HQ 0956197 - North American Free Trade Agreement; Footwear; Boots, unfinished; NAFTA; Rules of origin; General Note 12(b); General Note 12(n): General Note 12(p); General Note 12(t)/64; Change in tariff classification; DD 893782 - United States International Trade Commision Rulings

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HQ 956197

July 18 1994

CLA-2 CO:R:C:M 956197 DFC

CATEGORY: CLASSIFICATION

TARIFF NO.: 6401.99.60; 9905.64.10

Mr. Gary Brunell
A.N. Deringer, Inc.
173 W. Service Road
Champlain, New York 12919

RE: North American Free Trade Agreement; Footwear; Boots, unfinished; NAFTA; Rules of origin; General Note 12(b); General Note 12(n): General Note 12(p); General Note 12(t)/64; Change in tariff classification; DD 893782

Dear Mr. Brunell:

In a letter dated April 1, 1994, you asked that DD 893782 dated February 4, 1994, issued by the District Director of Customs in Boston to you on behalf of Rallye Footwear Inc., concerning the classification of unfinished boots under the Harmonized Tariff Schedule of the United States (HTSUS), be modified. The reason for your request is that the classification set forth in DD 893782 may have been based on incomplete information provided by the importer. By letters of June 13, and June 29, 1994, you also ask for a ruling as to the applicability of the North American Free Trade Agreement (NAFTA) to the subject boots. Samples of the boots, as imported, in an unfinished condition, and also in their finished condition, after having been further manufactured in the U.S., were furnished.

FACTS:

The samples, identified as "Duckie" style 4000 and "Tracks" style 8040-8080, are one piece molded, low cut, unlined, unfinished waterproof boots, with outer soles and uppers of rubber/plastics. You state that "Duckie" style 4000 is manufactured in Canada from a plasticized polyvinyl chloride resin (PVC) of U.S. origin and "Tracks" style 8040-8080 is manufactured in Canada from synthetic rubber compound (TPR) of Belgium origin.

In DD 893782, the Boston District Director ruled that these unfinished boots are classifiable under subheading 6401.99.30, HTSUS, which provides for waterproof footwear with outer soles and uppers of rubber or plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes, other footwear, other, designed to be worn over, or in lieu of, other footwear as a protection against water, oil, grease or chemicals or cold or inclement weather, designed for use without closures. The applicable general rate of duty for this provision is 25% ad valorem.

DD 893782 does not need to be modified because the result reached therein was correct based on information submitted by you that the unfinished styles in issue would be further manufactured into completed footwear without closures. The implication, of course, was that the boots were designed for use without closures.

In a letter to you dated February 22, 1994, Rallye Footwear, Inc., stated that the unfinished footwear will be further processed in the U.S. by the addition of closures. Accordingly, they contend that the footwear should be classified under subheading 6401.99.60, HTSUS, which provides for waterproof footwear with outer soles and uppers of rubber or plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes, other footwear, other, designed to be worn over, or in lieu of, other footwear as a protection against water, oil, grease or chemicals or cold or inclement weather, other. The applicable general rate of duty for this provision is 37.5% ad valorem. Further, Rallye claims that this footwear qualifies for duty preference under the NAFTA, and is entitled to duty free treatment as Canadian goods under subheading 9905.64.10, HTSUS, as footwear, consisting of an outer sole and an unfinished or incomplete upper, designed for use with boot liners (provided for in subheading 6401.99.60).

ISSUES:

Are the unfinished boots eligible for preferential tariff treatment under the NAFTA?

Are the boots classifiable under subheading 6401.99.60, HTSUS, and, therefore entitled to duty-free treatment under subheading 9905.64.10, HTSUS?

LAW AND ANALYSIS:

NAFTA ELIGIBILITY

To be eligible for tariff preferences under the North American Free Trade Agreement (NAFTA), goods must be "originating goods" within the rules of origin set forth in General Note 12(b), HTSUS. There are two methods by which goods imported into the United States may be "goods originating in the territory of a NAFTA party. The first method is that "they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States. See General Note 12(b)(i), HTSUS. The second method is that they have been "transformed in the territory of Canada, Mexico and/or the United States" pursuant to General Note 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 . . . .

In the first method, the phrase "goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States", is defined in General Note 12 (n), to mean, in pertinent part:

(x) goods produced in the territory of one or more of the NAFTA parties exclusively from goods referred to in subdivisions (n)(i) through (ix), inclusive, or from their derivatives, at any stage of production.

"Production" is defined by General Note 12(p), as "growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good."

In order for the PVC imported from the U.S. to be "originating" under the NAFTA, it must be wholly obtained or produced in the territory of the U.S. or produced exclusively from originating materials transformed in the United States as prescribed under General Note 12(b). Although you state that the PVC is of "U.S. origin," we cannot conclude based upon the limited facts provided that it would also be considered as "originating" under the NAFTA.

However, even if the PVC imported from the U.S. to Canada is found to be non-originating, the "unfinished boots, "Duckie" style 4000 can be "originating" if they have been "transformed" in the territory of Canada pursuant to General Note 12(b) (ii) (A), HTSUS. The non-originating PVC would be classifiable under heading 3904, HTSUS, which provides for polymers of vinyl chloride or of other halogenated olefins, in primary form and the unfinished boots are classifiable under heading 6401, HTSUS. A transformation has occurred which is authorized by General Note 12(t)/64, HTSUS, which provides as follows:

1. A change to heading 6401 through 6405 from any heading outside that group, except from subheading 6406.10, provided there is a regional value content of not less than 55 percent under the net cost method.

The Regional Value Content (RVC) of ""Duckie" style 4000 boots has not been furnished. The RVC will be determined by Customs officers at the port where the merchandise is entered. The unfinished "Duckie" style boots will be considered "originating goods" eligible for preferential tariff treatment under the NAFTA, if it is determined by Customs that there is an RVC of not less than 55 percent under the net cost method.

The unfinished "Tracks" style 8040-8080 boots manufactured in Canada from TPR of Belgium origin are not wholly obtained in the U.S. or Canada because they incorporate a non-originating material viz, TPR. However, they may be "transformed" in the territory of Canada pursuant to General Note 12 (b)(ii)(A), HTSUS. The non-originating TPR is classifiable under heading 4002, HTSUS, which provides for synthetic rubber and factice derived from oils, in primary forms or in plates, sheets or strip; mixtures of any product of heading 4001 with any product of this heading, in primary forms or in plates, sheets or strip and the unfinished boots are classifiable under heading 6401, HTSUS. A transformation has occurred which is authorized by General Note 12(t)/64, HTSUS, supra.

The RVC of "Tracks" style 8040-8080 boots has not been furnished. The RVC will be determined by Customs officers at the port where the merchandise is entered. The unfinished "Tracks" style boots will be considered "originating goods" eligible for preferential tariff treatment under the NAFTA, if it is determined by Customs that there is an RVC of not less than 55 percent under the net cost method.

CLASSIFICATION

Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI's). GRI 1 provides that "classification shall be determined according to the terms of the headings and any relative section or chapter notes, and, provided such headings or notes do not otherwise require, according to [the remaining GRI's taken in order]." GRI 6 requires that the GRI's be applied at the subheading level on the understanding that only subheadings at the same level are comparable. The GRI's apply in the same manner when comparing subheadings within a heading.

You contend that the unfinished boots are classifiable under subheading 6401.99.60, HTSUS, which provides for waterproof footwear with outer soles and uppers of rubber or plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes, other footwear, other, designed to be worn over, or in lieu of, other footwear as a protection against water, oil, grease or chemicals or cold or inclement weather, other. Further, you maintain that this footwear qualifies for duty preference for Canadian goods under the NAFTA, and it is entitled to duty-free treatment under subheading 9905.64.10, HTSUS, as footwear, consisting of an outer sole and an unfinished or incomplete upper, designed for use with boot liners (provided for in subheading 6401.99.60).

The competing provision to subheading 6401.99.60, HTSUS, is subheading 6401.99.30, HTSUS, which provides for waterproof footwear with outer soles and uppers of rubber or plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes, other footwear, other, designed to be worn over, or in lieu of other footwear as a protection against water, oil, grease or chemicals or cold or inclement weather, designed for use without closures.

GRI 3, HTSUS, provides as follows:

3. When, by application of Rule 2(b) or for any other reason, goods are prima facie classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

Inasmuch as in their imported condition the unfinished boots could be attached to uppers with or without closures, they are prima facie classifiable either under subheading 6401.99.30, HTSUS, or subheading 6401.99.60, HTSUS. Inasmuch as the footwear cannot be classified by reference to GRI 3(a) or 3(b), following GRI 3(c), HTSUS, classification under subheading 6401.99.60, HTSUS, is appropriate as " . . . the heading which occurs last in numerical order among those which equally merit consideration."

The sample "Duckie" style 4000 boots in their finished condition have sewn-in linings. The sample "Tracks" style 8040- 8080 boots in their finished condition have removable liners rather than linings.

Accordingly, the "Duckie" style 4000 unfinished boots are not entitled to duty-free treatment under subheading 9905.64.10, HTSUS, because they are designed for use with sewn-in linings rather than with removable liners, as required by subheading 9905.64.10, HTSUS. Consequently, the rate of duty applicable to style 4000 is 15% ad valorem under subheading 6401.99.60, HTSUS, if they qualify as originating goods under the NAFTA at the time of entry.

If "Tracks" style 8040-8080 unfinished boots qualify as "originating goods" under the NAFTA at the time of entry, they are entitled to duty-free treatment under subheading 9905.64.10, HTSUS, because they are designed for use with removable liners.

HOLDING:

"Duckie" style 4000 unfinished boots are originating goods eligible for preferential tariff treatment under the NAFTA, if it is determined by Customs that there is an RVC of not less than 55 percent under the net cost method.

"Duckie" style 4000 unfinished boots are classifiable under subheading 6401.99.60, HTSUS, but are not entitled to duty-free treatment under subheading 9905.64.10, HTSUS.

"Tracks" style 8040-8080 unfinished boots are classifiable under subheading 6401.99.60, HTSUS. If they qualify as originating goods under the NAFTA at the time of entry, they will be entitled to duty-free treatment under subheading 9905.64.10, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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