OT:RR:CTF:FTM H311142 BJK JMV
Center Director
U.S. Customs and Border Protection
Apparel, Footwear, Textiles Center
555 Battery Street, Room 401
San Francisco, CA 94111
ATTN: Stephen Bono, Import Specialist
RE: Application for Further Review of Protest No. 1503-20-100026; Tariff Classification of material constructed from ultra-high molecular weight polyethylene filaments; Valuation
Dear Center Director:
Below is CBP's decision regarding the Application for Further Review ("AFR") of Protest No. 1503-20-100026, timely filed on or about March 11, 2020, by the law firm of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, on behalf of their client DSM Dyneema BV, LLC ("Protestant" or "DSM Dyneema"), concerning: (1) the tariff classification of several materials constructed from ultra-high molecular weight polyethylene filaments under the Harmonized Tariff Schedule of the United States ("HTSUS"); and (2) the proper method of appraisement under 19 U.S.C. 1401a of the imported merchandise from the Netherlands.
FACTS:
The merchandise at issue consists of three styles of material referred to as "HB25," "HB26," and "HB50" (collectively "HB materials"). According to Protestant, the HB materials are constructed from ultra-high molecular weight polyethylene filaments ("UHMWPE") for low weight hard armor applications. Protestant provided an excerpt of an article from the European Journal of Mechanics - A/Solids entitled "The effect of shear strength on the ballistic response of laminated composite plates" that describes the manufacturing process of HB materials. The article describes the manufacturing process of the HB materials as follows:[1]
Step I: Fibres are produced by a gel-spinning/hot drawing process [...]. The UHMWPE is dissolved in a solvent at a temperature of 150C and the solution is pumped through a spinneret containing a few hundred capillaries in order to form liquid filaments. These liquid filaments are then quenched in water to form a gel-fibre. The gel-fibre is drawn at a strain rate on the order of l s-1 in hot air (at 120C), resulting in a highly oriented (crystalline) fibre of diameter 17 ?m.
Step II: Fibres are aligned into tows, coated in matrix resin solution and are then formed into a [0/90/0/90] stack. The stack is dried to remove the matrix solvent.
Step III: The [0/90/0/90] stack is cut, laid-up to the required thickness and hot pressed (20 MPa at 120 C). Bonding of the layers is achieved by the matrix material. The fibre diameter is unchanged by the hot-pressing operation, although a proportion of the fibres change their cross-sectional shape.
See K. Karthikeyan et. al., The effect of shear strength on the ballistic response of laminated composite plates, 42 European Journal of Mechanics - A/Solids 35-37 (2012). U.S. Customs and Border Protection ("CBP") tested the HB materials, and the San Francisco CBP Laboratory Report No. SF20190618, dated August 14, 2019, details the initial analysis of the HB materials. The New York CBP Laboratory Report Nos. NY20210282, NY20210283, and NY20210284, dated April 28, 2021, provide additional information pertaining to the HB materials. Their cumulative findings are detailed below:
HB25
SF Laboratory Report No. SF20190618: The HB25 sheet is composed of two layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The two layers of the HB25 sample are held together with a polyetherurethane resin. The HB25 sheet has the following composition, by weight: 83 percent polyethylene textile fibers and 17 percent polyurethane plastic.
NY Laboratory Report No. NY20210282: The sample, a swatch claimed to be "HB25", weighs 134.3 grams per square meter. The sample is composed of two layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer.
HB26
SF Laboratory Report No. SF20190618: The HB26 sheet is composed of four layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The four layers of the HB26 sample are held together with a polyetherurethane resin. The HB26 sheet has the following composition, by weight: 93 percent polyethylene textile fibers and 7 percent polyurethane plastic.
NY Laboratory Report No. NY20210283: The sample, a swatch claimed to be "HB26", weighs 270.8 grams per square meter. The sample is composed of four layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer.
HB50
SF Laboratory Report No. SF20190618: The HB50 sheet is composed of four layers of filament fiber tow of polyethylene. The parallel fiber layers alternate at 90 degree angles. The four layers of the HB50 sample are held together with a co-polymer matric of polyisoprene rubber and styrene plastic. Polyisoprene rubber appears to be the predominate polymer in the mixture. The HB50 sheet has the following composition by weight: 85 percent polyethylene textile fibers and 15 percent rubber/plastic co-polymer.
NY Laboratory Report No. NY20210284: The sample, a swatch claimed to be "HB50["] weighs 244.3 grams per square meter. The sample is composed of four layers bonded together with a resin material. Each layer has parallel oriented filament fibers held together with a binder/resin. The direction of fibers in each layer [are oriented] 90 degrees to the direction of fibers in the adjacent layer.
The HB materials were entered into the United States between November 9, 2018 and March 27, 2019, under subheading 5407.30.1000, HTSUSA ("Annotated"), which provides for "[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Over 60 percent by weight of plastics." The 2018-2019 applicable rate of duty for subheading 5407.30.1000, HTSUSA, was Free. Between September 13, 2019 to October 25, 2019, CBP liquidated the HB materials under subheading 5407.30.9000, HTSUSA, which provides for "[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Other." The 2019 applicable rate of duty for subheading 5407.30.9000, HTSUSA, was 8% ad valorem. Protestant now argues that the subject merchandise is classified in subheading 5603.14.90, HTSUS, which provides for "Nonwovens, whether or not impregnated, coated, covered or laminated: Of man-made filaments: Weighing more than 150 g/m2: Other." The 2019 applicable rate of duty for subheading 5603.14.90, HTSUS, was Free.
Moreover, Protestant provides that the HB materials were not appraised correctly. On the entry summary, the only deductions calculated were the expenses for the customs brokerage and duties and fees. Specifically, Protestant provides the following with regard to the deductions that were not made:
The terms of sale reflected on the commercial invoices is DDP delivery point (Tarboro NC). The bill of lading also states that all freight charges are prepaid to Tarboro, NC. Based upon these facts, the proper transaction value of the merchandise is the invoice price, with the deductions for: the actual costs of transportation from the seller's premises until delivery in Tarboro, NC; all other costs incident to international shipment and delivery in the U.S. (e.g., customs brokerage fees and related expenses; insurance; and customs duties and fees payable upon importation). See 19 C.F.R. 152.102(f), 152.103.
Therefore, Protestant concludes that the actual proper transaction value of the HB material is the invoice price, with the deductions for any costs associated with transportation and insurance.
ISSUES:
1) What is the proper tariff classification of the "HB25," "HB26," and "HB50" materials?
2) Whether costs related to international freight and insurance may be deducted from the transaction value of the subject materials.
LAW AND ANALYSIS:
CLASSIFICATION
Initially, we note that the matter is protestable under 19 U.S.C. 1514(a)(2) as a decision on classification. The protest was timely filed on or about March 11, 2020, within 180 days of liquidation. 19 U.S.C. 1514(c)(3). Further Review of Protest No. 1503-20-100026 was properly accorded to Protestant pursuant to 19 C.F.R. 174.24(c) because the decision against which the protest was filed is alleged to be inconsistent with matters previously ruled upon by the Commissioner of Customs or his designee or by the Customs courts.
Classification of goods under the HTSUS is made in accordance with the General Rules of Interpretation ("GRI"). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied in order.
The 2020 HTSUS provisions under consideration are as follows:
3921 Other plates, sheets, film, foil and strip, of plastics:
3921.90 Other:
3921.90.15 Other
* * *
5407 Woven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404:
* * *
5603 Nonwovens, whether or not impregnated, coated, covered or laminated:
* * *
Note 1(h) to Section XI, which covers Chapter 54 and 56, HTSUS, provides:
1. This section does not cover:
...
(h) Woven, knitted or crocheted fabrics, felt or nonwovens, impregnated, coated, covered or laminated with plastics, or articles thereof, of chapter 39;
* * *
Note 9 to Section X1, which covers Chapter 54, provides:
The woven fabrics of chapters 50 to 55 include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding.
* * *
Note 3 to Chapter 56, HTSUS, provides the following:
Headings 5602 and 5603 cover respectively felt and nonwovens, impregnated, coated, covered or laminated with plastics or rubber whatever the nature of these materials (compact or cellular).
Heading 5603 also includes nonwovens in which plastics or rubber forms the bonding substance.
Headings 5602 and 5603 do not, however, cover:
...
b) Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of color (chapter 39 or 40);
* * *
In addition, in interpreting the HTSUS, the Explanatory Notes ("ENs") of the Harmonized Commodity Description and Coding System may be utilized. The ENs to the Harmonized Commodity Description and Coding System represent the official interpretation of the tariff at the international level. While neither legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The General EN to Chapter 39 states, in relevant part, the following:
Plastics and textile combinations
... The following products are also covered by this Chapter :
...
(b) Textile fabrics and nonwovens, either completely embedded in plastics or entirely coated or covered on both sides with such material, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour;
EN 56.03 provides, in pertinent part, as follows:
A nonwoven is a sheet or web of predominantly textile fibres oriented directionally or randomly and bonded. These fibres may be of natural or man-made origin. They may be staple fibres (natural or man-made) or man-made filaments or be formed in situ.
Nonwovens can be produced in various ways and production can be conveniently divided into the three stages: web formation, bonding and finishing
I. Web formation
Four basic methods exist:
a) by carding or air-laying fibres in order to form a sheet. These fibres may be parallel, cross or random oriented (dry-laid process);
b) by extruding filaments which are directionally oriented, cooled and laid down directly into a web or which are coagulated, washed and laid down directly into a web in a wet form of the process (spun laid process);
...
d) by various specialised technologies in which fibre production, web formation and usually bonding occur simultaneously (in situ process).
II. Bonding
After web formation the fibres are assembled throughout the thickness and width of the web (continuous method) or in spots or patches (intermittent method).
This bonding can be divided into three types:
a) Chemical bonding, in which the fibres are assembled by means of a bonding substance. This may be done by impregnation with an adhesive binder such as rubber, gum, starch, glue or plastics, in solution or emulsion, by heat treatment with plastics in powder form, by solvents, etc. Binding fibres can also be used for chemical bonding.
...
III. Finishing
Nonwovens may be dyed, printed, impregnated, coated, covered or laminated. Those covered on one or both surfaces (by gumming, sewing or by any other process) with textile fabric or with sheets of any other material are classified in this heading only if they derive their essential character from the nonwoven.
...
However, the heading does not cover the following products which fall in Chapter 39 or 40:
(a) Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour.
...
* * *
Protestant entered the HB materials under subheading 5407.30.10, HTSUS, which provides for "[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Over 60 percent by weight of plastics." CBP liquidated the HB materials under subheading 5407.30.90, HTSUS, which provides for "[w]oven fabrics of synthetic filament yarn, including woven fabrics obtained from materials of heading 5404: Fabrics specified in note 9 to section XI: Other." However, it should be noted that the HB materials are excluded from classification in heading 5407, HTSUS, entirely because they are not woven materials specifically provided for in heading 5407, HTSUS. Precisely, the HB materials are constructed of filament tow, and not of yarns. Note 9 to Section XI, HTSUS, which covers Chapter 54, states that "[t]he woven fabrics of chapters 50 to 55 include fabrics consisting of layers of parallel textile yarns superimposed on each other at acute or right angles. These layers are bonded at the intersections of the yarns by an adhesive or by thermal bonding." (Emphasis added). The San Francisco CBP Laboratory Report No. SF20190618, dated August 14, 2019, describes all of the HB25, HB26, and HB50 materials of being composed of layers of "filament fiber tow," and in the article provided by Protestant, The effect of shear strength on the ballistic response of laminated composite plates, the HB materials are also described as being composed of "[f]ibres [that] are aligned into tows." Therefore, because the HB materials are composed of filament tows, and not yarns, they are automatically excluded from classification in heading 5407, HTSUS.
That being said, Protestant now asserts that the imported products are properly classified under subheading 5603.14.90, HTSUS, which provides for "[n]onwovens, whether or not impregnated, coated, covered or laminated: Of man-made filaments: Weighing more than 150 g/m: Other." Protestant explains that CBP previously classified products similar to the subject HB products in Headquarters Ruling Letter ("HQ") H037542, dated August 11, 2010, where CBP addressed SB fabrics, as nonwovens. Protestant states that "[t]he SB fabrics in HQ H037542 and the HB Fabrics in the entries under protest are made with the identical UHMWPE fibers and are produced with the identical nonwoven construction. They are produced by forming and bonding directionally oriented filaments, and then stacking with additional sheets."
According to Protestant, the only difference between the SB fabrics in HQ H037542 and the HB materials at issue in this case is that the SB fabrics were laminated with plastic. Protestant believes that because CBP determined that the SB fabrics in HQ H037542 were nonwoven, then the similar HB fabrics in this protest are also nonwoven even though they lack plastic lamination. Specifically, Protestant cites to the CBP laboratory report referenced in HQ H037542 that provided that the SB fabrics were "not woven or knit." Furthermore, Protestant relies on the fact that CBP stated in HQ H037542 that "[the SB fabric] is not a woven fabric and is therefore not classified in Chapter 59. Nonwoven textiles are covered in Chapter 56 of the HTSUS." As a result, Protestant concludes that HQ H037542 "clearly supports the conclusion that the uncoated fabrics - the HB Fabrics - are nonwovens and thus properly classified in heading 5603."
The ENs to heading 56.03 are instructive for understanding the construction of nonwovens. The ENs provide that a nonwoven is a "sheet or web of predominantly textile fibres oriented directionally or randomly and bonded. These fibres may be of natural or man made origin. They may be staple fibres (natural or man made) or man made filaments or be formed in situ." The ENs to heading 56.03, HTSUS, further provide guidance on the stages of nonwoven fabric formation setting forth a description of each process in three separate sections, discussed above, as: Web Formation, Bonding, and Finishing. The HB materials in this case have similarities to the nonwoven fabric formation mentioned above. Specifically, the fibres in the HB materials are made from a specialized technology, and from extruding filament fibres that are arranged into tow oriented directionally. Moreover, the fibres are assembled throughout the thickness and width and are chemically bonded by impregnation with an adhesive binder, i.e., the resin material. Lastly, the HB materials layers are coated with a resin material to bind the layers together, in line with the finishing step of nonwovens explained in the ENs to 56.03. However, the ENs to 56.03, state the following regarding nonwovens that are excluded from classification in heading 5603, HTSUS:
... [T]he heading does not cover the following products which fall in Chapter 39 or 40:
a) Nonwovens, either completely embedded in plastics or rubber, or entirely
coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of colour.
This exclusion is further provided for in Note 3(b) to Chapter 56, HTSUS, which provides the following:
Headings 5602 and 5603 cover respectively felt and nonwovens, impregnated, coated, covered or laminated with plastics or rubber whatever the nature of these materials (compact or cellular). Heading 5603 also includes nonwovens in which plastics or rubber forms the bonding substance. Headings 5602 and 5603 do not, however, cover:
...
(b) Nonwovens, either completely embedded in plastics or rubber, or entirely coated or covered on both sides with such materials, provided that such coating or covering can be seen with the naked eye with no account being taken of any resulting change of color (chapter 39 or 40)[.]
Therefore, in order to determine whether the HB materials are classified in heading 5603, HTSUS, we must also consider whether the resin material, i.e., the plastic used to the bond layers, is visible to the naked eye without consideration of any resulting change in color. CBP has established criteria for determining whether a material that is coated in plastic can be seen with the naked eye. See Headquarters Ruling Letter (HQ) H330139, dated June 13, 2023. With respect to both Note 2(a)(3) to Chapter 59, HTSUS, and Note 3(b) to Chapter 56, HTSUS, certain products are excluded from classification in Chapter 56 or 59, respectively, if the textile fabric contained in the products is either completely embedded in plastics or entirely coated or covered on both sides with plastic or rubber, and provided such plastic or rubber coating or covering can be seen with the naked eye. As a result, the criteria that has been used for Note 2(a)(3) to Chapter 59, HTSUS, is extended to Note 3(b) to Chapter 56, HTSUS.
In HQ H330139, CBP enumerated several considerations as to when a coating is visible to the naked eye. In HQ H330139, CBP, citing HQ 957378, dated August 10, 1995, found that where coating served to 'blur' or 'obscure' a fabric's underlying weave, the fabric is deemed visibly coated for purposes of classification within heading 5903, HTSUS. In HQ H314149, dated March 8, 2022, CBP also found the following additional factors determinative in considering whether a coating is visible to the naked eye: whether the coating has visibly altered the surface of the fabric; whether the plastic is visible in the interstices of the fabric; whether the thread or weave is blurred or obscured; and whether the surface of the fabric is leveled or smoothed and whether the coating itself creates a distinct visible pattern. Conversely, a factor that is not considered in determining whether a coating is visible to the naked eye is any resulting color change to the fabric. See HQ H330139 (determining that a gray-colored coating applied to a stitch-bonded polyester fabric was not "coated" for purposes of heading 5903, HTSUS, because the only thing visible to the naked eye was a color change.) Sheen may be imparted to a fabric by the application of coating, but this too is an unreliable indicator of the presence of coating because it may be imparted to fabric by means of heat calendaring and other methods of treating fabric which do not involve the application of coating.
Based upon our examination, we find that the HB materials are entirely embedded with plastic that is visible to the naked eye. The resin material used to bind the layers is visible throughout the samples provided. Therefore, pursuant to Note 3(b) to Chapter 56, HTSUS, and the ENs to heading 56.03, HTSUS, the HB materials cannot be classified in heading 5603, HTSUS. As the HB materials are embedded with plastic, we are directed to classification in Chapter 39, HTSUS, which provides for "plastics and articles thereof." Since the HB materials are plastics combined with textiles, they are classified in heading 3921, HTSUS, and specifically in subheading 3921.90.15, HTSUS, which provides for "[o]ther plates, sheets, film, foil and strip, of plastics: Other: Combined with textile materials and weighing not more than 1.492 kg/m2: Products with textile components in which man-made fibers predominate by weight over any other single textile fiber: Other."
VALUATION
Merchandise imported into the United States is appraised for customs purposes in accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). The primary method of appraisement is transaction value, which is defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. 1401a(b)(1). When transaction value cannot be applied, the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. 1401a(a).
The term "price actually paid or payable" is more specifically defined in section 402(b)(4)(A) as:
...the total payment (whether direct or indirect, and exclusive of any charges, costs, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.
Transportation and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. These costs are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See Treasury Decision ("T.D.") 00-20.
T.D. 00-20 provides the following with respect to evidence of actual freight costs: Customs considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company or other appropriate provider of such services. Commercial documents to and from the service provider such as an invoice or written contract separately listing freight/insurance costs, a freight/insurance bill, a through bill of lading or proof of payment of the freight/insurance charges (i.e., letters of credit, checks, bank statements) are examples of some documents which typically serve as proof of such actual costs. Other types of evidence may be acceptable.
On December 29, 2022, CBP e-mailed Protestant's counsel seeking the associated purchase orders, commercial invoices, packing lists, and other charges needed to complete a valuation review. After CBP made several additional requests to Protestant's counsel for information regarding Protestant's valuation claims, only the bills of lading for the respective entries were furnished on July 10, 2023.
Although CBP requested information to substantiate Protestant's claims regarding the method of appraisement, such information was not provided. As such CBP is unable to properly consider Protestant's arguments for purposes of this determination. Consequently, CBP determines that the method of appraisement used at the time of entry was proper.
HOLDING:
By application of GRI 1, "HB25," "HB26," and "HB50" are classified in subheading 3921.90.15, HTSUS, which provides for "other plates, sheets, film, foil and strip, of plastics: Other: Combined with textile materials and weighing not more than 1.492 kg/m2: Products with textile components in which man-made fibers predominate by weight over any other single textile fiber: Other." The general rate of duty will be 6.5 percent ad valorem.
Based on the information presented regarding Protestant's valuation claims, CBP determines that the method of appraisement at the time of entry was proper.
You are instructed to DENY the Protest in FULL.
You are instructed to notify the protestant of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. 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 Customs Rulings Online Search System ("CROSS") at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
-----------------------
[1] Since the "HB25," "HB26," and "HB50" materials are similar products, we are applying the manufacturing process described above in Karthikeyan K. et al., The effect of shear strength on the ballistic response of laminated composite plates, November 26, 2012, article to "HB25."
-----------------------
90 K Street, NE, 10th Floor
Washington, DC 20229-1177