Tariff classification and status under DR-CAFTA, of women's tank tops from Guatemala.

A recent U.S. Customs and Border Protection Binding Ruling Letter (Ruling N241113, May 17, 2013), on the tariff classification and status under the Dominican Republic-Central America-United States Free Trade Agreement ("DR-CAFTA"), of women's tank tops from Guatemala illustrates the complexity of both current global apparel sourcing practices and U.S. Customs regulations.

A manufacturing who understood the Customs regulations and arranged his global sourcing accordingly saved 16.5% in tariff cost while sourcing some of his spandex and knit fabric globally.

The item in question is a woman’s tank top. The garment is constructed from two fabrics. The upper back and shoulder straps are constructed of 90 percent nylon and 10 percent spandex lace like knit fabric. The front panel, lower back panel and capping are constructed of 98 percent cotton and 2 percent spandex rib knit fabric. The garment features a scooped front neckline, a racer style back neckline, 1-1/4 inch wide shoulder straps, self-fabric capping around the neckline and armholes and a hemmed bottom. The garment extends from the shoulders to below the waist but not to mid-thigh.

Because the garment is constructed of two different fabrics, Customs applies Harmonized Tariff Schedule of the United States ("HTSUS") General Rule of Interpretation ("GRI") 3(b), which states that garments will be classified by the component which gives them their essential character. Customs determines, in this case, that the cotton/spandex component of the garment imparts the essential character to the garment. With that settled, Customs determines that the applicable subheading will be HTSUS 6109.10.0060, which provides for T-shirts, singlets, tank tops and similar garments, knitted or crocheted: Of cotton: Women’s: Tank tops: Women’s. The duty rate is 16.5% ad valorem.

The manufacturing operations are as follows:

• The cotton/spandex fabric: The yarn is produced in the United States or a DR-CAFTA country; the fabric is knitted in Guatemala.

• The nylon/spandex lace-like open work fabric is manufactured in China.

• The spandex yarn used in the lace like fabric is produced in Asia.

• spandex in the rib knit fabric is formed and finished in the United States.

• sewing thread is manufactured in Honduras.

• fabrics are cut, sewn and assembled in Guatemala.

• garment is exported directly from Guatemala to the U.S.

General Note ("GN") 29, HTSUS, sets forth the criteria for determining whether a good is originating under the DR-CAFTA. General Note 29(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that:

For the purposes of this note, subject to the provisions of subdivisions (c), (d), (m) and (n) thereof, a good imported into the customs territory of the United States is eligible for treatment as an originating good under the terms of this note if—

(i)the good is a good wholly obtained or produced entirely in the territory of one or more of the parties to the Agreement;

(ii) the good was produced entirely in the territory of one or more of the parties to the Agreement, and— (A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or (B) the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note; and the good satisfies all other applicable requirements of this note; or

(iii) the good was produced entirely in the territory of one or more of the parties to the Agreement exclusively from originating materials.

As the good contains non-originating materials, it would have to undergo an applicable change in tariff classification in order to meet the requirements of GN 29(b)(ii)(A). General Note 29 (n), Chapter 61, Chapter rule 2 states:

For purposes of determining whether a good of this chapter is originating, the rule applicable to that good shall only apply to the component that determines the tariff classification of the good and such component must satisfy the tariff change requirements set out in that rule for that good.

The component that determines the classification is the cotton/spandex rib knit fabric. Since it is determined to be originating, it does not need to meet the terms of the tariff shift.

GN 29(d)(i), HTSUS, also states in pertinent part,

A textile or apparel good containing elastomeric yarns in the component of the good that determines the classification of the good shall be considered to be originating good only if such yarns are wholly formed in the territory of the party to the Agreement.

The elastomeric yarn in the component that determines the classification is formed and finished in the United States.

General Note 29 (n), Chapter 61, Chapter rule 4 states:

Notwithstanding chapter rule 2 to this chapter, a good of this chapter containing sewing thread of headings 5204, 5401 and 5508 shall be considered originating only if such sewing thread is both formed from yarns and finished in the territory of one or more of the parties to the Agreement.

The sewing thread used to assemble both garments will be formed and finished in one or more of the parties to the Agreement.

Based on the facts provided, Customs ruled that the tank tops qualify for DR-CAFTA preferential treatment, because they meet the requirements of HTSUS General Note 29(b)(ii)(A). The merchandise will be entitled to a free rate of duty under the DR-CAFTA.