OT:RR:CTF:VS H273103 RMC
Port Director
U.S. Customs & Border Protection
726 Exchange St.
Buffalo, NY 14210
Re: Application for Further Review of Protest 0901-2015-150013; NAFTA eligibility of T-Shirt Wipers; Scrap; Waste; GN 12(b)(ix)(B)
Dear Port Director:
This is in response to your correspondence dated December 9, 2015, forwarding the Application for Further Review (“AFR”) of Protest 0901-2015-150013, timely filed by Wipeco Industries Inc. (“Wipeco”).
FACTS:
Wipeco is a producer and supplier of cleaning materials for the automotive, janitorial, maintenance, painting, car wash, food service, and other industries. At issue in this case is a shipment of “t-shirt wipers,” or rags made from used t-shirts, which was entered from Canada at the Port of Buffalo on March 10, 2015. The merchandise was classified under subheading 6310.10.20, Harmonized Tariff Schedule of the United States (“HTSUS”), with a claim for duty-free treatment under the North American Free Trade Agreement (“NAFTA”).
On March 16, 2016, the Port initiated a verification of Wipeco’s NAFTA claim. Specifically, the Port requested a NAFTA Certificate of Origin for each material, a synopsis of the manufacturing process, a list of all materials used in the manufacturing process, and other documents. Wipeco supplied a NAFTA Certificate of Origin and documents showing that the used clothing was collected in the United States and Canada, was purchased by the pound, and was in a condition that was unsuitable to be resold as clothing. The NAFTA Certificate of Origin described the goods as originating under preference criterion A. According to a Notice of Action (CBP Form 29) dated June 25, 2015, the Port denied Wipeco’s NAFTA claim because Wipeco could not substantiate the origin of the yarns and fibers in the used t-shirts. The port thus concluded that Wipeco provided insufficient evidence to show that the goods were “wholly obtained or produced” in one or more NAFTA parties as required by NAFTA preference criterion A. The NAFTA claim was thus denied, and although no duty was due on the merchandise due to its classification under subheading 6310.10.20, HTSUS, the merchandise processing fee was assessed.
We note that this office received and examined a ten-pound sample bag labeled “Colour T-Shirt Wipers” from Wipeco. The documentation that Wipeco provided describes a manufacturing process that begins when one of Wipeco’s two suppliers gathers used clothing in the United States and/or Canada. The suppliers then grade and sort the clothing according to whether it can be resold in other markets as clothes or whether stains, holes, missing buttons, or broken zippers are present. If these defects are present, the suppliers sell the clothing to Wipeco by the pound for use as rags. Used t-shirts collected in the United States are imported into Canada under heading 6309, Customs Tariff (Canada).
When Wipeco receives bulk used clothing from its suppliers, a worker takes each piece of clothing and cuts it with an electric knife into smaller pieces measuring between 12 and 18 inches. The cut clothing is then either placed into a bailing machine to be sold as a bulk bale or, as was the case with the sample provided, compressed into five- or ten-pound bags. Our inspection of the sample showed that the original clothing had counrty of origin markings including Haiti, China, Vietnam, Pakistan, Lesotho, and others.
In its protest, Wipeco argues that the merchandise qualifies as “wholly obtained or produced” under GN 12(n)(ix)(B), which provides for “waste or scrap derived from . . . used goods collected in the territory of one or more NAFTA parties, provided that such goods are fit only for the recovery of raw materials.” According to Wipeco, the origin of the t-shirts’ yarn or fibers is irrelevant because the t-shirts qualify as “waste or scrap,” were collected in the United States or Canada, and are suitable only for the recovery of raw materials. Wipeco therefore argues that the merchandise originates under NAFTA preference criterion A.
ISSUE:
Whether “t-shirt wipers” made from used clothing of various origins collected in the United States and/or Canada qualify as NAFTA originating under GN 12(n)(ix)(B).
LAW AND ANALYSIS:
To be eligible for tariff preferences under the NAFTA, goods must be “originating goods” within the rules of origin set forth in GN 12(b), HTSUS. Goods imported into the United States may be considered goods originating in the territory of a NAFTA party if “they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States,” or “they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.” See GN 12(b)(i) and (iii), HTSUS. Goods may also be considered originating if they have been “transformed in the territory of Canada, Mexico and/or the United States” pursuant to GN 12(b)(ii)(A), HTSUS, which states:
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 . . . .
Under the NAFTA, a good may be considered to be “wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States,” when it consists of “waste and scrap derived from . . . used goods collected in the territory of one or more of the NAFTA parties, provided such goods are fit only for the recovery of raw materials.” See GN 12(b)(ix)(B).
CBP decisions interpreting “waste and scrap” for purposes of GN 12(b)(ix)(B) have turned on whether the merchandise claimed to be waste or scrap could be repaired for use according to its original purpose. For example, in Headquarters Ruling (“HQ”) 558823, dated February 6, 1995, we held that certain used air-brake parts returned to the United States after export to Mexico for re-machining and honing would not qualify as “waste” or “scrap” under GN 12(b)(ix)(B). In that case, although some of the used parts were scrapped in Mexico, other parts were re-machined and honed to return them to their original condition. These parts were then either combined with various new parts to form rebuilt air-brake systems for sale in the United States or returned to the United States as individual parts. Because the re-machined parts could be used for their original purpose as air-brake system parts, they did not qualify as “waste” or “scrap” under GN 12(b)(ix)(B). See also HQ 559247, dated September 5, 1995 (reconsidering and affirming HQ 558823). Similarly, defective air-conditioning and refrigeration compressors that were returned to the United States after having been “rebuil[t] to new condition” in Mexico were not considered “scrap” or “waste” under GN 12(b)(ix)(B). See HQ 559199, dated May 15, 1995.
Conversely, CBP has found that goods that cannot be repaired or rebuilt for use as originally intended may qualify as “waste and scrap” under GN 12(b)(ix)(B). For example, in HQ 044166, dated January 23, 2009, we found that defective electronics parts returned to U.S. customers from a Mexican repair facility qualified as “waste and scrap.” In that case, the importer maintained that the defective parts were damaged beyond repair and were returned to customers only to comply with state warranty-law requirements. Since the defective parts could not be repaired for use as intended in an electronic device, the parts had no value except as scrap metal. This fact was confirmed by the importer’s practice of selling the defective parts that were not returned to U.S. customers to a recycling facility for recovery of raw materials. Accordingly, the parts were “waste and scrap . . . fit only for the recovery of raw materials” for purposes of GN 12(b)(ix)(B).
Similarly, in HQ H061739, dated April 23, 2012, CBP held that used “coir pith”—an organic compound used for growing hydroponic vegetables—qualified as “waste” or “scrap” after it had been used for a growing season in Canada. The importer stated that poor performance could be expected if the coir pith were used again and that it was typically discarded in a landfill after the growing season. Because the coir pith could not be returned to a condition for use as originally intended, it was considered NAFTA originating under GN 12(b)(ix)(B) as waste or scrap.
Here, Wipeco argues that the t-shirt wipers qualify as “waste” or “scrap” under GN 12(b)(ix)(B) because they are made from t-shirts that cannot be repaired for their original purpose as wearing apparel. Wipeco states that its suppliers make this determination when sorting the used t-shirts. Suppliers attempt to resell used clothing that is in acceptable condition and provide Wipeco only with t-shirts that have stains, holes, missing buttons, or broken zippers. According to Wipeco, these defects make the t-shirts irreparable for their original purpose, and the t-shirt wipers qualify as “scrap” or “waste” for purposes of GN 12(b)(ix)(B).
Although used t-shirts could, under certain circumstances, be considered “waste,” Wipeco’s argument does not address the requirement in GN 12(b)(ix)(B) that the merchandise be “fit only for the recovery of raw materials.” In HQ 044166, as explained above, scrap electronic parts qualified as NAFTA originating under GN 12(b)(ix)(B) because they had no value or use other than for sale as scrap metal. The scrap parts thus were fit only for the recovery of the parts’ raw materials.
Here, the raw materials that comprise the t-shirts are fibers. Used clothing and other fabric is frequently broken down into its raw materials (i.e., fibers) for use in products such as carpet, insulation, or packaging, or for weaving into new fabric. See, e.g., New York Ruling Letter N129149, dated November 1, 2010 (holding that fabric scraps sent from Mexico to the United States to be ground down into fibers for use in the production of padding, wadding, packaging, and other materials originated under GN 12(b)(ix)(B)). But here, as evidenced by the fact that the t-shirt wipers are marketed to many industries for use as rags, the merchandise is both suitable for and intended for a purpose other than the recovery of the fibers. The t-shirt wipers thus are not “fit only for the recovery of raw materials” and do not qualify as NAFTA originating.
HOLDING:
The protest should be denied. The subject merchandise does not qualify as NAFTA originating under GN 12(b)(ix)(B).
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 Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP website 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