental Instructions for Document Review When Verifying Trade Preference Program Claims for Textiles and Wearing Apparel,” CBP stated that the trade is to exercise reasonable care in the preparation of trade preference claims and it is incumbent on the importer to supplement the documents with an explanation and showing how the documents are connected to one another. CBP also stated that import specialists should seek clarification or additional information that could support the preferential claim.
The port denied Protestant’s preferential claim because the submitted documentation was not properly labeled, in a language other than English without proper translation, and Protestant did not provide a written explanation of the inventory control method. While the port stated that they requested translations and clarifications on multiple occasions, Protestant stated that they did not receive requests for further explanation or clarification.
While Protestant has not exercised reasonable care in the preparation of its NAFTA preference claim, we note that there was a breakdown of communication between Protestant and the port, which led to the negative determination of the NAFTA verification. During the October 27, 2015 meeting Protestant sufficiently demonstrated the “trackability” of the orders. Protestant also demonstrated that their inventory control method is designed to avoid commingling for business reasons as well as their NAFTA preferential claim. We find that the explanation of Joy’s inventory control method coupled with the video establish that Protestant’s specific identification inventory control method is acceptable. The documentation shows that the yarn is inventoried as soon as it is delivered to the factory and is tracked throughout the entire production process using various identifying numbers for yarn lot number, warehouse location, knitting order, production order, and dyeing order. Each number is linked to the original purchase order and the documentation shows that the numbers are reflected in all of the documents maintained during production.
The main reason that the port denied Protestant’s NAFTA preferential claim is that the documents were not properly identified, labeled, and in a language other than English. For example, one of the many documents submitted without a label is a purchase order from Nike submitted to Jowett, and transmitted to Joy. The document is not labeled and the K number on the purchase order was not defined. In addition, the port noted that the certificate of origin completed by Jowett for two different producers have the same deficiency as stated in the FACTS. While the producers are different, both certificates state “NO-1” in the producer column. During the October 27, 2015 meeting, Protestant explained that the reason the producer column states “NO-1” is because Jowett is not the actual producer.
Many other issues that arose in the document review by the port could have been avoided had the importer exercised greater care in the preparation and review of documents. Particularly in this case where several different identifying numbers are used for different processes of production, a thorough written explanation of the inventory control method is necessary and could have saved the importer and the agency time and effort in reviewing the subject entry. It is incumbent for importers to act with care in the creation and maintenance of their records to support preferential tariff claims. A narrative to the port explaining the documents submitted would have been helpful. As the Protestant has now explained its documentation and how the materials are tracked throughout the production process to our satisfaction, we find the fabric qualifies for preferential treatment under the NAFTA.
HOLDING:
The protest is GRANTED. The documentation submitted to the port was carelessly prepared and not sufficient to support the claim for preferential tariff treatment under the NAFTA. However, Protestant has now provided this office with sufficient explanation and translations to show that the goods are indeed eligible under the NAFTA.
In accordance with Section 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,
Joanne Roman Stump, Acting Director
Commercial and Trade Facilitation Division