Customs Proposes Modifying Erroneous Ruling Letters that Denied FTA Benefits to Qualifying Merchandise

U.S. Customs and Border Protection ("CBP") has proposed the modification of three ruling letters and proposed revocation of any treatment relating to the eligibility of certain garments for preferential tariff treatment under the Dominican Republic-Central America United States Free Trade Agreement ("DR-CAFTA"), the United States-Peru Trade Promotion Agreement ("PETPA") or the United States-Colombia Trade Promotion Agreement ("CTPA").

Comments must be received on or before January 16, 2015. If you were denied duty-free benefits due to errors of the sort made in these Rulings, you should advise CBP by the end of the comment period. Agathon Associates can assist you in determining whether you can apply to CBP for relief.

In each of the three rulings being modified, the CBP National Import Specialist appears to have made a fundamental error in reading the tariff-shift rules of the free trade agreements.

Ruling N251778, dated April 16, 2014, relates to The tariff classification and status under the United States-Peru Trade Promotion Agreement Implementation Act ("Peru TPAIA"), and the Dominican Republic-Central America-United States Free Trade Agreement ("DR-CAFTA"), of a woman’s garment from Peru or Guatemala. The applicable subheading for the item is 6110.30.3059, Harmonized Tariff Schedule of the United States ("HTSUS").

As related to a determination under the PTPAIA, the garment is made of a rayon knit fabric classified in heading 6006 and a polyester woven fabric classified at 5513. All operations are done in Peru or the U.S. with the exception that the rayon fibers (classified at 5504 or 5507) and polyester fibers (classified at 5503) are manufactured in India or Asia. The rayon knit fabric is the component that determines the tariff classification of the garment. The PTPAIA rule of origin for fabric of heading 6006 excludes a change from any heading in Chapter 55, therefore the fabric is not originating under the PTPAIA and the garment is also not originating under the rule (GN 32(b)(iii)) for "goods produced exclusively from originating materials." However there is another rule under which the garments do originate because they "undergo an applicable change in tariff classification" (GN 32(b)(ii)(A).

For goods classified in heading 6110, the tariff-shift rule requires: A change to headings 6105 through 6111 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308, 5310 through 5311, 5401 through 5402, subheading 5403.20, 5403.33 through 5403.39, 5403.42 through 5403.49, headings 5404 through 5408, 5508 through 5516 or 6001 through 6006, provided that the good is cut or knit to shape, or both and sewn or otherwise assembled in the territory of Peru, the United States, or both.

The National Import Specialist ruled that:

"The rayon fabric classified in heading 6006 does not meet the terms of the tariff shift. Therefore, the goods would not be entitled to a free rate of duty under the Peru TPAIA."

The National Import Specialist ruled similarly with regard to DR-CAFTA where the facts were the same, replacing Guatemala for Peru throughout.

The importer requested reconsideration and CBP, upon reconsideration, stated, "A review of the tariff shift rules ... reveals that a change to heading 6110 from the non-originating rayon and polyester fibers ... is allowed. Therefore, the garment meets the tariff shift rules."

When CBP finds that a ruling is erroneous, it searches their database for others that may have the same error. In this case CBP found two more where the same National Import Specialist made the same mistake.

Ruling N242940, dated July 10, 2013, also involves a knitted fabric that was non-originating due to foreign rayon fiber (in this case, from Australia) used in the production of knit garments which were under a yarn-forward (not fiber-forward) rule of origin in the PTPAIA.

Ruling N248184, dated December 13, 2013, involved a knitted fabric that was non-originating due to polyamide filament yarns from Mexico used in the production of brassieres in Columbia. This was the most egregious error, as it is well known in the trade that in the U.S.-Columbia Trade Promotion Agreement the rule of origin for brassieres (as it is in most of the other free trade agreements) is "single transformation," meaning they merely need be cut and sewn in Columbia without regard to the origin of the fabric or yarn.

Comments must be received on or before January 16, 2015. If you were denied duty-free benefits due to errors of the sort made in these Rulings, you should advise CBP by the end of the comment period. Agathon Associates can assist you in determining whether you can apply to CBP for relief.

The proposed modifications may be read in Customs Bulletin Vol. 48, No. 50. (beginning on page 24)