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HQ 557497




April 4, 1995

CLA-2 CO:R:C:S 557497 MLR

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Assistant District Director
U.S. Customs Service
Commercial Operations Division
#1 La Puntilla Street
Room 205
Old San Juan, Puerto Rico 00901

RE: Application for Further Review of Protests 4909-93-100072, 4909-93-100105, 4909-93-100110; Denial of partial duty exemption under HTSUS subheading 9802.00.80 to wearing apparel; documentation; 19 CFR 10.24

Dear Sir/Madam:

This is in reference to the above-referenced protests filed by Sandler, Travis & Rosenberg, P.A., on behalf of their client, Washington International Insurance Company, who is the surety for various shipments of wearing apparel entered by S. Klein of Puerto Rico during the period of January 1990 - June 1992. The application for further review of protest no. 4909-93-100072, was originally forwarded to us by your office in a memorandum dated July 13, 1993. The surety timely filed the protests within 90 days Customs made a demand for payment against the bonds.

FACTS:

The protestant states that S. Klein was the importer of certain shipments of wearing apparel, primarily women's panties and swim wear, that were assembled in Haiti and the Dominican Republic, and entered under subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), at the Port of San Juan, Puerto Rico. The protestant believes that the apparel was entered based on estimated costs, and when S. Klein failed to file a reconciliation detailing its actual costs, Customs denied the claim for subheading 9802.00.80, HTSUS, treatment. When S. Klein failed to pay the increased duties, a claim for payment was sent to the protestant. The protestant states that S. Klein is now bankrupt, and its plant was auctioned on October 26, 1993. Accordingly, the protestant states that it was unable to obtain the pertinent documents; therefore, the cost submissions presented are based on miscellaneous files and records.

Copies of check registers which provide a record of all checks written on the general (primary account) and the special account (used primarily for worker benefits payment to the government) are submitted and are used with accounting records to match invoice payments made to the assembler, Johan Co. in Haiti, to each of the entries at issue. A chart for 1990 and 1991 indicating the invoice number and the total invoiced value for the entered merchandise is submitted along with another chart of all payments made to the assembler. The protestant states that except for invoice #59 and #60 all payments matched. Based on this information, the protestant states that the shipments were correctly entered under transaction value as reflected by the cost reconciliations. Freight air waybills which mostly state "cut goods for panties" are submitted to substantiate freight costs from Puerto Rico to Haiti. The protestant also prepared the cost submission from entries duplicated at Customs in San Juan, and from files and records obtained from various customs brokers used by S. Klein.

The record contains Exhibit B to Customs Form 247, Summary of Entries under HTSUS item 9802.00.80, for the calendar years 1990 and 1991. The record also contains: (1) a declaration by S. Klein dated October 2, 1990, that women's panties, with a specified identification number were "assembled in the single foreign territory or country ... of fabricated components which are in whole the product of the U.S. and/or the single foreign territory or country...."; (2) a shipper's declaration dated September 28, 1990, that the panties were "assembled in whole or in part from fabricated components ... which are products of the United States" (the description of the operations performed states "only assembly of parts, no alteration"); and (3) a declaration by S. Klein dated October 2, 1990, that the shipper's declaration and any other information is correct. The record also contains "Constructed Value Statements" indicating the costs of the nylon/lycra, elastic, cotton crotch, lace, and hang tags, and the costs of assembly.

Another cost submission for shipments imported by S. Klein from Korinna Manufacturing, in the Dominican Republic, is also submitted. As support for the cost submission, the protestant submits a copy of the check paid to the assembler for the merchandise, which allegedly matches the sum of the amounts on the six invoices included in the three consumption entries. It is claimed that this payment supports the entry claim that the values shown on the commercial invoices correctly represent the price paid for this merchandise. In order to document the cost of transporting the components to the place of assembly, the following documents are submitted: (1) copies of export documentation consisting of air waybills; (2) Dominican Republic consular invoices; (3) statements from S. Klein's broker, Jose Flores, to the company detailing the export charges; and (4) a copy of S. Klein's accounts payable vouchers that correspond to the broker statements. The freight bills indicate that the export shipments were shipped "collect." Since the protestant could not find any evidence of payments to the freight company or the broker for the air waybills, the protestant concludes that the charges were paid by the assembler and presumably were included in the invoice prices. Accordingly, this amount is included as part of the dutiable transportation cost. The protestant also notes that the information on the 1992 transactions is incomplete, therefore, no further information is submitted.

The protestant claims that these documents all indicate that pre-cut components were exported, and no machinery or other assists were exported.

Your office reviewed the documents filed with the cost submissions and in a letter dated May 5, 1994, to our office, found that the cost data presented is only evidence of transaction value and is insufficient to determine the actual values of the importations. Particularly, your office states that information relating to the description of costs, foreign operating expenses, U.S. assists, profits, etc., in support of an assembly operation was not submitted. Your office states that it requested but did not receive documents such as purchase orders, for materials, invoices, inventory for materials, goods in process, cutting tickets, production records, ending inventory of finished goods, cost of goods sold, shipping receipts, and receiving reports. Furthermore, your office has found that the importer's entered price per dozen of women's panties assembled in Haiti and the Dominican Republic has remained the same for over four years, and that the importer has been declaring dutiable southbound air freight at 6 cents per pound instead of the actual rate of 10 cents per pound. Accordingly, in view of S. Klein's failure to comply with your office's requests, the Regional Director, Regulatory Audit Division, Southeast Region, recommended that all claims for subheading 9802.00.80, HTSUS, treatment be denied and that the unliquidated entries for 1990, 1991, and January - June 1992, be "rate advanced" and liquidated at their full value as per the March 17, 1993, Notice of Action.

Lastly, the protestant claims that the entries were liquidated more than one year after entry without valid extensions or suspensions; therefore, under 19 U.S.C. 1504, these entries were deemed liquidated one year from the date of entry at the rates, values, quantities, and duties asserted at the time of entry. Furthermore, it is claimed that if the entries were suspended, they were not liquidated or extended in a timely manner, and no notice was provided regarding the liquidation of the entries. Furthermore, it is claimed that there is no properly executed Customs bond which obligates the protestant as surety for the amount claimed; however, assuming there is a properly executed Customs bond, such bond does not obligate the protestant for payment of the amounts demanded because the obligation is not covered by the terms of such Customs bonds. The protestant also claims that the formal demand is unenforceable by reason of the equitable doctrine of laches because the surety was prejudiced by the unreasonable Government delay in liquidating the entry and providing notice concerning the regulatory sanctions against S. Klein.

ISSUE:

Whether the wearing apparel qualifies for the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the United States.

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

An article entered under this tariff provision is subject to a duty upon the full value of the imported assembled article, less the cost or value of U.S. components meeting these requirements assembled therein, provided there has been compliance with the documentation requirements of 19 CFR 10.24.

Section 10.11(b), Customs Regulations {19 CFR 10.11(b)}, provides, in part, that the "[a]llowance of an importer's claim is dependent upon meeting the statutory requirements for the exemption under subheading 9802.00.80 and his complying with the documentary requirements set forth in section 10.24."

Section 10.24(a), Customs Regulations {19 CFR 10.24(a)}, requires the submission of a foreign assembler's declaration with the entry of articles claimed to be entitled to the exemption under subheading 9802.00.80, HTSUS. The declaration must state that, to the best of the assembler's "knowledge and belief", the articles being imported were assembled, in whole or in part, from components that are products of the U.S., and must contain certain information concerning the U.S. components, including their description, their marks of identification, quantity, unit value at time and place of export from the U.S., the port and date of export from the U.S. and the name and address of the manufacturer. 19 CFR 10.24(a)(1). The declaration must also include a description of the assembly operations performed abroad, as well as an endorsement by the importer certifying the accuracy of the declaration and other documents submitted.

The record reflects that there are foreign assembler's declarations for each entry submitted to us. The documents in the record also provide information concerning the type, source, quantity, and value of the components used to make the articles. Furthermore, air waybills are submitted which show the date "cut goods for panties" were exported from Puerto Rico. The other documentary requirements such as a description of the operations (while not extensive) and the endorsement by the importer also appear to be satisfied. There is also no indication that the statements sworn to on these documents regarding the U.S. origin of the components exported for assembly are false, nor is there any indication that there was anything other than a proper assembly without further fabrication of the components in Haiti and the Dominican Republic. Therefore, it is our opinion that the claim for subheading 9802.00.80, HTSUS, treatment should be granted since the articles were assembled in whole or in part of U.S. fabricated components, the components were exported from Puerto Rico in a cut condition, and they were not advanced in value or improved in condition abroad except by being assembled.

In your letter dated May 5, 1994, you state that the documents submitted are only evidence for transaction value. With regard to the value of the U.S. components that is deducted from the full appraised value of the assembled article, section 10.17, Customs Regulations (19 CFR 10.17), states that if the appraising officer concludes that the cost or value of the fabricated components does not represent a reasonable cost or value, then the value of the components shall be determined in accordance with 19 U.S.C. 1401a and 1402. Accordingly, the claim for the partial duty allowance under subheading 9802.00.80, HTSUS, should be granted, and the value of the U.S. components should be determined in accordance with 19 CFR 10.17.

The protests also allege that the entries were deemed liquidated under 19 U.S.C. 1504. The file contains no evidence in support of any of those allegations. While we are aware of Intercargo Inc. Co. v. United States, Slip. Op. 95-37 (CIT 1995), that decision has not yet become final since the period for the Government to appeal has not yet expired. We selected various entry records to determine the substance of the protestant's complaint on this issue. For each such entry, we found that Customs records show that the liquidations were extended timely under 19 U.S.C. 1504(b)(1), that notices of extension were sent timely, and that liquidation occurred before the last extension period expired.

HOLDING:

There is no evidence to grant the protests on the ground that the entries were deemed liquidated contrary to the Customs records that show that the entries were liquidated properly. However, on the basis of the information provided, the claim for subheading 9802.00.80, HTSUS, treatment should be granted since the articles were assembled in whole or in part of fabricated components which were exported from Puerto Rico in a cut condition, and they were not advanced in value or improved in condition abroad except by being assembled. The value of the U.S. components should be determined in accordance with 19 CFR 10.17. Accordingly, the protest should be granted in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision should be attached to Customs Form 19, Notice of Action, and be mailed by your office to the protestant no later than 60 days form the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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