HQ 0081055 - Decision on Application for Further Review of Protest No. 0401-7-000716 - United States International Trade Commision Rulings

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HQ 081055

February 3, 1989

CLA-2 CO:R:C:G 081055 JLJ

CATEGORY: CLASSIFICATION

TARIFF NO.: TSUS 700.95

District Director of Customs
Boston Federal Office Building
10 Causeway Street
Boston, Massachusetts 02222-1059

RE: Decision on Application for Further Review of Protest No. 0401-7-000716

Dear Sir:

This protest was filed against your decision in the liquidation of certain Boston entries covering shipments of unfinished footwear produced in Taiwan.

FACTS:

Counsel for the protestant describes the merchandise as uppers which are substantially transformed by the importer in the United States into various men's and women's running shoes, including the America (styles 8874, 8875 and 8876) and the Shadow (styles 8867 and 8868). Counsel claims that the merchandise is classified under the provision for articles not specially provided for, of leather, in item 791.90, Tariff Schedules of the United States (TSUS).

The entries were liquidated under the provision for other footwear, other, other, in item 700.95, TSUS.

Samples of both the instant merchandise and a finished athletic shoe were submitted with this protest.

ISSUE:

Is the merchandise classified as unfinished footwear in item 700.95, TSUS, or as parts of footwear according to the component of chief value in item 791.90, TSUS?

LAW AND ANALYSIS:

Customs Headquarters Ruling Letter (HRL) 079115 of May 18, 1987 (Internal Advice 24/86), considered the same issue and held that the instant merchandise was classified as unfinished footwear in item 700.95, TSUS. Nevertheless, counsel for protestant argues that the merchandise is classified as parts of footwear in item 791.90, TSUS. Two videotapes and a written brief were submitted by counsel, all of which have been considered.

The leading case for determining whether an article is unfinished is Daisy-Heddon, Div. Victor Comptometer Corp. v. United States (Daisy-Heddon), 66 CCPA 97, C.A.D. 1228 (1979). The Daisy-Heddon court enumerated certain tests for determining whether an article is considered unfinished for tariff purposes. Those tests are as follows:

1. Comparison of the number of omitted parts with the number of included parts;

2. Comparison of the time and effort required to complete the article with the time and effort required to place it in its imported condition;

3. Comparison of the cost of the included parts with that of the omitted parts;

4. The significance of the omitted parts to the overall functioning of the completed article; and

5. Trade custom, i.e., does the trade recognize the importa- tion as an unfinished article or as merely part of the article.

Counsel notes that in Treasury Decision (T.D.) 79-100, 13 Customs Bulletin 247 (1974), one of the first footwear rulings to apply Daisy-Heddon, Customs held that, with regard to a lasted leather footwear upper, "An unfinished article may be classified as the finished article when completed to the stage at which the fundamental characteristic of the finished article is present.... The essence or fundamental characteristic of a shoe is readily apparent. A lasted leather footwear upper resembles a shoe and provides a layer or two of protection between the foot and flooring."

Counsel claims that the instant merchandise is not a lasted leather upper, does not have a leather bottom, and is not lasted prior to importation, therefore it does not have the "fundamental characteristic" of a shoe. We note, however, that the instant
sample does have an "underfoot," a piece of material sewn to the bottom, which provides a layer of protection between the foot and the flooring. We also note that the Seventh Annual Runner's World Special Shoe Survey, in the October, 1981, Runner's World, defines slip lasting as the process "where the upper material or its extension completely encloses the foot." The instant sample has been slip lasted in that the upper material completely encloses the foot in the underfoot. Inasmuch as the instant sample resembles a shoe, is slip lasted and has a layer of protection between the foot and the flooring, it has the fundamental characteristics of footwear, and therefore it is unfinished footwear based on the criteria of T.D. 79-100.

The first Daisy-Heddon test is a comparison of the number of omitted parts with the number of included parts. Counsel claims that the imported sample and the United States components both have nine parts, however he lists as three items three pieces of material which are each made into three parts - i.e., a piece of suede which is made into the vamp tie, the eye stay and the counter piece; a piece of nylon which is made into the two saddles and the backtab; and another piece of nylon which is made into the two quarters and the tongue front. Counsel also notes that the tongue contains a tongue loop, tongue label and tongue binding. Adding up all pieces of the imported sample, we get 18 pieces, as opposed to only 9 pieces added in the United States.

The second Daisy-Heddon test is a comparison of the time and effort required to complete the shoe with the time and effort required to make the imported article. We note that counsel's description of the manufacturing processes in Taiwan and the United States is quite misleading. By noting all the processes which take place in the United States while leaving out the details on the Taiwan side, counsel implies that the operations in the United States are much more complex. Regarding the Taiwan processes, counsel omitted such important data as the fact that the cutting of each individual piece of leather required a specially made cutting die to be placed by hand on the hide by an experienced cutter and the fact the textile pieces had to be individually marked so that the sewing machine operator would be able to precisely place and align each piece.

The true complexity of the Taiwan tasks are supported by the greater time required to perform them. Appendix B compares labor time in the United States with that abroad. We note that packing labor is included in the American processing. We do not consider packing part of the manufacturing process, therefore we have excluded the packing labor time (3.50 minutes for the Mens Shadow

8868 and 3.32 minutes for the Mens America 8874) from the American labor time. This leaves American labor times of 20.74 minutes for the Mens Shadow 8868 and 15.54 minutes for the Mens America 8874, as opposed to Taiwan labor times of 32.97 minutes for the Mens Shadow 8868 and 20.42 minutes for the Mens America 8874. On the basis of manufacturing time alone, clearly much more effort was expended in Taiwan.

Counsel claims that much labor is saved in the United States because of the sophisticated machinery used by the protestant. While this may be so, we presume that the machinery used in Taiwan is equally "state of the art" machinery. It makes no difference that the protestant uses more machines in the United States than does the Taiwanese factory which produces the instant merchandise. Indeed, in Simod America Corp. v. United States (Simod), Slip Op. 88-101, decided July 28, 1988, the court was impressed with the foreign "labor-intensive craftsmanship" as opposed to the "highly industrialized" American factory; it found that none of the tasks performed in the American factory involved considerable skill.

The third Daisy-Heddon test requires a comparison of the cost of the parts assembled before importation with the cost of the parts added at protestant's factory. We note that counsel has included $0.091 for shoelaces for the Shadow shoes and $0.108 for shoelaces for the America shoes. We are not sure whether the cost of shoelaces should be included in the cost of the footwear. If they are included, the total cost for the United States parts and labor is $7.245 for the Mens Shadow 8868 and Womens Shadow 8867, as opposed to foreign parts and labor costs of $4.950 for the Mens Shadow 8868 and $4.750 for the Womens Shadow 8867. The total United States parts and labor costs are $6.435 for the Mens America 8874 and 8876 and for the Womens America 8875, while the total foreign parts and labor costs are $4.650 for the Mens America 8874 and 8876 and $4.450 for the Womens America 8875.

Although the United States costs are higher than the Taiwan costs, this is due primarily to the unusual quality and expense of the plastic sole materials used. It is unlikely that a slip lasted upper such as the instant import would be used with a very cheap bottom, because slip lasting is a more difficult and expensive way to make shoes than the much more common cement lasted jogging shoe.

We are of the opinion that this element of the Daisy-Heddon test has limited application under circumstances where identical imports are completed with additional material of varying costs.

It is a basic principle of Customs law that there is only one correct tariff classification for each article. If these identical uppers were imported in the future for completion with moderately priced bottoms, their classification could hardly be allowed to change based on the materials used to complete the footwear. While this Daisy-Heddon test is in the protestant's favor, its overall significance is doubtful.

The forth Daisy-Heddon test is the significance of the omitted American parts to the overall functioning of the completed article. Counsel claims that the omission of most of the bottom of the footwear is highly significant. He cites to T.D. 79-100, supra, which classified a lasted leather upper as unfinished footwear because it resembled a shoe and provided a layer or two of protection between the foot and the floor.

The instant sample is slip lasted, resembles a shoe and provides a layer of protection between the foot and the floor. While the import would not be usable as footwear in its condition as imported, both Customs and the courts have found several items lacking in outsoles to be unfinished footwear. In Uniroyal, Inc. v. United States, 3 CIT 220, Slip Op. 82-45 (1982), imported leather uppers without outsoles were found to be "substantially complete" shoes. In Simod, supra, an athletic shoe upper with an underfoot, which had no sole and which was lasted in the United States, was found to be unfinished footwear.

The final Daisy-Heddon test is the determination of trade custom. Counsel presents three definitions of uppers which he claims apply to the instant sample. We note that Uniroyal, supra, found that merchandise consisting of shoe uppers with an attached underfoot were substantially complete footwear. In Simod, supra, the court again found that shoe uppers with an attached underfoot were substantially complete footwear. By these standards, the instant merchandise, consisting of the top portion of an athletic shoe plus an underfoot, is definitely unfinished footwear.

Counsel observes that in HRL 073259 of February 11, 1984, Customs used the following criteria in determining whether merchandise was an upper or unfinished footwear:

1. The upper has the equivalent of a midsole;

2. It has been formed to fit the foot;

3. It provides a layer of protection between the foot and the floor; and

4. It possesses the fundamental characteristics of footwear.

By all of these criteria the instant sample is unfinished footwear. The underfoot is the equivalent of a midsole. The sample has been formed to fit the foot; it is advanced far enough that it will fit only one size and one width foot. The underfoot provides a layer of protection between the foot and the floor. Finally, the sample possesses the fundamental characteristics of footwear; it is advanced far enough that it could not be made into anything other than athletic footwear.

Following the above-cited reasons, we find that the instant sample is unfinished footwear.

HOLDING:

The instant sample is classified as unfinished footwear in item 700.95, TSUS. The protest should be denied in full. A copy of this letter should be sent to the protestant along with the CF 19 Notice of Action.

Sincerely,

John Durant, Director

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